Scottish Government

Consultation on Petrol Vapour Recovery Phase 1 Derogation

ANNEX C

DRAFT REGULATORY IMPACT ASSESSMENT ON PETROL VAPOUR RECOVERY PHASE 1 DEROGATION

This draft Regulatory Impact Assessment is an evaluation of the costs and benefits of applying the derogation allowed under Directive 94/63/EC to small petrol stations with annual throughput of less than 500m ³/year where the service station is located in a geographical area or on a site where vapour recovery emissions are unlikely to contribute significantly to environmental or health problems.

1. Purpose and intended effect of Measure

The Objective and background

Council Directive 94/63/EC is in place to control volatile organic compound (VOCs) emissions resulting from the storage of petrol and its distribution from terminals to service stations. The Directive is implemented in the UK by the Environmental Protection (Prescribed Processes and Substances etc) (Amendment) (Petrol Vapour Recovery) Regulations 1996 SI 2678/96 and corresponding Regulation in Northern Ireland.

The Directive requires that vapour displaced by the delivery of petrol into storage installations at service stations must be returned through a vapour tight connection line to the mobile container delivering the petrol. Unloading operations may not take place until the arrangements are in place and properly functioning.

The Directive permanently excludes all small service stations with a throughput of less than 100m ³/year from the requirement to install new equipment designed to reduce emissions during the unloading of petrol. However the next smallest stations in the range 100-<500m ³/year were, under the Directive, given until 31 December 2004 to install such equipment, and were also eligible in principle to:

• a derogation….where the service station is located in a geographical area, or on a site where vapour emissions are unlikely to contribute significantly to environmental or health problems.

It was decided at the time that new small petrol stations in certain areas of the UK would be exempt from the controls and that the UK would revisit the issue nearer to the deadline and look again at the derogation criteria taking into account further scientific information which may by then be available. It is that issue that is now being addressed.

2. Risk assessment

The aim of the Directive is to reduce emissions of volatile organic compounds (VOCs.) Ozone is a photochemical oxidant and is formed in atmospheric chemical reactions between VOCs and oxides of nitrogen in the presence of sunlight. Ozone is a major pollutant of concern and is known to have serious impacts on human health, crops and some natural ecosystems, and certain types of materials.

The UK Department of Health ¹⁵ has estimated that between 700-12,500 deaths and 500-9,900 hospital admissions may occur each year cases in vulnerable people due to ozone concentrations (based on ozone exposure during the summer of 1995). The higher values assume no threshold for the effects of ozone.

Ozone also affects crops. Across much of Europe, ozone concentrations rise to levels that are know to exceed the critical level for arable crops (i.e. the levels above which impacts occur). At such concentrations, crop yields are reduced. The estimated cost each year in the UK from ozone effects on crops has been estimated at 530m (based on 1996 concentrations) ¹⁶. Finally, ozone is known to damage some polymeric materials such as paints, plastics and rubbers. A research programme in the UK found that there was no evidence in support of a significant effect of ozone on paints ¹⁷in contrast with previous evidence. However, effects were found on rubber products. The study assessed the annual damage cots from ozone on accelerated wear and cracking in rubber, and estimated the cost at around 90m per year.

As well as contributing to ozone formation, some VOCs in petrol vapour have direct health effects. Benzene, for example, is a genotoxic human carcinogen. Long term exposure has also been linked to leukaemia and no safe threshold has been identified.

The costs of installing PVR1 equipment could impose additional economic pressure and hence lead to the closure of a significant number of small petrol stations. Petrol station closures themselves are thought to have significant implications for the sustainability of rural communities and on the economic welfare of individuals affected.

3. Options

The UK Government and devolved administrations considered the following options with regard to applying the derogation to small petrol stations.

Option 1 - No derogation

There is currently no derogation for existing petrol stations with a throughput of less than 500m ³/yr from the requirements of the PVR1 Directive. Option 1 would therefore require small petrol stations to comply with the Directive by 31 December 2004.

Option 2 - Partial Derogation

Option 2 would derogate existing small petrol stations that were situated in areas of the UK which did not meet relevant ozone criteria. However, all new stations, built after December 2004 regardless of where they are situated would be required to fit petrol vapour recovery controls on tanks.

Option 3 - Blanket Derogation

Option 3 is to derogate all existing small petrol stations from the requirements of the Directive. However, all new stations built after December 2004 regardless of where they are situated would be required to fit petrol vapour recovery controls on tanks. Derogating all small petrol stations across the UK would be very unlikely to contribute significantly to environmental or health problems due to ozone exposure.

4. Benefits, Risks and Costs of the Options

Socio-Economic impacts of the applying the derogation to all or certain areas of the UK

Applying the derogation to all or most petrol stations in the UK could help avoid additional economic pressure and hence closure of a significant number of petrol stations. Petrol station closures themselves are thought to have significant implications for the sustainability of rural communities and on the economic welfare of individuals affected.

The number and annual petrol throughput by petrol station size is given in table 1.

Table 1 UK annual petrol throughput by petrol station size assuming 'existing trends'

The following socio-economic impacts have been assessed (and valued where possible).

These impacts may occur as a result of the closure of a petrol retail business. Options 2 and 3 would significantly reduce or delay future closures of small petrol stations if the cost implications of PVR Stage 1 were to impact significantly upon the profitability of the petrol stations. The forecast of the number of stations by type according to historical trends,is shown in table 2.

Table 2 : baseline site numbers forecast for petrol stations with throughput >100m3 but <500m3 between 2003-2010

¹ these are sites at least 5km distant from population densities of 250 people/km ² or greater and are defined as 'rural'.

Under baseline assumptions rural sites are protected from market consolidation pressures. The remaining sites are in 'urban' situations and hence more influenced by market consolidation forces. The baseline assumes that 732 urban sites may close between 2003 and 2010 leaving 383 small petrol stations open at the end of this period.

Under options 1 and 2 two main types of site closure due to additional costs may occur:

Timing of closure impacts:

Most urban sites are anticipated to close in the period to 2010 due to market pressures to consolidate. In the case where no derogation is applied, the additional cost may force some of these stations to bring forward closure. It has been assumed that there is a uniform closure rate during this period and it is defined that each year that a site is open is known as a Station Year Equivalent (SYE). It is estimated that a maximum of 2,478 SYEs would be saved from 2004-2010 assuming that all closures would be brought forward to 2004 if the derogation was not applied to all petrol stations.

The size of the timing of closure impacts will critically depend on the extent to which costs under the no derogation case would lead to closure. The costs of not derogating may lead some to bring forward closure, but the true extent of this would require information on the financial situation of small stations that is currently not available. However, it is likely that some small petrol stations will close earlier if derogation is not applied. Hence, the central estimates has been calculated on the basis that stations currently forecast to close up to January 2007 bring forward closure to the present time.

Direct closures:

383 small petrol stations are forecast to still be open in 2010 under the baseline analysis. 90% of these are rural sites at which the baseline market consolidation pressures are assumed to be less important. It is possible that due to the costs borne by meeting PVR1 requirements, some of these stations too would close. It is estimated that a maximum of 1,340 SYEs would be saved under the derogation.

The task of estimating the number of small petrol stations that could close without the derogation is complicated by:

• the fact that some stations might be expected to diversify their provision of goods to mitigate against the impacts of the PVR stage 1, whilst marginal stations may have taken the decision to reduce throughput below the 100m ³ threshold and therefore avoid the impact of the measures.

• the impact of station closing upon the survival of others in the region. For example, one station closing would most probably increase the business of the nearest alternative station considerably, both in terms of local and passing traffic, as well as the knock on benefits to that community.

These complicating factors have not been considered in the cost/benefit analysis but are recognised as adding to the uncertainty surrounding the estimates.

The main socio-economic impacts of derogation that have been assessed are summarised in table 3 below.

Table 3 Summary of Socio-economic Impacts of Derogation

Therefore, there may be significant economic and social benefits from derogation. In particular, additional fuel and time costs estimated to be 16.052million to 2010 could be avoided through the derogation. An estimated 149 jobs might be saved and further benefits to the sustainability of rural communities may also accrue. A key question in evaluating these results is the extent to which the cost savings highlighted in the next section avert closure of stations. This will, as noted earlier, depend on a number of factors including the existing profits and losses and the extent to which costs can be built into regular maintenance.

Tourism could potentially be protected as a source of revenue for the local economy and impacts on local businesses likewise, according to the actual impact of the derogation on closures.

In terms of social impacts, employment benefits from applying the derogation range from zero to 747 jobs saved, with consequential social costs of unemployment being avoided. Potentially positive impacts on access to services and mitigation against increased fuel poverty are likely to be important in rural areas in particular.

The sustainability of rural communities is likely to be enhanced by derogation. Rural communities depend on hubs for socialisation and rely on petrol stations and other sources of supplies for access to important services, including post offices. The extent to which petrol stations act as hubs is questionable but where additional services are provided by the station and where there are few other facilities for such socialisation there may be significant local impacts, particularly on the disadvantaged. For local businesses, easy access to fuel and other supplies may be important factors in ensuring their economic viability, and tourists drawn to rural villages in search of fuel add to the potential sources of income for rural communities. Again, a range of potential effects might occur, depending on the importance of PVR legislation on station closures.

In conclusion, there appear to be potentially significant socio-economic benefits to support the case for derogation for service stations with thresholds of >100m ³ - <500m ³ petrol throughput per annum, from the requirements of Directive 94/63/EC.

Costs ofPVR Stage1

Option 1 would result in the following costs for small petrol stations:-

Non-recurring costs

Equipment and works

Essentially, PVR stage 1 controls are not particularly complex or difficult to implement. The vapour outlets of storage tanks are manifolded to a single outlet used during loading. It is often necessary to break up and remake the forecourt hard-standing to get access to pipe work, and this requires that the petrol station closes its forecourt while the work is done. The layout of loading areas, storage tanks and underground pipe work varies widely between sites so that the amount of civil work breaking and remaking hard-standing and the new pipe work required would tend to vary also. It is estimated that the total cost of equipment and works is as follows:

The UK Government and devolved administrations propose that all new petrol stations with a throughput of less than 500m ³/yr regardless of where they are sited will be required to meet the install PVR1 equipment and meet the requirements of the Directive from December 2004.

For new service stations the cost of fitting PVR1 related equipment will be no more than about 200. This compares with the cost of about 3000-50000 for retrofitting at existing stations.

Loss of earnings

It is estimated that sites would close their petrol retail operations for an average of one day while fitting stage 1 controls. Assuming a profit of 2p/l petrol sold and that the sales rate is constant through the year, the loss of petrol retail earnings would vary between 5.60 and 27.80 per site.

Compliance inspection

Under the Environmental Protection (Prescribed Processes and Substances etc) (Amendment) (Petrol Vapour Recovery) Regulations and corresponding legislation in Northern Ireland the loading and storage of petrol at small petrol becomes a prescribed process from 31 December 2004. From that date small petrol stations would not be able to operate such a process unless they were authorised to do so and were also PVR1 compliant. The petrol station must apply for an authorisation from the local regulatory authority (Local Authorities in England and Wales, SEPA in Scotland and Local District Councils in Northern Ireland). There is a one off application fee of 204 in Scotland, 126 in England and Wales and 123 in Northern Ireland which applicants must pay to have their application processed.

Recurring costs

Maintenance

General maintenance checks of the equipment could be expected every 3 years for an estimated cost of 500 each time or 166/year.

Compliance inspection

Once authorised a small petrol station would also have to pay an annual subsistence fee to the regulatory authority. This charge is currently 204 in Scotland, 128 in England and Wales and 123 in Northern Ireland.

Quantified costs

Method

Based on the current cost estimates given above the range of total costs of implementing stage 1 controls in 100% of small petrol stations by end of 2005 have been quantified. The summarised result of the cost assessment including the cost-effectiveness of the emissions abatement based on the emissions reductions is listed in table 2. Option 3 would result in the costs in table 2 being saved.

Table 2: Estimated cost savings under the derogation

Environmental Benefits/Costs

The main impact of VOC emissions is indirect through the formation of ozone. This pollutant is not formed in the immediate vicinity of a given source such as a petrol station. Rather, it forms many kilometres downwind and is influenced by the atmospheric content in the air arriving at the source from upwind. This means that the concept of a benefits assessment localised at a site is scientifically difficult to justify. Using currently available methods and data, the rather small reduction in emissions at each site individually would probably not register in terms of changes to ozone concentrations within a region. Only by taking the effect distributed across the sector and the UK as a whole, can a true effect be observed above uncertainty in the methods.

As part of the Regulatory Impact Assessment ozone concentrations were mapped using the OSRM model. The model calculated hourly mean ozone concentrations for a 10km by 10km UK grid based on mapped VOC and NOx emission inventories and typical meteorological data.

The results ( figure 1) indicate that only areas on the eastern side of the UK would not achieve the ozone target value for human health by 2005 if the derogation was applied to all areas of the UK. In the case of the target value for vegetation, all areas are predicted to achieve the target value by 2005. Hence figure 2 maps those areas (much of the southern half of England) that are predicted not to achieve the long-term objective ¹⁸ based on baseline emissions.

The same metrics were mapped for option 1 (no derogation). It was found that no change was discernible either in the areas of exceedence of the two metrics or in the absolute ozone concentrations predicted by the model. Qualitatively, there may be some impacts and hence benefits due to reducing VOC emissions by an estimated 147t. However, they are so small as to be unaccounted for by the model results.

Clearly the small reduction in emissions would have a beneficial effect but it is not quantifiable using the current best model and its resolution. However, in practice the benefit is likely to be very small and could be considered negligible.

Simply put, the reduction of VOC emissions that would result from requiring small petrol stations to install PVR 1 controls would lead to negligible benefits (in practice) to either human health or to vegetation due to reduction in ozone exposure. For the purpose of applying the derogation this means that uncontrolled vapour emissions at small petrol stations are unlikely to contribute significantly to environmental or health problems.

5. Issues of equality and fairness

Small petrol stations are evenly distributed across the whole country including remote and rural areas where they often provide other key services as well as petrol supply. Figure 5d illustrates the sites that would potentially benefit from derogation from requirements to fit PVR stage 1 controls and also that the resultant impact on VOC emissions would be distributed right across the UK.

The closure of a number of petrol stations may result as a consequence of the cost of introducing PVR Stage 1 controls at small petrol stations. The proposed derogation could avoid these costs and hence the site closures. Petrol station closures themselves are thought to have significant implications for the sustainability of rural communities and on the economic welfare of individuals affected.

The sustainability of rural communities is likely to be enhanced by derogation. Rural communities depend on hubs for socialisation and rely on petrol stations and other sources of supplies for access to important services, including post offices. The extent to which petrol stations act as hubs is questionable but where additional services are provided by the station and where there are few other facilities for such socialisation there may be significant local impacts, particularly on the disadvantaged. For local businesses, easy access to fuel and other supplies may be important factors in ensuring their economic viability, and tourists drawn to rural villages in search of fuel add to the potential sources of income for rural communities. Again, a range of potential effects might occur, depending on the importance of PVR legislation on station closures.

Option 1 would impact more on rural areas of the UK than urban areas as small petrol stations are predominantly found in such areas. Option 2 would impact on specific areas of the UK.

6. Business sectors affected

The total number of petrol stations has been in rapid decline during the last 10 years. Whilst the number of stations with throughput >3000m ³ has increased rapidly during this period, the decline in number of outlets is particularly marked in the smaller size ranges. Total petrol sales were fairly static over the period so that the share of throughput in larger petrol stations has come to dominate the sector and currently stands at 76% of the total.

Projecting forward using the existing trend, the data show an even greater predominance by the largest petrol stations perhaps accounting for up to 90% of all petrol throughput by 2010. Conversely, by 2005 small petrol stations may account for around 10% of the total number but less than 1% of petrol throughput. Around 1115 petrol stations would be affected by option 3.

7. Consultation with small business: the Small Firms Impacts Test

The proposal would only impact on small businesses and consultation with small businesses is currently being undertaken. However, the result of applying the derogation will result in reduced costs for small businesses.

8. Competition Assessment

We have applied the competition filter to the petrol station sector and that suggests that proposals do not give rise to any significant competition issues. The proposal would lead to slightly higher set up costs for new petrol stations of the relevant size in areas that are currently derogated from the controls. For new service stations the cost of fitting PVR 1 related equipment will be no more than about 200. This compares with the cost of about 3-5k for retrofitting at existing stations.

Evidence from 1996-2003 suggests that there have only been 3-4 new service stations in the range 100-500m ³/annum built in the UK at that time, which is part of the overall decline in the number of service stations in general. None of the new stations were in the derogated area.

9. Enforcement and Sanctions

Processes for the unloading into storage of petrol at service stations are, with certain exception, prescribed for local enforcing authority air pollution control under section 1.4 of Schedule 1 to the Environmental Protection Act (Prescribed processes and Substances) Regulations 1991 as amended by the Environmental protection Prescribed processes and Substances etc) (Amendment) (Petrol Vapour Recovery) Regulations. The description of prescribed service stations and their timescales for coming into control are set out in the latter set of Regulations. Northern Ireland has corresponding legislation.

The proposal is that Regulations would be amended to change the current 100 m ³ derogation limit to 500 m ³. The Regulations would also be amended to delete the derogation for new petrol stations with a throughput of less than 500m ³/yr which are situated in the areas specified in the Regulations.

It is proposed to introduce amending Regulations as soon as practicable after the consultation closes. Similar but separate Regulations would be introduced in England and Wales, Scotland and Northern Ireland.

10. Monitoring and Review

The regulations will be monitored on an ongoing basis and the area to be derogated will be kept under review. If the pollution situation changes the UK would, if necessary, look again at introducing controls to require the relevant petrol stations to fit PVR equipment.

11. Consultation

A public consultation on the proposals is currently being undertaken with the industry and trade associations.

12. Summary and Recommendation

Summarised impacts in 2005 of derogation from Directive EC 94/63/EC at small petrol stations (option 3).

It is concluded that applying the derogation to small petrol stations would be very unlikely to contribute significantly to environmental or health problems due to ozone exposure. It might actually lead to environmental benefits from reduced travel to fuel supply points. Against this there is a predicted 0.3-0.5 million cost saving for PVR Stage 1 installation costs. The central socio-economic assessment suggests that 16.1 million present value costs and 149 jobs may be saved under the derogation as well as contributing to sustainability of rural communities, though these estimates are characterised by high uncertainty due to the lack of information on closure profiles caused in the no derogation case.

Regulatory Quality Declaration

I have read the Regulatory Impact Assessment and I am satisfied that the benefits justify the costs.

Signed
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Figure 1: UK locations (shaded areas) where the ozone concentration exceeds the target value for human health more than 25 times per year in 2005 based on baseline emissions.

Figure 2: UK locations (shaded areas) where the ozone concentration exceeds the longterm objective for vegetation in 2005 based on baseline emissions.

Figure 3 Baseline VOC emissions (tonnes/10x10km) in 2005.

Figure 4: Reduced UK VOC emissions (tonnes) in 2005 due to PVR Stage I controls implemented in 100% of Type 2 sites (Annual petrol throughput >100 & <500m3).

Figure 5 Thematic map of UK petrol station locations and annual throughput

Small changes in the way we perform everyday tasks can have huge impacts on Scotland's environment. Walking short distances rather than using the car, or being careful not to overfill the kettle are just two positive steps we can all take. This butterfly represents the beauty and fragility of Scotland's environment. The motif will be utilised extensively by the Scottish Executive and its partners in their efforts to persuade people they can do a little to change a lot.