California Air Resources Board

SACRAMENTO – The Air Resources Board (ARB) has temporarily eased clean diesel fuel requirements for the farm and construction industries to make more fuel available for on-road "big-rig" trucks, a move that is expected to also reverse sharp price hikes of the last three weeks.

Under an emergency action taken after a day-long hearing in Sacramento that was requested by Governor Wilson, the ARB rules that "off-road" industries can buy any grade diesel fuel available on the market for the next 45 days -- or use stored up supplies for the next 120 days -- instead of using fuel that meets California environmental standards.

The Board decision came late Friday following a marathon, 14 hour hearing during which it heard a wide range of suggestions from many groups, including legislators, environmental organizations, oil companies, growers and truck operators.

The Board acted in response to complaints from truckers and growers -- especially in Northern and Central parts of the state -- of large price increases and supply shortages since cleaner fuel was introduced in early September in order to comply with ARB's rule by October 1.

The standards are designed to reduce soot and smog-forming emissions from buses and trucks by 25 percent.

 Despite oil company estimates of 6 cents per gallon to produce the cleaner-burning diesel, price increases of up to 30 cents per gallon have been recorded in some areas since the rule went into effect. "Those prices are too high and cannot persist," said Jananne Sharpless, ARB chairwoman. "Most of the price increase was caused by temporary shortages of fuel while the refiners made the switch to cleaner grades. Freeing up additional supplies should bring prices down to more rational levels for truck and bus operators."

In announcing the Board's decision, Sharpless also brought attention to the role that oil companies play in influencing supplies and price. The ARB will be monitoring the situation closely, she added, as will the Governor and the Legislature. "The oil companies have a responsibility to stabilize the market and to bring diesel fuel prices down."

Sharpless explained that safeguards were incorporated into the new standards when they were adopted to insure a steady supply and to keep the prices down. That includes giving the oil industry five years to plan their compliance with the rule; giving oil companies an alternative method of producing the fuel that cut their costs in half, and giving oil companies that could not comply on time permission to sell some diesel fuel that did not meet the new rule's requirements.

Many other factors influenced diesel prices, she emphasized, including federal energy taxes that went into effect on the same day, equipment failures in two major refineries that temporarily crippled production, and panic buying that increased demand -- in some cases 35 percent above normal -- the week before the clean air rules went into effect. "Nonetheless," she said, "much of the difference between the cost of producing cleaner diesel fuel and selling it cannot be accounted for, based on ARB requirements."

ARB monitoring has shown increased production since the refinery equipment was repaired and that the increased supply has already reduced prices about 4 cents in recent days. The ARB ruling is intended to accelerate that trend while oil companies rebuild their diesel supplies for truck operators.

 Also, Governor Wilson announced on Friday the formation of a task force of state agencies that will review diesel price and supply problems over the next 30 days. "Dramatic increases in price have traumatized many California businesses and disrupted sectors of our economy," Wilson wrote in a letter to Sharpless. "At the same time, the environmental and public health rationale underlying the regulation are strong," the letter continues. "When properly implemented, public health protection against cancer and respiratory disease will be dramatically and cost-effectively reduced."

The Interagency Diesel Fuel Advisory Committee, which will be led by PUC president Daniel Fessler, also includes the California Environmental Protection Agency, Air Resources Board, California Department of Food and Agriculture, Department of Finance, State Board of Equalization and the California Energy Commission.