Sunoco 2003 Annual Report Download - page 33

In December 1999, the U.S. Environmental Protection Agency (“ EPA ”) adopted a rule
under the Clean Air Act (which relates to emissions of materials into the air). This rule
phases in limitations on the sulfur content of gasoline beginning in 2004. In January 2001,
the
EPA adopted another rule which will require limitations on the allowable sulfur con-
tent of on-road diesel fuel beginning in 2006. The rules include banking and trading credit
systems, which could provide refiners flexibility until 2006 for the low-sulfur gasoline and
until 2010 for the on-road low-sulfur diesel. These rules are expected to have a significant
impact on Sunoco and its operations, primarily with respect to the capital and operating
expenditures at its five current refineries. Most of the capital spending is likely to occur in
the 2004-2006 period, while the higher operating costs will be incurred when the low-
sulfur fuels are produced. The Company estimates that the total capital outlays to comply
with the newgasoline and diesel requirements will be in the range of $400-$500 million,
including amounts attributable to the recently acquired Eagle Point refinery. Spending to
meet these requirements totaled $23 million in 2003. The ultimate impact of the rules may
be affected by such factors as technology selection, the effectiveness of the systems pertain-
ing to banking and trading credits, timing uncertainties created by permitting requirements
and construction schedules and any effect on prices created by changes in the level of gaso-
line and diesel fuel production.
In April 2002, the EPA issued regulations implementing Phase II of the petroleum refinery
Maximum Achievable Control Technology (“MACT II”) rule under the Clean Air Act.
This rule regulates emissions of hazardous air pollutants (including organics, reduced sulfur
compounds, inorganics and particulate metals) from certain sources at petroleum refineries,
including catalytic cracking and reforming units and sulfur recovery units. The rule re-
quires all petroleum refineries that are major sources of hazardous air pollutants to meet
emission standards reflecting the application of the maximum achievable control technol-
ogy at the affected sources by 2005. Analysis of this rule to determine its impact is ongoing.
Although the ultimate impact of the rule cannot be determined at this time, it could have
a significant impact on Sunoco and its operations, primarily with respect to capital ex-
penditures at its refineries.
In July 1997, the EPA promulgated new, more stringent National Ambient Air Quality
Standards for ozone and fine particles, which is resulting in identification of non-
attainment areas throughout the country, including Texas and Pennsylvania, where
Sunoco operates facilities. The EPA is expected to issue final ozone non-attainment area
designations in mid-2004. Fine particle non-attainment areas are not expected to be des-
ignated until early 2005. These standards will result in further controls of both nitrogen
oxide and volatile organic compound emissions. Regulatory programs, when established to
implement the new standards, could have an impact on Sunoco and its operations. How-
ever, the potential financial impact cannot be reasonably estimated until the EPA com-
pletes the non-attainment area designation process and promulgates regulatory programs to
attain the standards, and the states, as necessary, develop and implement revised State
Implementation Plans to respond to the newregulations.
Since the late 1990s, the EPA has undertaken significant enforcement initiatives under
authority of the Clean Air Act, targeting industries with large manufacturing facilities that
are significant sources of emissions, including the refining industry. The EPA has asserted
that many of these facilities have modified or expanded their operations over time without
complying with New Source Reviewregulations that require permits and new emission
controls in connection with any significant facility modifications or expansions that could
increase emissions above certain thresholds, and have violated various other provisions of
the Clean Air Act, including New Source Review and Prevention of Significant Deterio-
ration (“NSR/PSD”) Programs, Benzene Waste Organic National Emissions Standards for
Hazardous Air Pollutants (“NESHAP”), Leak Detection and Repair (“LDAR”) and flaring
requirements. As part of this enforcement initiative, the EPA has entered into consent
agreements with several refiners that require them to pay civil fines and penalties and
make significant capital expenditures to install emissions control equipment at selected
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