High Sulfur NRLM Credit
          Calculation Guidance
vvEPA
Agency

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                      High Sulfur NRLM Credit
                         Calculation Guidance
                            Assessment and Standards Division
                           Office of Transportation and Air Quality
                           U.S. Environmental Protection Agency
v>EPA
United States                                     EPA420-B-07-001
Environmental Protection                                 January 2007
Agency

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Q:     Please provide some guidance on generating high sulfur NRLM credits, especially on
how refiners and importers are to apply the provisions and equations of section 80.535.
A:     Per 80.535(a) of the regulations, refiners and importers may generate "high sulfur"
NRLM credits from June 1, 2006 through May 31, 2007.  These credits may be used to produce
high sulfur NRLM diesel fuel after June 1, 2007.

To generate such credits, a batch of diesel fuel must be designated as "NRLM" and must meet
the 500 ppm sulfur standard when it is transferred to the next entity (per 80.535(a)(5)). To
begin generating credits, a refiner or importer must submit to EPA a notice of intent to generate
credits; the notification must be received by EPA at least 30 days prior to the date that it begins
generating credits.  Credits may not be "double-counted" (i.e., a refiner/importer may  not
generate highway diesel fuel credits, under 80.531, and high sulfur NRLM credits for the same
volume of fuel).  However, a refiner may generate high sulfur NRLM credits and also either
generate or use highway  credits (to meet their highway ULSD production requirements) during
the same compliance period.

Credits may be generated one of two ways:
1.      The diesel fuel must be dyed, and thus designated as NRLM,  per the provisions of
       80.520; or,
2.      For undyed (or dyed) fuel, apply the equation of 80.535(a)(2)(ii):

       HSC = Vsio + Vsio -

       Where:
       V5io =  the total volume of NRLM diesel fuel (15 ppm + 500 ppm) produced or imported
              during the annual compliance period
       520 =  the total volume of highway diesel fuel (15 ppm + 500 ppm) produced  or
              imported during the annual compliance period
       BMV =  the refiner or importer's highway baseline (per 80.533, baseline applications
              were due for high sulfur credit generation on February 28, 2006)

In order to generate high sulfur NRLM credits using the baseline approach in method  2, the
refiner's total production of 15 ppm and 500 ppm diesel fuel must be greater than their highway
baseline volume. This restriction was intended to ensure that credits  were not generated simply
by shifting 500 ppm diesel fuel from the highway market to the nonroad market. The value of
HSC as calculated from the equation is also limited by 80.535(a)(5), which states that the fuel
must have been designated as "NRLM" when it was transferred to the next entity.

Here are some examples to illustrate how to calculate high sulfur NRLM credits using the
baseline approach in method 2:
(Note-for all of the following examples, the refiner has a highway baseline volume of 100
gallons; 1 credit = 1 gallon)

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(1)     A refiner produces 100 gallons of 500 ppm diesel fuel. All of the 500 ppm diesel fuel is
       designated as NRLM diesel fuel.
             HSC   = Vsio + Vs2o - BMV
                    = 100 + 0-100
                    = 0
       The refiner did not produce more total diesel fuel than its highway baseline, therefore the
       refiner cannot generate any high sulfur NRLM credits.

(2)     A refiner produces 120 gallons of 500 ppm diesel fuel. 50 gallons of the 500 ppm diesel
       fuel is designated as NRLM, and 70 gallons is designated as highway diesel fuel.
             HSC   = Vsio + Vs2o - BMV
                    = 50 + 70-100
                    = 20
       The refiner can generate 20 high sulfur NRLM credits. Also, the refiner must obtain a
       number of highway diesel sulfur credits equal to 80% of its 500 ppm highway diesel fuel
       production (or 0.80 x 70 = 56 highway credits).

(3)     A refiner produces 100 gallons of 15 ppm diesel fuel and 100 gallons of 500 ppm diesel
       fuel. All of the 500 ppm diesel fuel is designated as NRLM diesel fuel, and all of the 15
       ppm diesel fuel is designated as highway diesel fuel.
             HSC   = Vsio + Vs2o - BMV
                    = 100+ 100-100
                    = 100
       The refiner can generate 100 high sulfur NRLM credits. Also, the refiner can generate
       highway diesel sulfur credits equal  to 20% of its 15 ppm highway diesel fuel production,
       or 0.20 x 100 = 20 highway credits.

(4)     A refiner produces 200 gallons of 15 ppm diesel fuel, all of which is designated as
       highway diesel fuel.
             HSC   = Vsio + Vs2o - BMV
                    = 0 + 200-100
                    = 100
       While HSC =  100, the refiner did not designate any of the fuel as NRLM diesel fuel.
       Therefore, the refiner cannot generate any high sulfur NRLM credits. The refiner can
       generate highway diesel sulfur credits equal to 20% of its 15 ppm highway diesel fuel
       production, or 0.20 x 200 = 40 highway credits.

       The same result of zero HSC occurs in this example if the 200 gallons of production were
       500 ppm highway diesel fuel as opposed to 15 ppm highway diesel fuel. However,  in
       this instance, the refiner would need to purchase 40 highway credits rather than
       generating 40  highway credits.

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(5)     A refiner produces 200 gallons of 15 ppm diesel fuel and 100 gallons of 500 ppm diesel
       fuel.  All of the 500 ppm diesel fuel is designated as NRLM diesel fuel and all of the 15
       ppm diesel fuel is designated as highway diesel fuel.
             HSC  = VSIQ + Vs2o - BMV
                    = 100 + 200-100
                    = 200
       While HSC = 200, the refiner only designated 100 gallons of 500 ppm diesel fuel as
       NRLM diesel fuel.  Therefore, the refiner can only generate 100 high sulfur NRLM
       credits.  Also, the refiner can generate highway diesel sulfur  credits equal to 20% of their
       15 ppm highway diesel fuel production, or 0.20 x 200 = 40 highway credits.

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