Proposed Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Control Requirements; Docket No. A-99-06

Ms. Margaret Borushko
US Environmental Protection Agency
National Vehicle and Fuel Emissions Laboratory
2000 Traverwood Drive
Ann Arbor, MI 48105

Re:     Proposed Heavy-Duty Engine and Vehicle Standards and Highway Diesel Fuel Sulfur Control Requirements; Docket No. A-99-06

Dear Ms. Borushko:

The Food Marketing Institute (FMI) is pleased to respond to the Environmental Protection Agency’s (EPA’s) notice of proposed rulemaking, which is intended to establish new emission standards for heavy-duty vehicles and to reduce the sulfur content of highway diesel fuel. 65 Fed. Reg. 35429 (June 2, 2000).

FMI is a non-profit association that conducts programs in research, education, industry relations and public affairs on behalf of its 1,500 members and their subsidiaries. Our membership includes food retailers and wholesalers, as well as their customers, in the United States and around the world. FMI’s domestic member companies operate approximately 21,000 retail food stores with a combined annual sales volume of $300 billion, which accounts for more than half of all grocery store sales in the United States.   FMI’s retail membership is composed of large multi-store chains, small regional firms, and independent supermarkets. Our international membership includes 200 members from 60 countries.

In light of the food marketing and distribution industry’s substantial reliance on heavy-duty vehicles to transport most food products, groceries, perishables and a vast array of consumer goods, including prescription drugs and over-the-counter (OTC) medications, to supermarkets on a daily basis, FMI has a significant interest in the proposed rulemaking. While we wish to express our industry’s support for EPA’s objective of improving the nation’s air quality, FMI is concerned about the unintended consequences of the proposed rule. In particular, FMI is troubled by the potential adverse economic impact of the regulations on food prices, which is a consequence that EPA does not appear to have considered.

If promulgated as proposed, the EPA initiative will increase food distribution and fuel transportation costs significantly, which may well result in higher food prices. Higher food prices should not be dismissed cavalierly because these costs will be borne by every American household and will require consumers to devote a greater percentage of disposable income to grocery purchases than is currently necessary. Particularly troublesome is the effect that higher food prices will have on low-income families and needy individuals who may already have difficulty purchasing sufficient food on limited incomes or who rely upon various governmental programs, such as the Food Stamp Program or the Special Supplemental Nutrition Program for Women, Infants and Children (WIC), to stretch their limited dollars for grocery purchases.

As FMI understands the Agency’s proposal, it would require highway diesel fuel sulfur content to be reduced from the current level of 500 parts per million (ppm) to a maximum of 15 ppm by the year 2006. Although the proposed changes in sulfur content for diesel fuel are expected to result in cleaner air, transportation experts from FMI member companies that are self-distributing food retailers are concerned that the regulations EPA has proposed are more restrictive than necessary to achieve a significant improvement in environmental air quality, particularly in light of EPA’s most recent “Health Assessment Document on Diesel Exhaust.”¹   In this regard, FMI supports the alternative proposal that has been put forth by the petroleum industry, which calls for a 90-percent reduction in the diesel fuel sulfur content from 500 ppm to a cap of 50 ppm. The petroleum industry alternative would achieve a substantial reduction of diesel emissions at a much more reasonable cost.

Specifically, under the EPA proposal, diesel manufacturing costs may increase by as much as 12 cents per gallon based on the estimated $8 billion in capital investments that will be needed to modify refineries and their equipment. The petroleum industry’s initiative is estimated to have a less severe impact since it is only expected to add about 6 cents per gallon based on a $4 billion outlay in capital investments. Additional distribution costs would be incurred as refiners attempt to minimize or avoid problems relating to fuel contamination when the new ultra-low-sulfur diesel fuel is moved through common pipelines and storage tanks with other fuel products. According to industry projections, distribution costs would add 2 more cents per gallon to the manufacturing costs discussed above, thereby raising the expected increase in the cost of diesel fuel to 14 cents per gallon if EPA finalizes its initiative.

Our members are also concerned that the proposed rulemaking may decrease the availability of diesel fuel. Specifically, the proposed regulations will require refinery companies to install substantial equipment, such as underground tanks, piping and pumps, in order to handle the new ultra-low-sulfur diesel fuel. The costs associated with the equipment and its installation will impose a financial hardship on refineries, particularly on those that do not have sufficient capital available to make the investments necessary to meet the regulatory requirements. If several refiners close down as a result of insufficient capital, fuel prices will increase further, and spot shortages of diesel might occur in certain areas. Interruptions in fuel supply will cause substantial disruption to the food distribution industry, which depends largely on trucks to transport perishable food products, such as seafood, agricultural commodities, dairy products and fresh beef, on a regular basis from distribution centers to grocery stores and, therefore, depends on reliable fuel supplies to ensure that food remains fresh and wholesome for consumers.

Fuel price increases and the potential impact on food prices became a sensitive reality for the supermarket industry earlier this year when oil prices began to surge, especially in the mid-west where the cost of diesel fuel rose for many of our members from $1.29 per gallon in January to $1.45 per gallon in July.²   While U.S. food prices are projected to rise by approximately 2.5 percent this year,³ the impact of these oil price hikes on the cost of groceries during the second half of the year is unknown. Much will depend on whether the current energy price increases remain in place over a sustained period of time. If so, higher food prices for consumers in the latter part of the year are virtually inevitable. Our industry transportation experts advise that oil prices probably will not return to previous levels, even if foreign oil countries increase production. Therefore, our industry has had to adjust to a 12 percent increase in fuel prices in recent months. We estimate that the EPA rulemaking would result in an additional 9 percent increase in fuel prices, thereby resulting in an overall increase in excess of 20 percent for diesel fuel for food distributors and supermarkets. Ultimately, significant increases in fuel costs will impact the cost of goods to consumers.

Perhaps, most unsettling to the supermarket industry is the lack of a comprehensive analysis of the impact the proposed rulemaking will have, not just on food prices, but on the national economy. Clearly, EPA has an obligation to conduct a thorough evaluation in this regard prior to moving forward with its proposed regulations. FMI is also concerned that EPA has not conducted sufficient tests to ensure that the new ultra-low-sulfur content diesel fuel will work efficiently with the newly developing vehicle emission reduction technology and that this unproven technology will actually cut emissions to desired levels. In the absence of an assessment of the Agency’s rulemaking
on the nation’s economy and a reasonable certainty that the rule will achieve the desired goal, FMI strongly recommends that EPA hold the proposed rule in abeyance until the necessary assessments have been completed and made available for public review.

Sincerely,

Tim Hammonds
President and CEO

² These diesel fuel prices are based on bulk-volume purchases by member companies operating large trucking fleets. Many of the food suppliers to our industry that are regional, small businesses paid considerably higher prices for diesel fuel, sometimes as much as $1.65 per gallon.

³ Economic Research Service, USDA, “Food Price Outlook for 2000: An Update” in Agricultural Outlook at 7 (April 2000).