Sunoco 2006 Annual Report Download - page 33

Regulatory Matters
The U.S. Environmental Protection Agency (“EPA”) adopted rules under the Clean Air
Act (which relates to emissions of materials into the air) that phased in limitations on the
sulfur content of gasoline beginning in 2004 and the sulfur content of on-road diesel fuel
beginning in mid-2006 (“Tier II”). The rules include banking and trading credit systems,
providing refiners flexibility through 2006 for the low-sulfur gasoline and through May
2010 for the on-road low-sulfur diesel. Tier II capital spending, which was completed in
2006, totaled $755 million. In addition, higher operating costs are being incurred as the
low-sulfur fuels are produced. In May 2004, the EPA adopted another rule which will phase
in limitations on the allowable sulfur content in off-road diesel fuel beginning in
mid-2007. This rule also provides for banking and trading credit systems. The ultimate
impact of this rule may depend upon the effectiveness of the related banking and trading
credit systems, Sunoco’s flexibility to modify its production slate and the impact on any
capital expenditures of technology selection, permitting requirements and construction
schedules, as well as any effect on prices created by the changes in the level of off-road die-
sel fuel production.
In connection with the phase in of these new off-road diesel fuel specifications, Sunoco is
evaluating its alternatives for its Tulsa refinery, including consideration of significant capi-
tal expenditures which could result in increased crude flexibility and an upgraded product
slate. The majority of any such capital expenditures would likely not occur until the 2009-
2010 timeframe.
National Ambient Air Quality Standards (“NAAQS”) for ozone and fine particles promul-
gated by the EPA have resulted in identification of non-attainment areas throughout the
country, including Texas, Pennsylvania, Ohio, New Jersey and West Virginia, where
Sunoco operates facilities. In 2004, the EPA issued final non-attainment area designations
for ozone and fine particles. These standards will result in further controls of nitrogen ox-
ide, sulfur dioxide and volatile organic compound emissions. The EPA has designated cer-
tain areas, including Philadelphia and Houston, as “moderate” non-attainment areas for
ozone, which would require them to meet the ozone requirements by 2010, before cur-
rently mandated federal control programs would take effect. If a region is not able to dem-
onstrate attainment by 2010, there would be more stringent offset requirements, and, if a
region cannot submit an approvable State Implementation Plan, there could be other neg-
ative consequences. In January 2007, the District of Columbia Circuit Court of Appeals
overturned EPA’s ozone attainment plan, including revocation of Clean Air Act Section
185(a) fee provisions. Sunoco will likely be subject to non-attainment fees in one or more
areas, but any additional costs are not expected to be material. In September 2006, the EPA
issued a final rule approving the Houston ozone State Implementation Plan. Sunoco’s
Bayport and LaPorte, TX chemical facilities are located within this non-attainment area.
In 2005, the EPA also identified 21 counties which, based on 2003-2004 data, now are in
attainment of the fine particles standard. Sunoco’s Toledo refinery is within one of these
attainment areas. In September 2006, the EPA issued a final rule which tightens the stan-
dard for certain fine particle matter. This standard is currently being challenged in federal
court by various states and environmental groups. Regulatory programs, when established
to implement the EPA’s standards, could have an impact on Sunoco and its operations.
However, the potential financial impact cannot be reasonably estimated until the EPA
promulgates regulatory programs to attain the standards, and the states, as necessary,
develop and implement revised State Implementation Plans to respond to the new
regulations.
Through the operation of its refineries, chemical plants and coke plants, Sunoco’s oper-
ations emit carbon dioxide. There are various legislative and regulatory measures to address
greenhouse gas (“GHG”) emissions which are in various stages of review, discussion or im-
plementation. These include proposed federal and state actions to develop programs for the
reduction of GHG emissions. While it is currently not possible to predict what impact, if
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