Sunoco 2007 Annual Report Download - page 30

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 limits on the sulfur
content of gasoline beginning in 2004 and the sulfur content of on-road diesel fuel begin-
ning in mid-2006 (“Tier II”). The rules include banking and trading credit systems, provid-
ing refiners flexibility through 2006 for low-sulfur gasoline and through May 2010 for
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 is phasing in limits on the
allowable sulfur content in off-road diesel fuel beginning in June 2007. This rule also pro-
vides for banking and trading credit systems. The ultimate impact of this rule may depend
upon the effectiveness of the credit systems, Sunoco’s flexibility to modify its production
slate and the impact on any capital expenditures of technology selection, permitting re-
quirements and construction schedules, as well as any effect on prices created by the
changes in the level of off-road diesel fuel production.
In connection with the phase-in of these off-road diesel fuel rules, Sunoco intends to
commence an approximately $400 million capital project at the Tulsa refinery, which in-
cludes a new 24 thousand barrels-per-day hydrotreating unit, sulfur recovery unit and tail
gas treater. The project is scheduled for completion in mid-2010 and is designed to enable
the production of diesel fuel that meets the new specifications and result in increased feed-
stock flexibility and an upgraded product slate. Most of the capital for the project is ex-
pected to be spent in 2009. In December 2007, Sunoco also announced that it is
considering the potential sale of this facility.
National Ambient Air Quality Standards (“NAAQS”) for ozone and fine particles promul-
gated in 2004 by the EPA have resulted in identification of non-attainment areas through-
out the country, including Texas, Pennsylvania, Ohio, New Jersey and West Virginia,
where Sunoco operates facilities. The EPA has designated certain areas, including Phila-
delphia and Houston, as “moderate” non-attainment areas for ozone, which requires them
to meet the ozone requirements by 2010, before currently mandated federal control pro-
grams would take effect. If a region is not able to demonstrate attainment by 2010, there
would be more stringent offset requirements, and, if a region cannot submit an approvable
State Implementation Plan (“SIP”), there could be other negative consequences. In De-
cember 2006, the District of Columbia Circuit Court of Appeals overturned the EPA’s
ozone attainment plan, including revocation of Clean Air Act Section 185(a) fee provi-
sions. Sunoco will likely be subject to non-attainment fees in Houston, but any additional
costs are not expected to be material. 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 tightening the standard for fine particles. This standard is currently being chal-
lenged in federal court by various states and environmental groups. In March 2007, the
EPA issued final rules to implement the 1997 fine particle matter (PM 2.5) standards. States
have until April 2008 to submit plans to the EPA demonstrating attainment by 2010 or, at
the latest, 2015. However, the March 2007 rule does not address attainment of the
September 2006 standard. In June 2007, the EPA published a proposed ozone standard with
a range of values that is more stringent than the one in the existing standard. Regulatory
programs, when established to implement the EPA’s air quality 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 stan-
dards, and the states, as necessary, develop and implement revised SIPs 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-
28