Regulation Impact Statement for the Fuel Standard (Petrol) Determination 2001 and the Fuel Standard (Diesel) Determination 2001




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Regulation Impact Statement for the Fuel Standard (Petrol) Determination 2001 and the Fuel Standard (Diesel) Determination 2001

1. Introduction

The Fuel Quality Standards Act 2000, which received Royal Assent on 21 December 2000, provides the framework for a national fuel quality standards regime. This legislation has been developed in response to an urgent need to address the quality of fuel currently available in Australia. New vehicle emission standards, harmonising Australian standards with international vehicle emission standards, were gazetted in December 1999, and come into force from 2002 to 2006. The quality of fuel in Australia is a key constraint to their introduction.

Fuel quality standards are also needed to better manage those fuel parameters that do not impact directly on vehicle technology, but nevertheless contribute to ambient levels of pollutants identified as posing health or environmental problems.

The first standards to be made under the Act are for petrol and automotive diesel. These were developed in consultation with stakeholders. This RIS examines the proposed standards for petrol and diesel and should be read in conjunction with the RIS provided in the Explanatory Memorandum to the Fuel Quality Standards Bill 2000.

2. The Problem

2.1 Worsening Urban Air Quality and Increasing Greenhouse Gas Emissions

The transport sector is the single largest contributor to urban ambient air pollution. Vehicles are estimated to contribute up to 70% of total urban air pollution (NSW EPA, 1999). Motor vehicle emissions are key sources of lead, carbon monoxide and nitrogen dioxide They are also the major source of photochemical smog ('ozone') precursors. With the exception of particles, petrol passenger vehicles are the major transport source. Heavy diesel vehicles are also a significant source of nitrogen oxides (NOx). The diesel fleet is the major transport source of particles, contributing up to 80% of vehicle produced particles in major cities (NEPC, 1998).

High levels of air pollutants have been shown to result in a wide range of adverse health effects including respiratory effects, ranging in severity from coughs, chest congestion, asthma, to chronic illness and possible premature death in susceptible people. Recent research indicates that unless further action is taken to improve the management of transport emissions, air quality is likely to decline in the medium to long term.

The transport sector is also one of the largest contributors to national greenhouse gas emissions. It contributed about 16% of national greenhouse gas emissions in 1998. Transport sector emissions rose by 18% during 1990-98. Road transport is the largest contributor to transport emissions and makes up 14% of total national emissions. The average rate of increase in road transport emissions over the period 1990 to 1998 was about 2% per annum. Passenger cars contributed 9% of national emissions, or 57% of total transport sector emissions in 1998.

The nature of the problem is such that an integrated strategy, coordinating action across a number of different areas, including vehicle emission standards and fuel quality, is required to address the issue.

2.2 Existing Commonwealth Regulation

In December 1999, the Commonwealth Government gazetted mandatory new vehicle emission standards as Australian Design Rules (ADRs) under the Motor Vehicle Standards Act 1989. The gazettal of these new, tighter emission standards effectively requires vehicle manufacturers to adopt new vehicle and emission control technologies. However, existing Australian fuel quality is a constraint to the effective functioning of many of these new technologies. The relatively high sulfur content of both petrol and diesel in Australia has been identified as a particular problem for the effective operation of engine catalysts necessary to meet tighter emission standards.

As ADRs are nationally applicable it is necessary to ensure that fuel of the appropriate quality is widely available in Australia. The key fuel parameters required for the deployment of advanced vehicle technologies are fuel octane ratings and sulfur content.

2.3 Existing State Fuel Quality Regulation

Almost all the States and Territories currently have some form of fuel quality regulatory regime. In the past this was mainly limited to the lead content of petrol. Several jurisdictions however, amended their legislation in response to the announcement by the Commonwealth of proposed fuel changes under the Measures for a Better Environment (MBE) initiative. Further detail on State-specific standards is outlined in the RIS included in the Explanatory Memorandum for the Fuel Quality Standards Bill 2000, (p.14).

As pointed out in the RIS to the Fuel Standards Bill, State-specific legislation has the potential to result in different standards for each jurisdiction which could give rise to competition issues, by creating barriers for refiners and importers to interstate markets and raising compliance costs. There is evidence that this problem has already arisen with some companies having to pay premiums under the refinery exchange program where they cannot meet the State standards and need to source the fuel from the local refinery. Under the refinery exchange system, local refineries provide fuel for the State/local area to other companies for supply. For example, fuel sold in NSW as BP or Mobil may have been produced at the Shell or Caltex refineries in Sydney.

In Western Australia where BP owns the local refinery which is producing fuel to state specific standards, other companies are charged a premium for the cleaner fuels. It has been claimed by oil companies (The Australian 6 March 2001) that State-specific legislation in South Australia has resulted in a 0.7c per litre premium for unleaded petrol and 0.32c a litre for diesel supplied by Mobil, the only refinery in the State that can produce the 'boutique' fuel resulting from the standards.

2.4 Need for Further Government Intervention

In order to achieve the environmental and human health benefits associated with new vehicle emission standards, complementary national fuel standards are required. Introduction of such standards by the Commonwealth Government will ensure a nationally consistent approach to the regulation of fuel quality in Australia.

A national approach will also avoid the competition issues that are already arising for Australian refineries that cannot meet State-specific standards resulting in higher premiums under the refinery exchange program.

3. Objectives

3.1 Primary Objective

The Government's primary objective in mandating fuel quality standards is to reduce the adverse effects of motor vehicle emissions on urban air quality, human health, and the enhanced greenhouse effect.

3.2 Related Government Policies and Their Objectives

The Prime Minister's 1997 statement, Safeguarding the Future: Australia's Response to Climate Change sets out an Environmental Strategy for the Motor Vehicle Industry. The objective of the strategy is threefold - to enhance the environmental performance of the automotive industry; to reduce air pollution and improve the health of our cities; and to reduce greenhouse gas emissions. The adoption of new and emerging vehicle engine and emission control technologies is central to Government objectives with respect to the improved management of both noxious and greenhouse gas emissions. If the Government is to achieve these objectives it will also be necessary to ensure that the appropriate fuel is widely available in Australia.

The Measures for a Better Environment (MBE) package was announced by the Prime Minister in May 1999 as part of the New Tax System for Australia. It consists of a series of initiatives, many of them directed at the transport sector, to improve the management of noxious (air pollutant) and greenhouse gases. It establishes a timetable for the introduction of internationally harmonised vehicle emission standards and foreshadows changes to the composition of transport fuel.

Diesel specifications identified in MBE include a minimum standard of 500ppm sulfur in road transport fuel from the end of 2002 and the introduction of a "mandatory fuel standard of 50ppm (through a NEPM, equivalent legislative device or by use of the definition in the diesel fuel credit scheme) in 2006". It also noted the requirement for high octane and low sulfur levels in petrol. High-octane petrol enables higher thermal efficiencies to be achieved, while low sulfur content is essential for the deployment of advanced fuel efficiency technologies, such as direct injection, both of which help achieve reduced fuel consumption.

The Downstream Petroleum Products Action Agenda was released in November 1999. The Agenda identifies the Government's strong preference for the development of nationally consistent fuel specifications, noting that there are "clear competition benefits from having a nationally consistent approach to fuel standards". It also advises that the Government will ensure that fuel specifications apply and are enforced equally to imports and domestically produced fuels.

4. Options

This RIS analyses two options for national fuel quality standards. The initial proposal for the standards was presented in a public discussion paper released for consultation in May 2000 and is discussed as Option 1 below . After analysis of the 35 submissions received and further consideration of the issues raised, the Commonwealth prepared a revised set of fuel standards which was released to key stakeholders in September 2000. Option 2 is based on the Commonwealth's revised position with a number of further amendments to the standards which were incorporated to address issues raised by fuel importers. These two options by fuel type (petrol and diesel) and by fuel parameter (characteristic) are summarised in Table 1 below. The Euro 2, 3 and 4 standards are also shown in Table 1, for comparison.

The options presented address only those 'environmental' parameters that have been identified as having a direct impact on emissions or new vehicle emission control technologies. There are a number of other parameters in both petrol and diesel which directly affect the efficient operation of the engine and, if not controlled, could lead to engine malfunction. These parameters are being addressed in a separate Commonwealth process for developing 'operability' standards for petrol and diesel.

In considering options for introducing fuel standards, the Commonwealth examined European Union fuel standards (known as Euro 2, Euro 3 and Euro 4) with a view to harmonising new Australian fuel standards with international standards. However, a set of guiding principles was incorporated to ensure that any standards proposed were applicable to the Australian context. These guiding principles are:

  1. Fuel standards are intended to manage those fuel qualities/parameters that are known to have the potential to impact adversely on the environment.

  2. Fuel standards should be compatible with relevant international or internationally accepted standards in order not to impede competition and trade.

  3. Fuel standards are intended to be mandated and implemented on a national basis. In particular, fuel standards that are technology enabling must apply nationally. Local environmental circumstances may, however, dictate variation within the national standard to achieve environmental outcomes.

  • Consideration will be given to State by State establishment of fuel standards that address airshed specific environmental conditions, however, in such cases a national standard will be determined as a default.

  1. Fuel standards will apply to, and be enforced equally in respect of, imports as well as domestically produced petroleum fuels.

  • Fuel standards must not impede competition, either between Australian refiners, or with imported refined product.

  1. Fuel standards that directly address environmental or health issues will be determined on the basis of Australian-specific requirements. In such instances, harmonisation with European specifications may be neither necessary nor desirable.

  2. The timetable for the introduction of new fuel standards will be based on Australian requirements. Harmonisation, in terms of timing, will not be based on European or any other regional timetable, except where there is a previous policy decision to this effect or the standard is technology enabling and the need for such harmonisation is clearly demonstrated.

  3. Consideration will be given to setting standards that provide, as far as possible, flexibility in terms of compliance.

  • Flexibility provisions must not impede competition or trade; and

  • flexibility provisions must not add significantly to legislative/regulatory complexity or implementation/enforcement costs to Government.

The two options were assessed in light of three principal selection criteria. The suite of standards recommended would need to, as far as possible:

  • provide harmonisation with international standards ie 'Euro' standards;

  • satisfy the objectives of the seven guiding principles ( to ensure that any fuel standards selected were appropriate for the Australian context; and

  • provide a balance between environmental objectives and the capacity of the refining industry to supply cleaner fuels.


Table 1: Proposals for fuel quality standards compared with Euro fuel standards
PETROL










Parameter

Euro 2, 3 and 4

Option 1

Option 2

Sulfur

1993: 500 ppm (Euro 2)
2000: 150 ppm (Euro 3)
2005: 50 ppm (Euro 4)



All grades:
1 Jan 2002: 150 ppm
1 Jan 2005/6: 50 ppm
1 Jan 2008: 30 ppm

ULP:
1 Jan 2002: 500 ppm
PULP:
1 Jan 2002: 150 ppm
LRP:
1 Jan 2002: 500 ppm
All Grades:
1 Jan 2005: 150 ppm

Research octane number (RON)

1993: 95 RON (min) (Euro 2, 3)

1 Jan 2002
ULP 91 RON (min)
PULP 95 RON (min)

As for Option 1

Motor octane number (MON)

1993: 85 MON (min) (Euro 2, 3)

1 Jan 2002
ULP 81 (min)
PULP 85 (min).

No standard proposed.

Reid vapour pressure

1993: 8 classes specified
(Euro 2)
2000 60 kPa min (Euro 3)
2005: 55 kPa min (Euro 4)

All Grades
1 Jan 2002: 67kPa
(Default standard only where States/Territories do not regulate.)

No standard proposed.

Distillation (FBP)

1993: 215°C max (Euro 2): 2000: 210°C max (Euro 3)

1 Jan 2005: 210°C (max)

As for Option 1

Olefins

1993: No standard for E2: 2000 (Euro 3):
ULP:21% max
PULP: 18%

All grades:
1 Jan 2002 18% max by vol
1 Jan 2005 - 16% max by vol

All grades:
1 Jan 2004 - 18% pool average over 6 months with a cap of 20%.
1 Jan 2005 - 18% max by vol



Aromatics

1993: No standard for E2: 2000: 42% max (Euro 3)
2005: 35% max (Euro 4)

All grades:
1 Jan 2002: 45% max by vol
1 Jan 2005: 42% max by vol
1 Jan 2008/10: 38% max by vol.

All grades:
1 Jan 2002: 45% pool average over 6 months with a cap of 48% 1 Jan 2005: 42% pool average over 6 months with a cap of 45%

Benzene

1993: 5% max (Euro 2)
2000: 1% max (Euro 3)

All grades
1 Jan 2002: 3% max by vol
1 Jan 2005: 2% max by vol

All grades
1 Jan 2006: 1% max by vol

Lead

1993: 0.013 g/L max (E2)
2000: 0.005 g/L max (E3)
2005: 0 g/L max (E4)

All grades
1 Jan 2002: 0.013g/L (max)
1 Jan 2005: 0g/L

All grades
1 Jan 2002: 0.005g/L (max)

Oxygen content

1993: No E2 standard
2000: 2.7% m/m max (E3)

All grades
1 Jan 2002: 2.7% (max) by mass

All grades
1 Jan 2002: 2.7% (max) by mass (no ethanol)

Phosphorus

No Euro standard set

No standard proposed

ULP and PULP
1 Jan 2002: 0.0013g/L (max)

Octane enhancers

See table 5







DIESEL

Parameter

Euro 2, 3 and 4

Option 1

Option 2

Sulfur (max)

1993: 500 ppm (Euro 2)
2000: 350 ppm (Euro 3)
2005: 50 ppm (Euro 4)

1 Jan 2002: 500 ppm
1 Jan 2006: 50 ppm
1 Jan 2008: 30 ppm

31 Dec 2002: 500 ppm
1 Jan 2006: 50 ppm
1 Jan 2008: To be revisited in 2002

Cetane Index

1993: 46 (min) (Euro 2)
2000: 46 (min) (Euro 3)
2005: 52 (min) (Euro 4)*

1 Jan 2002: 47 (min) index
1 Jan 2006: 50 (min) index

1 Jan 2002: 46 (min) index

Density

1993: 820-860 kg/m3 (E2)
2000: 845 kg/m3 max (E3)

1 Jan 2002: 820 to 850 kg/m3
1 Jan 2006: 820 to 845 kg/m3

1 Jan 2002: 820 to 860 kg/m3
1 Jan 2006: 820 to 850 kg/m3

Distillation T95

1993: 370 (max) (Euro 2)
2000: 360 (max) (Euro 3)
2005: 340 (max) (Euro 4)*

1 Jan 2002: 360°C (max)
1 Jan 2006: 350°C (max)

1 Jan 2002: 370°C (max)
1 Jan 2006: 360°C (max)

Polyaromatic hydrocarbons (PAHs)

1993: No Euro 2 standard
2000: 11% m/m max (E3)
2005: 4% m/m max (E4)*

1 Jan 2006: 11% m/m (max)

As for Option 1

Ash and suspended solids

1993: 100 ppm max (E2)
2000: 100 ppm max (E3)

1 Jan 2002: 100 ppm (max)

As for Option 1

Viscosity

No Euro standard

1 Jan 2002: 2.0 to 5.0 cSt @ 40°C

1 Jan 2002: 2.0 to 4.5 cSt @ 40°C

* These values are indicative only and have not yet been set. They were agreed by the consultants together with Australian Institute of Petroleum (AIP) members as reasonable choices in the absence of formal specifications for the purposes of modelling under the Fuel Quality Review.
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