BOARD MEETING STATE OF CALIFORNIA AIR RESOURCES BOARD JOE SERNA, JR. BUILDING CALIFORNIA ENVIRONMENTAL PROTECTION AGENCY CENTRAL VALLEY AUDITORIUM, SECOND FLOOR 1001 I STREET SACRAMENTO, CALIFORNIA THURSDAY, JULY 25, 2002 9:00 A.M. JAMES F. PETERS, CSR, RPR CERTIFIED SHORTHAND REPORTER LICENSE NUMBER 10063 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 ii APPEARANCES BOARD MEMBERS Dr. Allan Lloyd, Chairperson Dr. William Burke Mr. Joseph Calhoun Mrs. Barbara Riordan Supervisor Ron Roberts Ms. Dorene D'Adamo Supervisor Mark DeSaulnier STAFF Mr. Mike Kenny, Executive Officer Mr. Tom Cackette, Deputy Executive Officer Mr. Mike Scheible, Deputy Executive Officer Ms. Lynn Terry, Deputy Executive Officer Ms. Kathleen Walsh, General Counsel Mr. Manjit Ahuja, Manager, Emission Control Technology Section Mr. Bob Barham, Assistant Chief, Staitonary Source Division Mr. Richard D. Bode, Chief, Health and Exposure Assessment Branch Mr. Steve Brisby, Manager, Fuels Section Mr. Carl Brown, Manager, Stationary Source Enforcement Section PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 iii APPEARANCES CONTINUED STAFF CONTINUED Mr. Richard Corey, Chief, Research and Economics Studies Branch Mr. Bart Croes, P.E., Chief, Research Division Dr. Deborah Drechsler, Air Pollution Specialist Mr. Paul Jacobs, Acting Chief Diane Johnston, Dr. Staff Counsel, Legal Affairs Mr. Dean Simeroth, Chief, Criteria Pollutants Branch Ms. Linda Smith, Manager, Health and Exocystems Assessment Section Mr. Peter Venturini, Chief, Stationary Source Division Ms. Michelle Shultz, Wood, Air Pollution Specialist PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 iv INDEX PAGE Pledge of Allegiance 1 Roll Call 1 Item 02-6-1 5 Chairperson Lloyd 5 Staff Presentation 6 Item 02-6-2 and 02-6-3 12 Chairperson Lloyd 12 Executive Officer Kenny 14 Staff Presentation 16 Ombudsman Tschogl 33 Q&A 34 James Uihlein 49 Stephen Douglas 53 Gary Herwick 55 Gary Welch 68 Cal Hodge 75 John Marchand 86 James White 90 Neil Koehler 97 Steven Smith 102 Motion 105 Vote 105 Item 02-6-4 136 Chairperson Lloyd 137 Executive Officer Kenny 137 Staff Presentation 138 Q&A 160 Item 02-6-5 108 Chairperson Lloyd 108 Executive Officer Kenny 109 Staff Presentation 110 Q&A 115 Motion 124 Vote 124 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 v INDEX CONTINUED AB 1493 Review 125 Ms. Witherspoon 125 Legislative Director Oglesby 128 Q&A 134 Public Comment 162 Adjournment 162 Reporter's Certificate 163 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 1 1 PROCEEDINGS 2 CHAIRPERSON LLOYD: Good morning. The July 25th, 3 2002, meeting of the Air Resources Board will now come to 4 order. 5 Mrs. Riordan, would you please lead us in the 6 pledge. 7 BOARD MEMBER RIORDAN: Would you stand and join 8 me in the pledge to our flag. 9 (Thereupon the Pledge of Allegiance was recited 10 in unison.) 11 CHAIRPERSON LLOYD: Thank you. 12 Will the clerk please call the roll. 13 BOARD CLERK DORAIS: Dr. Burke? 14 BOARD MEMBER BURKE: Present. 15 BOARD CLERK DORAIS: Mr. Calhoun? 16 BOARD MEMBER CALHOUN: Here. 17 BOARD CLERK DORAIS: Ms. D'Adamo? 18 Supervisor Desaulnier? 19 BOARD MEMBER DeSAULNIER: Here. 20 BOARD CLERK DORAIS: Professor Friedman? 21 BOARD MEMBER HUGH FRIEDMAN: Here. 22 BOARD CLERK DORAIS: Dr. Friedman? 23 Mr. McKinnon? 24 BOARD MEMBER McKINNON: Here. 25 BOARD CLERK DORAIS: Supervisor Patrick? PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 2 1 BOARD MEMBER PATRICK: Here. 2 BOARD CLERK DORAIS: Mrs. Riordan? 3 BOARD MEMBER RIORDAN: Here. 4 BOARD CLERK DORAIS: Supervisor Roberts? 5 BOARD MEMBER ROBERTS: Here. 6 BOARD CLERK DORAIS: Chairman Lloyd? 7 CHAIRPERSON LLOYD: Here. 8 Before we start I just wanted to say that, and 9 the Board will hear more of this, we had a wonderful event 10 this last week on Monday when the Governor signed AB 1493, 11 authorized by Assemblywoman Pavley. 12 As you probably read from the press, we had a lot 13 of coverage, both in the sign-in ceremony in Los Angeles 14 and in the Bay Area. 15 It's a pretty exciting opportunity provided for 16 the Board in terms of giving us the authority to control 17 greenhouse gas emissions from motor vehicles. 18 We recognize it's going to be a controversial 19 bill. On the other hand I think the Governor expressed it 20 best by saying that we were hoping that it would be most 21 appropriate to have this leadership from Washington. 22 Absent that, given the fact that California's the fifth 23 leading economy in the world, that California would show 24 in leadership. And, of course, we're delighted and the 25 Legislature stepped forward. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 3 1 It will come to us to implement. We have two 2 years to come up with a response with some regulations. 3 And we will hear some more about that. We've asked staff 4 if they could make a presentation I think later this -- at 5 the end of the meeting, so that we can look at the 6 specific provisions here. 7 I would say, however, though -- again, it's to 8 emphasize greenhouse gases, many of the things that people 9 have written in the paper that this may affect, I think 10 when we see what's in the bill, recognize that that's not 11 the case. Banning of SUV's, other things, will not be the 12 case. 13 And the other thing I would hope, and I'm sure I 14 echo my colleagues here, that we look for the opportunity 15 of actually sitting down with the auto makers so that, in 16 fact, we can work together and see whether we can craft a 17 common path. I think this was directly stated by the 18 Governor to me, that he wants us to sit down with the 19 automakers. So again I think we're looking forward to 20 that opportunity, and we hope that we get that opportunity 21 before we see any legal aspects of that. 22 But that was as I say a very exciting day and I 23 think an historic day for many reasons. 24 And, Mike, is the staff presentation coming on 25 that later? Will that be -- PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 4 1 EXECUTIVE OFFICER KENNY: Well, I think what's 2 going to happen is Rob Oglesby was going to give kind of a 3 short summary of 1493. We do have essentially on the 4 agenda for September kind of a presentation on 1493, in 5 which we were going to go into a little bit more depth and 6 kind of provide the Board with, you know, more details 7 about the bill and then, you know, generally some thoughts 8 about where we think we might be going. 9 CHAIRPERSON LLOYD: But we can get Rob at a 10 convenient point today just to highlight what we can and 11 cannot be doing? 12 EXECUTIVE OFFICER KENNY: That's correct. 13 CHAIRPERSON LLOYD: Great. Thank you. 14 And maybe what we'll do is also get copies of the 15 actual bill for the Board members so we can see that. 16 The other highlight this week was last evening 17 when Professor Friedman and Jim Fisher gave us an 18 excellent recital over at the Sheraton. It was a 19 wonderful thing, Hugh. We really appreciate that very 20 much. A great turnout, great powerhouse; and so it was 21 really a highlight for us. And we are going to have a 22 repeat, maybe an expanded performance in September. So 23 any of my colleagues, I think -- Barbara was there last 24 night. But any of you who can come -- and Bill was there. 25 So a great performance. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 5 1 I'd also like to hand out -- here we have a 2 little card to remind you of some of our commitments in 3 terms of our EJ policies. If you could pass those down 4 that way, Hugh, and -- I think I've got some more here, 5 Barbara. 6 These are to remind us what our policies were. I 7 think it's very important. And you can see EJ 8 deliverables. 9 And this grew out of, by the way, so you 10 understand the background, when I was at a meeting and I 11 was asked to define these, I was fumbling around. So 12 Shankar, who was in the audience at that time, said, 13 "Would it be helpful if we could recount these?" I said, 14 "It would be wonderful." So now I've got no excuses. We 15 know exactly what we're committed to. And I think this 16 will be very helpful. 17 So with that, I think we'll go into Agenda Item 18 02-6-1, the health update. 19 Again, I'd just like to remind anybody in the 20 audience who wishes to testify on any of the items today 21 to sign up with the clerk of the Board. And if you have a 22 written statement, to please give thirty copies to the 23 Board clerk. 24 The first item is our newly introduced monthly 25 update on public health research. And today we're going PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 6 1 to be focused on the health effects of ozone, which is 2 important because the Board will be viewing the existing 3 State standard for ozone in the near future. And staff 4 has just begun its review of the scientific literature on 5 ozone in preparation for making recommendations in 2003 6 for possible revision of the existing California standard. 7 As you remember, we addressed the fine 8 particles -- standard particles last month. And so this 9 is a continuation of our desire and our directive under SB 10 25 review of the air quality standard to see if they're 11 protective of children's health. 12 At this point, I'd like to turn it over to Mr. 13 Kenny to introduce the staff presentation. 14 (Thereupon an overhead presentation was 15 presented as follows.) 16 AIR POLLUTION SPECIALIST DRESCHLER: Good 17 morning, Chairman Lloyd and Members of the board. Staff 18 from the Air Resources Board and the Office of 19 Environmental Health Hazard Assessment are beginning to 20 review the literature on the health effects of ozone 21 exposure in preparation for bringing you recommendations 22 for the ozone ambient air quality standard late next year. 23 In the past, ozone standards have been based 24 primarily on controlled human studies. Controlled studies 25 will continue to be important for the current review and PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 7 1 will be supplemented by field and epidemiological studies. 2 This morning's presentation will focus on a 3 recent controlled exposure study which measured human 4 responses to ozone exposure on four consecutive days. 5 The protocol was designed to simulate a real 6 world condition, a lingering multi-day ozone episode. 7 Episodes of this sort happen every summer, and the results 8 of this paper can help us better understand how repeated 9 ozone exposures affect people. 10 --o0o-- 11 AIR POLLUTION SPECIALIST DRESCHLER: Previous 12 research has shown that short exposures to ozone have 13 important health impacts, including decrements in various 14 measures of lung function, increased respiratory symptoms 15 such as difficulty breathing and lung inflammation. 16 With repeated exposures to ozone on consecutive 17 days the magnitude of some effects diminishes, including 18 symptoms. Some investigators have termed this phenomenon 19 "adaptation" and have suggested that this is a beneficial 20 response. 21 However, as you will see from this morning's 22 presentation, the magnitude of other impacts persists with 23 repeated ozone exposures on consecutive days. 24 This combination of some diminished and some 25 persistent responses actually represents what is known as PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 8 1 attenuation. 2 Research has also shown that the magnitude of 3 ozone-induced health effects is proportional to the amount 4 of ozone inhaled. Consequently, the people most at risk 5 are those who inhale the most ozone, namely those who are 6 active outdoors. These group include children, athletes, 7 and outdoor workers. 8 People with compromised health status are 9 generally not physically active and do not inhale enough 10 ozone to induce significant effects. 11 --o0o-- 12 AIR POLLUTION SPECIALIST DRESCHLER: The paper we 13 will look at this morning is entitled "Repetitive Ozone 14 Exposures of Young Adults: Evidence of Persistent Small 15 Airway Dysfunction" by Dr. Robert Frank and colleagues 16 from Johns Hopkins University and the National Heart, 17 Lung, and Blood Institute. 18 Eight healthy nonsmoking men and women between 25 19 and 31 years of age were exposed for 2 hours to 0.25 parts 20 per million ozone on each of four consecutive days. 21 Either three weeks before or three weeks afterward they 22 completed the same series while exposed to filtered air as 23 a control condition. 24 Several aspects of lung function were measured 25 before and after each daily exposure, and lung PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 9 1 inflammation was assessed 24 hours after the last exposure 2 in each series. 3 Although the ozone concentration used in the 4 study is higher than has been measured in recent years, at 5 one time it occurred frequently in California. And since 6 ozone-induced responses are proportional to the inhaled 7 dose, a longer exposure to a lower ambient ozone 8 concentration can result in responses of a similar 9 magnitude. 10 So in spite of the relatively high ozone 11 concentration used in the study, it provides important 12 insight into how people respond to repeated ozone 13 exposures. 14 --o0o-- 15 AIR POLLUTION SPECIALIST DRESCHLER: The results 16 of the study show that daily changes in the magnitude of 17 respiratory symptoms, such as cough and chest tightness 18 and some lung function responses, become smaller with 19 repeated ozone exposure. 20 At the same time, however, lung inflammation and 21 reductions in some other measures of lung function 22 persist. Inflammation is indicative of damage to the 23 airway tissues. 24 It is important to understand that the effects 25 that attenuate with repeated ozone exposures are typically PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 10 1 ones that are readily perceived by an individual or are 2 easily measured. In contrast, the persistent effects are 3 observed in functions that give no outwardly apparent 4 signs of abnormality or are difficult to measure. 5 So a person can experience significant adverse 6 effects without being aware of them. 7 --o0o-- 8 AIR POLLUTION SPECIALIST DRESCHLER: This slide 9 illustrates a persistent effect. It shows measures of 10 large and small airway function obtained before each daily 11 exposure began. Large airways are in the upper part of 12 the lungs, while small airways are the narrow delicate 13 airways of the deep lung. 14 As you can see from the figure, both large and 15 small airway function was depressed on days two through 16 five compared to the measurement made immediately before 17 the first ozone exposure, represented as 100 percent in 18 the figure. 19 This indicates a persistent effect and means that 20 recovery was not complete between the exposures. 21 --o0o-- 22 AIR POLLUTION SPECIALIST DRESCHLER: Airway 23 inflammation was still evidenced 24 hours after the last 24 ozone exposure. These photographs are examples of the 25 appearance of inflamed human airways. All of the subjects PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 11 1 had evidence of airway inflammation, although there were 2 significant differences in the degree of inflammation 3 among the subjects. 4 Those with the greatest degree of lung 5 inflammation also had the greatest decrements in large and 6 small airway function following ozone exposures. 7 --o0o-- 8 AIR POLLUTION SPECIALIST DRESCHLER: The 9 combination of diminished and persistent effects this 10 study reports does not represent adaptation as some would 11 assert, but rather attenuation. And attenuation clearly 12 does not imply lack of risk. We should be concerned about 13 the persistent lung inflammation and persistent depression 14 of some aspects of large and small airway function 15 observed with repeated ozone exposures because these are 16 known to be risk factors for development of chronic lung 17 disease. 18 As we noted earlier, this risk is greatest for 19 people who are active outdoors, especially children, 20 athletes, and outdoor workers. 21 If there are questions, we would be happy to 22 respond at this time. 23 CHAIRPERSON LLOYD: Thank you very much. 24 Questions, comments from the Board? 25 Seeing none, thank you very much indeed. We PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 12 1 appreciate it. 2 Since this is not a regulatory item, it is not 3 necessary to officially close the record. 4 But thank you. 5 With that, we'll move on to the next item, which 6 is 02-6-2, public hearing to consider proposed amendments 7 to California Phase 3 Reformulated Gasoline Regulations. 8 We will consider this item together with Agenda 9 Item 02-6-3, the implementation update on the status of 10 the rule. 11 In 1999, this Board approved the Phase 3 12 Reformulated Gasoline Regulations to accomplish the 13 Governor's Executive Order D-5-99 phasing out methyl 14 tertiary butyl ether, better known as MTBE. 15 The existing rule prohibits the use of MTBE 16 starting on December 31st, 2002. The Regulation also bans 17 the use of other oxygenates unless a multimedia evaluation 18 of the oxygenate has been conducted and the California 19 Environmental Protection Agency -- Policy Council has 20 determined that its use will not have a significant 21 adverse impact on public health or the environment. 22 Currently, ethanol is the only oxygenate that has 23 been approved under that process. 24 Federal regulations require that reformulated 25 gasoline contain at least two percent by weight of oxygen PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 13 1 year-round in severe and extreme non-attainment areas. 2 That amounts for California to about 80 percent of the 3 gasoline sold in the State. 4 As you know, the U.S. EPA has refused to approve 5 California's request for a waiver from the federal 6 oxygenate requirement. As a result, when California 7 phases out MTBE, we will need at least 700 million gallons 8 of ethanol per year to comply with the federal 9 requirements. That is the nub of the problem. 10 Although several refiners are making the switch 11 to ethanol as quickly as possible, additional time is 12 needed to convert all affected gasoline supplies to the 13 new blends. Based on studies conducted by the California 14 Energy Commission, the Governor found that it is not 15 possible to completely eliminate the use of MTBE on the 16 current schedule without risking a significant disruption 17 in the supply and availability of gasoline in California. 18 Moreover, it is clear that such problems would lead to 19 substantial price increases that could harm California's 20 economy. 21 Therefore, on March of this year the Governor 22 issued Executive Order D-52-2 directing ARB to take the 23 necessary actions by July 31st of this year -- that's the 24 end of this month -- to postpone the prohibition on MTBE 25 for one year and make corresponding changes to the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 14 1 Reformulated Gasoline Regulation. 2 As part of this agenda item we will also hear an 3 update on the implementation status of California Phase 3 4 Reformulated Gasoline Regulations. And as we will see, 5 significant progress has been made. 6 As the Board also will recall, there were some 7 unresolved issues when we approved the Regulation, such as 8 the emission impacts of commingling and permeation. 9 Accordingly, the Board directed staff to report back 10 periodically, which they are doing today. 11 With that, Mr Kenny would like to begin staff 12 presentation. 13 EXECUTIVE OFFICER KENNY: Yes. Thank you, Mr. 14 Chairman and Members of the Board. 15 Today's presentation will be given in two parts. 16 The staff's presentation will include an update on the 17 implementation status of the Phase 3 Reformulated Gasoline 18 Regulations and the proposed amendments. 19 Staff will begin the presentation with a status 20 report, as it provides background information related to 21 staff's proposed amendments to the Phase 3 Reformulated 22 Gasoline Regulations. 23 Since the first part is a status report, there is 24 no action required today on the part of the Board for this 25 part of the agenda item. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 15 1 In the second part of the presentation staff will 2 present the proposed amendments to the Phase 3 3 Reformulated Gasoline Regulations, which will implement 4 the Governor's Executive Order. 5 Staff developed the proposed amendments in 6 response to the Governor's Executive Order. The proposed 7 amendments will provide a one-year extension of the 8 phase-out date for MTBE and other oxygenates other than 9 ethanol in California gasoline, and also postpone for one 10 year the implementation date of this California 11 Reformulated Gasoline 3 Regulations. 12 This provision does not affect an individual 13 refiner's ongoing ability to elect to use the CARB 3 14 provisions to produce MTBE-free gasoline prior to December 15 31st, 2003. 16 In fact, three California refineries -- or three 17 California refiners, British Petroleum, Shell Oil, and 18 Exxon/Mobil, have publicly stated that they will 19 voluntarily phase out MTBE from their fuel by the end of 20 the year. 21 Finally, staff is proposing various minor 22 technical and clean-up changes designed to ensure that the 23 regulations work effectively. Staff has met with various 24 stakeholders and also conducted two public workshops since 25 the executive order was issued. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 16 1 And I would also like to acknowledge the 2 assistance of the staff of the California Energy 3 Commission and the State Water Resources Control Board, 4 who worked with ARB staff to evaluate the impacts of the 5 proposed postponement of the MTBE ban. 6 California Energy Commission and the State Water 7 Resources Control Board staff are here today and they are 8 available to respond to any questions that the Board might 9 have. 10 At this time, though I would like to ask Mr. 11 Duong Trinh to present the status report on the 12 implementation of the Phase 3 Regulations. And then that 13 will be followed by a presentation by Mr. Steve Brisby on 14 the proposed amendments to the Phase 3 Reformulated 15 Gasoline Regulations. 16 (Thereupon an overhead presentation was 17 presented as follows.) 18 MR. TRINH: Thank you, Mr. Kenny. 19 Good morning, Mr. Chairman and Member of the 20 Board. 21 --o0o-- 22 MR. TRINH: Today's presentation will be given in 23 two parts. I will present the first part, which will 24 include an update on the implementation of the California 25 Phase 3 Reformulated Gasoline Regulations. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 17 1 Then Mr. Steve Brisby will describe the staff's 2 proposal regarding the phaseout of MTBE. 3 --o0o-- 4 MR. TRINH: Now, I will provide an update on the 5 implementation efforts for the Phase 3 Gasoline 6 Regulations. 7 --o0o-- 8 MR. TRINH: As you know, pursuant to Governor 9 Davis' 1999 Executive Order, we approved the Phase 3 10 Reformulated Gasoline Regulations on December 9th, 1999. 11 Among other things the Phase 3 regulations 12 prohibit the addition of MTBE to California gasoline 13 beginning December 31st, 2002. 14 The Phase 3 regulations provide refinings with 15 additional flexibility to blend ethanol and gasoline as 16 MTBE is phased out. Also, the Phase 3 regulations 17 preserve and enhance the emission benefits of the existing 18 Phase 2 Reformulated Gasoline Program. 19 There were also several follow-up items which 20 needed to be addressed. 21 --o0o-- 22 MR. TRINH: These follow-up items are contained 23 in Board Resolution 99-39 and are shown on this slide. 24 --o0o-- 25 MR. TRINH: In providing an update on the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 18 1 California Reformulated Gasoline Program, it is important 2 to note the significant changes that have occurred in the 3 California refining industry over the last several years. 4 --o0o-- 5 MR. TRINH: As is illustrated on this slide, 6 there have been a number of mergers, acquisitions and 7 ownership changes in the California refining market over 8 the last several years. For example, Phillips recently 9 acquired the previously owned Tosco refineries in 10 Wilmington and Rodeo. Also, the merger of Exxon and Mobil 11 required the divestiture of the Benicia refinery, which 12 was subsequently purchased by Valero. Valero subsequently 13 purchased Ultramar Diamond Shamrock and sold the acquired 14 Avon Refinery to Tesoro, leaving Valero with two 15 California refineries and Tesoro with a California 16 refinery in addition to its Pacific Northwest and Hawaiian 17 refineries. 18 --o0o-- 19 MR. TRINH: While there are currently 13 20 refineries located in California that produce California 21 motor vehicle gasoline, the companies that operate these 22 refineries also operate another 50 refineries outside 23 California in North America. This pool of refineries 24 outside the State is about 10 to 15 more than was 25 available to California refiners in 1999. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 19 1 These nationwide resources give those companies 2 an opportunity to utilize energies between facilities to 3 maximize California's supply. 4 --o0o-- 5 MR. TRINH: This ability to utilize the resources 6 of other company assets outside California is important. 7 As can be seen in this graph, gasoline consumption in the 8 State has risen steadily from about 860,000 per day in 9 1992 to nearly a million barrels of gasoline per day 10 today. 11 This increase in consumption, however at a lower 12 rate of growth, is expected to continue into the 13 foreseeable future. 14 --o0o-- 15 MR. TRINH: I will now provide you with an update 16 of the status of the projects for the implementation of 17 the California Phase 3 regulations. 18 --o0o-- 19 MR. TRINH: Beginning earlier this year staff of 20 the ARB and the California Energy Commission met jointly 21 with each of the individual refineries producing 22 California gasoline. In these meetings ARB and CEC staff 23 discussed the status of their California Phase 3 projects. 24 At the refineries most of the Phase 3 projects are related 25 to re-vapor pressure control, sulfur control, and PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 20 1 modifications to alkylation units. In addition, projects 2 related to storage and blending are also occurring at the 3 distribution terminals. 4 In the South Coast Air Quality Management 5 District all the refineries except for Valero have 6 completed the California Environmental Quality Act 7 process. Valero has submitted a subsequent Environmental 8 Impact Report required as a result of changes in the scope 9 of the project related to some additional tank 10 modifications. That document is still being reviewed by 11 the district. 12 As for the proprietary channels, they are on 13 schedule except for the Shell Ethanol Distribution and 14 Storage Center Project in Carson. The Carson City Council 15 will hold a meeting to review Shell's land-use permit 16 before construction can begin. However, this delay is not 17 expected to hinder Shell's ability to phase out the use of 18 MTBE by the end of the year. 19 --o0o-- 20 MR. TRINH: The Bay Area refineries have 21 completed the CEQA and permitting process. For terminals, 22 only the Valero terminal in Benicia still has outstanding 23 CEQA issues. 24 Because of the limited scope of the San Joaquin 25 Valley refinery projects, a CEQA analysis was not PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 21 1 required. However, Kern Oil will be needing the 2 additional time as provided by the staff proposal. 3 --o0o-- 4 MR. TRINH: An estimated 750 to 950 million 5 gallons of ethanol will be blended into California Phase 3 6 reformulated gasoline annually. This ethanol demand is 7 expected to arrive into California primarily by rail or 8 marine vessel into a number of ethanol receiving hubs. 9 --o0o-- 10 MR. TRINH: A significant quantity of ethanol is 11 expected to be delivered by train. And, as mentioned 12 earlier, Shell is in the permitting process for an ethanol 13 storage and distribution center in Carson that will 14 accommodate real traffic and should have the ability to 15 handle a significant proportion of the State's ethanol 16 needs. This facility is expected to be operational some 17 time next year. 18 --o0o-- 19 MR. TRINH: Once ethanol has arrived within 20 California, delivery and transport to other distribution 21 terminals throughout the State is expected to occur 22 primarily by truck transport and some limited dedicated 23 pipelines. 24 --o0o-- 25 MR. TRINH: In California over half of the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 22 1 gasoline supplied is transported via common-carrier 2 pipelines and distributed through common carrier 3 terminals, with Kinder Morgan being the largest common 4 carrier. 5 While most of Kinder Morgan's facilities will be 6 ready to receive, store and blend ethanol into California 7 Phase 3 gasoline, Kinder Morgan has stated that two key 8 terminals in the state will not be ready by year's end. 9 One terminal is located in Sacramento and the other 10 terminal is located in Colton. 11 In addition, smaller terminals in Barstow and 12 Imperial also will not be ready. At these facilities 13 additional time is needed for the acquisition and the 14 installation of the equipment necessary to store and blend 15 ethanol. 16 ST Services, another common carrier in the State, 17 has indicated that they are ready to receive and blend 18 ethanol and will play a significant role, especially in 19 northern California, for the import of ethanol. 20 --o0o-- 21 MR. TRINH: Since 2000 Phillips Petroleum has 22 supplied a significant quantity of California reformulated 23 gasoline blended with ethanol within the state. Recently, 24 three other refiners, British Petroleum, Exxon/Mobil, and 25 Shell, have announced that they will supply California PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 23 1 reformulated gasoline without MTBE, primarily by the use 2 of ethanol, by the end of the year. Together these four 3 refiners represent about 55 percent of the gasoline 4 distributed in the state. 5 --o0o-- 6 MR. TRINH: I will now update the Board on the 7 following four items shown on this slide. 8 --o0o-- 9 MR. TRINH: During the Phase 3 reformulated 10 gasoline rulemaking you recognize that commingling of 11 ethanol and non-ethanol gasolines could potentially 12 increase evaporative emissions and adopted an adjustment 13 of 0.1 PSI for the re-vapor pressure specification within 14 the predictive model to offset potential commingling 15 effects. 16 Since the 1999 hearing, staff has conducted 17 further studies to evaluate the impact of commingling. 18 Based on field studies conducted by the ARB staff in the 19 San Francisco, Lake Tahoe, and Los Angeles areas as well 20 as through the use of a simulation model, we estimate the 21 likely statewide RVP increase attributable to commingling 22 is less than 0.1 PSI. Staff believed that the predictive 23 model is sufficiently protective to offset any commingling 24 impacts. 25 --o0o-- PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 24 1 MR. TRINH: Regarding permeation testing, the ARB 2 is currently co-funding a test program with the 3 coordinating research council to investigate the effect 4 ethanol in gasoline has on permeation emissions from motor 5 vehicles. 6 Data from previous studies has shown that the 7 presence of ethanol in gasoline increases permeation 8 emissions from older portable fuel containers by about 40 9 percent. 10 Another study on evaporative emissions from 11 off-road equipment found ethanol in gasoline increases 12 permeation emissions by about 50 percent. 13 Staff will continue their work on permeation, and 14 plan to report their findings in 2003. 15 --o0o-- 16 MR. TRINH: Regarding sulfur levels and the 17 driveability index, staff will monitor the sulfur levels 18 and driveability index of in-use PHASE 3 gasoline and will 19 report back to the Board as appropriate. 20 --o0o-- 21 MR. TRINH: As you know, in response to the U.S. 22 EPA's denial of California's waiver request from the 23 federal oxygenate requirement, the ARB and the California 24 Attorney General sued the U.S. EPA in federal court. To 25 date the case is still pending. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 25 1 This completes our report to the Board on the 2 implementation of the Phase 3 gasoline regulations. 3 I will now turn the presentation over to Mr. 4 Steve Brisby to present staff's proposal. 5 --o0o-- 6 FUEL SECTION MANAGER BRISBY: Good morning, Mr. 7 Chairman and Members of the Board. I will now present the 8 staff's proposal to postpone the phaseout of MTBE. 9 --o0o-- 10 FUEL SECTION MANAGER BRISBY: The proposed 11 amendment of the Phase 3 Reformulated Gasoline Regulations 12 is in response to the Governor's March 2000 Executive 13 Order to postpone the phaseout of MTBE. 14 Staff is also proposing a few other minor changes 15 designed to help ensure that the regulations work 16 effectively. 17 --o0o-- 18 FUEL SECTION MANAGER BRISBY: The rationale for 19 the postponement of the MTBE ban is based on the findings 20 of the Governor's Executive Order as well as the results 21 of the ARB and CEC staff's monitoring of the 22 implementation of the California Phase 3 Reformulated 23 Gasoline Regulations. 24 Current information indicates that the phaseout 25 of MTBE from all California gasoline by the end of 2002 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 26 1 could be expected to reduce the State's ability to produce 2 and distribute sufficient fuel to meet demand. 3 Significant disruptions in the gasoline supply would 4 substantially increase prices, harm California's economy, 5 and impose an unjustified burden on California's 6 motorists. 7 --o0o-- 8 FUEL SECTION MANAGER BRISBY: A waiver from the 9 federal oxygenate requirement would have made this system 10 less vulnerable to potential problems. 11 --o0o-- 12 FUEL SECTION MANAGER BRISBY: Today, as directed 13 from the Governor's Executive Order, staff is proposing 14 the following amendments to the California Phase 3 15 Reformulated Gasoline Regulations: 16 Postpone for one year the prohibition on the use 17 of MTBE for California gasoline, from December 31st, 2002, 18 to December 31st, 2003. 19 The other changes presented on this slide are 20 complementary and are necessary to effectively implement 21 the postponement. 22 It should be noted that this proposal does not 23 affect an individual refiner's ongoing ability to use the 24 Phase 3 provisions to produce non-MTBE gasoline before the 25 mandated phaseout deadline. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 27 1 --o0o-- 2 FUEL SECTION MANAGER BRISBY: Staff is also 3 proposing a few other amendments designed to help ensure 4 that the regulations work effectively and to correct 5 errors. One of these amendments would simplify the 6 testing provisions for determining whether a gasoline 7 blend stock designed for blending with ethanol will comply 8 with the California reformulated gasoline standards after 9 it is oxygenated. 10 Another amendment would correct an error in the 11 assignment of the RVP regulatory control periods for the 12 North Coast and the North Central Coast Air Basins. 13 --o0o-- 14 FUEL SECTION MANAGER BRISBY: What I've presented 15 so far is the staff report as contained in the staff 16 report -- excuse me -- staff proposal as contained in the 17 staff report. Since the release of the report staff has 18 continued discussions with the stakeholders. And as a 19 result, we are proposing some modifications to the initial 20 proposal. 21 If approved by the Board, these will be subject 22 to a 15-day public comment period. The proposed changes 23 are included in your package and copies are available for 24 the public today. 25 The changes include the following: First, a PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 28 1 delay in the step down of the sulfur cap was not included 2 as part of the original proposal. This was an oversight. 3 We are now proposing to correct this oversight by 4 postponing for one year the implementation date of the 30 5 ppm sulfur cap, making it consistent with the proposed 6 delay for the other Phase 3 specifications. 7 --o0o-- 8 FUEL SECTION MANAGER BRISBY: Second, retain the 9 original 2002 date for removal of the month of October 10 from the wintertime oxygen requirement in the South Coast 11 Air Basin. There have been no recent violations of the of 12 the CLM ambient air quality standard in October. And, 13 therefore, the proposal in the June staff report to delay 14 the wintertime oxygen requirement by one year is not 15 needed. 16 Third, the current regulation provides a one-time 17 delay of one month of the RVP season in the south coast. 18 This delay allows refiners more flexibility in making the 19 transition from MTBE to ethanol while complying with the 20 RVP standards. We are now proposing to extend the 21 one-month delay for the RVP season to those refiners 22 complying with the Phase 3 provisions on the original 23 schedule. 24 --o0o-- 25 FUEL SECTION MANAGER BRISBY: Now, I will PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 29 1 summarize the expected impacts of today's proposal. 2 --o0o-- 3 FUEL SECTION MANAGER BRISBY: With the proposed 4 postponement of the MTBE prohibition and the relevant 5 Phase 3 reformulated gasoline specifications, California 6 refiners will be allowed to produce Phase 2 gasoline for 7 an additional year. 8 Postponing the implementation of the Phase 3 9 program will postpone the additional emission reductions 10 associated with the implementation of the Phase 3 program 11 by one year, although only to the extent that refiners 12 elect not to produce Phase 3 gasoline before the mandated 13 deadline. 14 As mentioned earlier, three refiners will join 15 Phillips Petroleum and voluntarily phase out MTBE from 16 their fuel by the end of this year. This represents 17 about 55 percent of the gasoline sold in California. 18 While the proposed one-year delay may result in 19 an increase in commingling, it should not result in an 20 overall increase in the evaporative emissions because, as 21 discussed earlier, the RVP offset of 0.1 psi provided by 22 the Phase 3 regulations adequately protects against an 23 increase in evaporative emissions due to commingling. 24 Also, ethanol could have an impact on evaporative 25 emissions due to ethanol's tendency to permeate due to PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 30 1 soft fuel system components in motor vehicles. A delay in 2 the phase out of MTBE will postpone this increase in 3 emissions insofar as individual refiners choose not to 4 remove MTBE early. 5 As you heard, we are co-sponsoring a study to 6 evaluate the impact of permeation. The results should be 7 available in 2003. 8 --o0o-- 9 FUEL SECTION MANAGER BRISBY: Results from fuel 10 tests conducted by the State Water Resources Control Board 11 indicate that strengthening the underground storage tank 12 program requirements and enforcement have been very 13 successful in reducing liquid releases of gasoline. Leak 14 rates from the underground tanks are significantly lower 15 than they were before the 1998 upgrade requirements became 16 effective. None of the systems tested in the State Water 17 Resources Control Board study would have been expected to 18 fail a liquid leak test using the current performance 19 standards. 20 With the delay in the phase out of MTBE, MTBE 21 will continue to be used in some portion of the remaining 22 liquid -- will continue to be in some portion of the 23 remaining liquid and vapor leaks of gasoline from 24 underground storage tanks and in spills of gasoline during 25 this additional year. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 31 1 But the impact is expected to be small compared 2 to the existing contamination. This impact will be 3 mitigated to the extent that refiners remove MTBE from 4 their fuel prior to the mandated deadline. 5 --o0o-- 6 FUEL SECTION MANAGER BRISBY: The proposed delay 7 in the phase out of MTBE should result in no significant 8 change in greenhouse gas emissions over what would occur 9 without the postponement. 10 The primary neighborhood impact of the proposed 11 action would be the continued risk of groundwater and 12 drinking water contamination. As presented earlier, this 13 impact is expected to be mitigated to the extent that 14 refiners remove MTBE from their gasoline before the 15 mandated deadline. 16 --o0o-- 17 FUEL SECTION MANAGER BRISBY: Without a delay it 18 is likely that there could be a potential for shortages in 19 gasoline. With an actual shortage of supply, prices could 20 be expected to increase by 50 percent or more. 21 Some California refiners, product pipeline 22 companies, and terminal operators have completed the work 23 necessary to accommodate the phase out of MTBE. Delaying 24 the phase out would mean that these businesses could 25 experience a delay in recovering their capital PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 32 1 investments. This cost only applies to companies that 2 have completed the conversion and do not elect to phase 3 out MTBE early. 4 Those businesses that have not completed 5 conversion would expect an economic benefit from the 6 proposed delay in the prohibition of MTBE. The delay 7 would allow them additional time to complete the 8 infrastructure improvements and contingency provisions 9 needed to ensure an adequate supply of MTBE for gasoline 10 by the new deadline. 11 --o0o-- 12 FUEL SECTION MANAGER BRISBY: Delaying the phase 13 out of MTBE by one year means that ethanol demand in 14 California during 2003 may be significantly less than 15 originally anticipated. This reduction in demand will 16 lead to less than anticipated sales for ethanol producers 17 that may have expanded production in response to the MTBE 18 ban. 19 A one-year postponement of the ban on MTBE would 20 allow MTBE producers to continue to supply MTBE in 21 California for up to an additional year. 22 The size of these impacts depends on whether 23 other markets for ethanol develop and on to the extent 24 which refiners do not opt to remove MTBE early. 25 A one-year postponement of the complete phase out PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 33 1 of MTBE from gasoline will likely result in some 2 additional risk of contamination of groundwater and 3 surface water with MTBE, which could add to the cleanup 4 needs and associate costs the State will face over the 5 next decade. 6 --o0o-- 7 FUEL SECTION MANAGER BRISBY: The staff 8 recommends that the Board adopt the staff's proposal as 9 modified today to postpone the phase out of MTBE from 10 California reformulated gasoline. 11 This concludes my presentation. Thank you. 12 CHAIRPERSON LLOYD: Thank you very much. 13 Madam Ombudsman, would you please describe the 14 public participation process that occurred while this item 15 was being presented to the public and brought to the 16 Board, and express any observations or concerns you may 17 like to share with the Board. 18 OMBUDSMAN TSCHOGL: Okay. Thank you. 19 Mr. Chairman and Members of the Board, I'm 20 pleased to discuss the outreach efforts for this item. 21 The regulations were developed with input from 22 the California Energy Commission, Water Resources Control 23 Board, oil and automotive industries, and other interested 24 parties. 25 As staff mentioned earlier, in March of this year PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 34 1 an Executive Order was issued to delay the phase out of 2 MTBE from gasoline. In April staff held a workshop in El 3 Monte to discuss the proposed amendments to the 4 regulations. A second workshop was held a week ago in 5 Sacramento. Approximately, 40 people attended each of 6 these workshops. 7 Staff also had numerous individual meetings with 8 stakeholders. In addition, they participated in three 9 other community outreach meetings which were sponsored by 10 another division within ARB. On June 7th staff posted the 11 report on ARB's web site and used a list serve to notify 12 more than 300 companies and individuals about the 13 availability of the document. 14 This concludes my comments. Thank you. 15 CHAIRPERSON LLOYD: Thank you very much. 16 Questions or comments from colleagues from the 17 Board? 18 Professor Friedman. 19 BOARD MEMBER HUGH FRIEDMAN: Just for 20 clarification. 21 In discussing the economic impacts, I don't 22 remember what slide it was, but you had three points on a 23 slide, and one of them, the middle one, was a discussion 24 of the costs to the companies that have made investments 25 to comply with the current deadline pending this December PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 35 1 and do not choose to remove MTBE early. 2 Am I correct that that would not include the 3 major refiners who are expected to have made the switch by 4 2003, some 55 percent of the supply? Or is it possible 5 that some of the refiners that are listed who have made 6 the capital investment and are ready to switch, or will be 7 ready by the end of year, might for some reason elect not 8 nevertheless to phase out MTBE and continue to use it, in 9 that 55 percent? I'm trying to understand why somebody 10 who would make an investment -- a refiner would make the 11 investments to comply with the current deadline and then 12 not switch, unless they made investments but have not 13 completed the capital costs incurred to make the switch by 14 year end. 15 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION 16 CHIEF SIMEROTH: Board Member Friedman, maybe I can -- 17 this is Dean Simeroth with the Stationary Source Division, 18 for the record. 19 Those refiners who have made the investment, 20 completed their projects, and go ahead and switch will not 21 incur any additional costs. They'll simply have the costs 22 that we originally estimated for the program. 23 BOARD MEMBER HUGH FRIEDMAN: So we can count on 24 those, and that represents approximately 55 percent of our 25 supply to make the switch? PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 36 1 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION 2 CHIEF SIMEROTH: Yes, those four refiners will not incur 3 any additional costs. 4 Refiners who are not electing to switch and have 5 already made the investment and completed their projects 6 will incur some additional costs. What they're maybe 7 looking at is the cost of imports of alternatives to MTBE 8 and other business related costs that may be larger than 9 the cost to comply. So it starts -- 10 BOARD MEMBER HUGH FRIEDMAN: But they're in the 11 45 percent? 12 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION 13 CHIEF SIMEROTH: They're in the 45 percent. 14 BOARD MEMBER HUGH FRIEDMAN: And is there 15 anything we can do to incentivize them to switch rather 16 than fight? 17 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION 18 CHIEF SIMEROTH: We can certainly try talking to them 19 and -- I think they've been incentivized. There's a 20 recent court case in San Francisco where the court ruled 21 that MTBE was a defective product and subjected the oil 22 companies who were involved in the suit to some 23 substantial penalties. So there's a number -- 24 BOARD MEMBER HUGH FRIEDMAN: There may be 25 sanctions there and reason -- and a lot of incentives PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 37 1 to -- 2 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION 3 CHIEF SIMEROTH: So there should be other financial 4 incentives to switch. 5 And the other 45 percent, there are still 6 companies deciding on which way to go. So the answer's 7 not done yet. It may be more than the 55 percent that 8 we've identified. 9 BOARD MEMBER HUGH FRIEDMAN: So the picture is 10 not as -- certainly not as bleak as I'd originally -- or 11 I'd had the impression it might be. We're well along the 12 road under the original executive order. These refineries 13 have stepped up to the plate, and they're doing the job 14 and ready to make the switch, many of them. And others, 15 at least we can hope, are likely to follow before the full 16 extended year is out. 17 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION 18 CHIEF SIMEROTH: That is correct. There is one other 19 complicating factor which brings us here before the Board. 20 In the distribution system, in the two terminals we 21 indicated they are primary distribution terminals, there 22 are two oil companies who do not have significant 23 proprietary terminals of their own and they're heavily 24 reliant upon the common carrier system. They're among the 25 ones who are still trying to see if it's practical. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 38 1 BOARD MEMBER HUGH FRIEDMAN: Is this a 2 distribution problem on the ethanol? 3 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION 4 CHIEF SIMEROTH: Yes. And those are significant 5 distribution problems. The Colton and Sacramento 6 terminals are two of the largest terminals in the state, 7 and we need those to be able to have 100 percent. 8 BOARD MEMBER HUGH FRIEDMAN: Thank you. 9 CHAIRPERSON LLOYD: Mr. Kenny. 10 EXECUTIVE OFFICER KENNY: I just wanted to add a 11 little bit to Dean's comments, Professor Friedman. 12 I think basically in terms of incentives, I mean 13 I think Dean is absolutely right, that the issue of 14 product liability is at least kind of an internal 15 incentive for a number of the companies, and so they are 16 basically trying to move quickly. 17 I think, on the other hand, we actually have 18 gotten sort of the best of all possible worlds here. We 19 were looking at some significant problems with the phase 20 out at the end of this year. And with the Governor's 21 Executive Order providing the additional year, it did 22 provide some substantial benefits in that. What it really 23 in the end gives us is kind of a lengthy transition. And 24 so from a market stability standpoint, that lengthier 25 transition from essentially one fuel to the other fuel PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 39 1 will allow the market to adapt probably much more smoothly 2 and much more readily over the period of time that's now 3 available to it. 4 And so I don't think that the California 5 consumers will see quite the consequences that they 6 otherwise might have seen with kind of a hard date at the 7 end of this year. 8 BOARD MEMBER HUGH FRIEDMAN: If I may, one 9 additional question. 10 CHAIRPERSON LLOYD: Yes. 11 BOARD MEMBER HUGH FRIEDMAN: Going to the 12 detriment on health that MTBE has posed. Am I correct 13 that your assessment is that most of the evil and mischief 14 it's caused is already done, it's there? The additional 15 leakage as it's phased out on a more extended timeline for 16 some 45 percent of the source is not going to be anywhere 17 near as great in the next six months, nine months, ten 18 months, whatever, as it's been over the last number of 19 years; is that the scientific finding? 20 EXECUTIVE OFFICER KENNY: Yes. I mean 21 basically -- you know, the vast majority of the leakage 22 has already occurred. The systems are tighter than they 23 were historically. And so although we will see some 24 additional leakage and we will see some additional 25 contamination, it will be far smaller than we would PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 40 1 otherwise have seen in past years. 2 BOARD MEMBER HUGH FRIEDMAN: And there's no way 3 we can as a practical, feasible method of aiding those 4 water districts and others who supply water who have 5 identified MTBE in their supply or plumes that have 6 written to us about their concerns -- is there no 7 additional relief we can practically provide? 8 DEPUTY EXECUTIVE OFFICER SCHEIBLE: We don't 9 think it's practical to design a program that for a 10 checkerboard area says this is an MTBE-free area or not. 11 It was very, very difficult to do it for a geographically 12 isolated area such as Tahoe, and it was accomplished 13 there. So we don't think that's a feasible thing that we 14 can accomplish by our regulation. 15 BOARD MEMBER HUGH FRIEDMAN: That's not like 16 naturally occurring, asbestos or something? 17 DEPUTY EXECUTIVE OFFICER SCHEIBLE: No. And the 18 consequences would probably be closing of certain gas 19 stations and that type of thing, because there simply 20 isn't the network set up where they can go in the market 21 and say, "Fine, I won't buy the gas from the refiner I'm 22 associated with. I'll go out and buy some other refiner's 23 gas." 24 BOARD MEMBER HUGH FRIEDMAN: Well, I'm not 25 unsympathetic to the districts that are impatient to get PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 41 1 this put to bed, but okay. 2 Thank you. 3 CHAIRPERSON LLOYD: Mr. McKinnon. 4 BOARD MEMBER McKINNON: Dean, you 5 mentioned Sacramento and Colton. Colton is on rail or 6 very close to rail or not. 7 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION 8 CHIEF SIMEROTH: Board Member McKinnon, Colton is close to 9 rail, but they do not have rail access. 10 BOARD MEMBER McKINNON: Got it. Okay. 11 And Sacramento is water -- 12 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION 13 CHIEF SIMEROTH: Sacramento used to have rail. And -- 14 now, I'm talking about the Bradshaw terminal. There are 15 proprietary terminals in Sacramento that have -- actually 16 they'll be some of the ones who are switching early. But 17 the Bradshaw common-carrier terminal used to have rail 18 access, but that is long gone and it's now landlocked by 19 housing developments and freeways and other things. 20 BOARD MEMBER McKINNON: My second question is 21 sort of a little more global and, that is, how are we 22 doing in terms of ethanol supply and some of the price 23 concerns long term? What's happening in that area? 24 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION 25 CHIEF SIMEROTH: Again, Board Member McKinnon, in working PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 42 1 with the Energy Commission -- they've been the primary 2 investigators in that area -- the supply for the long term 3 seems to be adequate. There is still additional 4 ethanol-producing facilities coming on board. California 5 has some limited potential to increase its ethanol 6 production, but it's still going to be primarily from the 7 midwest. 8 BOARD MEMBER McKINNON: Thank you. 9 CHAIRPERSON LLOYD: Any other questions? 10 Supervisor DeSaulnier. 11 BOARD MEMBER DeSAULNIER: Thank you, Mr. 12 Chairman. 13 In terms of the cap on sulfur and the 14 postponement for a year and monitoring, during our 15 testimony we had a lot of discussion about this and the 16 refiners indicated that that sulfur content was coming 17 down as an average; and if we just let them pursue that, 18 it would. Now, I've been led to believe that the average 19 is coming down right now. I assume with the 55 percent, 20 the average of the whole, all of the production will come 21 down significantly. So maybe, Dean, explain to me the 22 sulfur content and the need for changing the cap. And if 23 the average is coming down, how do we continue to pursue 24 that? 25 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 43 1 CHIEF SIMEROTH: Okay. Supervisor DeSaulnier, you're 2 correct, the average is coming down. We're probably 3 setting a little bit less than 20 parts per million on 4 average currently. When Phase 3 is fully implemented the 5 data from the oil companies indicate that the average 6 sulfur content should be approximately 10 parts per 7 million, plus or minus a little bit. Actually, the 8 calculation shows on the negative side of 10, but it could 9 vary some. 10 The cap applies to the ability of the refiners to 11 use the flexibility provisions in the Regulation to either 12 average about a number they pick or use a predictive model 13 to adjust the limit. 14 The real importance there is the ability to 15 import blend stocks. Nationally, it won't be till 2004 16 before the national 30 parts per million average standard 17 goes -- starts going into effect. And then it's 18 implemented over the next four years, if I remember 19 correctly. 20 So the ability to import blend stocks out of the 21 gulf is important to us. We wanted to leave the cap 22 option there -- it's slightly higher -- at 60 to encourage 23 or facilitate the imports. 24 After the two years it goes down to 30 parts per 25 million. And by that time the national sulfur standard PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 44 1 should be in place and the availability of blend stocks at 2 much lower sulfur levels should be there. 3 BOARD MEMBER DeSAULNIER: Thank you. 4 DEPUTY EXECUTIVE OFFICER SCHEIBLE: And just to 5 remind the Board, that the cap itself doesn't have 6 emission consequences because if they choose to market 7 back to gasoline that's close to the cap, they will have 8 to do other things to other properties to offset any 9 emission increases associated with the higher sulfur. 10 BOARD MEMBER DeSAULNIER: Thank you. 11 CHAIRPERSON LLOYD: You mentioned the results of 12 permeability study will be available in 2003. Can you be 13 a bit more precise? 14 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION 15 CHIEF SIMEROTH: Dr. Lloyd, we originally had an expected 16 date of by the end of this year. There's been a delay in 17 funding. The program's been delayed by a few months. 18 Hopefully, it will be first, at the latest second quarter 19 next year. 20 CHAIRPERSON LLOYD: The reason I ask that is 21 because the next question is -- and I think I probably 22 know the answer -- but as we heard the last few days, when 23 we're going through the various steps, this could 24 obviously be an additional source of VOC emissions. And 25 given the fact that we've got a tough battle as it is, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 45 1 that could be an issue. So is this being -- as we go 2 through or as the various districts go through the SIP 3 process, Is this sort of a potential source of emissions 4 being looked at? 5 EXECUTIVE OFFICER KENNY: At this point in time, 6 I don't think we are basically looking at it because we 7 don't have the data to give as kind of the quantification. 8 It really is, as Dean has said, kind of an issue of 9 funding. And we actually had some funding sources that 10 had been identified. And one of the difficulties is that 11 those particular funding sources have been slower to come 12 to fruition than we had originally anticipated. And so we 13 should have them very soon, and then we'll be able to move 14 forward. As we look at kind of the quantification that we 15 can then obtain from that, it will almost certainly have 16 to be part of the development of the SIPs. 17 CHAIRPERSON LLOYD: It wasn't meant as a 18 criticism. It was meant just to highlight this is another 19 potential area of emissions we've got to look at. 20 Any other questions from my colleagues? 21 Yes, Ms. D'Adamo. 22 BOARD MEMBER D'ADAMO: Could staff report as to 23 the progress with regard to biomass to ethanol that 24 agricultural waste products are being utilized? 25 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 46 1 CHIEF SIMEROTH: This is -- Board Member D'Adamo, U.S. 2 Department of Energy as well as the State of California 3 has been looking at this. And, in fact, the U.S. 4 Department of Energy is funding a number of research 5 projects. 6 The problem with going from biomass to ethanol is 7 that, technically it can be done, economically it cannot 8 compete with going from corn or other products to ethanol. 9 But what's being funded is to develop more efficient 10 enzymes and other technology to reduce that cost. 11 For the last two years we keep hearing promising 12 statements that that's going to happen. This latest 13 funding by U.S.D.O.E. is a significant amount of money 14 going to this. This may provide the technical 15 breakthroughs to -- it's primarily to reduce the cost. It 16 can be done technically. It's more expensive than, say, 17 taking corn or sugar beets or other crops to ethanol. 18 BOARD MEMBER D'ADAMO: How much more expensive, 19 roughly? 20 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION 21 CHIEF SIMEROTH: Depending on whose numbers you accept, 22 from 20 percent to 100 percent. 23 BOARD MEMBER D'ADAMO: Just wondering if there's 24 anything that we can do to -- even with that differential, 25 if there's anything that we can do to incentivize biomass PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 47 1 to ethanol in California because of the problems that we 2 have with ag burning. It could achieve two goals at the 3 same time. 4 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION 5 CHIEF SIMEROTH: The Energy Commission conducted and 6 published a study on that and identified what type of 7 economic incentives would be necessary. That's been 8 available to the Legislature. And the amount of funding 9 is beyond the ability of our budgets. It's going to have 10 to be from the Legislature. 11 EXECUTIVE OFFICER KENNY: Ms. D'Adamo, we 12 actually were looking at one point in time at kind of the 13 biomass-to-ethanol effort with regard to rice straw. And 14 we were looking at a plant up in the Gridley area. But, 15 you know, the costs were literally in the hundreds of 16 millions of dollars to essentially get it sited in terms 17 of capital costs. And so it clearly got into a range 18 where we had really almost no ability to essentially 19 assist. And at the same time there was questions about 20 whether or not there were going to be funding sources 21 from, you know, larger capital ventures that might be able 22 to put that plant there. And I think those all more or 23 less fell through. 24 BOARD MEMBER D'ADAMO: Does that 20-percent 25 difference account for or include the capital costs? Or PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 48 1 that's assuming that the capital investments have already 2 been made? 3 EXECUTIVE OFFICER KENNY: I don't know the answer 4 to that. 5 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION 6 CHIEF SIMEROTH: It's not so much the capital costs. It's 7 the production costs. You have the production costs, and 8 it is an ongoing cost. That's why the Department of 9 Energy is funding the research, to try to reduce those 10 production costs. 11 And there are people in the audience from the 12 Energy Commission that can probably better address the 13 question if you have further interests. 14 BOARD MEMBER D'ADAMO: Okay. 15 CHAIRPERSON LLOYD: Thank you. 16 Mr. McKinnon. 17 BOARD MEMBER McKINNON: I'm one of those that 18 still holds out faint hope that this political morass 19 created by not getting a waiver somehow gets resolved. 20 Just sort of for my information, if tomorrow a 21 court ruled that we should have the waiver from the 22 oxygenate requirement, do we have the refinery capacity to 23 make up for the volume taken out by MTBE, or would we have 24 shortages that would cause price spikes? 25 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 49 1 CHIEF SIMEROTH: Mr. McKinnon, or Board Member McKinnon, 2 losing that volume would pose a problem. It would mean 3 more imports. With ethanol -- with the use of ethanol we 4 are also having to increase our imports. 5 The 11 percent hole left by MTBE is difficult to 6 fill. What refiners have told us for their production 7 plans do not fill the hole. It has to come from imports. 8 The ability to find the blend stocks necessary comes at 9 increased costs over what we now face. 10 Ethanol -- or oxygenates bring with it some 11 advantages in terms of octane and especially in producing 12 premium gasoline. So even with the mandate going away, we 13 would expect in the neighborhood of 40-plus percent of the 14 gasoline would contain some amount of ethanol. It may 15 contain lower amounts than we presently anticipate. But a 16 substantial part of the gasoline would still contain 17 ethanol because that is the least expensive way to produce 18 gasoline for that fraction. 19 BOARD MEMBER McKINNON: Thanks. 20 CHAIRPERSON LLOYD: Thank you. 21 Seeing no other questions from my colleagues, I'd 22 like to ask the first three witnesses who have signed up 23 to speak, and they are James Uihlein, representing in this 24 case WSPA; Steve Douglas, the Alliance; and Gary Herwick, 25 General Motors. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 50 1 MR. UIHLEIN: Good morning. I'm Jim Uihlein, 2 Senior Principal Engineer for BP, this morning 3 representing the Western States Petroleum Association. 4 WSPA supports CARB's plan to harmonize the Phase 5 3 regulations with the MTBE phaseout deadline as defined 6 by the Governor, while reserving flexibility for those 7 refiners that choose to produce Phase 3 gasoline early. 8 Through the process we've provided written 9 comments at the various workshops and for this proceeding 10 this morning detailing some comments that we had on the 11 Regulation. I won't go into those comments in detail, 12 other than to say that in reviewing the current revision 13 of staff's recommendation to the Board that we find that 14 all of those comments are satisfactorily dealt with in 15 that document. 16 In addition, WSPA would like to comment on a 17 related issue dealing with MTBE diminimous levels and the 18 definition of "produced with MTBE." This is an item that 19 we've been working on with staff for the better part of 20 two years. And we understand that it's been delayed to a 21 future Board hearing; perhaps November has been thrown out 22 as a date to cover this. 23 In going through the current recommendation of 24 the diminimous levels for MTBE and other oxygenates have 25 been dealt with at least for those refiners who choose to PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 51 1 go early. But the definition of "produced with MTBE" 2 remains a gray area. 3 We'd like an expeditious resolution of this 4 particular issue and we request that ARB clarify this 5 definition of "produced with MTBE" as soon as possible. 6 As we go on and with those refiners that produce MTBE 7 early, this is going to remain a compliance uncertainty 8 for us to deal with as we go forward. 9 Thank you. 10 CHAIRPERSON LLOYD: Thank you. 11 Could we have staff's response to that? 12 STATIONARY SOURCE DIVISION CHIEF VENTURINI: Mr. 13 Chairman, staff -- we have been working with the producers 14 to tie up -- 15 CHAIRPERSON LLOYD: Pete, do you want to identify 16 yourself. 17 STATIONARY SOURCE DIVISION CHIEF VENTURINI: I'm 18 sorry. 19 Peter Venturini. I'm Chief of the Stationary 20 Source Division. 21 Mr. Chairman, we have been working with the 22 producers on some of these issues to tie up from the 23 initial -- our current plan is to bring those items to the 24 Board in November, and we believe we're on track to doing 25 that, continue the dialogue. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 52 1 CHAIRPERSON LLOYD: Okay, great. Thank you. 2 Questions? 3 Yes, Mr. Calhoun. 4 BOARD MEMBER CALHOUN: Let me just follow up on 5 that. 6 I was reading one of the comments made in 7 Texaco's letter to the Board. And, in effect, they're 8 asking the same question. It says, "Our industry needs a 9 clear definition of the term 'California gasoline produced 10 with the use of MTBE.'" What's behind that? Something 11 escapes me here. 12 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION 13 CHIEF SIMEROTH: Board Member Calhoun, the present 14 language in the Regulation simply says you can't produce 15 gasoline with the use of MTBE. If you look at the blend 16 stocks they'll be using, particularly in importing, there 17 is some levels of contamination of the blend stocks with 18 MTBE that result from the production and/or shipping. The 19 question then comes down to is: If you know that, are you 20 knowingly producing gasoline with MTBE even though it's a 21 result of contamination from production or shipping? It's 22 a liability issue and how you interpret that definition. 23 We're probably relatively close in working out 24 this issue with them. We think we can resolve it this 25 year fairly easily. It's a practical -- when you're PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 53 1 talking parts per million levels, you're not talking 2 significant levels of MTBE. But it is a definition. If 3 you say you produce without MTBE, and you're buying a 4 blend stock that has some contamination and you know it 5 has contamination, are you liable? 6 BOARD MEMBER CALHOUN: It's a question of 7 defining this diminimous level, isn't it? 8 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION 9 CHIEF SIMEROTH: At the production level. 10 BOARD MEMBER CALHOUN: Okay. Thank you. 11 CHAIRPERSON LLOYD: Thank you. 12 Mr. McKinnon. 13 BOARD MEMBER McKINNON: Does the delay until 14 November cause harm to those that are voluntarily trying 15 to get this done? 16 MR. UIHLEIN: I think November is pushing it 17 because most -- the easiest time to make the transition 18 away from MTBE is during the winter months. And we're 19 entering into the winter months in November. If we get a 20 resolution of this issue by November, we should be okay. 21 But that's about as long as we can go. 22 CHAIRPERSON LLOYD: And typically if it comes to 23 the Board in November, you clearly have a heads-up of what 24 it's going to be before November. 25 MR. UIHLEIN: Correct. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 54 1 CHAIRPERSON LLOYD: Thank you. 2 Steve Douglas, Gary Herwick, and Gary Welch. 3 MR. DOUGLAS: Thank you, Chairman Lloyd and 4 Members of the Board. I'm Stephen Douglas. I'm with the 5 Alliance of Automobile Manufacturers. 6 And I'd just like to make a few brief 7 introductory remarks, and then I think I'd like to turn it 8 over to Mr. Herwick of General Motors to provide some meat 9 on the presentation. 10 --o0o-- 11 MR. DOUGLAS: In adopting the 1990 Low Emission 12 Vehicle Clean Fuel Program this Board recognized a 13 fundamental principle which I think still holds, and 14 that's that the vehicle emission control is really a 15 system, a system of vehicle and the fuel. 16 Involved in 1999 RFG3 regulations tightened 17 sulfur and yielded some significant emission reductions 18 from that. At the same time it relaxed the aromatic SCAT, 19 T50, T90, RVP and oxygenate. 20 At the time in 1999 the Alliance proposed a 21 separate fuel specification that would have yielded 22 significant emissions reductions; in fact, about twice 23 that of the RFG3 that was adopted. 24 --o0o-- 25 MR. DOUGLAS: I don't think anyone questions that PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 55 1 further emission reductions are necessary if we're going 2 to achieve the clean-air goals that California has set. 3 Since 1990 and, indeed, since 1999 the automobile 4 manufacturers have been called upon numerous times to 5 reduce exhaust emissions, evaporative emissions, to 6 provide California with the cleaner of federal vehicles 7 and California vehicles. And then most recently the 8 on-board diagnostic system, the more stringent standards 9 there. 10 So what we're asking for today is that the Board 11 take the opportunity to fix RFG3 or at least to revisit 12 it, to lock in some of the fuel parameters that we have 13 today that you see in fuel that's out there, to recognize 14 that the emission control is an equation between the 15 vehicle and the fuel. And our proposal from 1999, which 16 does deliver cleaner air in RFG3, is still on the table, 17 and we'd hope that you'd work with us and the staff would 18 work with us on that. 19 Now, at this point I'd like to turn it over to 20 Mr. Herwick. He has some more details on this proposal as 21 well as RFG3. 22 CHAIRPERSON LLOYD: Thank you, Steve. 23 MR. DOUGLAS: Thank you. 24 MR. HERWICK: Thank you, Steve. 25 Good morning, Chairman Lloyd, Members of the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 56 1 Board and members of the staff. 2 I appreciate the opportunity to speak with you 3 this morning on this important topic, not only to your 4 state's air, but also to the auto manufacturing industry. 5 I am Gary Herwick of General Motors Public Policy 6 Center back in Detroit, as I believe Steve already stated. 7 I have some material and some information here to 8 share with you this morning that I think will be helpful. 9 You can go ahead -- oh, I have the thing. I'm 10 sorry. 11 --o0o-- 12 MR. HERWICK: First of all, certainly California 13 has set up a paradigm in past years. You know, it was a 14 paradigm created by the Low Emission Vehicle program back 15 in the early nineties that recognized vehicles and fuels 16 as a system in the emission reduction process. 17 And the concept has been echoed around the world, 18 not only by the rest of the country but other countries as 19 well. 20 However, the California LEV II and RFG3 approach 21 from our perspective broke that paradigm. 22 --o0o-- 23 MR. HERWICK: The reason I say that is that here 24 were the original goals that were set up for the Phase 3 25 RFG program, providing flexibility for the refining PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 57 1 industry while still preserving having real-world benefits 2 and also obtaining additional reductions that were 3 technically and economically feasible. 4 --o0o-- 5 MR. HERWICK: So that's why we are today, from 6 our perspective again. And although the GM logo appears 7 on my presentation, as Steve introduced me, I believe we 8 as the industry are pretty well united on all of this 9 information that I will be presenting to you this morning. 10 There are relaxed specifications from the RFG2 to 11 the RFG3 program for the T50, T90, and aromatics 12 parameters to provide some flexibility; but also emissions 13 increase has accompanied that. 14 The reduced-sulfur specification, the initial 15 RFG3 specification that was a 20-part-per-million flat 16 limit, a cut of half from where the RFG2 is, provided 17 quite substantial emissions reductions. But from our 18 perspective again, it was only a half step and really 19 doesn't take advantage of the full emission reduction 20 potential of what we call sulfur-free gasoline, which is a 21 flat limit of, say, 5 parts per million. 22 And I'd point out, at this point, that other 23 countries are taking a step ahead. Europe is on a very 24 fast track to move to less than 10 parts per million 25 sulfur gasoline. In fact, it is expected to be widely PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 58 1 available in Europe around 2005 and phasing in fully 2 within several years following that. 3 And in addition to that, I'd ask the Board to 4 keep in mind that the -- even the current RFG3 flat limit, 5 not to mention delay of that for another year, doesn't 6 enable the advanced technology lean-burn systems, which 7 have the potential for increasing fuel efficiencies on the 8 order of 10 to 15 percent. And also is very -- even those 9 sulfur reductions are likely to be negated by other 10 increases in emissions, which I'd like to talk about in 11 the following slides. 12 --o0o-- 13 MR. HERWICK: With regard to MTBE bans, 14 understanding what the State needs to do there, and the 15 fact that ethanol actually is the only oxygenate that can 16 be offered as a replacement. We've already seen from 17 staff's presentation this morning that there are pre-ban 18 commitments to the use of ethanol by BP, Shell, Phillips, 19 and Exxon/Mobil. 20 I'd like to point out that from GM's perspective 21 properly blended ethanol can be environmentally 22 acceptable. However, there are needs to recognize, as 23 we've already discussed here somewhat this morning the 24 permeation and the commingling effects of ethanol-blended 25 fuels. And we don't feel that those are trivial. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 59 1 --o0o-- 2 MR. HERWICK: With regard to commingling effects, 3 however we tend to spell that word, you know, the effect 4 that I'm referring is the same. When ethanol-blended 5 gasoline is mixed with nonethanol gasoline, the volatility 6 of the mixture goes up, and as a result evaporative 7 emissions also go up. 8 The ARB staff report estimated an RVP increase of 9 about .1 psi. 10 In previous reports the EPA -- there was an EPA 11 study in 1995 that estimated an RVP increase on the order 12 of .2 to .4. We, in the auto industry, have looked at 13 that from our experience with fuel systems and so forth. 14 We feel that the effective commingling falls probably more 15 in the range of .2 to .3. And an inventory analysis 16 estimated that to be -- for every tenth of a psi increase, 17 you know, as a result of the commingling effect, that that 18 was worth about eight tons a day of VOC emissions. So if 19 we -- with the staff's estimate even .1 psi increase, we'd 20 be looking at eight-ton-a-day increase in VOC, not a 21 trivial amount. 22 --o0o-- 23 MR. HERWICK: If we moved on to the permeation 24 effects, which have already been discussed to some extent 25 today, you know, again, ethanol-blended gasoline PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 60 1 facilitates the permeation of gasoline vapor through fuel 2 system hoses. A joint CARB and CRC study is under way. 3 However, technical literature currently provides some 4 information and some insight into what permeation losses 5 might be, and I believe allows an opportunity to actually 6 provide an intelligent estimate of that at this point. 7 The ARB staff's own report years ago estimated 8 that the emission inventory impact of just ethanol-blended 9 fuels in plastic gasoline containers is of the order of 10 four tons a day. And as has already been pointed out 11 today, previous studies have indicated a 50-percent 12 increase in vehicle evaporative emissions with 13 ethanol-blended fuels. So that's not a trivial amount. 14 And I would point out to you as well that a 15 recent GM study, which we've shared with staff here about 16 a year ago, on new GM vehicles, which are about the best 17 we know how to design, they run about 18 a-half-a-gram-per-test evap against a two-gram standard, 19 showed a 12 percent increase in evaporative emissions. 20 This was a carefully conducted paired-vehicle test. 21 So it's an amount that can be expected. And 22 there is data available that would allow an estimate of 23 the fleet now. 24 --o0o-- 25 MR. HERWICK: The Alliance RFG proposal that PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 61 1 we've worked with the staff on here, the RFG3 proposal, 2 over at least a two-year period now is to provide a sunset 3 on to these relaxed specifications for T50, T90, and 4 aromatics and return to the RFG2 specs for the T50, T90, 5 and aromatics parameters. 6 Several of the major refiners for your state, as 7 it's been pointed out, have already taken steps to 8 integrate ethanol-blended fuels into their plans and also 9 to take a serious look at a sulfur-free gasoline and the 10 benefits that it can provide, particularly as an offset 11 strategy to mitigate some of the emission increases that 12 are associated with the use of ethanol-blended fuels. 13 We have estimated in a previous analysis about a 14 10-ton-per-day benefit from taking sulfur down from the 15 initially proposed 20-part-per-million flat limit of RFG3 16 down to the 5-part-per-million flat limit. 17 --o0o-- 18 MR. HERWICK: We had done an emissions analysis 19 just to illustrate here with some numbers that the ARB 20 staff's original estimate of the benefits of the RFG3 21 program based on the reduction of sulfur to the 22 20-part-per-million flat limit could provide a 19-ton-per 23 day benefit of NOx plus VOC. 24 If we incorporate the estimates that we've just 25 talked about for the permeation and the commingling of PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 62 1 ethanol-blended fuels, that 19-ton-per-day benefit could 2 easily be wiped out. If it were a commingling effect of a 3 tenth of a psi at 8 tons a day, that would take that down 4 to a little over 10. And then making an estimate for the 5 permeation emissions effects, which could easily be on the 6 order of 10 to 15 tons a day, that would put us into 7 negative territory quickly. 8 So our recommendation today is to adopt as 9 quickly as possible the Alliance proposal, which would 10 take sulfur down to the 5-part-per-million level and also 11 go back to the T50, T90, and the aromatics limits of the 12 RFG3 -- RFG2 program -- excuse me. 13 So, in conclusion, the data suggests that 14 ethanol-blended gasoline will need some mitigation 15 strategies -- and our Alliance proposal provides those, we 16 think -- to obtain reliable air quality benefits for the 17 state, to enable advanced lean-burn technologies, and to 18 really accomplish the original RFG3 goals. 19 So our recommendations today again are to go back 20 to the RFG2 specs for T50, T90, and aromatics, to reduce 21 gasoline sulfur to a flat limit of 5 parts per million, 22 and to update the staff's estimate of benefits using the 23 latest models. The current 19.2 ton-a-day estimate is 24 based on about a couple models ago. And there are some 25 modifications made. It probably won't have major effects, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 63 1 but it would be a good idea to redo the estimates. And to 2 also include off-road effects, which had not previously 3 been included in the estimates. And to also include 4 estimates of commingling and permeation. 5 And if the Board will permit me, a cartoon out of 6 the Automotive News shows that sulfur is kind of -- sulfur 7 reduction is kind of the promise land. So I'll leave you 8 with that thought. 9 CHAIRPERSON LLOYD: Thank you. 10 I was looking for staff's reaction here. 11 STATIONARY SOURCE DIVISION CHIEF VENTURINI: I'd 12 like to make a general comment on this. 13 Much of these are similar issues that were 14 discussed earlier when the Board initially adopted it. 15 And when that adoption occurred, we did provide some 16 flexibility in the Phase 3 specifications to provide 17 easier transition and to allow the refiners flexibility 18 and supply and production. 19 However, I want to point out, even with the 20 flexibility we did provide in those regulations, we were 21 able to bring to you a regulation that did increase 22 benefits beyond the Phase 2 regulations. Also, one of the 23 outcomes of that hearing was direction by you to continue 24 to follow many of these items. 25 We did follow up, and as you heard there on the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 64 1 commingling, that our own study seems to verify that the 2 cushion built into the Regulation currently seems to be 3 adequate to protect against commingling increases. With 4 respect to permeation, we need to hear more on that. We 5 are concerned. We don't believe that is trivial. And 6 we're anxious to see the results of the study that 7 hopefully is under way soon. 8 Other commitments that we have to you are to 9 monitor sulfur levels. As you heard earlier, Mr. Simeroth 10 indicated that our expectation, at this point, is that 11 we'll see sulfur levels at around the 10 ppm level, plus 12 or minus. Our intent is to monitor levels as we start 13 seeing the fuels in the marketplace. We'll also be 14 monitoring the other parameters so we'll be in a position, 15 once the program is implemented and we see fuels out 16 there, to take a look at what's actually being produced in 17 the real world and then can report back to you and proceed 18 from there. 19 CHAIRPERSON LLOYD: Yeah, I guess at least 20 from -- personally from the time when we looked at this to 21 today, I'm more conscious of some of the deficits we're 22 going to see in future years. And I think we -- as Mr. 23 Herwick identified here, anything we can do to get some 24 additional reductions I think are going to be increasingly 25 important. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 65 1 I recognize also today that probably something 2 like this has implications for the industry that probably 3 we can't do anything about today. But I would like to at 4 least personally ask staff to take a real hard look. And 5 some of these cases, rather than being reactive, can we be 6 proactive, because clearly the rest of the world is going 7 down to those lower sulfur things and we do -- I think we 8 agree with you completely that this is an area where we 9 would like to see, you know, continuing progress. And it 10 does free us up to look at some of these other exciting 11 technologies that we all want as well. 12 So maybe you can continue to look at that. And I 13 guess in November if that comes back, to report back to us 14 and maybe we can have some discussions ahead of that time 15 to take a look at what we can do there. 16 Other comments? 17 Mr. Calhoun. 18 BOARD MEMBER CALHOUN: I think we've known about 19 the commingling and the permeation effects for a long 20 time. And I think the staff has tried to take that into 21 consideration in what they've done up to this point. But 22 I guess what I hear Gary saying is that we ought to be 23 looking at improving the composition of the fuel in terms 24 of further minimizing the commingling and the permeation 25 effect. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 66 1 And I would second the suggestion that we really 2 follow up on this and see what can be done. And I'm sure 3 that's -- it's kind of standard procedure anyway. You've 4 done that in the past. So I would assume that you will 5 continue to do that in the future. 6 CHAIRPERSON LLOYD: I would just say as an aside, 7 Gary, that there are some of us who feel sometimes we're 8 put in the position that if you put General Motors in 9 there instead of sulfur, we'd feel sometimes in that 10 position also. So any chance we have to work with you to 11 get to that promise land, we would like to take advantage 12 of that. 13 MR. HERWICK: Chairman Lloyd, I didn't have the 14 opportunity to show a General Motors cartoon today, but I 15 did have the sulfur. 16 BOARD MEMBER DeSAULNIER: Well, I would like to 17 point out, there are no SUVs in this cartoon. 18 (Laughter.) 19 BOARD MEMBER DeSAULNIER: They look like they're 20 all very high -- good gas-mileage cars. 21 Alan, what you're suggesting is that we look at 22 the suggestions, including sulfur, the other issues, when 23 we come back in November? 24 CHAIRPERSON LLOYD: Yeah, because obviously I 25 think we had gone through these things I think that Peter PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 67 1 indicated and we clearly made some decisions based on what 2 we saw at that time, and adding flexibility. My only 3 comment here where I saw a little bit different is that 4 having seen some of the numbers that -- throughout the 5 state, whether we look at South Coast, San Joaquin, Bay 6 Area, we're going to be struggling for, you know, every 7 turn upon the emissions we can get. And I was asking 8 staff to go back. And clearly we'd have to work with the 9 energy industry, the oil industry here to see if, in fact, 10 what -- can we, in fact, push some more here, can we get 11 something out? And I think this is what Gary is saying. 12 So that's what I was looking -- but it's a 13 complicated issue because you can't just tell staff, "Go 14 and do it" because all these things are intertwined. 15 BOARD MEMBER DeSAULNIER: Mike's making a -- 16 EXECUTIVE OFFICER KENNY: Well, what I was 17 basically saying is that we can actually kind of give you 18 a status report, an informational update on kind of what 19 our initial thinking is. But we won't be able to provide 20 kind of a regulatory proposal within that timeframe. 21 BOARD MEMBER DeSAULNIER: Well, I'd be 22 particularly interested, Mike -- if my memory serves me, 23 when we discussed this, the costs to implement this for 24 the refiners was like a half a billion dollars statewide. 25 So under this regulation how can we continue to move in a PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 68 1 direction that we all want to? 2 And it is odd to agree with GM. Maybe you'd like 3 to join us in the waiver lawsuit. We could use your 4 lawyers for awhile. 5 (Laughter.) 6 BOARD MEMBER DeSAULNIER: You know, I would be 7 interested to know sort of how capable are we -- how able 8 are we to pursue this given the capital costs that we 9 directed the refiners to do and keep the costs to the 10 consumers as low as we can? 11 EXECUTIVE OFFICER KENNY: All right. 12 BOARD MEMBER DeSAULNIER: Thank you, Mr. Chair. 13 CHAIRPERSON LLOYD: Professor Friedman. 14 BOARD MEMBER HUGH FRIEDMAN: Well, just to 15 annotate that thought, I want to remind all of us that 16 the -- we got to hurry up the timetable, because you 17 remember what happened with Moses, he didn't get to see 18 the promise land. 19 (Laughter.) 20 BOARD MEMBER HUGH FRIEDMAN: So those who are 21 leading the way may -- sometimes don't get to enjoy the 22 fruits. 23 CHAIRPERSON LLOYD: Thank you. 24 Thank you, Gary. Appreciate that. 25 Gary Welch, Williams; Cal Hodge, A2 Opinion; and PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 69 1 John Marchand; and then James White. 2 MR. WELCH: Good morning, Chairman Lloyd, Members 3 of the Board, members of staff. My name is Gary Welch. 4 I'm a Technical Support Manager for Williams Bioenergy in 5 Pekin, Illinois. Williams is the second to the largest 6 producer marketer of ethanol in the United States. 7 I'm speaking today on behalf of Williams as well 8 as on behalf of the Renewable Fuels Association. The RFA 9 is a trade association for the domestic ethanol industry. 10 Williams has been an active participant in the 11 Phase 3 rulemaking process, and we were engaged with the 12 CARB staff in the adoption of the new denatured ethanol 13 standards. 14 I'm here this morning to address the Phase 3 15 regulations and to ask your action. Although the MTBE 16 phase out has been delayed one year, we believe the new 17 Phase 3 denatured ethanol specification, that would be 18 Section 2262.9, should go into effect on December 31st of 19 this year for the following reasons: 20 First of all, it is the right thing to do. The 21 industry is volunteering to meet a more stringent standard 22 one year early. This includes denatured specifications of 23 10 parts per million sulfur, .06 percent Benzene, 1.7 24 percent aromatics, and .5 percent olefins. 25 The RFA has completed an extensive survey of PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 70 1 domestic ethanol producers, and the results indicate the 2 industry can comply with the new standards. 3 Some producers, including Williams, may have had 4 to change denaturants to meet these new standards, and we 5 have done so. The RFA Board, which met earlier this week, 6 approved adoption of the Phase 3 ethanol standards 7 effective December 31st, 2002. 8 Unless the Air Resources Board adopts the Phase 3 9 standards two different grades of ethanol would be allowed 10 in the California marketplace. This would make it more 11 difficult for enforcement and would reduce the flexibility 12 in exchanging and in sale -- and purchase and sale 13 agreements to the ethanol industry. 14 We encourage the Board to adopt the new denatured 15 ethanol standards today. We will begin ethanol shipments 16 later this year to California as refiners begin the 17 conversion from MTBE to ethanol. 18 If the Board delays this issue until the November 19 meeting, two grades of ethanol would be allowed during a 20 time when refiners are making the conversion from MTBE to 21 ethanol. 22 Our industry is offering to accept accountability 23 for compliance of the new standards one year before the 24 proposed compliance date. We do not see any downside to 25 the State or any other stakeholders. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 71 1 We have discussed early adoption with a major 2 international ethanol producer also, and they have no 3 problems with compliance. 4 Our proposal we believe is the right thing to do 5 and we stand ready to meet the challenge of providing 6 adequate supply to California refiners on time and on 7 spec. And I urge again that you take the action today. 8 Thanks for the opportunity to speak. 9 CHAIRPERSON LLOYD: Thank you. 10 Staff's response? 11 On the surface it looks like a good idea. 12 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION 13 CHIEF SIMEROTH: Mr. Chairman, this issue was discussed at 14 both of the two workshops on this issue and also in 15 private discussions with individuals, both Williams and 16 refiners. 17 Why we didn't bring it to the Board as being 18 proposed today is that while most of the domestic 19 production will comply, some of the imported production 20 had some concern about its ability to precisely comply. 21 It became a flexibility argument, that it would be easier 22 to find foreign sources of ethanol in this one-year period 23 that would be available without the adoption of this and 24 would not be available with the adoption of this. So we 25 got sort of a split answer from everyone on it. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 72 1 So it really came down to -- the intent of the 2 proposal was to provide flexibility. We viewed this as 3 delaying it one year provided more flexibility than 4 retaining the schedule, is where we came down. 5 CHAIRPERSON LLOYD: So as the concern about the 6 competitive issue, and it might put Williams in a great 7 spot, but -- and I noticed that you added an additional 8 comment in your presentation compared to your -- you had 9 discussed this with one international provider. 10 MR. WELCH: Yes. 11 CHAIRPERSON LLOYD: I guess another question to 12 staff here. If you look at -- if you identified your 13 contact in the international community, that company and 14 yourselves, how much of the market would you serve? Or 15 does staff -- of course, I don't know what the partner and 16 they probably don't know. 17 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION 18 CHIEF SIMEROTH: Dr. Lloyd, in discussing with the 19 refiners who were affected, the amount of volume that 20 would be affected is relatively small. Most of the volume 21 would fully comply. Again, we didn't see this as a major 22 issue if the argument slanted more on the side of 23 flexibility than not. 24 We didn't get a good clear answer. It's a few 25 percent of the import would have a problem. Domestic, by PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 73 1 and large, you heard correctly, would be okay. 2 CHAIRPERSON LLOYD: Comments from my colleagues? 3 Any questions, comments? 4 Thank you. 5 Ms. Walsh, if we decided today to act on this, 6 legally could we act on it even if we wanted to? 7 GENERAL COUNSEL WALSH: Well, the question of 8 whether it would be within the scope of the notice 9 probably is a touchy one. We do have, you know, a 10 significant amount of flexibility in terms of making 11 changes to regulations that we've noticed for change. 12 This is a little out of the normal view of what we were 13 doing here, but I don't know that I would say it's outside 14 the scope of the notice. 15 CHAIRPERSON LLOYD: All right. I know I sense 16 staff's concern. I guess my concern -- on the face of it 17 it looks like a good idea. But when you've got one 18 supplier coming in, say there may be other unintended 19 consequences. But we'll see. 20 Thank you very much. 21 Oh, Professor Friedman. 22 BOARD MEMBER HUGH FRIEDMAN: I'm a little 23 troubled. I'm just wondering what -- realistically to 24 what extent the refiners in converting by year-end, the 55 25 percent or more that will be -- or I mean those that PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 74 1 will be that will -- the source of over a majority of our 2 fuel, to what extent would they gear up for different 3 grades? Except maybe, I don't know, maybe do some 4 blending or something. I understand it's a supply 5 question and ultimately competition from abroad, I guess. 6 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION 7 CHIEF SIMEROTH: Professor Friedman, practically speaking 8 a refiner would know the quality of the ethanol he's 9 receiving. He would adjust the parameters of his gasoline 10 that he's producing to blend with that ethanol to reflect 11 those qualities. The loss of enforcement comes into -- 12 Air Resources Board would not be able to inspect and 13 determine if the age of ethanol fully complied to 14 facilitate final compliance. 15 In terms of the refiners producing it, with the 16 use of the predictive model, it's a fairly straightforward 17 adjustment on their part. 18 BOARD MEMBER HUGH FRIEDMAN: And it's only a 19 period up to a maximum of a year, right? I mean we're 20 talking about a transition. 21 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION 22 CHIEF SIMEROTH: Professor Friedman, that is correct. It 23 would be this one-year interim period. 24 BOARD MEMBER HUGH FRIEDMAN: So a flexibility of 25 some minimal quantity for up to a year? PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 75 1 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION 2 CHIEF SIMEROTH: Yes. 3 BOARD MEMBER HUGH FRIEDMAN: I think it's 4 commendable that the domestic producers in the main are 5 ready to go and they've got -- they're ready to meet it. 6 Again, I think it's wonderful. 7 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION 8 CHIEF SIMEROTH: Professor Friedman, we agree on that 9 sentiment. We've come a long ways with the ethanol 10 producers on this. 11 CHAIRPERSON LLOYD: Thank you. Thank you very 12 much. 13 Cal Hodge, John Marchand, and James White. 14 MR. HODGE: Thank you, Mr. Chairman, Board 15 Members. 16 I'm Cal Hodge, President of A Second Opinion, 17 Incorporated, out of Houston, Texas. I'm here to -- I 18 have about three comments that I want to make today. I've 19 supplied written comments and I've boiled them down for 20 this presentation in front of you in order to save time. 21 --o0o-- 22 MR. HODGE: The first two have to do with supply 23 and price. The prohibition on oxygenates other than 24 ethanol will disrupt the supply if not amended. I think 25 that was spoken to by Mr. Uihlein earlier this morning. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 76 1 And, I agree, we need to have that on the November agenda 2 and get it taken care of. 3 The other has to do with the T50 cap. I have a 4 lot of refining experience. And when you take the ethers 5 out of gasoline, it's going to be very hard for them to 6 find the right molecules to make that T50 that the auto 7 industry is looking for. 8 --o0o-- 9 MR. HODGE: One concerns air quality. I've been 10 doing some independent research this year. And I'm really 11 concerned that the science of ethanol's air quality impact 12 may be defective. 13 I've seen some data that ethanol may actually 14 increase ozone exceedances. I feel like the kid who 15 looked at the emperor and said he's buck naked, because 16 everything is not always rosy. 17 Supply and price concerns. My concern with the 18 regulations that you're passing today is the definition of 19 these other oxygenates is an absolute zero, and chemists 20 could actually delete supply. But I think you're going to 21 put that on the November agenda, so I'm going to move on. 22 --o0o-- 23 MR. HODGE: On the T50 cap, I brought this to 24 your attention in November of 2000. Propylene alkylate, 25 which is the key component that refiners would be using to PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 77 1 meet that T50 standard, just is not available. The 2 stillwater work that resulted in this postponement we're 3 covering today confirmed that might be a supply problem. 4 And I just want to continue to urge you to relax the T50 5 cap. I'm departing from my friends in the auto industry 6 on this, but I think it will help your supply long term. 7 --o0o-- 8 MR. HODGE: The thing that I'm most concerned 9 about today, and this is a concern because I have family 10 that lives here in California, down in El Cajon, is that 11 when I looked at the ozone exceedance data when we did 12 that massive experiment of switching to reformulated 13 gasoline back in 1995, I noticed that the areas that used 14 ethanol the ozone exceedance is doubled. I couldn't 15 explain that for awhile. But some of the information that 16 I picked up in last summer's meetings with staff on these 17 reformulated gasoline issues reminded me that ethanol's 18 NOx emissions are much greater, ethanol's permeation 19 emissions, and ethanol has a poor driveability that 20 increases exhaust emissions. 21 I'm concerned that as California switches to 22 ethanol, you're really doing Phase 2 of the experiment to 23 see whether or not the atmospheric science around ethanol 24 is valid. 25 --o0o-- PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 78 1 MR. HODGE: Here's the data that I pulled down 2 from EPA's database. The areas on the left-hand side, 3 areas using ethanol, ozone exceedance doubled. I measured 4 these several different ways, calculated the percent 5 change between '93-'94 and '95-'96, which is before and 6 after the reformulated gasoline, and ethanol did not look 7 very good. 8 Now, the areas that made no change in fuel 9 quality, apparently some weather changes or something got 10 in there, they had an increase of about 40 percent. Areas 11 using ethers actually were effective in reducing ozone 12 exceedances. They were down 20 percent. But that's no 13 longer an issue here. California has a ban on ethers. 14 And the question is where to go from today. 15 --o0o-- 16 MR. HODGE: I looked at this data that the auto 17 industry produced at a July 12th, 2001, workshop. And it 18 reminded me that the auto oil study also showed that 19 ethanol increased NOx emissions 5 percent, whereas 20 ethers -- versus ethers and hydrocarbons that had no 21 change. One of the concerns I have is that we do not have 22 much data at 2-weight percent oxygen or the 5.7 percent 23 ethanol that's likely to be used. 24 And if the NOx response is linear with ethanol 25 content versus the product you're using today, which is PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 79 1 MTBE, you can see as much as a 9 percent increase in NOx 2 emissions. If that happens, your areas that are NOx 3 limited as far as ozone formation is concerned should not 4 be using ethanol. 5 --o0o-- 6 MR. HODGE: Permeation. We've heard permeation 7 several times today. I picked up this chart at that same 8 meeting. It shows that the permeation losses are very 9 great with 10 percent ethanol versus gasoline without any 10 ethanol. 11 Much bigger than some of the numbers we've been 12 talking about earlier this morning. 13 --o0o-- 14 MR. HODGE: The other thing is, my friends in the 15 auto industry, the reason they're interested in T50 is 16 because it's a major parameter in driveability. I'm on 17 the opposite side from them at this time simply because I 18 don't believe the refiners have the molecules to make that 19 type of gasoline. I think the auto industry and the 20 refiners probably should talk with each other about maybe 21 trading sulfur for T50 relief, but I can't broker that 22 deal. 23 But the important thing is that one of the 24 arguments for driveability index is that as driveability 25 increases, emissions increase. A 10-percent ethanol blend PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 80 1 could give you 19 percent increase in exhaust emissions. 2 A 5.7 percent ethanol blend could give you 11-percent 3 increase in exhaust emissions, and that is not going to be 4 good for ozone. 5 In order to quantify the effects of permeation, 6 NOx, driveability, I took the EPA complex model because 7 I'm familiar with that model. I'm not real fluent in the 8 predictive model. It's an excellent model, but I just 9 don't know it that well, and amended it to take into 10 account the permeation numbers, the NOx numbers, and the 11 driveability numbers. And, low and behold, when I 12 calculated the numbers, I found that the simple model RFG 13 that was introduced in 1995, if you used ethanol, it 14 actually increased the VOC emissions, it actually 15 increased the NOx emissions. 16 And to form ozone, you have NOx, VOC, and 17 sunlight reacting in that atmospheric soup. And ethanol 18 did not do what it was supposed to do if the permeation 19 numbers are correct, if the driveability numbers are 20 correct, and if the NOx numbers are correct. Therefore, 21 that has some problems. 22 The timing of the switch to ethanol indicated 23 that ethanol increased ozone. When I did my calculations, 24 it says, oh, not only does timing indicate it here, but 25 here is a mechanism by which that happened. Now, that PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 81 1 tells me that the popular atmospheric science surrounding 2 the use of ethanol is flawed. 3 --o0o-- 4 MR. HODGE: And guess what we're doing? We are 5 conducting a test here in California. Fifty-five percent 6 of the gasoline in California will be using ethanol next 7 year. And I think that we need to watch in 2003-2004 to 8 see if there is an increase in ozone exceedances. And we 9 need to develop a contingency plan now to stop the use if 10 California has the same experience that the midwestern 11 areas that use reformulated gasoline made with ethanol had 12 when we switched between conventional gasoline and RFG in 13 '95. 14 Thank you. 15 CHAIRPERSON LLOYD: Thank you. 16 Mr. Calhoun. 17 BOARD MEMBER CALHOUN: Isn't there a federal 18 requirement for ethanol in gasoline? 19 MR. HODGE: There is a federal -- Mr. Calhoun -- 20 or excuse me -- Board Member Calhoun, there is a federal 21 requirement for oxygen in gasoline. The marketplace chose 22 to use ethanol in the upper midwest and to use MTBE in the 23 coastal nonattachment areas from California all the way up 24 to the northeast. There is a federal subsidy for using 25 ethanol in gasoline. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 82 1 BOARD MEMBER CALHOUN: For using ethanol? 2 MR. HODGE. Yes. Yeah, they pay people to use 3 the product because when you calculate the cost of making 4 ethanol, it costs more to make it than -- 5 BOARD MEMBER CALHOUN: I know the story. I know 6 that story. 7 CHAIRPERSON LLOYD: Professor Friedman. 8 BOARD MEMBER HUGH FRIEDMAN: Well, I guess the 9 next question is, if you don't use MTBE and you don't use 10 ethanol and you've got a federal mandate to oxygenate, 11 what do you do? 12 MR. HODGE: It's a difficult situation, sir, and 13 I don't really have an answer to it. But I know that if 14 your air quality goes the wrong direction, I think you 15 have a stronger argument -- 16 BOARD MEMBER HUGH FRIEDMAN: -- well, a much 17 strong case for a waiver or -- 18 MR. HODGE: -- on a waiver. 19 BOARD MEMBER HUGH FRIEDMAN: Yeah. But it 20 depends on whether the federal government cares. 21 MR. HODGE: I can't do anything about the federal 22 government. 23 BOARD MEMBER HUGH FRIEDMAN: I mean they care on 24 the one hand. We've got our inventory and we've got 25 our -- PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 83 1 MR. HODGE: Well, the entire program on air 2 controls -- you know, we've talked about tons of this and 3 tons of that. The program as it's set up today really 4 gives you credits for reducing tons of this and tons of 5 that, but doesn't give you credit for reducing ozone. As 6 a matter of fact, if an area is in attainment for ozone 7 and they want to do something to prevent going 8 nonattainment, the federal program actually prevents that. 9 So this is a ton game as opposed to an ozone game. 10 But what I'm saying is that I heard some reports 11 on what ozone did to lung function this morning, and I 12 don't want those to happen to people in California. And 13 we have a limited set of data that showed ethanol did not 14 do what it was supposed to do. You are moving into a 15 situation where you're basically repeating that test. And 16 by telling you the emperor was naked today, if your ozone 17 exceedances go up next year and in 2004, I think that I've 18 added credibility to what I'm telling you today. 19 CHAIRPERSON LLOYD: Well, certainly I appreciate 20 your comments. And now what I would suggest, to follow 21 through on one of your suggestions here, that is, have the 22 staff review and look at ethanol-added participates in a 23 predictive model and the parameters there. I think that 24 would be very, very useful. I think anything that you can 25 shed light on understanding again the role of ethanol is PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 84 1 always helpful. And I think we're aware of some of the 2 issues you addressed, but I think that we'll be monitoring 3 those carefully. 4 Mr. Scheible, did you want to say -- 5 DEPUTY EXECUTIVE OFFICER SCHEIBLE: Yes. And as 6 part of the adoption of the Phase 3 regulations and then 7 assessment -- environmental assessment of ethanol, we did 8 a very, very complete assessment using state of the art 9 models and every bit of science that we could get, and had 10 that peer-reviewed. 11 We are confident that we've designed a program 12 that -- with ethanol being used as the oxygenate, we've 13 preserved the benefits of the program that it's replaced. 14 So this information is something we need to look into, but 15 right now staff would say we are not at the same place and 16 we have a fair degree of confidence that we will not see 17 adverse air quality impacts. The one issue I need to 18 identify -- but we are concerned about the permeation. 19 That's one thing we've got to do a better job on. 20 CHAIRPERSON LLOYD: Yeah. 21 MR. HODGE: Well, like I say, I do not believe 22 your models picked up the permeation, I do not believe 23 they picked up the driveability. But I agree with you 24 that the published science that we looked at does indicate 25 ethanol works. What I'm concerned about is that when I PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 85 1 actually broke down the ozone exceedances, it made it look 2 like ethanol did not work. And when I factored those 3 items in, it did the classic problem solving, "There's a 4 problem." And I'm sorry to do that to you this morning, 5 but I needed to do that. 6 Thank you. 7 CHAIRPERSON LLOYD: Well, you've given us 8 something -- 9 MR. HODGE: Gave you something to think about, 10 didn't I? 11 Thank you, Dr. Lloyd. 12 CHAIRPERSON LLOYD: Thank you very much. 13 John Marchand. 14 Oh, sorry. Mr. McKinnon. 15 BOARD MEMBER McKINNON: I'm curious from staff. 16 I was interested in this kind of contingency discussion. 17 And more interested than the contingency, I'm interested 18 in whether or not we have a plan and a way to measure 19 whether or not what we're doing is working. 20 DEPUTY EXECUTIVE OFFICER SCHEIBLE: Well, we'll 21 clearly know what's happening with air quality. And we 22 follow that very closely. And so if we have air quality 23 effects, we'll detect them. And we'll have to determine, 24 if air quality is worse in the next couple of years, is 25 that possibly due to some change in the emissions PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 86 1 associated with the fuel or is it meteorology or whatever. 2 We don't really have any contingency to say, "Well, if we 3 decide ethanol is bad, what do we do?" because we've got 4 to then go work on some basic laws or a waiver case. 5 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION 6 CHIEF SIMEROTH: If I could, I could maybe clarify a 7 little bit. 8 The California predictive model has a surrogate 9 for the driveability index, and that's our 50 and 90 10 percent distillation temperature requirements. The EPA 11 model really does not have that. Now, their model 12 responds to those two properties is very much different 13 than how the California model responds to those two 14 properties. So it's two -- it's apples and oranges in the 15 comparison and how our program works compares to the U.S. 16 EPA's. And our commitment to follow the driveability 17 index was made in recognition and we don't want it to 18 change. And we think the model's protective of that, but 19 we're going to go the extra step. 20 CHAIRPERSON LLOYD: Okay. Thank you. 21 Mr. Marchand. 22 And James White and Neil Koehler. 23 MR. MARCHAND: Mr. Chairman, Members of the 24 Board, I am John Marchand. I'm a Board member with the 25 Zone 7 Water Agency, also known as the Alameda County PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 87 1 Flood Control and Water Conservation District Zone 7. 2 We're in the Livermore-Amador Valley in the San Francisco 3 Bay Area. 4 We've mailed our comments to the Board, and I 5 just wanted to elaborate a bit with some abbreviated 6 comments of my own. 7 The Alameda County Flood Control and Water 8 Conservation District Zone 7 expresses its deep concern 9 with the proposal to postpone the statewide prohibition 10 MTBE in California gasoline. 11 Under the proposed amendment the prohibition 12 would be delayed from January 1st, 2003, to January 1st, 13 2004. This delay would subject many of California's 14 groundwater resources to an unnecessary increased risk of 15 MTBE contamination. Accordingly, Zone 7 strongly 16 recommends that the Air Resources Board revise its 17 proposed amendments to maintain the current phase-out 18 date. 19 Zone 7 is the primary water supplier to over 20 180,000 people in the Livermore-Amador Valley in eastern 21 Alameda County. Our groundwater basin contains almost a 22 quarter million acre-feet of drinking water, enough to 23 supply the City of Sacramento for an entire year. This 24 groundwater basin not only contributes a significant 25 portion of the public's water supply on an annual basis, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 88 1 but it also stores our reserve water supply which we 2 further rely upon during times of drought. 3 During the State Water Resources Control Board's 4 ambient groundwater monitoring and assessment program, 5 so-called the Gamma Program, conducted by Lawrence 6 Livermore National Labs, it assessed the relative 7 susceptibility of our groundwater to contamination by 8 surface sources such as gasoline stations. 9 They concluded that the eastern portion of our 10 groundwater basin has a "high degree of vulnerability to 11 contamination from surface sources." 12 The Air Resources Board staff report initial 13 statement of reasons, release date June 7, 2002, 14 acknowledges the delaying of the phase out of MTBE for 15 another year may result in the contamination of additional 16 public water supply wells. 17 Now, to address Board Member Friedman's comment 18 regarding relief for water districts. If the Air 19 Resources Board decides to approve the postponement of the 20 MTBE prohibition, Zone 7 strongly encourages that the 21 postponement only be applicable to those portions of the 22 State where public water supplies exhibit relatively low 23 vulnerability to MTBE contamination risks. 24 In the areas that the State Water Resources 25 Control Board has determined through its Gamma Program to PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 89 1 have relatively high risk or a high degree of 2 vulnerability to contamination from surface sources, that 3 the storage and sale of gasoline containing MTBE should be 4 prohibited by the proposed date of January 1st, 2003, as 5 originally ordered by Governor Davis, such as was done 6 with the model in Tahoe. 7 We believe that the Air Resources Board should 8 and can work closely with the State Regional Water Control 9 Board to identify those areas. We also believe that by 10 selectively phasing out MTBE in these areas that show a 11 high vulnerability to surface contamination, that the 12 financial and logistical concerns and problems associated 13 with the near-term ethanol supply shortage will be greatly 14 reduced. 15 Simply put, to delay this ban on MTBE will put 16 more wells and people at risk. We encourage you to keep 17 Governor Davis' original MTBE phase-out date for 18 California gasoline, especially in those areas where the 19 State has determined that municipal groundwater supplies 20 are particularly vulnerable. 21 Thank you. 22 CHAIRPERSON LLOYD: Thank you very much. 23 Is it feasible to target some areas? 24 MR. MARCHAND: The Gamma Program has done that. 25 CHAIRPERSON LLOYD: I was asking staff. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 90 1 MR. MARCHAND: Oh, sorry I jumped in. 2 CRITERIA POLLUTANTS STATIONARY SOURCE DIVISION 3 CHIEF SIMEROTH: Dr. Lloyd, in developing the staff's 4 proposal and meeting with the members of the State Water 5 Resources Control Board, the California Energy Commission 6 and Department of Health Services and Office of 7 Environmental Health Hazard Assessment -- and these 8 meetings were coordinated by Cal EPA so we could all get 9 together and talk freely -- we considered the proposal 10 that's been brought forward today. 11 In looking at the distribution system gasoline, 12 we couldn't make that distribution system match these 13 areas. And so what you then run into is the potential of 14 changing how gasoline is supplied to the effect that you 15 could have shortages, stations having to change who they 16 are branded with, or close -- probably close -- and other 17 problems. And sort of it went against the flexibility 18 that we're trying to address and avoiding the price 19 run-ups and other shortfalls. 20 We would have liked to have come up with an 21 answer that would accommodate the request. It just wasn't 22 there. 23 STATIONARY SOURCE DIVISION CHIEF VENTURINI: I 24 would just like to add to that something that's been 25 already mentioned, is that the good news on this is that PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 91 1 we have about 55 percent of the gasoline supply that will 2 be converted. So that in itself will serve to minimize 3 that risk that the gentleman's concerned about. 4 CHAIRPERSON LLOYD: Thank you very much. 5 James White, Neil Koehler. 6 (Thereupon an overhead presentation was 7 presented as follows.) 8 MR. WHITE: Sorry for that delay. Apparently my 9 PowerPoint is working, but -- is not working, but my PDF 10 file, I gave both of those in here, and the PDF is 11 working, so we'll go on the PDF. 12 Mr. Chairman, Honorable Board Members, 13 distinguished staff members, my name is Jim White. I'm 14 with White Environmental Associates out of Brea, 15 California. And my comments today are in support of the 16 Governor's decision and addressing many of the points that 17 you just heard from one of the water purveyors. And I 18 believe they're a member of the Association of California 19 Water Agencies. And I believe you all have a letter from 20 them expressing their concerns. 21 I just thought I'd go through and show you how 22 the Governor's decision was justified and how it is 23 justified. 24 --o0o-- 25 MR. WHITE: Just a few clarifications. Number PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 92 1 One, California's revitalized UST program. There is 2 declining impacts on public wells. There is an issue of 3 UST vapor leaks that I'd like to touch on briefly. 4 And going to the water costs versus MTBE 5 phase-out costs, I believe the letter specifically 6 requests that the Board address that. And I believe 7 between the California Energy Commission and the Water 8 Board and the California Air Resources Board that has been 9 addressed. 10 --o0o-- 11 MR. WHITE: First, I'd like to point out some of 12 the more significant -- and this is a short list of the 13 things that have been done to the UST program that have 14 enhanced protection of water resources, particularly 15 groundwater resources. Prior to this point, there was a 16 three-year interim between inspections. According to law, 17 that's now once a year. That's going to be a big 18 improvement right there. In other words, the agencies 19 have to inspect every site once a year. 20 There is enhanced protection of vulnerable 21 drinking water sources from single-walled tank systems, 22 which have been mentioned before. A phase in of the 23 installation of under-dispenser containment, that is, 24 containment underneath those gasoline dispensers that sit 25 on those islands because they are a primary source of PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 93 1 leaks. 2 Increased training requirements. The people 3 selling gasoline as well as twinkies out in the front room 4 will know what these alarms and lights are all about in 5 the backroom when there's a problem with the UST system, 6 and they won't disable the system and turn it off. That's 7 a very important element and I personally am participating 8 in that part of the development, the regulations. 9 Periodic testing of secondary containment 10 systems, which is kind of a backup to the backup. 11 Increased civil penalties for those people that do dare to 12 tamper with or disable leak detection systems. And, 13 finally -- I shouldn't say finally because there's more. 14 But there has been a mapping of the UST, the underground 15 storage tank systems, throughout the State; the leaking 16 underground tank systems throughout the State; and the 17 public service wells, so you can see where they are in 18 relation to each other and agencies can adequately plan to 19 reinforce their enforcement activities and give priority 20 to those places that are close to public service wells. 21 This mapping is also being used in the enhanced protection 22 of vulnerable drinking water sources, as mentioned under 23 dot number 2. 24 --o0o-- 25 MR. WHITE: This is just an illustration of what PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 94 1 a double-wall tank system looks like. I'm not going to go 2 through it detailed. But just for your information, it is 3 very protective if installed and maintained properly. 4 --o0o-- 5 MR. WHITE: This is a slide that I stole from the 6 California Energy Commission, showing where they mapped 7 out the presence of MTBE in public wells over time since 8 1998. This information comes directly from California 9 Department of Health Services, which is tracking this 10 activity. 11 --o0o-- 12 MR. WHITE: You've seen some news reports 13 recently about two-thirds of the UST tanks leaking. Well, 14 in this field-base research that was ordered by SB 989, 15 the State Water Resources Control Board appropriately 16 selected a very sensitive test to test all these tanks 17 that they were going to test out in the field. It's 18 called tracer type. 19 They tested 182 UST systems located in three 20 different counties of California. Only one system, one 21 facility showed a confirmed liquid leak. 22 However, 61 percent of the sites had detected 23 vapor leaks. Most of these vapor leaks were .04 gallons 24 equivalent liquid gallons per day; very, very minuscule. 25 And it's important to note that these vapor leaks PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 95 1 were in the upper portion of the UST systems. And I 2 personally challenge the thought that this is a 3 groundwater threat. And I'll show you why in my next 4 slide please. 5 --o0o-- 6 MR. WHITE: There are several papers that have 7 been put together on this phenomenon of gasoline vapor and 8 soil. One of the papers deals with advection, which tends 9 to lift the vapors into the atmosphere; and gaseous 10 diffusion is a subject of another article that talks about 11 how in the deeper environment it kind of goes from the 12 point of greatest concentration to that of the least 13 concentration. 14 Because these leaks, these vapor leaks have been 15 found in the upper portion of the tanks, it's my 16 contention based on what I've read and researched that 17 these vapors go to the atmosphere. They are a -- could be 18 a minimal air quality problem, but they are not a 19 groundwater problem, unless that facility is absolutely 20 located in a wet environment. 21 In other words, it was installed in an area that 22 is very close to the groundwater table. And even then, 23 folks, were talking about vapors here; very, very low 24 mass. 25 And if it's leaking to the point where it would PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 96 1 be a problem, I would venture to say it's in violation of 2 either the State Water Board regulations or your 3 regulations, one or the other. 4 --o0o-- 5 MR. WHITE: I just want to emphasize the fact 6 that in the Governor's Order D 52-2 -- 02, he does mention 7 specifically the strengthening of the UST program and 8 enforcement of that program, significantly decreasing the 9 volume and rate of MTBE discharges. And that is confirmed 10 by the statistics. It's a fact. It's a fact of life. 11 --o0o-- 12 MR. WHITE: I also wanted to remind you of the 13 results of the infamous University of California MTBE 14 study. That study predicted significant costs in cleaning 15 up if MTBE were to remain in gasoline, and minimal costs 16 to phase out MTBE in gasoline. Well, now we have some 17 real data to work with. 18 --o0o-- 19 MR. WHITE: And, again, I borrowed these from 20 Gordon Schremp -- thank you, Gordon, for letting me use 21 these -- with the California Energy Commission. 22 But you can see in the real world the water 23 remediation costs are about the size of what the gasoline 24 costs were in the UC study, and the costs to phase out 25 MTBE is in the other direction. They're almost a mirror PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 97 1 reflection of the two if you put them side by side. 2 --o0o-- 3 MR. WHITE: And I just wanted to put this slide 4 up. I think this has been adequately covered today. It 5 just points to the fact that California is already short 6 on gasoline. And I won't go any further than that. 7 --o0o-- 8 MR. WHITE: I'd like to leave you with the 9 thought that the threat to groundwater from MTBE in 10 gasoline is only as great as the deficiencies of the 11 resident petroleum storage integrity assurance programs. 12 It's that simple. 13 Thank you very much. Are there any questions? 14 CHAIRPERSON LLOYD: Thank you very much, Jim. 15 Very good information in here. 16 Questions from the Board, comments from the 17 staff? 18 Thank you very much. It's been helpful. 19 MR. WHITE: Thank you very much. 20 CHAIRPERSON LLOYD: Lastly, we have Neil Koehler. 21 Neil was around, I know. But he, I guess -- 22 there he is. 23 Just in time. I was just about to close. 24 I guess, Neil, you heard the comments about 25 ethanol and you couldn't resist coming up. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 98 1 MR. KOEHLER: Couldn't resist. 2 And I would like to -- my name's Neil Koehler. 3 I'm with Kenergy Resources, an ethanol development company 4 here in California, have been involved in ethanol 5 production in California for about 20 years. 6 I'm here today representing the California 7 Renewable Fuels Partnership, which is a coalition of 8 agriculture, environmental, local government groups that 9 are trying to voice the opportunity to both use and 10 produce ethanol in the State. And I was interested to 11 hear Board Member D'Adamo's comments asking about ethanol 12 production in the State. I would like to briefly address 13 that. But first of all I do need to just respond to the 14 couple of the issues that were raised on the air quality 15 impacts of ethanol, because I think it caused some 16 confusion. 17 First of all, on the issue of ozone exceedances 18 and defects in the so-called popular science on ethanol, 19 I'm totally confused by that presentation, because there 20 are two areas that are in the federal RFG program that are 21 quite close to achieving attainment and have actually 22 started the process of trying to redesignate for 23 attainment of ozone standards. And they're the only two 24 areas in the country under the federal RFG program that 25 are even remotely close to attainment of ozone standards. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 99 1 And those are Chicago and Milwaukee. 2 And maybe not so coincidentally, those are the 3 two areas that -- the only two areas of the RFG program 4 that use ethanol as the oxygenate as opposed to MTBE. 5 So I do not know where those graphs came from and 6 how they were derived. But I do know that if anybody 7 wants to talk to the Chicago or Milwaukee people, they can 8 give you the straight scoop on their ethanol programs and 9 their ozone exceedances. 10 On the issue of permeation, while we recognize 11 that ethanol will permeate, I think it is very important 12 for the Board to keep in mind the fact that it is not 13 ethanol that causes permeation. It is aromatics in 14 gasoline that cause permeation. 15 And ethanol, as a small molecule, will then 16 permeate once the pores have been opened up by the 17 aromatics in gasoline. And that we as the ethanol world 18 have been trying to encourage that -- in this joint study, 19 that we look at varying levels of aromatics to fully 20 understand the variability of ethanol permeation; that we 21 feel that without that, you have a very incomplete 22 picture. 23 And unfortunately at this point the test program 24 does not include a -- while it does include varying levels 25 of ethanol, it does not include varying levels of PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 100 1 aromatics. And we feel very strongly that will give you 2 an incomplete view. 3 The point being that if in the predictive model a 4 refiner chooses to reduce the aromatics in the gasoline, 5 which is quite possible, that then we would expect, but 6 obviously we'd need to test, that the permeation impacts, 7 whatever they might be, would potentially be reduced and 8 that there would be benefits that could be incorporated 9 and additional flexibility. 10 So we will continue to strongly urge staff and 11 the Board to consider the importance of aromatics in 12 gasoline; because the fact is true, that with no aromatics 13 in gasoline, which is probably not a practical reality in 14 California, but still the fact is true that if there were 15 no aromatics in gasoline, there would be no ethanol 16 permeation. And I think that is just an important point 17 for the record. 18 On a very positive note, we as the California 19 Renewable Fuels Partnership are very excited about the 20 opportunity to produce ethanol in California, and are 21 encouraged to see that Mr. Simeroth indicated that there 22 was potential to produce ethanol in California, the 23 California Energy Commission has done a number of studies 24 and they have indicated a vast potential to produce 25 ethanol from California. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 101 1 Board Member D'Adamo asked specifically about 2 biomassed ethanol. And I agree very much with the 3 comments from staff that it's technically possible, but 4 there are some economic hurdles to overcome. 5 I would say that there is an interim step and 6 that there are probably seven or eight credible projects 7 in California that today are looking to produce ethanol 8 from grain in the Central and Sacramento Valleys of 9 California and in the Imperial Valley from sugar cane. 10 And that those are conventional raw materials that can be 11 very competitive with ethanol plants in the midwest. 12 But what we really need from the State of 13 California, and hopefully when we get through this round 14 of understanding what the rules of engagement are both 15 here in the State and the federal, that we can partner 16 with the State to truly build this industry. And it will 17 take a partnership. That's what we've seen in the 18 midwest. That's why there's 450 million gallons that are 19 currently under construction in the midwest today, is that 20 those governments have really stepped up and have provided 21 the incentives to encourage ethanol production in their 22 states. 23 And we will not be able to build the kind of 24 industry that we can in California without the same level 25 of support and partnership with the State of California, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 102 1 because that's really who we're competing with, are other 2 states that are providing those incentives. 3 The policy framework and justification for that 4 kind of support has clearly been indicated by the Energy 5 Commission's report that has shown that every dollar that 6 the State were to invest in ethanol production in the 7 State would return two to three dollars in both direct 8 economic benefits to the State and in terms of resource 9 benefits. 10 And taking the global picture of being able to 11 mitigate waste disposal problems, providing rural economic 12 development, making a meaningful impact on promoting 13 renewable fuels in CO2ï benefits that accrue through the 14 use of renewable fuels, that when you look at the large 15 picture of ethanol, not only is it great for air quality, 16 but it's good for all these other reasons; and we look 17 forward to being able to work with this Board and the 18 Governor to try to move that forward because it truly is 19 an exciting opportunity to add to our fuel supply and 20 provide additional environmental and economic benefits to 21 the state. 22 Thank you. 23 CHAIRPERSON LLOYD: Thanks very much, Neil. 24 I see no questions. 25 Then we have one last person who signed up -- I PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 103 1 emphasize last -- Steven Smith from Phillips. 2 MR. HODGE: May I clarify a data reference that 3 Mr. Koehler made reference to? 4 CHAIRPERSON LLOYD: Briefly. 5 MR. SMITH: Thank you, Chairman Lloyd and Board 6 Members and distinguished staff members. These comments 7 are brief, I promise. 8 We just thought it might be appropriate -- first, 9 my name is Steve Smith. I'm with Phillips Petroleum. 10 So I thought we might address one question that 11 was discussed earlier, and that was the question of the 12 appropriate date for establishing standards for ethanol 13 quality here in the State. 14 Phillips, as was discussed earlier, is blending a 15 significant amount of ethanol in California gasoline 16 today. And, in fact, we did issue a press release -- I 17 hope you had a chance to look at it -- saying that all 18 1,500 of our Union 76 sites in the State today are 19 converted to a non-MTBE gasoline. So that means we're 20 using a lot of ethanol today. So we're proud of going 21 non-MTBE already. 22 I guess to the point though of the ethanol specs, 23 I think we agree with staff's recommendation that the 24 ethanol specs be placed in late 2003 instead of advanced 25 earlier in late 2002. As a large ethanol buyer today, we PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 104 1 are buying ethanol from both domestic and foreign 2 suppliers in large amounts. And we feel like maintaining 3 that flexibility in our ethanol purchases for the next 4 year is appropriate. 5 Thank you. 6 CHAIRPERSON LLOYD: Any questions? 7 Thank you. 8 A clarification. And I guess -- 9 MR. HODGE: Thank you, Mr. Chairman. I'm Cal 10 Hodge. I want to clarify the reference to the ozone 11 exceedance data. 12 The data shown in my graph was from the period 13 1993 through 1996. I chose that period because under the 14 simple model reformulated gasoline regulations the main 15 thing that changed in the gasolines was the oxygenate and 16 then the choice of oxygenate. 17 It is true, as Mr. Koehler says, that the upper 18 midwest has made some great strides in reducing their 19 ozone problems in the last few years. But the ethanol 20 level has been constant since 1995. So that's not the 21 change that caused the ozone levels to come down. 22 What has happened is that the industry has moved 23 to the complex model, which means they've reduced the 24 sulfur in the gasoline, they've made some very extensive 25 changes in gasoline, and that has caused the improvement PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 105 1 in the upper midwest. But in the period when we could 2 isolate the change from no ethanol to ethanol, they had 3 doubled the exceedances. And I am concerned that we may 4 have the same problem when we move into an ethanol era 5 here in California. 6 Any other questions? 7 CHAIRPERSON LLOYD: Thank you very much. 8 MR. HODGE: Thank you. 9 CHAIRPERSON LLOYD: Yes, is there any -- last of 10 the witnesses. So any other comments from the staff? 11 EXECUTIVE OFFICER KENNY: No more comments. 12 CHAIRPERSON LLOYD: I think I want to reiterate 13 what several of the Board members said earlier, I think we 14 all feel -- we want to commend the companies and Phillips 15 here for really -- and the others -- really stepping up to 16 the plate early, making the investment. So I think that's 17 a tremendously positive step. And so we very much 18 appreciate that. 19 With that, any other discussion points from Board 20 members? Because we do have a resolution before us. 21 BOARD MEMBER HUGH FRIEDMAN: So moved. 22 BOARD MEMBER ROBERTS: Second. 23 CHAIRPERSON LLOYD: All in favor say aye. 24 (Ayes.) 25 CHAIRPERSON LLOYD: Any negative? PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 106 1 Thank you. 2 What I'd like to do is -- thank you very much, 3 staff; and we look forward to seeing you later in the 4 year. And appreciate that. 5 What I'd like to do now is if we could take the 6 one item on the ICAT Program, which is only a very short 7 program, and then take a break close to -- soon after 8 that. And then take a break for an hour. 9 EXECUTIVE OFFICER KENNY: We'll need about five 10 minutes to essentially get the staff in place. 11 CHAIRPERSON LLOYD: Okay. And then we'll take a 12 longer break there. 13 It will give us a chance -- for the Board 14 members, what we'll do is we'll have lunch coming. In 15 about 15, 20 minutes we'll take that break. But then 16 we'll come back for a short time, which will be the update 17 on the enforcement program. And then I think Rob can give 18 us -- maybe -- Rob, can you step forward now and -- not 19 yet. Okay. 20 And Rob Oglesby will give us a blow by blow on 21 1493 and what we can expect from the Board. 22 So those are the two items after lunch. For 23 those who are making plans, it should be relatively short 24 after lunch. And so we should be out of here, I would 25 guess, by 1:30, 2:00. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 107 1 BOARD MEMBER DeSAULNIER: Maybe Hugh could 2 perform for us in the interim. 3 CHAIRPERSON LLOYD: I don't think he's got his 4 instrument here. 5 (Thereupon a brief recess was taken.) 6 CHAIRPERSON LLOYD: If I could have the attention 7 of my colleagues for a minute, and also for the staff who 8 are out there. 9 Right at the end of lunch we've got a little 10 ceremony to celebrate one of our colleagues here, Mrs. 11 Riordan, has served -- and is the longest serving Board 12 member ever in the history of the Air Resources Board, 13 three thousand -- 14 (Applause.) 15 CHAIRPERSON LLOYD: Three -- 16 BOARD MEMBER RIORDAN: That really makes me old. 17 CHAIRPERSON LLOYD: Three thousand eight hundred 18 two days. So, Barbara, many congratulations. And we're 19 going to have -- that's why we can't just jump away. But 20 obviously we're all there. We'd like staff also to join 21 us at the end there to participate in the cake, which 22 Charlyn has got back there. So many congratulations. 23 BOARD MEMBER RIORDAN: That's very nice, Mr. 24 Chairman. That's quite a surprise. And, however, it 25 doesn't seem like it's been all that long. It's just a PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 108 1 short moment in history. 2 CHAIRPERSON LLOYD: Also, by popular request, if 3 my colleagues would keep the break as short as possible. 4 So we'll try to end closer to 30 minutes rather than 60 5 minutes. 6 BOARD MEMBER HUGH FRIEDMAN: Who held the record 7 before you? 8 BOARD MEMBER RIORDAN: Oh, before -- I'm not 9 sure, because I suspect there were some that -- just 10 before me that had some very long terms. I'm not 11 positive. 12 CHAIRPERSON LLOYD: I think staff is pleased to 13 see you're exceeding -- 14 EXECUTIVE OFFICER KENNY: The previous record 15 holder was Dr. Andrew Wortman. 16 BOARD MEMBER RIORDAN: Was it really? 17 EXECUTIVE OFFICER KENNY: Um-hmm. 18 BOARD MEMBER RIORDAN: Oh, my goodness. 19 BOARD MEMBER HUGH FRIEDMAN: Historic. 20 CHAIRPERSON LLOYD: For those of -- I was on the 21 Research Screening Committee when Dr. Wortman served on 22 the Board. And I guess I can say it because I wasn't 23 there, but probably with staff he certainly didn't win any 24 popularity award, put it that way. 25 BOARD MEMBER HUGH FRIEDMAN: We should have some PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 109 1 kind of order of the VR, vestigial remnant, or prehistoric 2 remnant to signify that. 3 BOARD MEMBER PATRICK: Is he calling you a 4 dinosaur, Barbara? 5 BOARD MEMBER HUGH FRIEDMAN: Institutional 6 memory. 7 CHAIRPERSON LLOYD: Are we ready to proceed? 8 EXECUTIVE OFFICER KENNY: We're ready. 9 CHAIRPERSON LLOYD: Thank you. 10 Let me introduce the item here. That's the item 11 02-6-5, public meeting to consider new innovative clean 12 air technologies grants. 13 This is the ninth year for the so-called ICAT 14 Program, which supports demonstrations of technologies 15 that have high potential for providing emission 16 reductions, becoming commercialized, and helping the 17 State's economy. 18 Today, we have before us three proposals for ICAT 19 indicate funding that are being recommended for the 20 Board's approval. 21 I'd like to turn it over to Mr. Kenny to start 22 staff's presentation. 23 EXECUTIVE OFFICER KENNY: Thank you, Dr. Lloyd 24 and Members of the Board. 25 The ICAT grant program cofunds projects that move PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 110 1 promising technologies from the research and development 2 phase into practical demonstrations. 3 This year we received thirty eligible proposals, 4 of which we are recommending three whose commercial use 5 would best support the ARB's goals and programs. They 6 total of about $432,000 in requested grants. 7 And one other comment I want to make before we 8 turn it over to Rich Vincent is that I do want to express 9 the staff's appreciation to the South Coast Air Quality 10 Management District and Dr. Burke and Barry Wallerstein, 11 because they did provide some additional funding to us 12 that allowed us to go forward with some of these projects 13 which we otherwise would not have been able to go forward 14 with. 15 So with that I'd like to turn it over to Rich 16 Vincent. 17 CHAIRPERSON LLOYD: I'd certainly like to echo 18 that comment to South Coast, Dr. Burke. 19 (Thereupon an overhead presentation was 20 presented as follows.) 21 MR. VINCENT: Good morning, Mr. Chairman and 22 Board Member. 23 In The presentation I'll start with a brief 24 review of the ICAT program and then report on a recently 25 completed ICAT project. Then I'll present the staff's PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 111 1 recommendations for three grants to projects that we have 2 selected from recent applications. 3 --o0o-- 4 MR. VINCENT: ICAT supports field demonstrations 5 of technical innovations that will control air pollution 6 or otherwise support ARB's programs and that will have 7 economic value to the state. 8 ICAT is directed at technologies that are passed 9 their basic R&D stages but not yet commercial. To enter 10 commercialization owners often need to make practical 11 demonstrations of their technologies. But they can have 12 trouble finding the funds to mount those demonstrations. 13 ICAT addresses that funding problem. 14 --o0o-- 15 MR. VINCENT: ICAT identifies technologies -- 16 promising technologies and cofunds up to half the budgets 17 of demonstration projects for them. 18 The program began in 1994 and has assisted 25 new 19 technologies in applications to air pollution control in 20 California. They've spanned a broad range of emission 21 sources. 22 --o0o-- 23 MR. VINCENT: Recently a very successful project 24 with electric ground support vehicles was completed at the 25 Sacramento International Airport at the Southwest Airlines PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 112 1 terminal. It was conducted by the Electric Transportation 2 Engineering Corporation of Phoenix, who will be conducting 3 seminars on this project at ARB next month. 4 Thirteen gasoline baggage tractors were replaced 5 with electric tractors that were equipped to be charged at 6 ETEC's state-of-the-art fast-charging station. An 7 airplane push-back tractor also was replaced with an EV in 8 a simultaneous project that was not funded by ICAT. 9 --o0o-- 10 MR. VINCENT: This slide shows the ETEC charging 11 station sitting on a tarmac outside the concourse or 12 whatever it is you walk down to go to the planes. It 13 shows that multiple vehicles can be charged at once by 14 this system. 15 --o0o-- 16 MR. VINCENT: The project demonstrated that 17 ground support vehicles coupled with state-of-the-art 18 charging equipment can function efficiently and 19 economically without major additions to the electrical 20 infrastructure at the terminal. ETEC's system is now 21 commercially available. 22 Because of the success of the project at the 23 Sacramento Airport, Southwest Airlines has more -- ordered 24 additional systems from ETEC at Ontario. And also ETEC 25 has entered into negotiations with another carrier. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 113 1 With new installations of this technology, 2 exhaust emissions will be eliminated. Although the 3 vehicles replaced in the Sacramento project were gasoline 4 powered, about one in three ground support vehicles in 5 California airports is diesel powered. 6 --o0o-- 7 MR. VINCENT: Today we're recommending three new 8 grants totaling $432,000. Two of the grants will be for 9 entirely new projects and one would allow the completion 10 of an existing project. The ICAT funds would support 11 projects whose budgets total one and a half million 12 dollars or about three times the overall ICAT expenditure. 13 --o0o-- 14 MR. VINCENT: The project that we're recommending 15 for continuation would be conducted by the S.T. Johnson 16 Burner Company of Oakland. Johnson would apply a low NOx 17 burner technology owned by Altech Technologies Corporation 18 of Santa Clara to a twenty-one million BTU boiler. The 19 project is actually the final demonstration phase of an 20 ICAT project that was approved three years ago for Altechs 21 and its former partner. Before the demonstration phase of 22 that project could begin the partner was bought by another 23 company, and that let the project languish. 24 By the time Altechs was able to engage a new 25 partner, it was too late to plan and conduct the field PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 114 1 demonstration that was part of the original contract. 2 Therefore, we're proposing that the unspent portion of the 3 original ICAT money be reallocated -- or renewed as a 4 grant to finance the field demonstration. 5 The burner in question here is expected to emit 6 less than five ppm NOx as compared to the nine ppm that's 7 now usually required as BACT. The cost of Altechs' burner 8 should be much lower than other technologies that can 9 approach such low NOx concentrations. 10 The original project received high marks in its 11 round of ICAT. And since then the earlier phases of the 12 project have been done successfully. This adds assurance 13 of meeting the goals set out for the field demonstration. 14 Therefore, we recommend to you that we renew the unspent 15 ICAT funds to complete the demonstration project. 16 --o0o-- 17 MR. VINCENT: The second recommendation is a 18 grant to Southwest Texas State University for formulating 19 and demonstrating industrial coatings made with resins 20 derived from soy beans. Southwest Texas would produce 21 variants of its VOC-free resin for several coating 22 manufacturers who would formulate coatings for performance 23 trials. 24 Work to date indicate that the low cost coatings 25 can be produced with VOC contents below the limit of 100 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 115 1 grams per liter that the South Coast AQMD will enforce in 2 2006. 3 The goal of this project is to demonstrate the 4 durability and other performance characteristics of such 5 low VOC coatings. 6 The South Coast staff has agreed to propose to 7 its Board to assist ARB in funding this project. 8 --o0o-- 9 MR. VINCENT: Our third recommendation is a grant 10 to a subsidiary of General Electric to demonstrate a new 11 reforming technology to provide hydrogen for fuel cells. 12 The reformer provides its own process heat internally by 13 oxidizing fossil fuel without fuel-air contact. And it 14 produces a nitrogen-free and virtually 15 carbon-monoxide-free hydrogen product. 16 I shouldn't say virtually; I should say nearly 17 carbon-monoxide-free hydrogen product. 18 It's an efficient low NOx operation that provides 19 a high-quality fuel for proton-exchange member in fuel 20 cells that may be used in distributing power generation. 21 In the proposed project the applicant would 22 couple the new reformer to a PEM fuel cell and demonstrate 23 its practicality in that application. 24 The project will be funded by other governing 25 agencies as well as ARB. And again the South Coast staff PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 116 1 will propose to its Board that it assist in funding the 2 ICAT project. 3 In summary then, ICAT has a record of supporting 4 sound projects for useful new technologies, and we're 5 proposing today three new grants to demonstrate 6 technologies that have substantial promises for the State. 7 That ends the presentation. We'll be happy to 8 answer your questions. 9 Thank you. 10 CHAIRPERSON LLOYD: Thank you very much. 11 Any questions? 12 BOARD MEMBER CALHOUN: Yes, I have one question. 13 The applicant for the grant must put up 10 14 percent in cash; that's correct, is it? 15 MR. VINCENT: Yes. 16 BOARD MEMBER CALHOUN: And what happens if he 17 chooses not to finish the contract? Does he get his money 18 back? 19 MR. VINCENT: Well, I mean what's required is 20 that he commit to funding in cash expenditures at least 10 21 percent of the project budget. So if the project is 22 terminated before it's over -- 23 BOARD MEMBER CALHOUN: No, I don't mean it's 24 terminated. Suppose the contractor does not finish the 25 job, like in this case we have with Johnson, where the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 117 1 contractor bailed out on us? 2 MR. VINCENT: Um-hmm. 3 BOARD MEMBER CALHOUN: So we're refunding this 4 now. I'm saying what happens to the 10 percent of the 5 funds that were -- that the contractor received initially 6 -- that the contractor put up? 7 EMISSION CONTROL TECHNOLOGY SECTION MANAGER 8 AHUJA: Mr. Calhoun, basically, when we award the 9 contract, we start -- 10 CHAIRPERSON LLOYD: Manjit, can you identify 11 yourself for the -- 12 EMISSION CONTROL TECHNOLOGY SECTION MANAGER 13 AHUJA: Sorry. 14 For the record, my name is Manjit Ahuja. It's a 15 difficult name. I'll give my business card to you. 16 Mr. Calhoun, when we start monitoring a project, 17 from the beginning we ensure that all the expenditures 18 is -- in other words, if the contractor is supposed to 19 expend 10 percent of their funds over the entire contract 20 and at the midterm, then the contractor should have spent 21 half of their money. Then and only then we will approve 22 Air Resources Board spending 50 percent of our funds. 23 So in this particular situation, when the 24 contract was terminated, the contract had only spent about 25 probably two-thirds of their funds, and similarly we had PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 118 1 spent -- Air Resources Board had spent two-thirds of our 2 funds. So the remaining money was not -- was unspent. 3 And when we pickup -- when we approve the 4 contract now, we'll have the contractor spend the 5 remaining of their funds. And then and only then we will 6 approve the ARB funds to be spent. 7 Did that answer your question? 8 BOARD MEMBER CALHOUN: Yes, I guess. 9 MR. VINCENT: I took it from your question that 10 you're suggesting that -- 11 BOARD MEMBER CALHOUN: No, I'm not suggesting 12 anything. I'm asking a question? 13 MR. VINCENT: Well, I heard a notion that the 14 money was like put in escrow from the applicant. And then 15 when do you get it back? There's nothing like that. We 16 pay invoices as they come in. And as Manjit said, we can 17 not get ahead of them in terms of their documented 18 expenses. They have to have shown their own expenses at 19 least equal to the sum of the ICAT invoices they've given 20 us to that point. 21 CHAIRPERSON LLOYD: Professor Friedman. 22 BOARD MEMBER HUGH FRIEDMAN: I just want to 23 pursue that. That troubled me a little when I heard it. 24 Is there any procedure that we've arranged for in 25 our grants that -- like a completion bond, a performance PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 119 1 bond, or anything like that that would assure that the 2 grantee will continue and complete the grant work? 3 In other words, in this case apparently they just 4 abandoned it because of financial difficulties midway 5 through it, if I heard it right. And, fortunately, 6 somebody else acquired them and decided to pick it up and 7 get the rest of the grant and put the rest of the money -- 8 their money in, their matching -- small, 10 percent, 9 matching funds. 10 But is there -- I mean, I know when we're dealing 11 with the university, other institutions or major 12 companies, there's probably no realistic concern. But if 13 we're dealing with smaller outfits like maybe this one, 14 they're innovative, they're worthy projects, but we are 15 taking some risk apparently. I mean, we don't get updates 16 or reports on these grants, but -- I guess. Or maybe this 17 is one of the few times or the only time there's been a 18 default of any kind or a cessation. 19 EXECUTIVE OFFICER KENNY: Professor Friedman, 20 generally we are taking some risk. What we do, when we do 21 the analysis and the assessment of the individual 22 companies, is we do look to see whether or not they have 23 the economic viability, economic capability to go forward. 24 And that's one of the things we do screen companies on. 25 We also -- as Manjit and Rich said, we generally PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 120 1 do not provide any of ARB funds until we see that the 2 funding from the individual companies is actually 3 forthcoming first. But at the same time if a company does 4 essentially kind of go under, I mean we are at risk of 5 that happening and losing the money. 6 And that risk is not a totally unreal one because 7 what we're often doing is trying to take small companies 8 that are really trying to move from kind of a 9 technologically innovative stage into a commercialization 10 stage. And so, you know, we're trying to help them both 11 with our funds and with our name and basically get them 12 over that -- kind of that hump so that, in fact, they can 13 get to commercialization and then get that particular 14 product out into the marketplace. 15 We actually have been very, very successful over 16 the years in having most companies be successful and 17 essentially, you know, moving things forward. But this is 18 one of those events in which our track record probably has 19 been tarnished a bit. 20 BOARD MEMBER HUGH FRIEDMAN: But, fortunately, it 21 was salvaged or at least it appears it will. 22 But have had a lot of problems -- 23 EXECUTIVE OFFICER KENNY: -- performance bonds? 24 BOARD MEMBER HUGH FRIEDMAN: No. Have we had 25 problems? PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 121 1 EXECUTIVE OFFICER KENNY: No, actually we 2 generally have not had problems. We've actually had -- 3 BOARD MEMBER HUGH FRIEDMAN: Well, I know there's 4 some small startups or at least they seem to be, let's 5 say, chancy operations for converting rice straw into 6 different kinds of construction materials and -- 7 EXECUTIVE OFFICER KENNY: We haven't also always 8 had great success either. I mean this is the one kind of 9 at the other extreme. 10 And we had some there at kind of the very 11 successful extreme in which basically the money went 12 forward, the company was actually very successful, and the 13 commercialization moved forward. 14 And then we have, you know, a number that are 15 kind of in the middle where we've had a measure of 16 success, but we haven't had quite the commercialization 17 that we would probably have hoped for. 18 BOARD MEMBER HUGH FRIEDMAN: But at least the 19 grant purposes were completed and -- 20 EXECUTIVE OFFICER KENNY: That's correct. 21 CHAIRPERSON LLOYD: Well, I can speak firsthand 22 having served on some of the groups there, that staff does 23 an excellent job of getting other districts, get the 24 university to review, not only the technical feasibility 25 and potential, but also the business side of that. So I PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 122 1 think -- clearly I think you do everything -- they do 2 everything they can. But these things happen. When you 3 say fortunate in this case, got somebody else to pick up 4 the good idea. 5 Unfortunately, of course, as we move ahead with 6 the State budget situation, you know, we're going to lose 7 a significant number of dollars. And we are very 8 appreciative of other agencies and the districts picking 9 that up. Because it's very difficult for some of these 10 small companies these days to go -- with the current 11 market, to go and get funds. And that's really hurting us 12 in terms of trying to encourage these clean technologies 13 and -- I know South Coast has got a vigorous and very 14 successful program using the vehicle registration fee. 15 But I think it's critical to keep that going because the 16 market -- you can't raise those dollars these days. 17 Mr. McKinnon, do you have a -- you look poised. 18 BOARD MEMBER McKINNON: I'm really intrigued. I 19 follow airlines quite closely and work with people in the 20 industry quite a bit. And I'm intrigued at sort of like 21 what the next step is if, say, the Southwest Airlines 22 project worked well and they liked it, people are happy 23 with it, and then -- so far as I know, it -- you know, 24 planes rolled in and out of here just fine. 25 So what's the next step in terms of other PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 123 1 airlines or other airports kind of getting exposed to the 2 project? And that may be, you know, beyond this program. 3 But what's the next step that we need to do to kind of 4 utilize what we've done? 5 EXECUTIVE OFFICER KENNY: Well, we actually do 6 have a very selfish motivation. And what we're trying to 7 do is essentially demonstrate these very low emitting 8 technologies, and then we will look at those and we will 9 try to essentially either incentivize or compel their 10 usages in different locations. 11 And one of the things that we're working on right 12 now, for example, is a memorandum of understanding with 13 the Los Angeles World Airports. And we're doing that in 14 conjunction with EPA and the South Coast. And the idea 15 there is to achieve significant emission reductions from 16 the ground support equipment at the airport. To the 17 extent that we can point to demonstrated and 18 commercialized technologies, what we do is we probably 19 push a little bit harder and we tell them that, in fact, 20 we want to see those technologies utilized in the airport. 21 And we try to do that through the MOU. But kind of the 22 hammer that we always, to a great extent, hold in our hand 23 is that if, in fact, that won't work, we will propose 24 regulations and we will bring them to the Board for 25 consideration. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 124 1 CHAIRPERSON LLOYD: Professor Friedman. 2 BOARD MEMBER HUGH FRIEDMAN: Can that be done 3 down in San Diego, Ron? 4 BOARD MEMBER ROBERTS: You know, I was just going 5 to comment. One of the things that was on our agenda, and 6 I don't know if we funded it, but the last round was to 7 convert over to the EVs for these vehicles by the APCD. 8 And I know that's been done elsewhere in the State. 9 So what's unique about this is the system of 10 charging, I guess the fast charge. And I think at such 11 time as we've got a proven technology out there, then I 12 think you'll see it spread. But at that point, you're 13 going to largely have an EV fleet out there ready to 14 accept that. So, you know, I'm not sure what to tell you; 15 but, yeah, it can be done, but it's already being done. 16 And don't look at the major benefit; you're being switched 17 to the EVs, because that's happening no matter what, 18 whether you have this fast charge or not. 19 CHAIRPERSON LLOYD: Dr. Burke. 20 BOARD MEMBER BURKE: One of the reasons we got so 21 involved in this was -- the major complaint was the time 22 of charging; and so, you know, if you've got fast charge. 23 And when you talk about guarantees on grants -- I 24 can't even remember, time goes by so fast. But it was 25 either two years or three years ago when we were doing PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 125 1 those grants to the catalytic trap people, I think the 2 staff did an excellent job on making sure that those 3 grants did not go out unless those companies wanted to 4 come to the fold or we didn't give them the money. So, 5 you know, I think they do a good job. 6 CHAIRPERSON LLOYD: Thank you. 7 No more questions, then -- 8 BOARD MEMBER HUGH FRIEDMAN: Move adoption. 9 BOARD MEMBER RIORDAN: Second. 10 BOARD MEMBER HUGH FRIEDMAN: Or do you have to do 11 some more -- 12 CHAIRPERSON LLOYD: No, I'll take a shortcut. 13 That's fine. 14 BOARD MEMBER RIORDAN: I'll second your motion. 15 BOARD MEMBER FRIEDMAN: I'll be happy to -- 16 CHAIRPERSON LLOYD: No. No, thank you. 17 All in favor say aye. 18 (Ayes.) 19 CHAIRPERSON LLOYD: Unanimous. 20 So now we will take -- try to shoot for a 21 30-minute lunch break. And please try to make it as close 22 to 12:30 as possible. And I reiterate my invitation to 23 staff to join us for cake for Mrs. Riordan. 24 (Thereupon a lunch recess was taken.) 25 AFTERNOON SESSION PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 126 1 CHAIRPERSON LLOYD: I think we'll start. 2 As promised, we're going to have a review of the 3 AB 1493, the Pavley Bill. 4 So with that, I'll turn it over to Rob and 5 Catherine. 6 MS. WITHERSPOON: Good afternoon. 7 On Monday of this week Governor Davis held 8 signing ceremonies for Assembly Bill 1493 in Los Angeles 9 and in San Francisco. And a few of us got the opportunity 10 to go to those ceremonies, and it was a great day. In 11 fact, when you see these pictures, I'm calling this 12 presentation "Oh, Happy Day." 13 So we started the morning at Griffith Park 14 Observatory in Los Angeles. And you can see a crowd 15 scene. Many legislators in attendance. The Governor in 16 front of a clear plexi-podium. 17 We had Ann Oddoff in the top left; Bob Epstein, 18 E-2, Environmental Entrepreneurs; on the right that's Dr. 19 Sherry Roland, Nobel Laureate of Chemistry; and Bill Nye, 20 the science guy; in the lower left is Winston Hickox and 21 Linda Adams from the Governor's Office -- legislative 22 office going over the final script for remarks. 23 --o0o-- 24 MS. WITHERSPOON: We had movie stars: Heather 25 Thomas from Bay Watch; Joshua Jackson from Dawson Creek; PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 127 1 Ed Begley, Jr; Peter Horton from Thirty Something; Sharon 2 Lawrence from NYPD Blue. 3 And then -- Hugh should be here. This is Lynn 4 Schenk, the Governor's Chief of Staff, on the right, 5 welcoming them all, thanking them for being there. 6 --o0o-- 7 MS. WITHERSPOON: Our California royalty, 8 legislators: Herb Wesson, Speaker; we got Dario Fromer 9 there; Firebaugh -- Assemblyman Firebaugh on the right. 10 Many more in attendance. 11 --o0o-- 12 MS. WITHERSPOON: Happy environmentalists. Here 13 are four of the sponsors of the Bill: John White 14 representing the Sierra Club; Bonnie Holmes-Gen, Lung 15 Association; Tim Carmichael for Coalition for Clean Air; 16 Russell Long was there too, the fourth sponsor of the 17 Bill, from Blue Water Network. 18 --o0o-- 19 MS. WITHERSPOON: There's Assemblywoman Fran 20 Pavley; and with her, leading staffer on the Bill, Ann 21 Baker. 22 --o0o-- 23 MS. WITHERSPOON: Then later in the day we moved 24 to San Francisco. This was the scene. They erected an 25 amazing stage on a bluff overlooking the bridge. There's PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 128 1 our fearless leader with Susan Kennedy, the Governor's -- 2 BOARD MEMBER DeSAULNIER: Who's that old guy? 3 MS. WITHERSPOON: And Mark DeSaulnier. 4 BOARD MEMBER DeSAULNIER: That's not Robert 5 Redford? 6 --o0o-- 7 MS. WITHERSPOON: There's Mary Nichols with 8 Assemblyman Joe Nation. And back behind, is that Carol 9 Lew? 10 --o0o-- 11 MS. WITHERSPOON: Some of the staff people 12 involved in the effort. 13 --o0o-- 14 MS. WITHERSPOON: There's the Governor. There 15 are many shots of him signing the Bill, signing it several 16 times with several people. 17 --o0o-- 18 Here's the money shot. Robert Redford, Governor 19 Gray Davis, And Assemblywoman Fran Pavley. 20 Oh, Happy Day! 21 CHAIRPERSON LLOYD: Can you go back to the 22 Governor's Chief of Staff shot? 23 MS. WITHERSPOON: Yes. 24 How do I enlarge that? 25 BOARD MEMBER DeSAULNIER: Can you go back to the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 129 1 Bay Watch one while you're at it? 2 (Laughter.) 3 MS. WITHERSPOON: There's Bay Watch. That one's 4 for Mark. 5 BOARD MEMBER DeSAULNIER: I just got elected. 6 MS. WITHERSPOON: There's the Governor's Chief of 7 Staff, Lynn Schenk, on the right. 8 Here, I'll get you a copy of this picture. 9 Members, et cetera. 10 BOARD MEMBER RIORDAN: Those are good pictures. 11 Who took those pictures? 12 CHAIRPERSON LLOYD: Catherine. 13 So, Rob. 14 LEGISLATIVE DIRECTOR OGLESBY: Thank you, Mr. 15 Chairman. Rob Oglesby, Legislative Director for the Air 16 Resources Board. 17 I guess -- if I may before I begin this brief 18 slide show of some of the highlights of AB 1493, I'd like 19 to thank the Legislative Office staff for putting it 20 together this morning, and Lisa Smith in particular. 21 CHAIRPERSON LLOYD: We appreciate that. 22 (Thereupon an overhead presentation was 23 presented as follows.) 24 LEGISLATIVE DIRECTOR OGLESBY: Take a moment 25 while we pull the beginning of the presentation up. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 130 1 There we are. 2 Well, this is a brief overview of some of the key 3 provisions of AB 1493 by Assembly Member Pavley that was 4 signed, as you saw, on Monday. 5 And let's go to the next slide. 6 --o0o-- 7 LEGISLATIVE DIRECTOR OGLESBY: First, I'd like to 8 spend some time talking about why the Bill was introduced 9 in the first place and to kind of set the context. 10 Greenhouse gases obviously lead to global 11 warming. And carbon dioxide of the greenhouse gases 12 accounts for about 84 percent of California's greenhouse 13 gas emissions. 14 About 40 percent of CO2ï comes from passenger 15 vehicles. And the atmospheric concentrations of carbon 16 dioxide have increased nearly 30 percent since 17 pre-industrial times. 18 Earth is warming faster than any time in the past 19 1,000 years. And 10 years of the century -- the 10 20 warmest years of the last century -- this century all 21 occurred in the last 15 years. Global warming temperature 22 has increased by 1.1 degrees Fahrenheit since the 19th 23 century. And we've already seen a rise in sea level of 24 about 4 to 10 inches. And experts have dire predictions 25 about where we're headed. And this is an opportunity to PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 131 1 kind of lead the way and serve as an example that will 2 influence the national debate and other states with 3 respect to greenhouse gas emissions. 4 --o0o-- 5 LEGISLATIVE DIRECTOR OGLESBY: Let me turn to 6 some of the major provisions of AB 1493. And the basic 7 mandate enacted by this Bill was a requirement by January 8 1 of 2005 for the Air Resources Board to adopt regulations 9 that achieve the maximum feasible and cost-effective 10 reduction of greenhouse gas pollution from new passenger 11 vehicles. 12 In doing this, you must consider the 13 technological feasibility, economic impacts, cost 14 effectiveness and while ensuring maximum flexibility to 15 the automakers, and consumer costs that would come about 16 related to the regulations. 17 The emission reductions can be credited with a 18 climate action registry already in existence. And the 19 registry has a mandate, very immediate mandate to adopt 20 reporting and certification procedures for the emission 21 reduction credits by July 1 of 2003. 22 --o0o-- 23 LEGISLATIVE DIRECTOR OGLESBY: Now, a key feature 24 of this legislation that was the subject of a lot of 25 discussion as it was debated particularly in the Assembly PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 132 1 was legislative oversight. This is a very important grant 2 of authority -- new grant of authority to the Air 3 Resources Board with respect to the regulation of this new 4 emissions category. And as a result, the Legislature 5 wanted to ensure an additional level of review to provide 6 confidence that the Board was implementing the legislation 7 faithfully to the intent of the Legislature. 8 After a lot of discussions on how and to what 9 degree that review should take place, the Bill was amended 10 to provide the Legislature an opportunity to review the 11 regulations, and requires that the regulations be 12 transmitted to the Legislature within 10 days of the 13 Board's adoption. And since the Board has a January 1, 14 2005, deadline, the last possible date would be January 15 10, 2005. 16 The Bill instructs the Legislature to hold at 17 least one public hearing to review the regulations. And 18 as a result of that review, we would have some options. 19 If the Legislature and that process reveals some issues 20 that perhaps would need to be corrected, either the Board 21 could revise the regulations themselves or the Legislature 22 could adopt new legislation that would amend AB 1493. 23 And I want to draw a distinction here because 24 this is not a legislative review where the Legislature 25 would be required to ratify the Board's action. It's an PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 133 1 opportunity for the Legislature to look in detail at this 2 Board's regulations and either provide comments for the 3 Board's consideration or to intervene if they wish by 4 enacting separate legislation, which would of course have 5 to go through the full legislative process. 6 In order to provide adequate time for the 7 Legislature's review in the hearing process, the 8 regulations though enacted by January 1, 2005, may not 9 take effect until January 1, 2006. And that gives 10 essentially a full year for the Legislature to do their 11 review. 12 The regulations would apply to 2009 and later 13 model year vehicles to give the auto manufacturers 14 adequate time to gear up and retool and put the Board's 15 requirements in place. 16 --o0o-- 17 LEGISLATIVE DIRECTOR OGLESBY: Let me go -- a lot 18 of the discussion that related to this Bill in the 19 Legislature involved responses to media campaign where the 20 intensity of discussion of this Bill and some of the 21 arguments raised in connection with this Bill really led 22 many of the public to believe that the Bill would do 23 things that it did not. And as a result of that, the Bill 24 was amended to specifically delineate the authority and 25 provide some guidance to the Air Board and delineate PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 134 1 limitations on the ARB's authority. 2 Specifically, ARB is prohibited from banning the 3 sale of any vehicle category in the State, including SUVs 4 and minivans. 5 The Air Board is prohibited from imposing 6 additional fees and taxes on any motor vehicle fuel, motor 7 vehicle or vehicle miles traveled. I note that we don't 8 have that authority anyway. Nonetheless, it became part 9 of the campaign against the Bill. 10 --o0o-- 11 LEGISLATIVE DIRECTOR OGLESBY: The Air Board may 12 not specifically mandate reduction in vehicle weight or 13 place limits or reductions on speed or limit the amount of 14 miles vehicles can travel. 15 --o0o-- 16 LEGISLATIVE DIRECTOR OGLESBY: This last slide is 17 a bit busy. But you have hard copy of it or you can kind 18 of go through it at your leisure. 19 But among the discussions of the Bill is, well, 20 what can you do to reduce greenhouse gases from vehicles? 21 How much does it cost? How much are we pushing the 22 envelope? And this slide gives an example that was 23 derived from a report prepared by the National Academy of 24 Sciences. But it basically illustrates that there are a 25 number of relatively modest changes that could be done to PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 135 1 motor vehicles to meet a greenhouse gas limit at modest 2 costs and involving off-the-shelf technology. 3 And those include catalysts, air conditioning 4 improvements to engines and transmissions, lower rolling 5 resistance tires, and improvements in aerodynamics of 6 vehicles. 7 And with that, I'll conclude my remarks and 8 respond to any questions. 9 CHAIRPERSON LLOYD: Thanks for that, Mr. Oglesby. 10 Questions from the Board? 11 Supervisor DeSaulnier. 12 BOARD MEMBER DeSAULNIER: Oh, just a couple 13 comments. 14 It really was a great event in San Francisco. We 15 kept wondering where Alan was because everyone was late. 16 And then he appeared about six rows behind me. So I'm 17 sorry about that. I was trying to save a seat for you. 18 It was a great event and I think everyone was 19 very happy. I think your comments and the comments by the 20 Governor -- and since Steve and Gary are still out 21 there -- the idea of trying to engage the auto industry 22 early on by our staff and the Board so that we can work in 23 concert on this rather than be at opposite ends I think 24 were really stressed throughout the day. So it was really 25 a good day. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 136 1 And I just wanted to share with you -- I shared 2 some of this with Matt. But the Public Policy Institute 3 did a poll, and it was interesting, on the environment, 4 and one of the results had some impact on the success of 5 this Bill, I'm told. 6 Eighty-one percent of the respondents favored the 7 passage of the Bill and 77 percent of SUV owners who 8 responded were also in favor of it and indicated that they 9 would pay more for some kind of benefit to the 10 environment. In addition to that, 81 percent of the 11 respondents said the environmental concerns were very 12 important to them. And by far and large, air pollution 13 across the State was the most important concern in the 14 poll. So if you want to take a look at it, I've got one 15 copy. But it's available on the Public Policy Institute's 16 web site. 17 And, lastly, the photographers -- the official 18 photography staff of CARB, Rob and Catherine, were just as 19 pushy as the rest of the media when Robert Redford walked 20 out. 21 MS. WITHERSPOON: It was worth it. 22 CHAIRPERSON LLOYD: Thank you. 23 And thank you, Rob. 24 And again we heard a number of times, by the way, 25 from many people, both from the Assemblywoman's office, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 137 1 from the environmental groups, and from the Governor's 2 office and from the Agency what a great job Rob did during 3 the whole process of this thing. So again -- and I know 4 Catherine also worked, and Tom, a number of people 5 provided some resources. And, well, of course, as we all 6 know, it was not our bill, but now we have an opportunity 7 to work something there. 8 Thank you very much. 9 LEGISLATIVE DIRECTOR OGLESBY: Thank you, Mr. 10 Chairman. 11 CHAIRPERSON LLOYD: Our last item on the official 12 agenda is Item 02-6-4, annual enforcement report to the 13 Board. 14 And we appreciate the patience of the staff on 15 this one. 16 During the year we take action on many new and 17 modified regulatory programs. As those items come before 18 the Board it is easy to see and appreciate the hard work 19 of ARB staff and the stakeholders in crafting those new or 20 refined programs. But as important as those efforts are, 21 we all know that the work does not stop there. 22 Regulations will not provide the emission exposure 23 reductions necessary to protect public health without a 24 strong enforcement program. 25 Given the importance of these activities, I look PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 138 1 forward to the periodic briefings on the status of our 2 enforcement programs from the staff. 3 With that, I'd turn it over to Mr. Kenny to begin 4 the staff presentation. 5 EXECUTIVE OFFICER KENNY: Thank you, Dr. Lloyd 6 and Members of the Board. 7 As you stated, Dr. Lloyd, our enforcement 8 programs ensure that the regulations adopted by the Air 9 Resources Board are fully and effectively implemented. 10 Our goal is to maximize the benefits of the Board's 11 emission reduction programs and to make sure that those 12 who take the necessary steps to comply with air quality 13 regulations do not suffer an economic or competitive 14 disadvantage as a result of their efforts. 15 ARB district enforcement activities focus on 16 regulations that cover mobile sources, including motor 17 vehicles and the fuels used to power them. We also 18 enforce regulations for cargo tanks and with the local air 19 districts vapor recovery systems to reduce emissions from 20 the distribution of motor vehicle fuels. 21 We also directly enforce the regulations for the 22 wide range of regulated consumer products, including 23 cleaning products, personal grooming products, portable 24 fuel containers and spouts, and aerosol coatings. 25 ARB also has an important oversight role to PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 139 1 ensure that local air districts are effectively enforcing 2 the regulations they have for stationary sources. 3 In December of 2001, the Compliance Data 4 Management Section joined the Enforcement Division as the 5 Stationary Source Enforcement Section. This group 6 monitors district enforcement programs and also provides 7 enforcement of the federal asbestos NESHAP regulations for 8 those districts that have not been delegated enforcement 9 authority. 10 Ms. Michelle Schultz-Wood, an investigator with 11 the Mobile Source Enforcement Section, will now begin the 12 presentation with the discussion of the mobile source 13 enforcement activities over the past year. And that will 14 be followed by Mr. Carl Brown, Manager of the Stationary 15 Source Enforcement Section, who will discuss fuels and 16 consumer product enforcement. 17 Michelle. 18 (Thereupon an overhead presentation was 19 presented as follows.) 20 AIR POLLUTION SPECIALIST WOOD: Thank you, Mr. 21 Kenny. 22 Good afternoon, Chairman Lloyd and Members of the 23 Board. Thank you for this opportunity to share with you 24 the work performed over the last year by the ARB's 25 Enforcement Division. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 140 1 Enforcement, along with air quality planning, 2 regulatory development and implementation comprise ARB's 3 Comprehensive Air Pollution Control Program, our blueprint 4 for meeting our air quality attainment goals. 5 --o0o-- 6 AIR POLLUTION SPECIALIST WOOD: This Board adopts 7 regulations to control emissions from mobile sources, 8 motor vehicle fuels, cargo tanks, and consumer products. 9 With those regulations in place the Enforcement Division 10 works closely with other divisions to make sure that the 11 regulations are fully implemented so that maximum air 12 quality benefits may be achieved. 13 While complete compliance is the ultimate goal, 14 when violations occur and enforcement actions are needed, 15 the ARB works to provide consistent enforcement practices 16 to serve as a deterrent factor and provide a level playing 17 field for those sources that do comply. 18 The ARB's enforcement program consists of 19 day-to-day inspections, coupled with the special 20 investigations. 21 --o0o-- 22 AIR POLLUTION SPECIALIST WOOD: As in most law 23 enforcement programs, the process begins with uncovering 24 violations, generally through our inspection activities. 25 Alternatively, violators may self report their infractions PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 141 1 or the Air Resources Board will receive a tip regarding 2 some illegal action. At that point, our staff 3 investigates, collects evidence, and develops the case. 4 The Enforcement Division works in tandem with the ARB's 5 Office of Legal Affairs and in some cases local district 6 attorneys or the Attorney General's office to settle or, 7 if necessary, litigate the case. In all cases penalties 8 are assessed according to the levels set in statute or 9 regulation, and these serve as a deterrent to future 10 violations. 11 --o0o-- 12 AIR POLLUTION SPECIALIST WOOD: I will now begin 13 with the mobile source enforcement. 14 --o0o-- 15 AIR POLLUTION SPECIALIST WOOD: ARB's Mobile 16 Source Enforcement Program and regulations cover the 17 entire life of a California vehicle, from certification 18 that assures that a new vehicle offered for sale meets 19 California's emission standards, through in-use testing 20 that guarantees that emission control equipment does its 21 job throughout the vehicle's useful life, to the Bureau of 22 Automotive Repairs' smog check, and vehicle retirement 23 programs. 24 All of these cradle-to-grave elements help to 25 minimize motor vehicle emission impacts on California's PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 142 1 air quality. 2 --o0o-- 3 AIR POLLUTION SPECIALIST WOOD: The Mobile Source 4 Enforcement Program's primary areas include 5 non-California's certified vehicles and engines such as 6 those found in off-road and on-road applications, vehicles 7 that are certified to federal but not California 8 standards, and grey-market vehicles that are imported from 9 other countries and not certified to state or federal 10 standards. 11 ARB's enforcement efforts in 2001 paid particular 12 attention to small off-road engines and on- and off-road 13 motorcycles. 14 We also work with the ARB's Mobile Source 15 Operations Division to conduct factory audits and closely 16 monitor the sale or use of illegal after-market parts and 17 tampering of emission control systems. 18 --o0o-- 19 AIR POLLUTION SPECIALIST WOOD: All new motor 20 vehicles and engines that are offered for sale in 21 California are equipped with an emissions label similar to 22 the one shown here that identifies the vehicle or engine 23 as meeting California emission requirements and is 24 therefore certified for sale in California. A vehicle or 25 engine that meets only federal emission requirements is PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 143 1 known as a 49-state vehicle and must be labeled as such. 2 New 49-state vehicles may not be sold in 3 California. A large number of 49-state cases are 4 discovered during smog check, and the Bureau of Automotive 5 Repair issues certificates of noncompliance to those 6 vehicles and notifies the ARB. ARB inspectors also visit 7 dealers and fleets to check for illegal vehicles. 8 ARB initiates enforcement actions against auto 9 manufacturers dealers that sell new 49-state vehicles in 10 California, and also against vehicle fleets and rental 11 companies that use new 49-state vehicles. 12 We currently have a case pending wherein a major 13 automobile manufacturer shipped more than 150 trucks into 14 California that were non-certified 49-state vehicles. 15 While the manufacturer, who discovered and reported the 16 violation to ARB, did halt subsequent sales of these 17 vehicles, at least 90 had already been sold into the 18 state. This case has been settled in principle for $1 19 million. 20 --o0o-- 21 AIR POLLUTION SPECIALIST WOOD: As noted earlier, 22 grey-market vehicles are imported from other countries and 23 do not meet California emission standards. In order to be 24 offered for sale, they must be outfitted with the proper 25 emission control equipment. ARB closely monitors these PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 144 1 activities and initiates enforcement actions as necessary. 2 The photo on the left depicts a high performance car, the 3 Skyline, which is built in Japan but not intended for sale 4 in the U.S. A California resident can legally import a 5 grey-market vehicle provided it is at least two-years old. 6 But outfitting it to meet California's standards is an 7 elaborate and expensive process, and all too often these 8 are illegally. 9 The photo on the right is one of a number of 10 Volkswagen Beetles imported into California by a company 11 called Bug Motors. The company claims that these were 12 remanufactured cars equipped with older engines that were 13 not subject to smog check. Through an ARB investigation 14 it was determined that these were new vehicles built for 15 sale in Mexico, but not legal for sale in California. 16 Because Bug Motors was unwilling to correct the violation 17 and enter into a mutual settlement agreement, this case 18 was referred to the Attorney General's office for 19 prosecution, which resulted in a judgement of over $1 20 million against the defendants, and they were also 21 required to remove the vehicles from California. 22 --o0o-- 23 AIR POLLUTION SPECIALIST WOOD: The offer of 24 recreational vehicle and small off-road engine categories 25 are more recent additions to our mobile source program, PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 145 1 and focused enforcement of these categories occurred in 2 2001. 3 These typically have high-sales volumes. And if 4 the products do not meet California standards, large 5 emission impacts are the result. Unlike automobiles, 6 which can be recalled, once illegal engines or off-road 7 recreational vehicles are sold to the consumer, it's 8 virtually impossible to track or recall the products. 9 For this reason, we make catching the violations 10 prior to sale a priority of our enforcement program. In 11 an effort to minimize this ARB spends a great deal of 12 resources to educate and assist manufacturers of newly 13 regulated categories in complying with the regulations. 14 It's not unusual to find within these sectors 15 high levels of noncompliance in the early years of the 16 regulation's implementation. 17 In 2001 the ARB settled small off-road engine 18 cases with John Deere consumer products for manufacturing 19 noncompliant engines, with Costco for the sale of 20 non-certified lawn mowers, and with Kimatsu Zanoa Patmont 21 Motorworks for the sale of noncompliant gasoline-powered 22 scooters. We also settled cases with Ryobi Technologies 23 and Echo Incorporated for other small off-road engine 24 violations. 25 --o0o-- PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 146 1 AIR POLLUTION SPECIALIST WOOD: All on-road 2 motorcycles greater than 50 cubic centimeters are required 3 to be certified by the Air Resources Board and are 4 required to be equipped with evaporative controls. During 5 the last year we initiated several enforcement actions 6 against dealers and manufacturers for sales of uncertified 7 or tampered motorcycles. 8 The picture on the left is a custom Harley clone 9 produced by one of many small manufacturing companies that 10 are typical within this category. 11 Unfortunately, many of these manufacturers have 12 not certified their products with ARB. And we've 13 investigated 13 such cases and in conjunction with ARB's 14 Office of Legal Affairs settled five, five cases were 15 referred to the Attorney General's office, and to date two 16 of them have been settled. 17 Because on a per-mile basis off-road recreational 18 vehicles produce as much as 118 times the smog-forming 19 pollutants as modern automobiles, beginning with the 1998 20 model year all off-road recreational vehicles are required 21 to be certified as compliant or noncompliant with 22 California emission standards. 23 A noncompliant vehicle must have proper VIN 24 coding and display a limited-use sticker issued by the 25 Department of Motor Vehicles. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 147 1 In 2001 we investigated in open cases against 12 2 off-road recreational vehicle manufacturers and 9 dealers 3 for sale of uncertified or improper VIN-coded vehicles. 4 All 9 dealer cases and 8 of the manufacturer cases have 5 been settled. In addition, all parties shipped unsold 6 vehicles out of California or re-VIN coded the unsold 7 product to comply with our regulations. 8 The rest of the manufacturer cases are in the 9 settlement process. 10 --o0o-- 11 AIR POLLUTION SPECIALIST WOOD: Any after-market 12 part that may affect the emissions of a vehicle must be 13 covered by a valid ARB executive order. The most 14 important part of our after-market part enforcement 15 program is outreach and education to the regulated 16 industry and consumers. 17 One of the largest after-market parts 18 associations, the Specialty Equipment Market Association, 19 represents manufacturers from all over the world. They 20 have invited the ARB to participate in their annual 21 convention for the last three years. And Association 22 members have told us that having an ARB executive order 23 has actually increased their worldwide market share. 24 During 2001 we settled a case against Mesa 25 Exhaust Headers for selling illegal after-market parts. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 148 1 Despite our compliance assistance efforts, this company 2 was unable or unwilling to comply, and these components 3 are no longer sold in California. 4 The ARB is now providing post-certified training 5 to law enforcement to help them identify and issue 6 citations for tampered emissions controls and illegal 7 performance parts, which are commonly found in vehicles 8 that have been modified to participate in street races. 9 These activities were recently highlighted in the 10 Sacramento Bee. 11 --o0o-- 12 AIR POLLUTION SPECIALIST WOOD: Another important 13 part of mobile source enforcement is the Heavy-Duty 14 Vehicle Inspection Program. Since 1991 the ARB, in 15 cooperation with the CHP, has been testing heavy-duty 16 trucks and buses for excessive smoke emissions and 17 tampering. Although only two percent of California's 18 on-road vehicles are in the heavy-duty category, they 19 produce about 30 percent of the oxides of nitrogen and 65 20 percent of the soot or particulate emissions attributed to 21 all on-road motor vehicles. 22 --o0o-- 23 AIR POLLUTION SPECIALIST WOOD: As the program 24 continues in its operation, both the failure rate and the 25 rate of citation appeals continue to decline. This is PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 149 1 very encouraging because it appears that truck and fleet 2 owners are focusing more effort on proper maintenance, 3 which directly improves fuel economy and reduces diesel 4 particulate emissions, a toxic air contaminant. 5 The Heavy-Duty Vehicle Inspection Program applies 6 not only to California vehicles, but also to interstate 7 and international vehicles. ARB maintains full-time 8 inspection sites at both the Otay Mesa and Calexico 9 commercial vehicle ports of entry. And the compliance 10 rate at these stations has increased dramatically, by 11 nearly 40 percent since the full-time operations began. 12 We also perform approximately 15 weeks of 13 inspections per year at Arizona, Nevada, and Oregon border 14 sites. 15 I would now like to turn the presentation over to 16 Mr. Carl Brown for a discussion of fuels and consumer 17 products enforcement and ARB's Stationary Source 18 Enforcement and Oversight Programs. 19 Carl. 20 STATIONARY SOURCE ENFORCEMENT SECTION MANAGER 21 BROWN: Thank you, Michelle. 22 I'm going to talk about ARB's Non-mobile Source 23 Enforcement Programs that cover the areas of motor vehicle 24 fuels, cargo tank vapor recovery systems, consumer 25 products, and portable fuel containers and spouts. I will PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 150 1 also cover the ARB's role in overseeing the Air Districts' 2 Stationary Source Enforcement Programs and our program of 3 Special Multi-Environmental Media Investigations. 4 --o0o-- 5 STATIONARY SOURCE ENFORCEMENT SECTION MANAGER 6 BROWN: Approximately 14 billion gallons of gasoline are 7 burned in California motor vehicles each year. That's 8 almost 35 million gallons per day. Another 2.3 billion 9 gallons of diesel fuel are burned each year, which equates 10 to more than 6 million gallons per day. The fuel is 11 manufactured and stored at 17 refineries within the state. 12 And imports from out of state are received at 8 13 facilities. The fuel moved from these facilities to 84 14 bulk terminals, most of it eventually ends up at our 15 13,000 retail service stations to be pumped into 16 California's motor vehicles. 17 --o0o-- 18 STATIONARY SOURCE ENFORCEMENT SECTION MANAGER 19 BROWN: ARB inspectors annually sample and test 10 percent 20 of this fuel. Our inspectors take samples of fuels at 21 every point in the distribution chain. And here you see 22 an inspector sampling from the roofs of terminal storage 23 tanks. 24 At service stations the fuel samples are 25 purchased and dispensed into the containers directly from PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 151 1 the fueling nozzles. 2 The samples are transported to our mobile fuels 3 laboratory, pictured here, where they are analyzed 4 overnight by chemists from our Monitoring and Laboratory 5 Division. 6 When a violation is discovered, staff contacts 7 the Sacramento office, where action is taken to stop the 8 sales or distribution of the offending fuel, all within 9 one day or less. 10 The 1973 Greyhound bus seen on the slide that 11 currently houses the mobile lab will soon be replaced by a 12 new custom-equipped bus that will incorporate the latest 13 emission control technology, including a diesel 14 particulate filter and state-of-the-art laboratory 15 instruments. 16 --o0o-- 17 STATIONARY SOURCE ENFORCEMENT SECTION MANAGER 18 BROWN: California has approximately 6,300 cargo tanks 19 that support motor vehicle fuel from production and 20 storage facilities to the retail outlets. As tanks are 21 filled or emptied of fuel, gasoline vapors can escape to 22 the atmosphere. So California tanks are required to use 23 vapor-recovery systems. These systems must be certified 24 once a year. 25 ARB administers the annual certification program. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 152 1 And we test approximately two percent of the cargo tanks 2 during random unannounced inspections. In addition, we 3 audit the certification tests performed by independent and 4 fleet testers to ensure that the testing is being properly 5 done. 6 Under the ARB's consumer products regulations we 7 enforce volatile organic compound or VOC limits for 82 8 product categories including personal care products such 9 as hair sprays, as well as spray paints, household 10 cleaning products, windshield washer fluids, and consumer 11 pesticides. 12 During 2001, our inspectors purchased almost 13 1,200 samples, primarily from retail outlets. We also 14 obtained samples from distributors by mail order and over 15 the Internet. 16 The samples are tested by ARB's monitoring and 17 laboratory division. And if the samples do not meet the 18 VOC limits, we investigate, issue reports of violation, 19 conduct office conferences, and where violations are 20 confirmed, work with the Office of Legal Affairs to settle 21 or litigate cases as necessary. 22 Early in 2002, we settled a significant consumer 23 product case against Aerosol Services Corporation, a 24 contract filler for personal care product manufacturers, 25 for distributing more than 800,000 units of hair care PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 153 1 products that violated California's VOC limits. 2 Total use of these compliant products contributes 3 to 250 tons per year of VOCs to the emission inventory. 4 So it is crucial that the products sold and used in 5 California are compliant. The violating company was fined 6 $400,000 in penalties. 7 --o0o-- 8 STATIONARY SOURCE ENFORCEMENT SECTION MANAGER 9 BROWN: ARB also began enforcing the Portable Fuel 10 Container and Spout Regulation, which became effective on 11 January 1st, 2001. Container and spouts must be spill 12 proof; that is, they must shut off automatically before 13 overflow occurs. They must automatically close and seal 14 when not dispensing fuel. There are other requirements, 15 by the permeation rate, fuel flow rate, labeling, 16 including date code, and a one-year warranty. 17 Even as we speak, we are working closely with 18 several manufacturers to ensure that an adequate supply of 19 these items is available. Currently, one manufacturer's 20 product fully complies. Noncompliant products are not 21 being offered for sale at this time. But we anticipate 22 that most of the manufacturers will have compliant 23 products available soon. 24 --o0o-- 25 STATIONARY SOURCE ENFORCEMENT SECTION MANAGER PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 154 1 BROWN: Moving on now to ARB's important oversight role in 2 air district stationary source enforcement. 3 Through a 105 grant from U.S. EPA the ARB 4 oversees compliance with the federal asbestos NESHAP in 16 5 of the 35 air districts in California. We process over 6 650 demolition renovation notifications and conduct more 7 than 25 inspections per year. 8 We conduct two task force meetings each year for 9 asbestos inspectors in all districts and respond to over 10 500 phone calls on asbestos issues and inquiries. In 2001 11 we issued 10 violations for the illegal asbestos removal 12 practices and settled six cases, the penalty amounts for 13 which exceeded $40,000. 14 --o0o-- 15 STATIONARY SOURCE ENFORCEMENT SECTION MANAGER 16 BROWN: In our complaint investigation program, we conduct 17 special investigations of air pollution complaints that 18 are referred to us by the districts, ARB's Office of Legal 19 Affairs and Executive Office, and by other agencies. 20 We conduct compliance inspections to assist other 21 ARB programs with case development and conduct research 22 and special projects. 23 --o0o-- 24 STATIONARY SOURCE ENFORCEMENT SECTION MANAGER 25 BROWN: In our variance program, we have the PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 155 1 responsibility of reviewing all air district variances. 2 We issue corrective action orders and maintain a database 3 to monitor the activity related to all variances. 4 We coordinate and conduct hearing-board training 5 workshops each year, and participate in program audits to 6 evaluate the effectiveness of the 35 air district variance 7 programs. 8 --o0o-- 9 STATIONARY SOURCE ENFORCEMENT SECTION MANAGER 10 BROWN: In our Aerometric Information Retrieval System, or 11 AIRS, Program we oversee the collection and input of 12 compliance and high priority violated data into the AIRS 13 database for 26 of the 35 air districts. We generate 14 monthly and quarterly reports to the U.S. EPA and conduct 15 audits of the AIRS program in the districts. We also 16 conduct training for district staff and respond to public 17 information requests. 18 --o0o-- 19 STATIONARY SOURCE ENFORCEMENT SECTION MANAGER 20 BROWN: The Health and Safety Code requires that the 21 operator of any stationary source for which a district is 22 required to install and operate a continuous emissions 23 monitoring device report violations of emission limits to 24 their air district; and the air district in turn report 25 these violations to the ARB. In our continuous emissions PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 156 1 monitoring program we collect, store, analyze, report, and 2 act on this information as appropriate. 3 --o0o-- 4 STATIONARY SOURCE ENFORCEMENT SECTION MANAGER 5 BROWN: The complaint hot line provides a medium by which 6 citizens throughout the state make calls and voice their 7 concerns regarding air pollution problems. 8 When a call is received, it is recorded, 9 assessed, and either referred to the appropriate air 10 district or other agency, or investigated by the ARB. We 11 responded to over 800 complaints and inquiries in 2001. 12 The toll-free number is 800-952-5588. 13 --o0o-- 14 STATIONARY SOURCE ENFORCEMENT SECTION MANAGER 15 BROWN: In our agriculture and open burning program, we 16 deal with burn and smoke issues, review burning rules, and 17 review district smoke management plans. We also conduct 18 aerial surveillance on agricultural burning practices in 19 the Sacramento Valley. We report unpermitted burns to the 20 local districts and follow up to make sure that the 21 violations are properly addressed. 22 --o0o-- 23 STATIONARY SOURCE ENFORCEMENT SECTION MANAGER 24 BROWN: In our Rule Review Program we review district 25 rules for enforceability and clarity. We concentrate on PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 157 1 the presence of test methods, sufficient recording 2 keeping, performance standards, and complete and accurate 3 definitions. We reviewed over 300 rules in the past year 4 and commented on approximately one quarter of these rules. 5 The air districts typically incorporate our 6 suggestions to improve enforceability into their rules. 7 --o0o-- 8 STATIONARY SOURCE ENFORCEMENT SECTION MANAGER 9 BROWN: The final chapter of our enforcement presentation 10 covers the multi-environmental media investigations that 11 are conducted by our Strategic Environmental 12 Investigations and Enforcement Unit. 13 --o0o-- 14 STATIONARY SOURCE ENFORCEMENT SECTION MANAGER 15 BROWN: The unit was established in 1999, and works under 16 a Memorandum Of Understanding with the California 17 Environmental Protection Agency to serve as lead 18 investigators in multi-environmental media cases, such as 19 the illegal dumping in a dry creek bed pictured in this 20 slide. 21 Like many other cases investigated by this group, 22 a site such as this one may violate environmental 23 regulations or statutes involving air, water, toxics, 24 waste disposal, or other environmental concerns. 25 In addition, this group investigates and develops PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 158 1 the most complex air violation cases for the ARB. This 2 group led the investigation of ARCO's leaking underground 3 storage tanks. This case was recently settled for $25 4 million in penalties. The unit also employs a 5 surveillance expert who serves the ARB investigators as 6 well as other agencies within Cal EPA and air districts. 7 --o0o-- 8 STATIONARY SOURCE ENFORCEMENT SECTION MANAGER 9 BROWN: An additional function of the investigators is to 10 coordinate with ARB's heavy-duty diesel enforcement staff, 11 local law enforcement personnel, and other state and 12 federal agencies to hold focused environmental inspections 13 in mixed residential/industrial areas. These enforcement 14 events help to guard against excessive diesel smoke, toxic 15 spills, and other potential hazards in these 16 neighborhoods. 17 This concludes the discussion of the Non-Mobile 18 Source Enforcement Programs. 19 I will now turn the presentation over to Mr. Paul 20 Jacobs, the acting chief of the Enforcement Division for 21 some summary remarks. 22 ENFORCEMENT DIVISION ACTING CHIEF JACOBS: Thank 23 you, Carl. 24 Good afternoon, Chairman Lloyd and Members of the 25 Board. PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 159 1 As you've seen, we have had a busy and productive 2 year in 2001. We moved forward into some new areas of 3 enforcement, continued our work in existing areas, and 4 finalized some important cases. 5 In all, we finished the year with over 1,100 6 active cases and closed more than 600 cases. Penalties 7 assessed from these cases amounted to over $2.5 million. 8 Two thousand two is shaping up to be an active 9 year as well. To date we have already closed over 700 10 cases, for a total of $10.7 million in penalties. 11 As often happens, this total reflects one 12 unusually large settlement, in the neighborhood of $8 13 million. 14 To give a different perspective on how we're 15 doing, if you were to spread out those unusually large 16 multi-million dollar case settlements over the number of 17 years it takes to bring them to completion, in combination 18 with the other penalties or settlements collected on a 19 year-by-year basis, you would see a steady climb during 20 the past decade from Fiscal Year '90-'91 when collections 21 reached $500,000 to the mid-nineties when collections 22 consistently exceeded $1 million per year to the present 23 day wherein our collections will exceed $5 million. 24 --o0o-- 25 ENFORCEMENT DIVISION ACTING CHIEF JACOBS: As PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 160 1 always, it is our objective to maintain a dynamic and 2 vigilant enforcement presence to bring noncompliant 3 sources into line as quickly as possible. 4 In addition to the traditional case work that is 5 the Division's fundamental charge, this year we will be 6 undertaking some special projects and concentrating some 7 of our resources in particular areas. We will continue 8 our work with the California Pollution Control Office 9 Association in establishing uniform penalties for 10 powerplants in chrome-plating facilities, similar to the 11 uniform penalties for petroleum refineries adopted by this 12 Board in December of 2002. 13 --o0o-- 14 ENFORCEMENT DIVISION ACTING CHIEF JACOBS: We 15 will also continue to support the Board's efforts in the 16 area of environmental justice through our focused 17 environmental inspections and related case investigations. 18 The Enforcement Division will come before you 19 again in December of this year to present for your 20 consideration and adoption a set of regulations that would 21 put into practice the administrative penalties provided 22 for in Senate Bill 527 by Senator Byron Sher. These 23 regulations would allow the ARB to set administrative 24 penalties and for appeals to our enforcement actions to be 25 considered by the Office of Administrative Hearings under PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 161 1 the Department of General Services as an alternative to 2 using the traditional court system. 3 We'll expand our enforcement activities to 4 correct violations by heavy-duty fleets that are not 5 complying with the Air Resources Board's annual fleet 6 inspection program, and we will work with manufacturers of 7 noncompliant portable fuel containers in spells. As noted 8 earlier, one container on the market meets the 9 requirements in these regulations. But as evidenced by 10 the photo in the slide, others have considerable work yet 11 to do. 12 Thank you for this opportunity to present the 13 work of the Enforcement Division. 14 This concludes our presentation. And we'd be 15 happy to answer any questions any of you may have. 16 CHAIRPERSON LLOYD: Thank you very much. A 17 comprehensive report. 18 Questions from the Board? 19 Comments? 20 Professor Friedman. 21 BOARD MEMBER HUGH FRIEDMAN: Just a comment. I 22 thought Ms. Wood, Mr. Brown, and Mr. Jacobs, that was an 23 excellent presentation. I very much appreciate it. 24 CHAIRPERSON LLOYD: Thank you very much. 25 With that, I guess -- since this is not a PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 162 1 regulatory item, I don't have to close the record and 2 update it. We'll hear it later this year. 3 Thank you very much. 4 Anybody from the open comment period? 5 With that, then I'll bring the July 25th meeting 6 of the Air Resources Board to a close. 7 Thank you all very much. 8 Remember, next month, we don't have a meeting in 9 August, so we'll have one in September. 10 That's here, Mike, too -- 11 EXECUTIVE OFFICER KENNY: Yes. 12 CHAIRPERSON LLOYD: So see you all in September. 13 Thank you. 14 (Thereupon the Air Resources Board adjourned 15 at 1:35 p.m.) 16 17 18 19 20 21 22 23 24 25 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345 163 1 CERTIFICATE OF REPORTER 2 I, JAMES F. PETERS, a Certified Shorthand 3 Reporter of the State of California, and Registered 4 Professional Reporter, do hereby certify: 5 That I am a disinterested person herein; that the 6 foregoing California Air Resources Board meeting was 7 reported in shorthand by me, James F. Peters, a Certified 8 Shorthand Reporter of the State of California, and 9 thereafter transcribed into typewriting. 10 I further certify that I am not of counsel or 11 attorney for any of the parties to said meeting nor in any 12 way interested in the outcome of said meeting. 13 IN WITNESS WHEREOF, I have hereunto set my hand 14 this 5th day of August, 2002. 15 16 17 18 19 20 21 22 23 JAMES F. PETERS, CSR, RPR 24 Certified Shorthand Reporter 25 License No. 10063 PETERS SHORTHAND REPORTING CORPORATION (916) 362-2345