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on 02/26/93
[L-S document 449994, 58 FR 11722, 4406 lines]

  ENVIRONMENTAL PROTECTION AGENCY

  40 CFR Part 80

  [AMS-FRL-4556-7]

  RIN 2060-AD27

  Regulation of Fuels and Fuel Additives: Standards for Reformulated Gasoline;
  Proposed Rule

  AGENCY: Environmental Protection Agency.

  ACTION: Notice of proposed rulemaking.

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  SUMMARY: This document proposes revisions to the simple model and the
  contents of a complex model to be used in the certification of reformulated
  gasoline, and associated procedures to assure compliance with the
  reformulated gasoline and antidumping programs. This notice additionally
  proposes "Phase II" reformulated gasoline emission performance standards
  which will take effect in the year 2000, as prescribed by section 211(k)(3)
  and authorized by section 211(c) of the Clean Air Act (CAA). The detailed
  proposed regulations described herein may be obtained from Public Docket No.
  A-92-12 or from the contacts listed in the ADDRESSES section.

  DATES: The comment period will close April 27, 1993. EPA will issue a
  subsequent notice indicating when and where the public hearing will be held.

  ADDRESSES: Comments may be submitted to U.S. EPA (RDSD-12) 2565 Plymouth
  Road, Ann Arbor, MI 48105. Materials relevant to this NPRM are contained in
  Public Docket No. A-92-12, located at room M-1500, Waterside Mall (ground
  floor), U.S. Environmental Protection Agency, 401 M Street SW., Washington,
  DC, 20460. Additional materials relevant to earlier related proposals are
  contained in Public Docket No. A-91-02 at the same location. The docket may
  be inspected from 8 a.m. until 12 noon and from 1:30 p.m. until 3 p.m. Monday
  through Friday. A reasonable fee may be charged by EPA for copying docket
  materials. EPA will provide a copy of the proposed regulations for this NPRM
  upon request.

  FOR FURTHER INFORMATION CONTACT:

  Michael Sklar (complex model), U.S. EPA (RDSD-12), 2565 Plymouth Road, Ann
    Arbor, MI 48105, Fuel Studies and Standards Branch, Telephone: (313) 741-
    7817.
  Christine Brunner (Phase II performance standards), U.S. EPA (RDSD-12), 2565
    Plymouth Road, Ann Arbor, MI 48105, Fuel Studies and Standards Branch,
    Telephone: (313) 668-4287.
  George Lawrence (enforcement and certification), U.S. EPA (6406J), 401 M
    Street, Washington, DC 20460, Eastern Field Office I, Telephone: (202) 233-
    9307.

    To Request Copies of This Notice or the Proposed Regulations Contact: Marie
  Tolonen, U.S. EPA (RDSD-12), 2565 Plymouth Road, Ann Arbor, MI 48105, Fuel
  Studies and Standards Branch, Telephone: (313) 668-4295.

  SUPPLEMENTARY INFORMATION:

  I. Background

    The purpose of these proposed regulations is to improve air quality by
  requiring that gasoline be reformulated to reduce motor vehicle emissions of
  toxic and tropospheric ozone-forming compounds, as prescribed by section
  211(k) of the Clean Air Act (CAA or the Act). This section of the Act
  mandates that reformulated gasoline be sold in the nine largest metropolitan
  areas with the most severe summertime ozone levels and other ozone
  nonattainment areas that opt into the program. It also prohibits conventional
  gasoline sold in the rest of the country from becoming any more polluting
  than it was in 1990, to ensure that refiners do not "dump" into conventional
  gasoline what they can no longer use in reformulated gasoline.
    Shortly after passage of the Clean Air Act Amendments of 1990, EPA entered
  into a regulatory negotiation with interested parties to develop specific
  proposals for implementing both the reformulated gasoline and related anti-
  dumping programs. These parties included representatives of the oil and
  automobile industries, vehicle owners, state air pollution control officials,
  oxygenate suppliers, gasoline retailers, environmental organizations, and
  citizens' groups. During the regulatory negotiation, EPA agreed to propose a
  two-step approach to reformulated gasoline. The first step would take effect
  in 1995 and utilize a "simple model" to certify that a gasoline meets
  applicable emission reduction standards.
    Under the second step, EPA would propose a "complex model" to supplant the
  simple model for certifying compliance with these standards, which would take
  effect on March 1, 1997 or 4 years after it is promulgated, whichever is
  later. EPA also agreed to propose the more stringent emission performance
  standards that the Act provides to take effect in the year 2000.
    Regulations to implement this first step were initially proposed on July 9,
  1991 in a notice of proposed rulemaking (NPRM) (56 FR 13416). Today's notice
  includes approaches different from the previously proposed regulations
  related to the simple model as well as to the anti-dumping provisions. This
  proposal is supplemental to the previous proposals and is not intended to
  withdraw from consideration the various elements previously proposed, but
  provides additional proposals for public review and comment. (The reader may
  refer to the NPRM and SNPRM mentioned above, the Draft Regulatory Impact
  Analysis (DRIA), and Public Docket Numbers A-91-02 and A-92-12 for a thorough
  description of the goals and regulatory development of the reformulated and
  anti-dumping programs and discussions of a number of associated technical
  issues.) In this notice, the Agency is also proposing the complex model and
  associated revised enforcement provisions, as well as the year 2000
  performance standards.
    In addition, EPA is proposing a range of NOX performance standards under
  section 211(c) of the Act as a complement to the VOC and toxics performance
  standards proposed under section 211(k). In a recent report on the chemistry
  of tropospheric ozone formation, the National Academy of Sciences emphasized
  the importance of NOX reductions in addressing this problem.
    The remainder of this preamble is organized into the following sections:

  II. Proposed Revisions to the Simple Model Proposal
  III. Complex Model
  IV. Vehicle Testing
  V. Phase I Performance Standards Using the Complex Model
  VI. Phase II Reformulated Gasoline Performance Standards
  VII. Enforcement Provisions
  VIII. Anti-Dumping Compliance and Enforcement Requirements for Conventional
      Gasoline
  IX. Anti-Dumping Requirements for Conventional Gasoline
  X. Environmental and Economic Impacts
  XI. Public Participation
  XII. Compliance With the Regulatory Flexibility Act
  XIII. Statutory Authority
  XIV. Administrative Designation and Regulatory Analysis
  XV. Reporting and Recordkeeping Requirements

  II. Proposed Revisions to the Simple Model Proposal

  A. Background

  1. SNPRM

    As noted above, The Agency's SNPRM reflected the agreement reached in the
  regulatory negotiation that had been conducted to develop reformulated
  gasoline regulations under section 211(k) (as well as oxygenated fuels
  guidelines under section 211(m)). Added by the 1990 Clean Air Act Amendments,
  section 211(k)(1) directs EPA to issue regulations that, beginning in 1995,
  require the greatest reduction in emissions of ozone-forming [VOCs] and toxic
  pollutants achievable through the reformulation of conventional gasoline,
  taking into consideration the cost of achieving such emission reductions, any
  non air-quality and other air-quality related health and environmental
  impacts and energy requirements. Section 211(k)(3) specifies that the
  performance standards for 1995 to 2000 must require emission reductions,
  measured on a mass basis, equal to that achieved by a specified formula fuel
  or 15 percent of baseline emissions (the emissions of 1990 model year
  vehicles operated on a specified baseline gasoline), whichever is more
  stringent. For 2000 and beyond, the standard must be no less than the formula
  fuel or a 25 percent reduction from baseline emissions, whichever is more
  stringent. EPA can adjust this standard taking into account feasibility and
  cost, but in no case can it be less than 20 percent. Taken together, sections
  211(k)(1) and 211(k)(3) call for the Agency to set standards that achieve the
  most stringent level of control, taking into account the specified factors,
  but no less stringent than those described by section 211(k)(3).
    For purposes of today's notice, it is useful to review the background of
  the SNPRM's proposed VOC and toxic standards. Given the short amount of time
  provided by the statute for promulgation of the reformulated gasoline
  standards, the regulatory negotiation committee agreed on the twostep
  approach noted above. The first step would utilize then-available information
  to construct a model that would determine a fuel's VOC and toxic emissions.
  Because the available information for quantifying the effects of fuel
  parameters on VOC emissions was limited in large part to the effects of Reid
  Vapor Pressure (RVP) and oxygen content, the so-called "simple model" took
  those fuel parameters into account in predicting a fuel's VOC emissions for
  purposes of compliance under the VOC performance standard. At the same time,
  it was understood that certain other fuel parameters affected a fuel's
  emissions, and that directionally higher levels of these other parameters
  were likely to increase VOC emissions. Until the effects of these parameters
  could be accurately quantified, the committee agreed that the average level
  of these parameters in each refiner's fuel should remain capped at 1990
  levels.
    The second step was intended to take advantage of data then being developed
  to characterize the emissions effects of other fuel parameters. That data
  would be used to construct a "complex model" that would better predict a
  specific fuel's emissions based on these parameters. The complex model would
  thus also provide refiners with more options for reducing those emissions by
  changing the levels of these parameters in their gasoline formulations.
    The simple model would be available for at least the first two years of the
  program and would be replaced by the complex model four years after the
  complex model's promulgation. The Agency agreed to propose the four-year
  period to allow refiners lead-time in order to recoup investments made to
  comply with the simple model and to make any refinery changes necessary to
  comply with the standards under the complex model. However, under the
  agreement, the complex model could be used on a voluntary basis as soon as it
  was promulgated, so long as any fuel certified using the complex model
  achieved emission reductions as great as those it would have to achieve to be
  certified using the simple model.
    In developing the proposed VOC standards, it became clear that the formula
  fuel specified by section 211(k)(3) did not yield emissions reductions
  greater than the statutory minimum of 15 percent. To achieve the statutory
  minimum under the simple model, the regulatory negotiation committee members
  agreed that a fuel's RVP (measure of volatility) could not be greater than
  8.1 pounds per square inch (psi) and its oxygen content had to comply with
  the 2.0 weight percent requirement prescribed by section 211(k)(2)(B). The
  more volatile a fuel, the more VOCs it emits, mostly through evaporation. The
  more oxygen in the fuel the lower the exhaust VOC emissions (up to a maximum
  of 2.7 weight percent oxygen per the simple model).
    Committee members considered the need for further emission reductions and
  the cost of obtaining them in deciding whether and to what extent VOC
  performance standards more stringent than the statutory minimum were
  achievable. For the reasons laid out in the SNPRM, EPA and the other
  committee members concluded that reformulated gasoline with 2.0 weight
  percent oxygen, 8.1 psi RVP in northern cities, and 7.2 psi RVP in southern
  cities represented the greatest emission reductions that could be achieved by
  reformulating gasoline, taking into account the specified factors.
    The committee sought the more stringent VOC reduction requirement for the
  South in order to assure that southern nonattainment areas obtained emission
  reductions beyond what those cities would obtain from the volatility
  reduction requirements separately required by section 211(h). (Due to higher
  temperatures in the South, emissions from a gasoline with a specified RVP are
  greater in the South than in the North. Under section 211(h), the volatility
  limits for southern areas were set lower than those applicable in northern
  areas in order to achieve comparable per vehicle emissions levels in the two
  regions). As explained in the SNPRM, however, the additional cost of
  achieving the more stringent standard in the South would be significant and
  made it difficult to impose a more stringent standard in the North, as well.
  In effect, the committee decided to allocate the greatest reductions from the
  8.7 RVP baseline gasoline that reformulating gasoline could reasonably
  achieve in such a way as to roughly equalize the actual emission benefits of
  the program between northern and southern nonattainment areas.

  2. Ethanol Issues

    Following the release of the SNPRM, supporters of ethanol, an
  agriculturally derived oxygenate added to gasoline in some parts of the
  country, again raised the concern that the simple model's RVP requirement
  would effectively preclude ethanol from the RFG market during the summer
  months (VOC control season). Ethanol, when added to gasoline in the amount
  needed to satisfy the oxygen content requirement of the Act raises the
  volatility of the resulting blend by about 1 psi. Consequently, for the
  ethanol to be blended with the RFG under the simple model, a blendstock
  gasoline with an RVP low enough to offset the increase resulting from adding
  ethanol would have to be obtained.
    Ethanol representatives commented that obtaining such blendstocks would be
  both difficult and expensive, because "sub-RVP" blendstocks would be more
  costly to refine and because blendstock production would be controlled by
  petroleum refiners. Methyl tertiary butyl ether (MTBE), an oxygenate which
  does not boost a fuel's RVP, which is derived from natural gas and the
  petroleum product isobutylene and can readily be put through petroleum
  pipelines, was thought to be the oxygenate of choice for most refiners.
  Ethanol's representatives theorized that the oil industry would have a desire
  to use MTBE over ethanol and thus little incentive to make the sub-RVP
  blendstock necessary for ethanol blending. The ethanol industry contended
  that a reformulated gasoline program which they argued would effectively
  preclude ethanol was contrary to Congress' intent that ethanol have a role in
  the program. They argued that the oxygen content requirement of section
  211(k)(2) was motivated in large part by a desire to expand markets for
  ethanol. They noted the strong support afforded the RFG legislative
  initiative by Members of Congress from agricultural states. They also cited
  statements in the legislative history indicating some members' expectation
  that the RFG program would provide an increasing market for ethanol.
    Ethanol representatives contended that the benefits of ethanol use justify
  its inclusion in the RFG program. Specifically, they explained that ethanol
  is currently made in the United States from domestically-grown grains,
  primarily corn, and thus represents an important domestic and renewable
  source of energy. They further explained that to the extent ethanol is used
  in place of imported petroleum products, it promotes the nation's energy
  independence and improves its balance of trade, and that ethanol use also
  strengthens the market for corn, consequently reducing the need for price
  supports. Moreover, as a biomass-based product, ethanol is potentially a
  renewable fuel to the extent the energy derived exceeds any fossil fuel
  energy consumed in producing the ethanol.
    In view of ethanol's importance to the nation's energy security and
  agricultural economy, ethanol representatives urged that the simple model
  proposal be revised to allow ethanol to effectively participate in the RFG
  market. They suggested several possible revisions. For example, they argued
  that the 1 psi waiver granted to certain ethanol blends by section 211(h) of
  the CAA be applied to ethanol-blended RFG under section 211(k). They reasoned
  that since Congress recognized in the provision requiring nationwide
  reductions in fuel RVP that ethanol required such a waiver, ethanol should
  receive a similar waiver if the VOC performance standard for RFG sold in the
  smoggiest cities were defined in terms of a required reduction in RVP.
     If the section 211(h) waiver were not available to RFG ethanol blends, the
  ethanol industry suggested that the VOC reduction requirement take into
  account that the variety of VOCs from gasoline differ in their ozone
  formation potential. While ethanol raises a fuel's volatility and thus its
  VOC emissions, they argued that the resulting VOCs are less ozone-forming
  than those that would otherwise occur. They urged that the 15 percent
  reduction requirement should thus be interpreted to require a 15 percent
  reduction in ozone-forming potential, not simply ozone-forming VOCs. Ethanol
  supporters suggested additional ways of encouraging or even requiring ethanol
  use in RFG. The Governors Ethanol Coalition, for instance, suggested that EPA
  require the RFG market to satisfy its oxygenate requirements through a
  minimum percentage of domestically produced renewable fuel.

  3. October 1st Announcement

    EPA, the Department of Agriculture, the Department of Energy and other
  parts of federal government engaged in an extensive dialogue with all
  interested groups to address the ethanol industry's concerns with the RFG
  program. In response to the ethanol industry's suggestion, the applicability
  of the section 211(h) waiver to the RFG program under 211(k) was closely
  considered. For the reasons set forth in a memorandum available in the
  docket, the Acting General Counsel of EPA determined that it did not apply.
     Also explored was the ability to take reactivity into account in
  determining compliance with the requirement that "ozone-forming VOCs" be
  reduced by 15 percent. Section 211(k)(3), however, explicitly requires that
  reductions in ozone-forming VOCs be measured on a "mass basis." Although any
  reactivity benefits of emissions from ethanol blends, should they exist,
  could be taken into account in defining which VOCs are "ozone-forming," the
  statute does not appear to permit ozone-forming VOCs to be weighted on the
  basis of their ozone formation potential for purposes of determining
  compliance with the 15 percent reduction requirement.
    Based on ethanol's importance to the nation's energy and agricultural
  policy, President Bush on October 1, 1992 announced a plan to allow ethanol
  to effectively compete in the RFG program, with the expectation that, with
  barriers removed, ethanol use would grow. This plan is based upon provisions
  of section 211(k)(1) allowing the Administrator to take into consideration
  cost, energy requirements, and other specified factors in setting RFG
  performance standards. The most significant part of this plan called for EPA
  to "establish rules for reformulated gasoline in all northern cities that
  will have the effect of granting a one-pound waiver for the first 30 percent
  market share of ethanol blends, while achieving environmental benefits
  comparable to those provided for in EPA's proposed rule and regulatory
  negotiation." The environmental benefits of the proposed RFG program would be
  maintained by offsetting any increase in volatility of RFG containing ethanol
  with reductions in the volatility of the rest of the reformulated gasoline
  pool.
    Also pursuant of the plan, EPA is proposing to propose to establish rules
  allowing governors of southern states to extend the provisions made for
  ethanol in northern RFG-covered cities to covered southern cities as well.
  Other aspects of the plan include the establishment of an RVP trading
  program, the unrestricted optional early use of the complex model and
  oxygenate neutral NOX and toxics performance standards. Through today's
  notice the Administrator proposes these as well as a variety of other
  provisions relevant to his determination of section 211(k) factors.

  B. Reid Vapor Pressure Allowance

  1. Overview

    EPA proposes that the RVP performance standard under the simple model
  provisions of the SNPRM and VOC performance requirements under the complex
  model be based upon the extent of use of renewable oxygenates such as
  ethanol. For northern areas under the simple model, EPA proposes that the RVP
  performance standard as proposed in the SNPRM of 8.1 psi (8.0 psi under the
  averaging provisions of the SNPRM) be reduced to 7.8 psi (7.7 psi under
  averaging) when no renewable oxygenates are used in reformulated gasoline,
  but be permitted to increase to 8.1 psi (8.0 psi under averaging) through the
  use of renewable oxygenates in 30% of the reformulated gasoline produced. For
  example, taking advantage of the proposal's averaging provisions, this would
  allow ethanol to be splash blended into 30% of reformulated gasoline and have
  a 1.0 psi greater RVP than other reformulated gasoline blends while still
  maintaining the in-use volatility and, thus, comparable environmental
  benefits proposed in the SNPRM. EPA is also proposing to permit a governor of
  a southern state to have applied in that state's ozone nonattainment areas
  provisions similar to those described above for northern areas. Specifically,
  under the simple model, EPA proposes that the 7.2 psi RVP standard proposed
  in the SNPRM for southern areas be reduced to 7.0 psi, but that refiners may
  meet an RVP standard of up to 7.2 psi if they use ethanol or other renewable
  oxygenates in up to 20 percent of the market covered in those areas. In
  addition, the Agency proposes a similar approach to standard setting under
  the complex model.
    It should be noted that this program in no way limits the ability of a
  refiner to use ethanol or any other renewable oxygenate in its gasoline to
  only 30 percent of its production (20 percent in the South). A refiner may
  blend as much ethanol into its gasoline as it desires, provided it meets its
  RVP (VOC) performance standards. It should also be noted that the ability of
  refiners to average RVP performance under the provisions of the SNPRM is not
  changed as a result of this program. RVP averaging can still be used to meet
  a refiner's RVP (VOC) performance requirements. In fact, as discussed below,
  EPA is proposing to expand the RVP averaging provisions of the SNPRM to
  include RVP trading as well.
     In order to provide greater flexibility for the use of renewable
  oxygenates, EPA proposes that refiners be permitted to either blend the
  renewable oxygenate themselves to raise their performance standard, or obtain
  commitments from other refiners to do so. This flexibility in connection with
  the RVP trading provisions will allow greater renewable oxygenate use by the
  refiners who can benefit from their use, and allow its use in those areas
  where it is most economical to do so.
    Today's action does not mandate the use of ethanol. Taking into account the
  statutorily specified factors, EPA is proposing these provisions for ethanol
  on the theory that allowing ethanol to effectively participate in the RFG
  market is important to the nation's energy security. While EPA is continuing
  to gather the relevant data and perform the requisite analyses, it appears
  that the use of renewable oxygenates such as ethanol as a motor vehicle fuel
  may reduce the nation's dependence on foreign oil, improve our balance of
  trade with other nations, and enhance our energy security./1/ At 2.7 wt%
  oxygen, use of ethanol (or ethanol in the form of ETBE) in 30 percent of RFG)
  would displace 2.3 percent of the volume of reformulated gasoline with
  ethanol. This is the equivalent of 360 million gallons of ethanol used
  (gasoline displaced) during the summer months alone in the areas currently
  covered by the reformulated gasoline program (including those areas that have
  already opted in), and could rise to as much as 510 million gallons if all
  eligible areas opted into the program. In addition to energy related
  benefits, the use of oxygenates made from renewable sources provides the
  potential for reducing emissions which contribute to global warming.

  NOTE /1/ The Final Report of the Interagency Commission on Alternative Fuels
  written for DOE and published in September, 1992 estimates that the
  displacement of crude oil with all oxygenate use under the reformulated
  gasoline and oxygenated fuels provisions of the CAA could reach roughly
  200,000 barrels per day. In a private conversation on 1/8/92, Margaret Singh
  of Argonne National Laboratory, one of the authors of the Interagency
  Commission report, stated that roughly 10 percent of the crude oil
  displacement in that analysis was due to ethanol alone (this estimate does
  not take into account any changes which may result from today's proposal).

    As explained above, the statute prescribes for the near term a minimum 15
  percent reduction in VOCs, and in the SNPRM EPA proposed RVP and oxygen
  requirements that it believed achieved this requirement. Under today's
  proposal, the simple model RVP standards for refiners or importers that use
  30% renewable oxygenate is 8.1 psi, if compliance is met on a per gallon
  basis. Both the renewable and nonrenewable blends produced by those refiners
  or importers would have to meet this per gallon standard. If compliance is
  met on average, however, the RVP standard would be 8.0 psi. This could be
  met, for example, by two-thirds of a refiner's or importer's gasoline meeting
  7.7 psi (nonrenewable blends) and one-third meeting 8.7 psi (renewable blend
  such as ethanol splash blended into a 7.7 psi blendstock).
    The effect of today's proposal on the cost of reformulated gasoline is
  expected to be small. The cost of reducing the RVP of gasoline by 0.3 psi in
  northern (VOC control region 2 as defined in the SNPRM) areas to offset the
  allowance for splash blended ethanol in 30% of the fuel is approximately 0.3
  to 0.5 cents per gallon. However, the overall cost of the RVP performance
  allowance of 0.3 psi for the use of ethanol is expected to be less than 0.3
  cents per gallon since ethanol is likely to be less costly than MTBE per
  gallon of reformulated gasoline produced./2/

  NOTE /2/ "Evaluation of the Use of Ethanol and MTBE in Reformulated
  Gasoline," by Sobotka & Co., Inc., for USEPA, September 30, 1992.

    In addition, the cost of ethanol may decrease beginning in 1995 as a result
  of the proposed provisions. Under a program like that set forth in the SNPRM,
  ethanol would be expected to capture a sizeable portion of the RFG and
  oxygenated fuels markets during the winter months. (The oxygenated fuels
  program established by section 211(m) requires that gasoline sold in many
  carbon monoxide nonattainment areas include 2.7 percent oxygen during the
  winter months, beginning in 1992.) However, since the market during the
  summer was potentially small, ethanol production facilities could not operate
  year-round at a steady production level without storing vast quantities of
  ethanol during the summer for use during the winter. To the extent ethanol
  was also used during the summer months, more steady production could be
  achieved, with reduced capital expenditures for storage and peak production
  equipment. This would likely result in a reduction in the cost of producing
  ethanol.
    Year-round and increased use of ethanol may also increase the incentives to
  develop an established infrastructure for ethanol distribution and use,
  making it even more feasible and cost effective. In addition, expanded use of
  renewable oxygenates may encourage further research and development
  associated with their production and use, which could further reduce their
  cost and expand their market both as blends with gasoline and separately as
  alternative fuels. Expanded use of renewable oxygenates would further result
  in economic growth not only in the ethanol industry, but also in agriculture
  and related industries. Finally, since the consumption of grain to produce
  ethanol may raise the prices farmers receive for their crops, additional
  ethanol use may reduce the amount the government must pay in agricultural
  price supports.
    While the cost per gallon of reformulated gasoline of the RVP adjustment
  for the use of renewable oxygenates is small, the incentive per gallon of
  ethanol is substantial. An economic incentive for renewable oxygenate
  containing blends such as ethanol blends of 0.3 cents per gallon adds roughly
  13.7 cents per gallon to the value of ethanol (assuming a base requirement of
  2.7 wt% oxygen as described in section 4)./3/

  NOTE /3/ The derivation of the value of the incentive is shown in Section
  VIII of the DRIA.

    In sum, section 211(k)(1) requires that gasoline be reformulated to achieve
  the greatest reductions in VOC emissions considering cost, energy, and the
  other specified factors, but not less than a 15% reduction during Phase I of
  the program and 25% (20%) during Phase II of the program. In determining how
  these statutory requirements can be met, EPA must balance the cost of RVP
  reductions in non-ethanol blended gasoline and the extent to which energy or
  other considerations warrant that the volatility associated with ethanol use
  be offset. Today, EPA is proposing that the volatility associated with a
  potential ethanol market share as high as 30 percent be offset through
  reductions for nonrenewable oxygenate blended gasoline such that the
  reformulated gasoline market achieve overall reductions meeting the minimum
  15% reduction requirement. EPA requests comment on whether this proposal
  represents the proper balance. EPA believes that, in addition to the factors
  described previously concerning the energy and other benefits of renewable
  oxygenate use, the following are relevant to the issue: The cost to reduce
  the RVP of nonrenewable oxygenate blends below the previously proposed
  levels; the leadtime available for such reductions; and the market share
  ethanol and other renewable oxygenates could expect absent any such
  provisions. The expected market share absent these provisions is hard to
  predict, and at best 30% would allow ethanol and other renewable oxygenates
  to effectively participate in the reformulated gasoline program, including
  the opportunity to expand that participation beyond what would otherwise be
  possible.

  2. Performance Standard Setting Process

    The RVP performance standards proposed today are intended to provide the
  same level of RVP and comparable environmental control as would be achieved
  by the SNPRM, while allowing ethanol and other renewable oxygenates to
  effectively participate in the reformulated gasoline program. This can be
  accomplished by adjusting the RVP performance standard with the use of
  renewable oxygenates while preventing the standard from going any higher than
  that proposed in the SNPRM. As such, EPA proposes to establish a performance
  standard for RFG not containing renewable oxygenates that is more stringent
  than that which was proposed in the SNPRM. EPA further proposes that if
  refiners commit to the use of renewable oxygenates in their fuel or purchase
  commitments from other refiners for the use of renewable oxygenates (if that
  proves more cost effective) their RVP performance standard would be relaxed
  accordingly (up to 8.1 psi). Finally, a refiner's performance standard could
  be relaxed even further through a process by which EPA provides RVP
  performance standard adjustments based on the refiner's commitment to use
  renewable oxygenate that other refiners might have used to take advantage of
  a less stringent RVP (VOC) performance standard, but chose not to. This RVP
  (and VOC) performance standard setting process is described in the following
  sections and shown in figure II.1.

  BILLING CODE 6560-50-M
                                  Figure II.1

                     RVP PERFORMANCE STANDARD SETTING PROCESS

                              [INSERT: Flow diagram]

  BILLING CODE 6560-50-C

    a. Southern Performance Standards. The proposed approach taken in the North
  would not be required for southern areas covered by the RFG program. There
  are several reasons for this distinction. First, most of the RFG areas are in
  the North, so that removing barriers to ethanol use in the North will have a
  larger impact than removing these barriers in the South on the policies
  associated with ethanol use. Second, production of grain feedstocks and
  ethanol production are concentrated in the North. The higher tax benefits
  these northern areas offer ethanol together with lower transportation costs
  account for ethanol's greater use in the North. For these same reasons, EPA
  expects that the potential for growth in ethanol use is expected to be
  greater in the North. Third, the lower RVP standards applicable under the
  simple model in the South are likely to make additional RVP reductions to
  offset volatility increases associated with ethanol use more expensive for
  southern RFG areas. In sum, in striking the balance between achievable RVP
  reductions and the policy benefits associated with ethanol, EPA has reason to
  believe that for the South generally, the RVP costs may be higher and the
  resulting ethanol policy benefits may be lower.
    Thus, striking the balance somewhat differently for southern areas,
  President Bush's announcement did provide, nonetheless, that a modified
  version of the northern approach be available to governors of southern states
  to have applied at their discretion. A governor who believes that ethanol has
  a potentially strong market in his or her state could request that this
  modified approach, explained in more detail below, be applied in the state's
  RFG-covered areas. As summarized above while EPA believes that ethanol
  participation in southern RFG areas would advance the same policy concerns as
  ethanol participation in northern areas, EPA is not certain that ethanol
  would participate sufficiently even if the barriers are removed to justify
  the higher costs of offsetting the volatility increase in southern areas.
  However, southern governors may be in a good position to judge on a case-by-
  case basis the likely participation of ethanol in the market and the cost of
  removing the barriers.
    The modification of the northern approach for optional application in the
  South is as follows. EPA is proposing that the RVP standard for RFG not
  containing renewable oxygenates be reduced from 7.2 psi to 7.0 psi (6.9 psi
  under the averaging provisions of the SNPRM). The 0.2 psi reduction would
  permit 20 percent of the RFG market in an area to be splash-blended with
  ethanol without raising the average RVP of the RFG in the area.
    EPA further proposes as one option that the effective date for inclusion of
  a southern covered area be the beginning of the first VOC control season
  three years following receipt of the governor's letter requesting application
  of this approach in his or her state. EPA believes three years is the
  appropriate amount of time to provide adequate lead-time for refiners to
  prepare to make the necessary additional RVP reductions, and requests comment
  on the validity of this belief.
    While having the program automatically take effect three years after the
  request from the governor is a relatively straightforward approach, it does
  raise serious questions about whether section 211(k) authorizes a state to
  determine which federal standard applies in its area. At the same time, EPA
  is concerned whether receipt or non-receipt of a request from a governor is
  an adequate basis to support a different performance standard in that area.
    In light of these concerns, EPA is proposing a second option whereby the
  ethanol provisions described above would be implemented in a southern area
  through a rulemaking conducted subsequent to receipt of a request from the
  Governor. Upon receipt of any such request from a governor, EPA would
  promptly prepare a notice proposing extension of the ethanol-related
  provisions to the area or areas covered by the request. This would allow for
  full exploration of all the relevant issues, and would avoid the legal
  concerns mentioned above. This option is similar to the approach taken in the
  federal RVP regulations under section 211 (c) and (h), where RVP standards
  were set on a national basis with allowance for subsequent rulemaking to fine
  tune the regulations for specific localities. EPA requests comment on the
  relative merits of these two options.
    The energy related benefits of renewable oxygenates are not unique to the
  use of the simple model. Under the SNPRM, refiners will have the option of
  using the complex model in the first years of the program when the simple
  model is also available. After a specified period of time following the
  complex model's promulgation, only the complex model will be available for
  certification. In keeping with the proposal under the simple model, EPA
  proposes that the VOC performance standard stringency under the complex model
  be increased by the equivalent of 0.3 psi RVP. For Phase I of the
  reformulated gasoline program EPA proposes to determine the VOC equivalent of
  0.3 psi RVP using as a baseline a fuel meeting the performance standards of
  the simple model (8.0 RVP, 2.1 wt% oxygen, 0.95 volume percent benzene, 26.3
  percent aromatics, and CAA baseline values for all other fuel parameters),
  and under Phase II of the reformulated gasoline program one baseline fuel
  consistent with the VOC performance standard described in section VI of this
  notice (for purposes here, 2.0% oxygen, 105 ppm sulfur, 6.9 RVP, 202 deg.F
  T50, 316 deg.F T90, 23.0% aromatics, 6.5% olefins, and 1.0% benzene). As
  calculated from the complex model, EPA thus proposes that the Phase I and
  Phase II VOC performance standards be increased by 7.1 and 2.8 percentage
  points, respectively, in northern areas. If any southern areas are included
  in the program, the Phase I and Phase II VOC performance standards would be
  increased by 5.9, and 2.0 percentage points, respectively (for Phase I, the
  equivalent of 0.2 RVP determined using a baseline fuel of 7.1 RVP, 2.1 wt%
  oxygen, 0.95 volume percent benzene, 26.2 percent aromatics, and CAA baseline
  values for all other fuel parameters and, for Phase II, the equivalent of 0.2
  RVP using as a baseline fuel a fuel with 2.0 wt% oxygen, 143 ppm sulfur, 6.5
  RVP, 202 deg.F T50, 316 deg.F T90, 23.0% aromatics, 6.5% olefins, and 1.0%
  benzene). EPA requests comment on this methodology for setting the
  performance standards under the complex model, on the fuel assumptions used,
  on whether and to what extent the methodology unfairly disadvantages any
  refiner relative to another, and on whether there are any other methodologies
  or fuel assumptions which might be more appropriate.
    b. Performance Standard Adjustment Through Commitments for  Renewable
  Oxygenate Use. EPA's proposed RVP and VOC standards are based on its estimate
  of the greatest reductions the market as a whole can achieve, taking into
  account the statutory factors. However, the ability and desire of refiners to
  take full advantage of today's proposed standards varies from refiner to
  refiner. To ensure that the policy objectives related to this proposal are
  fully served, it is important that the market be permitted to work as
  efficiently as possible. EPA is therefore proposing that a system of
  commitments be created to allow the greatest flexibility for the use of
  ethanol and other renewable oxygenates consistent with the applicable
  performance standards.
    In fulfilling their commitments, refiners could either blend renewable
  oxygenate themselves during the forthcoming VOC control season or, if meeting
  the VOC standards on average, also purchase commitments from other refiners.
  As long as refiners meet their RVP (VOC) performance standards in each area
  covered by the RFG program, the use of renewable oxygenate could easily be
  shifted from a refiner serving one area to a refiner serving another area
  where it is more economically advantageous to do so (based on state tax
  subsidies, distribution costs, etc.). Whether or not a refiner chose to
  fulfill its commitment through its own use of renewable oxygenate or through
  contracting for its use with another refiner, however, the refiner would
  nevertheless be liable for its commitment. Since various refiners produce
  vastly different amounts of gasoline, in order to maintain the same level of
  renewable oxygenate use under this program, trading of renewable oxygenates
  from one refiner to another must be performed on a volume basis.
    Under the simple model, refiners could elect to meet an RVP performance
  standard as high as 8.1 psi (8.0 under averaging) in the North and 7.2 psi
  (7.0 under averaging) in the South in proportion to their commitment to use
  renewable oxygenate in 30 percent and 20 percent of their fuel, respectively.
  Under the complex model refiners could lower the otherwise applicable VOC
  performance standard by as much as 7.1 percentage points in the North and 5.9
  in the South under Phase I of the reformulated gasoline program, and 2.8
  percentage points in the North and 2.0 percentage points in the South under
  Phase II, through the use of renewable oxygenates in 30 and 20 percent of
  their fuel, respectively. It is entirely up to each refiner to decide what
  amount of renewable oxygenate to use and, thus, which performance standard
  would be applicable to it. Refiners could utilize as much renewable
  oxygenates in producing their reformulated gasoline as they desire, but the
  ability to adjust the applicable performance standard in proportion to the
  amount used would be limited to 30 percent of their production in the North
  and 20 percent in the South.
    In order to provide refiners with the necessary flexibility to blend
  renewable oxygenates, EPA proposes to raise the maximum RVP allowed under the
  averaging provisions of the SNPRM to 8.7 psi for renewable oxygenate blends
  in the North and 7.9 in the South. Similarly, the minimum VOC performance
  standard under the complex model is proposed to be relaxed by 21.2 percentage
  points in the North and 24.6 percentage points in the South below the
  averaging standard under Phase I of the reformulated gasoline program. Under
  Phase II, EPA proposes that the minimum performance level be set at 8.5 and
  8.3 percentage points in the North and South, respectively, below the
  performance standard described in section VI (taking into account a 1.5%
  increase in the standard under averaging). These levels are sufficient to
  provide a 1.0 psi margin for splash blending ethanol into 30 percent of
  reformulated gasoline downstream of the refiner. EPA proposes, however, that
  for reformulated gasoline not containing renewable oxygenates the maximum RVP
  remain at the already proposed level for the simple model of 8.3 RVP in the
  North and 7.4 in the South, and that the minimum VOC performance under the
  complex model remain at the levels proposed later in today's notice.
    The performance standard adjustment for blending renewable oxygenates has
  value only if the RVP or other parameters of gasoline are adjusted. Since
  these are determined by the refiner, EPA proposes that the refiners continue
  to be the party responsible for meeting the RVP performance standard, which
  is now a function of the amount of renewable oxygenate used. Since this is
  fully consistent with the provisions of the SNPRM, changes to the enforcement
  provisions proposed in the SNPRM are minimized. EPA considered various other
  options which would also place requirements on terminal operators (ethanol
  blenders), but considered such options as being too restrictive and
  burdensome.
    At the same time, unless refiners chose to comply with the per gallon
  performance standards, some blends (e.g., those splash blended with ethanol)
  would be likely to have an RVP that is higher than that of other blends by as
  much as 1.0 psi. (Under the per gallon standards, all of a refiner's fuel
  must meet its per gallon standard (e.g., 8.1 RVP if renewable oxygenate is
  used in 30 percent of its fuel) including any ethanol splash blends.)
  Therefore, in order to ensure that the RVP (and VOC) standard is met in each
  area covered by the reformulated gasoline program, it would be essential for
  the refiner to track and control the fraction of fuel with a higher RVP which
  is distributed to each area. Similarly, it would be essential for refiners to
  maintain a constant fraction of fuel with a higher RVP (lower VOC
  performance) over the course of the VOC control season. Otherwise, there
  could be temporal increases and decreases in the average emission performance
  of in-use fuels. As under the averaging provisions of the SNPRM, should
  temporal increases occur, the refiners run the risk of in-use compliance
  survey violations and thus, a more stringent performance standard the
  following year.
    c. Performance Standard Adjustment Through EPA Allocation of Uncommitted
  Renewable Oxygenate Use. Some refiners may decide not to use renewable
  oxygenates and forego the opportunity to meet a less stringent RVP (VOC)
  performance standard. So that other refiners might take advantage of that
  opportunity and thereby further advance the policy goals of today's notice,
  EPA proposes that a refiner's opportunity to elect a less stringent RVP (VOC)
  performance standard be forfeited for the following ozone control season if
  it does not commit to the use of renewable oxygenates (by themselves or
  through the purchase of commitments from other refiners). EPA would then
  adjust the RVP performance standard of other refiners in exchange for their
  commitment to use the amount of renewable oxygenate which had been left
  uncommitted. For example, a refiner which commits to use renewable oxygenate
  in 60 percent of its fuel and receives the associated RVP performance
  standard adjustment could raise its average RVP performance standard in the
  North under the simple model from 8.0 to 8.3 psi.
    This allocation system would also provide the means of effectively
  combining offsetting fuels in slates for the purpose of certifying them as
  RFG. Section 211(k)(4) permits gasoline to be certified as RFG as part of a
  "slate" of fuels that on average meet RFG requirements. While the proposed
  system of allocating RVP performance standard incentives would result in one
  refiner's fuel having an average RVP above the minimum 8.1 psi standard, by
  effectively combining in a slate that refiner's fuel with another refiner's
  fuel having an average RVP sufficiently below the standard, both refiner's
  fuels could still be certified as reformulated gasoline.
    In order to permit EPA to adjust the RVP (VOC) performance standards,
  information on reformulated gasoline and renewable oxygenate use must be made
  available on an area-specific basis. If RVP performance standard adjustments
  for renewable oxygenate use were forfeited by a refiner in one covered area
  and subsequently allocated to refiners serving another covered area, greater
  environmental control would be achieved in one area and less in another. To
  avoid such an outcome, EPA proposes that by November 1 prior to each ozone
  control season each refiner (and importer) report to EPA its commitment to
  use renewable oxygenates (and in what form), the amount of renewable
  oxygenate other refiners have committed to use for it, the amount of
  renewable oxygenate it has committed to use for other refiners, the amount of
  renewable oxygenate use eligible for making performance standard adjustments
  which is not committed to be used in each area covered by the reformulated
  gasoline program, its total reformulated gasoline production which was
  distributed for use in each covered area for the previous year, and the VOC
  performance characteristics (RVP under the simple model, all fuel parameters
  that affects VOC under the complex model) of the fuel which it distributes
  for use in each covered area. If and only if a refiner chooses to meet the
  VOC performance standards on a per gallon basis, commits to the use of a
  minimum of 30 percent of renewable oxygenate in the North and 20 percent in
  the South (if applicable), and is not committing to use renewable oxygenates
  for any other refiner, would its reporting requirements be simplified. In
  such a case the refiner would be required to report only its commitment to
  use at minimum 30 percent, and the volume of reformulated gasoline produced
  and renewable oxygenate used each year nationwide. By January 1 prior to each
  ozone control season, any uncommitted RVP (VOC) performance standard
  adjustments would be provided at no cost to other refiners for use in the
  same covered area for their commitment to use additional renewable oxygenate,
  and their performance standard would be adjusted accordingly. EPA proposes to
  allocate these adjustments among the refiners wishing to use them in the
  covered area where the adjustments are forfeited prorated based on the volume
  of reformulated gasoline produced by the various refiners requesting
  additional adjustments, and beginning with the category of refiners who
  fulfilled their commitment to use renewable oxygenates in previous years. The
  final RVP performance standard applicable for these refiners for the coming
  season would then be recalculated based upon the total amount of renewable
  oxygenate committed to be used.
    EPA's adjustment of RVP (VOC) performance standards, as proposed, would be
  specific to each area covered by the reformulated gasoline program in order
  to maintain each area's environmental benefits from the reformulated gasoline
  program. As such it would require that refiners track their fuel from the
  point of production to the point of its ultimate use and report to EPA the
  amount of reformulated gasoline and renewable oxygenates distributed for
  consumption in each area (except as described above under certain conditions
  for per gallon compliance). EPA recognizes that such a requirement changes
  current industry operating practices and as such may impose additional costs.
  However, EPA is unaware of any alternatives which would provide comparable
  environmental neutrality. EPA requests comment on any alternative means by
  which the environmental neutrality of the program can be maintained while
  minimizing the cost and burden on refiners. EPA also requests comment on the
  ability of the in-use compliance surveys to be revised to provide adequate
  certainty that the full environmental control is achieved in each area
  without requiring refiners to track their fuel.
    Despite the precautions described above, EPA is still seeking design
  improvements to fully assure that the program proposed today preserves the
  environmental control that would be achieved under the program proposed in
  the SNPRM. The program described above does not fully protect environmental
  neutrality if changes occur in the amount of fuel distributed to a given city
  by various refiners over time. Since the standards adjustment process is
  based on fuel volumes for the previous year, increases in the performance
  standard granted to some refiners following EPA adjustments would only be
  only offset if the refiners forfeiting RVP performance standard adjustments
  distribute the same or greater volume of reformulated gasoline to a given
  area as the year before. It is not until the following year that the
  adjustment would be made to offset this disparity. Despite this concern, EPA
  does not expect that there will be significant increases in RVP (decreases in
  VOC performance) in-use since decreases are just as likely as increases and
  not all refiners that opted to forfeit the performance standard adjustments
  would be expected to dramatically reduce the amount of fuel they distributed
  to a given area in the same year. Nevertheless, EPA requests comment on the
  this issue and on any means by which the environmental neutrality of the
  program can be more fully ensured.
    If during the course of the ensuing VOC control season a refiner uses less
  renewable oxygenates than it had committed to EPA, no enforcement action
  would be taken as long as that refiner achieves an RVP or VOC performance
  standard commensurate with its actual renewable oxygenate use. However, if a
  refiner uses less renewable oxygenates than it has committed to use, EPA
  requests comment on what remedy would be appropriate. One possible remedy
  would be that the refiner forfeit the ability to raise its performance
  standard through renewable oxygenate use in the future (to the extent the
  commitment was not reached). EPA would make these RVP (VOC) performance
  standard adjustments available to other refiners willing to commit to use the
  corresponding amount of renewable oxygenate as described above. If such a
  forfeiting refiner wanted to raise its performance standard through renewable
  oxygenate use in the future, it could do so only if unallocated RVP (VOC)
  performance standard adjustments were still available for the covered area(s)
  in question. Such refiners would have their RVP (VOC) performance standard
  adjusted only after all refiners who fulfilled their commitments the previous
  year have received any desired adjustments.
    EPA is concerned that the performance standard adjustment process described
  above does not grant refiners desiring to use additional renewable oxygenate
  adequate certainty of the availability of additional RVP (VOC) performance
  standard adjustments to fully take advantage of them. Furthermore, EPA is
  concerned that the refiners described in the previous paragraph who forfeited
  their opportunity to take advantage of RVP (VOC) performance standard
  adjustments for future years would be limited to receiving year to year
  adjustments from EPA if any are available and would never have any certainty
  of using any performance standard adjustments. As a result, EPA is also
  considering an approach whereby performance standard adjustments which are
  either given to EPA for subsequent distribution be permanent (instead of year
  to year) and whereby adjustments distributed by EPA would be permanent. Under
  such an approach, refiners would have the necessary certainty of being able
  to utilize the performance standard adjustments and be permitted to make
  refinery changes in accordance with such performance standard adjustments.
  Such an approach, however, prevents the year-to-year adjustments in
  reformulated gasoline volume necessary to ensure that any loss in
  environmental neutrality described above is limited to only one year. Another
  approach might be to maintain the year to year allocation but allow refiners
  who fell short of their commitments in previous years to regain their
  original opportunity to use renewable oxygenates for RVP (VOC) performance
  standard adjustments by making up their earlier shortfall without any RVP
  (VOC) adjustment. EPA requests comments on the above approaches, on the need
  for an allocation program given its potential limitations, and on any other
  approaches that would provide refiners with the necessary certainty while
  still preserving the environmental neutrality of the program.

  3. RVP Trading Program

    Based on the performance standard adjustment process described above, if a
  refiner wishes to blend more than 30% of its production with renewable
  oxygenate, it would still be required to meet an 8.1 RVP standard. With
  regard to ethanol, this would require producing an ever lower RVP gasoline
  blendstock. In order to provide greater flexibility to refiners desiring to
  blend additional renewable oxygenates, EPA proposes to establish an RVP
  credit trading program (in addition to the averaging program proposed in the
  SNPRM) whereby refiners could obtain RVP credits from other refiners in lieu
  of reducing the RVP of their fuel. Under this program a refiner in Chicago
  could commit to use renewable oxygenate on behalf of a refiner in New York
  and then obtain RVP credits (from other refiners distributing fuel in
  Chicago) sufficient to compensate for any increase in RVP caused by
  increasing its use of renewable oxygenates. For the program to remain
  environmentally neutral the RVP credits could only be traded within a given
  area covered by the reformulated gasoline program. Otherwise, one area would
  have an average in-use RVP of less than 8.1 RVP, while the other area would
  have an average RVP of greater than 8.1 RVP. Such an RVP trading program
  could be conducted totally separate from any exchange in commitments for
  renewable oxygenate use or in conjunction with it. An example of the latter
  would be the sale of renewable oxygenate usage commitments and the purchase
  of RVP credits by a refiner wishing to use more than 30% renewable oxygenates
  and vice versa by a refiner wishing to use less than 30% renewable
  oxygenates. The former could potentially adjust its average RVP standard to
  as high as 8.7, while the average RVP standard of the latter refiner would be
  lower than 8.0. The fuels being marketed by both refiners would have to be in
  the same area, as mentioned above.
    Furthermore, if the program is to be environmentally neutral, RVP credits
  must be traded based on the relative volume of reformulated gasoline produced
  at any given RVP. Since RVP trading is a means by which refiners can choose
  to meet their RVP performance standard and is not used to determine the
  performance standard, EPA proposes that RVP trading be permitted to take
  place throughout the course of the control period and as such be based on the
  actual gallons of reformulated gasoline produced. EPA proposes that to the
  extent refiners take advantage of RVP trading, they be required to report to
  EPA at the end of the ozone control season the average RVP of the
  reformulated gasoline they produced and the number of RVP credits traded to
  and received from other refiners for each of the reformulated gasoline areas.
  EPA does not believe that the added flexibility resulting from a trading
  program allows for a more stringent performance standard, but requests
  comment on the Agency's legal authority it implement RVP trading absent a
  tighter performance standard for those refiners who trade. A more stringent
  performance standard was proposed in the SNPRM in connection with averaging,
  and this is merely an extension of that program. Furthermore, this trading
  program is intended to provide greater flexibility to refiners for the
  purpose of making it easier to blend renewable oxygenates. If the performance
  standard were made more stringent, it could eliminate any incentive for
  blending renewable oxygenates provided by a trading program.
    Since there is no RVP performance standard under the complex model, the RVP
  trading program described above cannot be used directly. However, the same
  motivation exists under the complex model as under the simple model to
  provide a trading program. Thus, under the complex model EPA proposes that
  refiners be permitted to trade VOC performance. EPA requests comment on this
  provision.
    As discussed above in regard to EPA's allocation process for performance
  standard adjustments with renewable oxygenate use, EPA is concerned that the
  requirement that refiners track and report to EPA the volume of reformulated
  gasoline and its RVP (VOC performance) on a covered area specific basis may
  represent a significant additional burden. In the interest of minimizing the
  cost and burden on refiners of the reformulated gasoline program, EPA would
  prefer to avoid, if possible, requiring refiners to track their fuel from the
  refinery to its ultimate use. However, to ensure the environmental neutrality
  of the RVP (VOC) trading program knowledge of the actual distribution to each
  area is needed. EPA requests comment on any methods other than tracking of
  fuel by which the environmental neutrality of the program can be ensured in
  all covered areas and on whether the cost of tracking would be greater than
  any economic incentive created by the flexibility of the trading program.

  4. Definition of Renewable Oxygenate Use

    While the performance standards described above are adjustable based upon
  the amount of renewable oxygenates used in the reformulated gasoline
  produced, some constraints need to be placed on what constitutes the use of
  renewable oxygenates if both the environmental and other policy benefits of
  today's proposal are to be achieved. EPA proposes that renewable oxygenate be
  defined for the purposes of this program as those oxygenates that are derived
  from renewable resources such as agricultural products and waste products
  such as sewage sludge or waste cellulose and does not include oxygenates
  produced from non-renewable resources such as petroleum, natural gas, coal,
  or peat. Furthermore, since some oxygenates such as ethers are currently made
  from both renewable and non-renewable resources, EPA proposes that only the
  portion of oxygenates derived from renewable resources be considered as
  renewable oxygenate. At the present time, the only oxygenate EPA is aware of
  that is produced in significant quantities that meets the definition of
  renewable oxygenate is ethanol. However, the definition is not meant to be
  restricted to ethanol, and is intended to encompass numerous other
  oxygenates, particularly the ethanol portion of ethers such as ETBE and ETAE
  which in the future may be produced in significant quantities. EPA further
  proposes that the use of renewable oxygenates to meet the 30 percent market
  share described above for northern areas and 20 percent for southern areas be
  based upon an assumed base oxygen content in the reformulated gasoline of 2.7
  wt%. A 30 percent market share would, thus, represent 0.81 wt% oxygen in the
  form of renewable oxygenates in a refiner's reformulated gasoline production
  in the North, and 0.54 wt% oxygen in the South. In order to allow the
  greatest degree of flexibility for refiners, EPA proposes that the use of any
  renewable oxygenate in any concentration be prorated on the basis of weight
  percent oxygen for credit toward the 0.81 wt% oxygen base.
    The reformulated gasoline provisions require only 2.0 wt% oxygen in
  reformulated gasoline, but a base oxygen content of 2.7 wt% would better
  advance the energy related policies of today's proposal, and is still
  consistent with the maximum oxygen content for which no NOX emission increase
  is assumed under the simple model in section D below (as well as under both
  the negotiated agreement and SNPRM). Going beyond 2.7 wt% to as high as 3.5
  wt% would provide a disincentive for the use of renewable oxygenates other
  than ethanol since they are currently limited to a maximum of 2.7 wt% and,
  thus, would be required to be used in more than 30 percent of the market to
  achieve the same level of renewable oxygenate use. Furthermore, setting a
  base oxygen content greater than 2.7 wt% oxygen would require the use of the
  complex model pursuant to the provisions of section D. This would represent a
  disincentive for certain refiners to use renewable oxygenates and, thus could
  potentially result in less renewable oxygenate use than setting the baseline
  at 2.7 wt%. EPA invites comment on setting the baseline oxygenate content at
  2.7 wt% and on what level would best ensure that the energy related goals of
  today's proposal are achieved in a manner consistent with section 211(k) of
  the CAA.
    If oxygenates are used that are derived from both renewable and
  nonrenewable resources, EPA proposes as one option that such oxygenates be
  prorated in direct proportion to the amount of their oxygen content derived
  from renewable resources (e.g., ETBE derived from ethanol which is produced
  from biomass would achieve the same credit as the amount of ethanol used to
  make it). Not all renewable oxygenates, however, are identical with respect
  to their environmental benefits. One significant difference between
  oxygenates is their potential to cause vapor pressure increases when mixed
  with other fuels in the distribution system and vehicle fuel tanks, a
  phenomenon referred to as commingling. ETBE does not exhibit a commingling
  effect, nor does it produce the dramatic rise in blend vapor pressure above
  100 deg.F that ethanol does. As a result, from an environmental standpoint,
  the use of ethanol in the form of ETBE is preferable to direct ethanol
  blending. The value added per gallon of ethanol from the RVP incentive
  proposed in this section would be roughly 13.7 cents, assuming an RVP control
  cost of one cent per RVP-gallon. This economic incentive would be constant
  regardless of the concentration of ethanol added or the form (splash blended
  ethanol or ETBE) since it is based on RVP. However, independent from today's
  proposal there is an inherent added incentive for blending ethanol at 3.5 wt%
  instead of 2.7 wt% oxygen since the former causes less of an RVP increase per
  gallon of ethanol used (ethanol blended to both 2.7 wt% and 3.5 wt% oxygen
  cause roughly a 1.0 psi RVP increase). Because of this inherent incentive EPA
  expects most ethanol blends would be at 3.5 wt% oxygen through the use of the
  complex model and oxygen credit trading. As a result, ETBE would always be
  forced to compete with ethanol at 3.5 wt% oxygen instead of ethanol at 2.7
  wt% oxygen where ETBE would be at less of a disadvantage. In order to offset
  this disadvantage, EPA is also requesting comment on an option that renewable
  oxygenates such as ETBE that do not exhibit commingling effects be given the
  same credit at 2.0 wt% oxygen that is given to ethanol (or other renewable
  oxygenates which exhibit commingling effects) at 2.7 wt% oxygen. ETBE use in
  30 percent of the market would, under this option, represent 0.60 wt% oxygen
  in the form of renewable oxygenates in a refiner's reformulated gasoline
  production. This approach would provide ETBE blends with an additional
  incentive of roughly the same magnitude as exists for blending ethanol at 3.5
  wt% oxygen relative to 2.7 wt% oxygen.
    Commingling itself is an issue which is not unique to this proposal. It was
  not addressed in the context of the SNPRM but, nevertheless, represents an
  environmental impact whenever oxygenates such as ethanol which exhibit
  commingling effects are blended into gasoline. Today's proposal is not
  expected to dramatically change the magnitude of any commingling effects
  inherent under the SNPRM. While today's proposal may increase the market
  share of ethanol, it also contains incentives for ETBE and other ethers which
  do not exhibit commingling effects. As such there could be no increase or
  even a decrease in the amount of ethanol used to meet the reformulated
  gasoline program requirements resulting from today's proposal. Furthermore,
  even if there were an increase in the use of ethanol blends, today's proposal
  allows for its use to be shifted to those areas where it is most economical.
  As a result, it is possible that some areas would have virtually 100 percent
  ethanol blended reformulated gasoline while others may have virtually no
  ethanol blended reformulated gasoline. Such a scenario would reduce concerns
  over commingling. Finally, even if both ethanol use and commingling do rise,
  the increase may be small. At present EPA has not been able to adequately
  quantify the commingling effects resulting from the use of ethanol blends,
  but requests comment on how significant such effects may be both under the
  provisions of the SNPRM and under the provisions of today's proposal.

  C. NOX Neutrality

    A second element of President Bush's announcement was for EPA to establish
  a NOX performance standard which was neutral with respect to the type of
  oxygenate being used. Under the simple model proposed in the SNPRM, and in
  keeping with the agreement reached through regulatory negotiation, EPA
  proposed that "MTBE in concentrations up to 2.7 weight percent oxygen and
  other oxygenates in concentrations up to 2.1 weight percent oxygen be assumed
  not to increase NOX emissions." While "based on data available during the
  regulatory negotiations, it appeared that fuel oxygen content and the type of
  oxygenate used may have an impact on NOX emissions," the data did "not allow
  for quantifying relationships between oxygenate type and concentration and
  NOX emissions." Thus, based on the available information, caps were placed on
  oxygen content in order to permit the sale of reformulated gasoline and limit
  any potential NOX emission increase until the complex model could be
  developed and implemented. Since the time the SNPRM was developed a great
  deal of additional data has become available which has gone into the
  development of the complex model (to be discussed later).
    Under the complex model, all oxygenates are treated the same, i.e., based
  on oxygen content. There does not appear to be a significant difference
  between various oxygenates in their NOX forming tendency. Also, under the
  complex model, other fuel changes that accompany the blending of oxygenates
  into the fuel (reductions in the concentrations of aromatics, olefins,
  sulfur, etc.) have been found to offset the NOX increases caused by
  increasing the oxygen concentration. The results, which are described in the
  DRIA, show that on average 4-5 percent reductions in NOX emissions are
  expected. Thus, the complex model is directionally consistent with the data
  used for the simple model. However, refiners would not be prohibited from
  adjusting their base gasoline in anticipation of dilution so that a NOX
  increase could occur. EPA does not anticipate that refiners will have an
  economic incentive to do this. At most, as described in section V.C. below, a
  one percent increase in NOX emissions from certain fuels might occur. Given
  the much larger reductions projected on average, it is highly unlikely that a
  net NOX increase could result under the simple model with oxygenate up to 2.7
  wt% oxygen. As a result, EPA proposes that in keeping with the provisions of
  the SNPRM and the more recent data, all oxygenates be assumed to yield a no
  NOX emission increase up to 2.7 wt% oxygen under the simple model. EPA
  requests comment on this view and the resulting proposal, and on the legal
  adequacy of relying on this expectation that no NOX increase will occur. EPA
  also requests comment on whether any NOX increase associated with oxygenates
  at or below 2.7 weight percent oxygen (should one be found to occur) may be
  considered de minimis and on whether EPA has legal authority to disregard
  such a NOX increase as de minimis.
    The one option available to prevent a NOX increase from every batch of fuel
  would be to require refiners to use the complex model in 1995 (under the
  early use provisions described in section E. below) solely to certify that
  their fuels did not increase NOX emissions. Given the effect of oxygenate on
  the other parameters of gasoline and the lack of economic incentive to worsen
  fuel quality via other means, this option should not pose a leadtime concern.
  EPA requests comment on this additional option as well.

  D. Toxics Neutrality

    In addition to NOX neutrality, President Bush also requested that the
  toxics standards be set in such a manner as to be neutral with respect to the
  type of oxygenate used. EPA based the toxics performance standard in the
  SNPRM on the use of MTBE as the oxygenate in the fuel on the assumption that
  this would be the predominant oxygenate used to produce reformulated
  gasoline. Due to a characteristic of MTBE unique among oxygenates,
  evaporative benzene emissions are suppressed, and MTBE achieves a greater
  toxics performance on a weight percent oxygen basis than the other
  oxygenates. As a result, the toxics performance standard was proposed in the
  SNPRM in a manner which disadvantaged the other oxygenates by making it more
  costly for them to be utilized in reformulated gasoline. As is discussed in
  section VI, control of toxics emissions in reformulated gasoline is a very
  costly means of reducing cancer incidences. For this reason, basing the
  toxics standard on the sole oxygenate which achieves the greatest toxics
  control is not appropriate. Thus, EPA proposes that the toxics emission
  performance standard under the simple model be based upon the non-MTBE
  oxygenates. Applying this approach, the toxics performance standard required
  by the act is the greater of a 15 percent reduction or the performance of the
  formula fuel containing 2.0 wt% oxygen in the form of a non-MTBE oxygenate.
  Since a formula fuel containing non-MTBE oxygenates does not achieve the 15
  percent minimum, EPA proposes that the air toxics performance standard under
  the simple model be 15 percent. In accordance with the provisions proposed in
  the SNPRM, EPA also proposes that the year-round averaging standard be 16.5
  percent.

  E. Unrestricted Early Use of the Complex Model

    The CAA requires all refiners to reduce the VOC and air toxics emission
  forming tendency of their fuels by a minimum 15 percent below that of the
  1990 average in-use fuel as defined in section 211(k)(10)(B) (referred to
  here as the CAA baseline). Due to the limited data available at the time of
  the regulatory negotiation (and SNPRM development), however, few of the
  effects of fuel parameters on emissions could be quantified and placed in the
  simple model even though they were known qualitatively to exist. As a result,
  EPA proposed in the SNPRM that all refiners hold such fuel parameters
  (sulfur, olefins, and T90) at or below their 1990 baseline levels. Because
  different refiners have significantly different 1990 baselines of sulfur,
  olefins, and T90, this proposal required some refiners to produce
  reformulated gasoline which was significantly less polluting than that
  produced by other refiners.
    In order to maintain the same overall level of environmental control if
  refiners opted to use the complex model prior to its required use in 1997,
  EPA further proposed in the SNPRM that refiners who opted to use the complex
  model early would be required to maintain whatever emission performance they
  would otherwise have achieved using the simple model through the use of their
  own 1990 baselines. This was viewed by some refiners, however, as an
  impediment to early use of the complex model since they could be required to
  achieve greater environmental control in 1995-96 than in 1997. In response,
  EPA also proposed that since in the southern areas covered by a reformulated
  gasoline program, refiners would be required under the proposal to achieve
  greater than the minimum VOC control required by the Act, they be permitted
  the option to use the CAA baseline instead of their own individual baselines.
  In northern areas covered by the reformulated gasoline program refiners would
  still be required to use their own 1990 baselines.
    In President Bush's announcement, he requested EPA to provide refiners with
  the broadest range of options possible in "meeting the pollution reduction
  requirements of the Act," and called for the "unrestricted" early use of the
  complex model. EPA today proposes that all refiners be permitted to utilize
  the complex model before its required use in 1997 to certify reformulated
  gasoline to be sold in all parts of the country with their performance
  measured against either their own 1990 baseline or the CAA baseline. Not only
  does this proposal grant refiners greater flexibility, but it also makes it
  easier for refiners to use renewable oxygenates such as ethanol in producing
  their fuel.

  III. Complex Model

  A. Baseline Emissions Under the Complex Model

    In the SNPRM, EPA proposed that the emission baseline for the simple model
  would be based on light-duty vehicle emissions using a July 11, 1991 version
  of MOBILE4.1 with an assumption for enhanced I/M that is now more
  representative of EPA's requirements for basic I/M (57 FR 52950). This
  proposal was based on the best information available at the time. Since that
  time, a new version of the MOBILE model, MOBILE5.0, has been developed and
  both the basic and enhanced I/M requirements have been promulgated. These
  changes affect the baseline calculations and raise the issue as to whether
  and when to require the revised baseline.
    The choice of MOBILE model and      I/M program determines the level of
  baseline emissions established for baseline vehicles. The primary impact of
  this choice on baseline emissions is through changes in the ratio of baseline
  exhaust to non-exhaust VOC emissions. Since various reformulations will
  reduce exhaust and non-exhaust VOC emissions to varying degrees, changing the
  ratio of baseline exhaust and non-exhaust VOC emissions can affect the
  overall VOC emission reduction expected from a specific fuel reformulation.
  NOX emission performance is unaffected since NOX is only emitted via the
  exhaust. Toxics performance is only slightly affected (much less than VOC),
  since non-exhaust toxics comprise only a small fraction of total toxics
  emissions.
    As described in section V.C., the proposed complex model projects that
  typical simple model fuels will substantially reduce both exhaust and
  nonexhaust VOC emissions. The result is that the overall effectiveness of
  various Phase I reformulations is expected to be relatively insensitive to
  the baseline exhaust to non-exhaust VOC ratio. Also, given the no NOX
  increase requirement and the effect of oxygenate on other fuel parameters,
  EPA expects fuels produced under the complex model to produce even greater
  reductions in exhaust VOC than those shown in section V.C., making their
  performance even less sensitive to the choice of MOBILE model. Thus, EPA is
  confident that fuels certified using a MOBILE4.1 baseline would meet at least
  the minimum 15 percent VOC reduction requirement even with a MOBILE5.0
  baseline. Thus, there would appear to be little or no air quality or other
  impact of delaying implementation of a revised baseline based on MOBILE5.0.
    The assumptions made in the SNPRM with respect to the appropriate enhanced
  I/M program to assume for Phase I may also be reasonable through the  end
  Phase  I.  While  enhanced  I/M is required in many ozone nonattainment areas
  starting January 1, 1995, its full implementation may be later than this in
  several important ways including a phase-in of emission cut points and a
  phase-in of the percentage of the fleet being tested. It is therefore
  possible that areas will not realize the full in use benefits of those
  programs until near the end of the Phase I period. The complex model,
  however, will be available as an option as early as 1995, and as proposed
  would not be mandated for use in certifying VOC controlled fuel until the
  1997 ozone season at the earliest.
    At the same time, changing the baseline in 1997 could potentially change
  the overall stringency of the VOC performance standard for some refiners and
  require them to invest additional capital to further control RVP or other
  fuel parameters. The statutory structure established by Congress creates a
  two-phase program (beginning in 1995 and 2000, respectively), and maintaining
  a consistent level of emission performance through the first five years of
  the program is consistent with this structure.
    Therefore, EPA proposes to retain the baseline proposed in the SNPRM for
  use with the complex model prior to 2000. This is based on the lack of
  adverse air quality impact, EPA's confidence that the required statutory
  minimum reductions are not at risk, and the potential disruption in the
  latter years of Phase I for at least some refiners. EPA requests comment on
  all of these points, including comment on utilizing an emissions baseline
  based on either the official version of MOBILE4.1 or MOBILE5.0 beginning in
  1997. EPA also requests comment on the appropriateness of the I/M program
  assumptions discussed above and the appropriateness of other I/M program
  assumptions. The Agency specifically requests comment from the States on the
  type of enhanced I/M program they plan on implementing (e.g., annual,
  biennial, emission cut-points, etc.), their projected schedules for
  implementation, and the timetable for any expected phase-ins. EPA invites
  comment on the degree of change in fuel formulation which might occur and
  their environmental, energy, cost and leadtime consequences. Changes in the
  baseline modeling assumptions, if appropriate, would also lead to
  corresponding changes in the Phase I complex model standards.
    With the onset of the Phase II performance standards in 2000, the overall
  stringency of the standards is already changing and a new baseline based on
  MOBILE5.0 will not, by itself, be the cause of new investment by refiners.
  Also,  by  this  time,  enhanced  I/M programs should be fully operational in
  nearly all reformulated gasoline areas. Therefore, for Phase II EPA proposes
  that the baseline for the complex model be based on light-duty vehicle and
  light-duty truck emissions using MOBILE5.0 with enhanced I/M.

  B. Complex Model for Exhaust Emissions

  1. Data Sources

    The relationship between fuel properties and exhaust emissions is complex
  and the theory behind such relationships continues to be developed. As a
  result, EPA has asked industry, state regulatory agencies, and other
  organizations with relevant test data to make their data available to the
  Agency to ensure that this rule is based on as much relevant information as
  possible. The complex model described in the following section is based on
  data generated from a number of exhaust emissions testing programs. These
  programs, their design intent, and their limitations are discussed in the
  Draft RIA. Data from these programs were excluded from EPA's analysis if the
  data were not based on a valid FTP measurement cycle, if the vehicle in
  question did not employ 1990-equivalent emission control technology, or if
  nonmethane hydrocarbon measurements were not taken. The Agency believes its
  analysis considered all available, valid, and relevant data on the exhaust
  emissions effect of fuel modifications when used in 1990 model year and
  equivalent vehicles. Since these test programs generally involved different
  vehicles, different fuels, and in some cases different test procedures, the
  analysis required to determine the relationship between fuel properties and
  emissions is complex. However, EPA believes that the model proposed below
  appropriately considers and addresses these complexities.

  2. Analysis Method

    Exhaust emissions are affected by both vehicle and fuel characteristics,
  which makes identification of fuel effects on emissions difficult. EPA has
  considered and in some cases tested a number of analysis methods, many of
  which were presented during a series of public workshops held by EPA over the
  past year. Information regarding these methods can be found in Docket A-92-
  12. The approach chosen by EPA to analyze the data described in section
  III.B.1 is summarized below and is discussed more fully in the Draft RIA. EPA
  utilized statistical analysis techniques to determine the effects of fuel
  modifications on exhaust emissions of VOC, NOX, and toxics. At a series of
  five public workshops held over the past year, the Agency has presented its
  data sources, proposed analysis methods, and preliminary emissions models for
  public review and comment. The Agency has also requested other organizations
  to share their data, analysis expertise, and emissions models at these
  workshops. The Agency believes that today's proposal appropriately
  incorporates the comments and suggestions regarding the analysis process
  received at the workshops and during the course of the past year from
  industry, state and federal government authorities, and other interested
  parties. The resulting exhaust emission models have been validated through
  confirmatory testing and analysis.
    EPA's analysis separated exhaust emissions into fuel components and vehicle
  components. In all test programs analyzed by EPA, the single most significant
  determinant of the level of emissions from a given vehicle on a given fuel
  was the vehicle itself. Fuel properties exert a much smaller influence on
  exhaust emissions than do vehicle characteristics such as emission control
  system technology, vehicle mileage, catalyst efficiency, oxygen sensor
  efficiency, engine size, engine design, vehicle size, fuel efficiency, and
  vehicle maintenance. To identify the effects of fuel property modifications
  on emissions, EPA found it necessary to identify the effect of each vehicle
  on emissions and separate this effect from the fuel effects.
    The fuel components of exhaust emissions were separated into two main
  categories. The first category consisted of the effects of individual fuel
  parameters. For example, the effect of sulfur on hydrocarbon emissions was
  best modeled by a relationship containing a linear sulfur term and a second-
  order sulfur term (a term of the form c1S /2/, where c1 is a constant and S
  is the sulfur level). The second category of fuel terms consisted of
  interactive effects between two fuel parameters. EPA's analysis of NOX
  emissions, for example, found that oxygen's effect on NOX is related to the
  aromatics level of the fuel. This effect cannot be represented as an oxygen
  or aromatics effect alone but must be represented as an interactive term of
  the form c2XA, where c2 is a constant, X is the oxygen level, and A is the
  aromatics level.
    The effect of each fuel term was determined separately for each technology
  group within each emitter class for NOX and VOC emissions. Technology groups
  and emitter classes, their importance in determining the effects of fuel
  modifications on emissions, and their definitions are discussed more fully in
  the Draft RIA and simple model SNPRM. The linear terms for all fuel
  parameters were retained, while only those second-order and interactive terms
  that were statistically significant at the 85 percent level were retained.
  Retention of non-significant linear terms reflects the general consensus of
  public workshop participants regarding appropriate analysis and modeling
  methods and a desire to keep this potentially very complex model as simple,
  yet as accurate, as possible. EPA requests comment on the appropriateness of
  the significance level used to exclude terms from the model and the inclusion
  of non-significant linear terms. Because vehicles can have different emission
  control systems, the Agency anticipated that fuel modifications would have
  different emission effects on different types of cars. EPA has found it
  necessary to develop terms unique to technology groups to assure the
  predictive power of the complex model. EPA also has found that vehicles
  classified as "high emitters" respond very differently to fuel modifications
  than do normal emitting vehicles. Hence the terms described above were
  defined and determined separately for each technology group within each
  emitter class for VOC and NOX emissions.
    EPA chose a different approach when modeling emissions of exhaust toxics.
  Many of the studies available to EPA did not measure exhaust toxics, so the
  data on exhaust toxics emissions is less complete than the data on exhaust
  VOC and NOX emissions. This problem is particularly acute for high emitters.
  In addition, baseline estimates of toxics emissions are not available from
  the MOBILE models, so a different source of baseline toxics estimates had to
  be found. To overcome the limited amount of data on high emitters, the Agency
  chose to combine normal and high emitters into a single emitter class while
  retaining the technology group distinction. To overcome the absence of
  baseline toxics data from the MOBILE models, the resulting toxics model was
  then adjusted to compensate for differences between the average VOC exhaust
  emission levels for those vehicles for which toxics data were available and
  the 1990 model year, in-use emission levels projected by the MOBILE models.
  This process is discussed in more detail in the DRIA.
    Since the proposed models for normal and high emitter VOC emissions differ
  substantially, and since the compounds classified as toxic in section 211(k)
  are VOCs, the Agency is concerned that this approach based on absolute mass
  emissions may not accurately represent the effects of fuel changes on toxics
  emissions from high emitters. The Agency has considered modeling toxics
  emissions as mass fractions of total VOC emissions (as was proposed in the
  simple model NPRM and SNPRM) but has found models of toxics in terms of
  absolute mass to have very high predictive power. However, this conclusion
  could be the result of limited high emitter toxics data. In addition, the
  mass fraction approach can be more readily extrapolated to winter conditions
  than can the absolute mass emissions approach. EPA requests comment on the
  appropriateness of the mass fraction and absolute mass emissions approaches.
    EPA focused its modeling efforts on those fuel parameters thought to affect
  vehicle emissions based on available test results. Oxygen, RVP, aromatics,
  olefins, T90, sulfur, and benzene were identified as relevant fuel parameters
  in the negotiated agreement. T50 was identified as a potentially significant
  parameter by a number of testing programs and at several public workshops.
    EPA anticipates that further refinements to the model will be made prior to
  finalization of this rule. First, the Agency expects to convert its fuel
  distillation curve data to a percent evaporated basis, thereby replacing T50
  and T90 with terms such as E200 and E300 (the volume percentage of the fuel
  evaporated at 200 deg.F and 300 deg.F, respectively). The percent evaporated
  terms are thought to be more directly relevant to the generation of exhaust
  emissions than the distillation parameters. In addition, the percent
  evaporated values for a mixture of fuels can be calculated directly from the
  percent evaporated values of each component of the mixture, while the
  distillation values for a mixture must be measured separately. This
  characteristic has important implications for certification and enforcement.
  Second, the Agency will attempt to determine the influence of the type of
  aromatic compounds in fuels, specifically heavy aromatics, on exhaust
  emissions, since preliminary test data suggests that both the level and type
  of aromatic compounds may affect emissions. Third, EPA expects to include
  additional emission testing data as they become available, and such data may
  affect the results of the modeling process discussed above. Specific test
  programs expected to provide additional data include the second half of Auto/
  Oil's T50/T90 study and EPA's Phase II reformulated gasoline test program.
  EPA's Phase II test program data is available and has been used to confirm
  the validity of the model presented in Sec. 80.45. After using either the EPA
  Phase II or Auto/Oil T50/T90 studies to confirm the revised model, EPA
  expects to include the data used in this confirmation in its database to
  develop a final model. Fourth, EPA anticipates changing the confidence level
  required to allow additional terms into the model to 90 percent, in keeping
  with past EPA practice.
    Finally, EPA expects to complete its analysis of the importance of
  technology group and emitter class distinctions prior to finalization of this
  rule. Preliminary analyses confirm that the original classification scheme
  does capture significant differences in the emissions performance of fuels,
  as can be seen by examining the differences in the exhaust emission equations
  for specific technology group/emitter class categories as presented in the
  Draft RIA. These distinctions may be changed if further analysis indicates
  that changes are necessary to adequately estimate the effects of fuel
  modifications on vehicle emissions. At the present time, EPA is considering
  reducing the number of technology group categories for normal emitters by
  eliminating technology groups which contribute a very small proportion of
  total mobile source emissions or combining such groups with other, similar
  technology groups. EPA is also considering subdividing high emitters by their
  emission characteristics, particularly their exhaust hydrocarbon to NOX
  ratio, rather than by vehicle technology. This modification reflects EPA's
  belief, supported by preliminary field information, that one or more emission
  control components on high emitters tend to be malfunctioning, which renders
  a classification scheme based on vehicle equipment potentially suspect. EPA
  requests comment on these potential changes in its technology group
  definitions and on the other potential changes in its analysis approach
  discussed above. EPA will place its revised version of the complex model for
  exhaust emissions (referred to as "Iteration 4" of the model), which
  incorporates the changes discussed above, and its supporting materials in the
  docket for review and comment as soon as it is completed. The American
  Petroleum Institute (API) has also developed its own version of a complex
  model, which has been placed in the docket for this rulemaking. EPA requests
  comment on the various aspects of API's statistical and engineering approach
  and on its overall suitability for use in EPA's complex exhaust emission
  model.

  3. Complex Exhaust Emissions Model Equations

    As was discussed in the SNPRM, EPA believes that the exhaust emission
  effects of fuel modifications are different when applied to vehicles with
  different emission control and fuel distribution technologies. In addition,
  EPA believes that the emissions effects of fuel modifications also depends on
  the level of emissions from the vehicle. During development of the complex
  model, preliminary investigation of these assumptions have supported the
  approach described above. The complex model incorporates these effects on an
  emissions-weighted basis, i.e., fuel effects on each technology group/emitter
  class category were weighted according to the contribution to in-use
  emissions of 1990 vehicles from that category. To determine the contribution
  of each technology group to in-use emissions, EPA calculated the fraction of
  1990 model year sales of light duty vehicles and trucks from each technology
  group. EPA used non-California sales figures for this analysis since vehicles
  certified as "California-only" vehicles are required to meet a different set
  of emission standards than other cars sold in the U.S., and since California
  will have established its own reformulated gasoline program by 1996 that is
  expected to exceed the stringency of the federal program. EPA requests
  comment on the exclusion of California vehicles from its calculation of 1990
  sales fractions. EPA then adjusted this fraction to reflect the differences
  in average emissions among technology groups where such information was
  available. This adjusted fraction is represented by the "W" constants in the
  model proposed in Sec. 80.45.
    Because the equations are in the form of exponential equations, it is
  necessary to normalize each equation to a known emission value on a known
  fuel for each technology group. The resulting proportionality constant is
  represented by the "k" constants in the model proposed in Sec. 80.45. In
  effect, the "k" constant transforms a percentage increase or decrease into a
  gram per mile figure corresponding to that percentage change from baseline
  emissions. The rationale for and derivation of the "k" and "W" constants are
  discussed in more detail in the DRIA.
    Since the effects of fuel modifications on emissions differ across
  technology groups and emitter classes, EPA has developed separate models for
  each technology group-emitter class combination for which sufficient data
  were available. The emissions performance of a given fuel reformulation for a
  specific pollutant can be determined by taking the following steps. First,
  each technology group-emitter class model for the pollutant in question would
  be evaluated for the specific fuel formulation being evaluated. Second, the
  resulting predicted emissions for each technology group-emitter class
  combination would be weighted by the estimated contribution of that
  combination to total miles traveled and these weighted emissions would be
  added together. Third, the total predicted emissions would be compared to the
  baseline emissions level for the pollutant in question. The emissions
  performance of the fuel reformulation would be defined as the percentage
  change in total emissions from baseline emission levels, which are discussed
  below in section B.
    The specific equations that comprise the complex model can be found in Sec.
  80.45 of the regulations proposed for this rule. For the most part, their
  derivation is straightforward and can be found in the Draft RIA. In some
  cases, available data were insufficient to develop models for every
  technology group-emitter class category. In such cases, the weighting factors
  for the categories which could be modeled were renormalized to adjust for the
  absence of data. This process is discussed more fully in the Draft RIA. The
  Draft RIA and the proposed regulations also discusses the range of parameter
  values for which these equations are valid. As discussed in the SNPRM,
  refiners are required to submit data to augment the model if they wish to
  certify fuels with properties that fall outside this range. EPA requests
  comment on deviations between the model's predictions and the data used to
  develop the model, on the model equations themselves, on their derivation,
  and on the ranges over which these equations are considered valid.
    The model presented in Sec. 80.45 is based on emissions data generated
  under summer conditions. While the VOC performance standard for reformulated
  fuels applies only in the summer, the toxics and NOX requirements apply year-
  round. Hence, the complex model must cover typical winter, as well as summer,
  fuels. However, the model presented in Sec. 80.45 is based on data generated
  under summer conditions and cannot be used directly for fuels with typical
  winter RVP levels. EPA proposes to use a modified version of the complex
  model as presented in Sec. 80.45 to evaluate winter fuels. This modified
  version would assign an RVP value equal to that of summer baseline gasoline,
  i.e., 8.7 psi, for all non-VOC controlled fuels when evaluating the toxics
  and NOX emissions performance of such fuels (including winter baseline
  fuels). RVP's impact on canister loading and subsequent purging is thought to
  be the primary cause of its effects on exhaust emissions. Since data do not
  exist on the effects of winter fuels on canister loading under winter
  conditions, the Agency believes it is not appropriate to attempt to model the
  effects of winter RVP levels on emissions. Fixing the RVP value of winter
  fuels at baseline levels for modeling purposes effectively removes the
  influence of RVP on winter exhaust toxics and NOX emissions. EPA requests
  comment on this approach, particularly on the ability of the non-RVP factors
  in the complex model to accurately predict winter toxic and NOX emissions.

  C. Complex Model for Nonexhaust Emissions

    The model for nonexhaust emissions is based on data generated by EPA to
  develop its MOBILE emission inventory models. The Agency believes that the
  relationship between fuel properties and nonexhaust emissions is less complex
  and better understood than for exhaust emissions. Data from EPA's ongoing
  evaporative emissions testing has been used to develop MOBILE4.1 and
  MOBILE5.0. EPA believes this data to be sufficient to model the relationship
  between fuel properties and nonexhaust emissions. Additional information
  about MOBILE4.1 and MOBILE5.0 can be found in Dockets A-91-02 and A-92-12.
    Non-exhaust emissions are less affected by vehicle design and are
  influenced by fewer fuel characteristics than are exhaust emissions. In
  addition, the theoretical principles involved in evaporative emissions are
  better understood, and evaporative emission control technologies are more
  consistent across vehicles than are exhaust emission controls. EPA is in the
  process of developing an evaporative emissions model based on fundamental
  theoretical principles and actual test data that are expected to be more
  accurate and more widely applicable to oxygenated fuels than MOBILE4.1. A
  preliminary version of this model was discussed at a public workshop held on
  August 25, 1992, and materials related to this model have been placed in the
  docket for this rulemaking. At this time, however, the enhanced evaporative
  emissions model is not complete and is not expected to be completed prior to
  publication of the final rule.
    As a result, the Agency is proposing correlations relating RVP to
  nonexhaust emissions derived from the MOBILE4.1 emissions model issued
  November 1991. To develop the correlations shown below, MOBILE4.1 was used
  with temperatures of 69 to 94 degrees Fahrenheit for Class B areas and 72 to
  92 degrees Fahrenheit for Class C areas, assuming the existence of an
  enhanced inspection and maintenance program. In addition, the presence of
  Stage II evaporative emissions recovery systems with an overall vapor
  recovery efficiency of 86 percent was assumed (as discussed in the SNPRM and
  NPRM). Should the enhanced evaporative emissions model not be developed in
  time for inclusion in the final rulemaking, EPA proposes to utilize the July
  11, 1991 version of MOBILE4.1 to determine the effect of RVP on nonexhaust
  VOC emissions under the Phase I performance standards (i.e., 1995-1999) and
  to utilize MOBILE5.0 to do the same under the Phase II performance standards
  (i.e., 2000 and beyond). This would be in keeping with the proposed baseline
  emissions described in section A above and, again, minimize the changes
  refiners have to undergo in the transition from the simple to the complex
  model. The Agency requests comment on this proposed basis for determining
  non-exhaust VOC emissions, including comment on the appropriate MOBILE model
  and I/M assumption.
    As discussed in the SNPRM, the Agency's correlation between fuel benzene
  content and non-exhaust benzene emissions is based on General Motors'
  proprietary model of tank vapors, and its independent confirmation by data
  generated by EPA using a number of fuels. Both the derivation and
  verification of the non-exhaust benzene emissions model is discussed more
  fully in the Draft RIA. EPA requests comment on the use of the correlation
  between fuel benzene content and non-exhaust benzene emissions derived from
  the General Motors model and the sufficiency of EPA's independent
  confirmation of its results.
    As was also discussed in the SNPRM, EPA believes that nonexhaust VOC and
  toxics emissions (including running loss, hot soak, diurnal, and refueling
  emissions) depend primarily on the RVP of the fuel. The Agency proposes that
  the nonexhaust VOC and toxics equations found in Sec. 80.45 of the proposed
  regulations be used to determine nonexhaust VOC and toxics emissions,
  respectively. These equations relate VOC emissions to the RVP of the fuel.
  Nonexhaust benzene emissions are determined by the level of benzene in the
  fuel and the level of nonexhaust VOC emissions. EPA requests comment on this
  approach and on the equations proposed in Sec. 80.45, the derivation of which
  is discussed more fully in the Draft RIA.

  IV. Vehicle Testing

    As was discussed in the simple model SNPRM, the complex model may be
  augmented based on the results of vehicle testing. EPA considers the testing
  program discussed in the SNPRM to be appropriate in terms of the fuels,
  number of vehicles, and test procedures specified. However, the Agency now
  believes the analysis process described in the SNPRM to be inconsistent with
  the process used to develop the complex model and may be overly complex.
    As a result, EPA proposes that the data generated during vehicle testing be
  analyzed statistically as described in Sec. 80.48. This analysis would fit a
  stepwise regression model to the data that includes the following terms: A
  vehicle term, a linear term for the parameter being tested, and squared and
  interactive terms involving the parameter being tested if significant at the
  90 percent confidence level. The analysis would treat normal emitters and
  high emitters as separate populations but would not subdivide the emitter
  categories into technology groups for analysis purposes, since the test fleet
  compositions specified in Sec. 80.60 assure that the normal and high emitter
  test fleets include technology groups that reflect their contribution to in-
  use emissions. In addition, the statistical power of the test program would
  be compromised by subdividing each emitter class test fleet into technology
  groups since the number of vehicles in each technology group would be small.
  EPA believes that this approach is more consistent with the process used to
  develop the complex model, is less susceptible to manipulation and gaming by
  testing organizations, and is capable of extracting the maximum amount of
  information from the test data.
    In today's proposal, EPA has deleted Sec. 80.57 and Sec. 80.58 from its
  proposed regulations. These sections specified procedures for determining the
  presence and significance of nonlinear and interactive emission effects of
  fuel parameters being tested. EPA believes the regression-based analysis
  approach described in Sec. 80.48 to be more accurate and less complex than
  the procedures described in Sec. 80.57 and Sec. 80.58 of the April 16, 1992
  proposal. Since the regression-based approach explicitly determines nonlinear
  and interactive effects, the Agency considers the deleted sections to be
  unnecessary and burdensome. EPA requests comment on these proposed deletions
  and on the proposed modification to the testing proposal outlined in the
  SNPRM.

  V. Phase I Performance Standards Using the Complex Model

  A. Baseline Emission Estimates

    The following table summarizes the Agency's proposed estimates of VOC and
  NOX emissions from in-use, 1990 technology vehicles when fueled with Clean
  Air Act baseline gasoline. All VOC emission estimates are given in terms of
  non-methane, non-ethane hydrocarbon emissions. In today's notice, EPA further
  proposes to redefine "ozone forming VOCs" as used in section 211(k) to
  exclude ethane. This redefinition is consistent with the Agency's most recent
  definition of VOC as "any compound of carbon * * * which participates in
  atmospheric photochemical reactions * * * other than the following, which
  have been determined to have negligible photochemical reactivity: Methane,
  ethane, * * *." (See 40 CFR 51.100(s) February 3, 1992), which excludes both
  ethane and methane from its definition of ozone forming VOCs (57 FR 3941).
  Ethane comprises approximately three percent of total hydrocarbon emissions
  but, like methane, is far less reactive in the atmosphere than other
  hydrocarbons.

                   Table V-1.--Baseline VOC and NOX Emissions
                        (MOBILE4.1 with SNPRM I/M), g/mi

                                                  Class  Class
                                                    B      C

                   Summer:
                    Exhaust VOC emissions         0.446  0.446
                    Hot soak VOC emissions         .265   .230
                    Diurnal VOC emissions          .125   .109
                    Running loss VOC emissions     .431   .390
                    Refueling VOC emissions        .040   .040

                      Total summer VOC emissions  1.307  1.215
                   Winter exhaust VOC emissions    .660   .660
                   NOX emissions                    .66    .66

    The following table summarizes the Agency's estimates of toxics emissions
  from in-use, 1990 technology vehicles when fueled with Clean Air Act baseline
  gasoline. These estimates were derived from the complex emission models
  described in section III and were based on the July 11, 1991 pre-release
  version of MOBILE4.1 emission inventory model with the I/M program
  assumptions described in the SNPRM. As discussed in the SNPRM, separate
  estimates were made for nonexhaust toxics emissions from Class B and C areas
  and for summer and winter emissions.

                Table V-2.--Baseline Toxics Emissions (MOBILE4.1
                             with SNPRM I/M), mg/mi

                                                              Winter
                                                   Summer      /1/

                                                Class  Class  Class
                                                  B      C    B & C

             Exhaust benzene emissions          25.37  25.37   22.04
             Formaldehyde emissions              3.80   3.80    3.79
             Acetaldehyde emissions              2.06   2.06    1.81
             1,3-butadiene emissions             3.28   3.28    3.00
             POM emissions                       1.50   1.50    1.45
             Diurnal benzene emissions           1.30   1.13
             Hot soak benzene emissions          3.02   2.63
             Running loss benzene emissions      4.92   4.46
             Refueling benzene emissions         0.42   0.42

               Total baseline toxics emissions  45.67  44.64   32.05

             /1/ Based on EPA's proposed complex model evaluated for
             winter baseline  gasoline and assuming that wintertime
             evaporative emissions are  negligible, as is discussed
             in the SNPRM (57 FR 13416).

  B. Complex Model Performance of the "Formula Fuel"

    The proposed complex model equations predict that the formula fuel would
  produce a reduction in exhaust VOC emissions of 12.3 percent and no reduction
  in nonexhaust VOC emissions when measured relative to the Clean Air Act
  baseline fuel. The resulting overall VOC emissions reduction of the formula
  fuel is 6.1 percent in Class B areas and 6.5 percent in Class C areas. The
  proposed complex model further indicates that the annual average toxics
  performance of an MTBE-based formula fuel would be an 11.7 percent reduction
  in Class B areas and an 11.2 percent reduction in Class C areas. The annual
  average toxics performance of the ethanol-based formula fuel would be an 11.5
  percent reduction in Class B areas and an 11.0 percent reduction in Class C
  areas. These are lower reductions than those discussed in the SNPRM. The
  current estimate are believed to be more accurate given they are based on the
  proposed complex model rather than on the simple model. The Agency estimates
  that formula fuels using other oxygenates, such as ETBE or TAME, would result
  in VOC and toxics performance similar to that of ethanol-based formula fuels.

  C. Complex Model Performance of Simple Model Fuels

    The simple model specifies a number of fuel parameters to assure
  satisfactory emissions performance under the simple model. Many of the
  complex model relationships between these fuel parameters and emissions
  performance are different than the corresponding relationships in the simple
  model. As a result, the complex model predicts different emission performance
  levels than does the simple model for a given fuel formulation. The following
  tables summarize the predicted simple model and complex model performance
  levels for four different fuels relative to two specified baseline fuels. The
  first baseline fuel is the CAA baseline fuel as specified in the Act. The
  second baseline fuel is identical to CAA baseline fuel except for its RVP,
  which is set at the level required by Phase II volatility controls in Class B
  areas. This second baseline fuel is referred to as "Class B baseline fuel."
    The four summer fuels described in Table V-3 would meet the proposed VOC
  requirements for Class C and Class B areas, respectively, under averaging
  standards, and assuming that winter fuels are reformulated to a similar
  extent, would meet the toxics requirements. Under the simple model, the toxic
  emission effects of different oxygenates vary, so two different fuels with
  aromatics levels sufficient to assure compliance with the simple model toxic
  emission performance standards are shown for each area.
    Tables V-4 and V-5 summarize the summer performance of the fuels described
  in Table V-3 relative to the CAA baseline fuel according to both the simple
  and complex emission models. Table V-6 summarizes the emissions performance
  of Fuels 3 and 4 relative the Class B baseline fuel using both models. Tables
  V-4, V-5, and V-6 use baseline emissions derived using the July 11, 1991 pre-
  release version of MOBILE4.1 with essentially a basic I/M program.

                       Table V-3.--Sample Fuel Compositions

                                                 Class C     Class B

                                                Fuel  Fuel  Fuel  Fuel
                                                 1     2     3     4

            Fuel characteristics:
              Oxygenate                         MTBE  EtOH  MTBE  EtOH
              Oxygen, weight percent             2.1   2.1   2.1   2.1
              Aromatics, volume percent         26.3  24.3  26.2  23.9
              Olefins, volume percent            9.2   9.2   9.2   9.2
              Benzene, volume percent           0.95  0.95  0.95  0.95
              Sulfur, parts per million weight   339   339   339   339
              T50, degrees Fahrenheit            218   218   218   218
              T90, degrees Fahrenheit            330   330   330   330
              RVP, pounds per square inch        8.0   8.0   7.1   7.1

                     Table V-4.--Simple and Phase I Complex
                      Model Summer Emissions  Reductions of
                     Fuels 1 and 2 in Class C Areas Relative
                            to  CAA Baseline Gasoline

                                  [In percent]

                                       Simple     Complex
                                       model       model
                                     reductions  reductions

                                     Fuel  Fuel  Fuel  Fuel
                                      1     2     1     2

                     Exhaust VOC      9.9   9.9  13.0  15.4
                     Nonexhaust VOC  23.9  23.9  23.9  23.9
                     Total VOC       18.8  18.8  19.9  20.8
                     NOX              0.0   0.0  -0.8   0.1
                     Toxics          22.4  23.4  22.4  23.1

                     Table V-5.--Simple and Phase I Complex
                      Model Summer Emissions  Reductions of
                     Fuels 3 and 4 in Class B Areas Relative
                            to  CAA Baseline Gasoline

                                  [In percent]

                                       Simple     Complex
                                       model       model
                                     reductions  reductions

                                     Fuel  Fuel  Fuel  Fuel
                                      3     4     3     4

                     Exhaust VOC      9.9   9.9  14.3  17.0
                     Nonexhaust VOC  51.4  51.4  51.4  51.4
                     Total VOC       37.2  37.2  38.7  39.6
                     NOX              0.0   0.0  -2.5  -2.0
                     Toxics          25.7  27.1  26.7  27.9

                     Table V-6.--Simple and Phase I Complex
                      Model Summer Emissions  Reductions of
                     Fuels 3 and 4 in Class B Areas Relative
                          to  Class B Baseline Gasoline

                                  [In percent]

                                       Simple     Complex
                                       model       model
                                     reductions  reductions

                                     Fuel  Fuel  Fuel  Fuel
                                      3     4     3     4

                     Exhaust VOC      9.9   9.9  13.2  15.9
                     Nonexhaust VOC  29.8  29.8  29.8  29.8
                     Total VOC       21.3  21.3  22.7  23.8
                     NOX              0.0   0.0  -2.5  -2.0
                     Toxics          22.2  23.7  17.3  18.7

    It should be noted that the above fuels show slight NOX emission increases
  when using the complex model. This occurs because Fuels 1-4 assume no effect
  of oxygenate on fuel sulfur, T50, and T90, and a minimal effect on fuel
  aromatics. As discussed in the Draft RIA, when oxygenates typical effect on
  these fuel parameters are taken into account, which EPA expects will happen
  on average under the simple model, these NOX emission increases disappear and
  NOX emissions should actually decrease slightly at both 2.1 and 2.7 weight
  percent oxygen, regardless of the oxygenate used. The same holds true for the
  results shown in Tables V-7 through V-10 below.
    For comparison, Tables V-7 through V-10 summarize the summer performance of
  the fuels described in Table V-3 relative to the CAA baseline fuel according
  to two alternative Phase I complex models. The complex model used to derive
  the results in Tables V-7 and V-8 utilized baseline emissions from MOBILE5.0,
  while the complex model used to derive the results in Tables V-9 and V-10
  utilized baseline emissions from the official version of MOBILE4.1. Both
  alternative Phase I complex models assumed basic I/M. A discussion of both of
  these alternative models can be found in the Draft RIA.

                     Table V-7.--Summer Emissions Reductions
                        of Fuels 1 and 2 in Class C Areas
                     Relative to CAA Baseline Gasoline Using
                      a Complex Model Based on the Official
                              Version of MOBILE5.0

                                  [In percent]

                                            Complex
                                             model
                                           reductions

                                           Fuel  Fuel
                                            1     2

                           Exhaust VOC     13.1  15.4
                           Nonexhaust VOC  24.8  24.8
                           Total VOC       17.6  19.1
                           NOX             -0.8   0.1
                           Toxics          23.2  23.8

                     Table V-8.--Summer Emissions Reductions
                        of Fuels 3 and 4 in Class B Areas
                     Relative to CAA Baseline Gasoline Using
                      a Complex Model Based on the Official
                              Version of MOBILE5.0

                                  [In percent]

                                            Complex
                                             model
                                           reductions

                                           Fuel  Fuel
                                            3     4

                           Exhaust VOC     14.3  17.0
                           Nonexhaust VOC  49.2  49.2
                           Total VOC       28.9  30.5
                           NOX             -2.5  -2.0
                           Toxics          27.4  28.5

                     Table V-9.--Summer Emissions Reductions
                        of Fuels 1 and 2 in Class C Areas
                     Relative to CAA Baseline Gasoline Using
                      a Complex Model Based on the Official
                              Version of MOBILE4.1

                                  [In percent]

                                            Complex
                                             model
                                           reductions

                                           Fuel  Fuel
                                            1     2

                           Exhaust VOC     13.0  15.4
                           Nonexhaust VOC  25.8  25.8
                           Total VOC       21.3  22.1
                           NOX             -0.8   0.1
                           Toxics          22.9  23.6

                          Table V-10.--Summer Emissions
                     Reductions of Fuels 3 and 4 in Class B
                     Areas Relative to CAA Baseline Gasoline
                       Using a Complex Model Based on the
                          Official Version of MOBILE4.1

                                  [In percent]

                                            Complex
                                             model
                                           reductions

                                           Fuel  Fuel
                                            3     4

                           Exhaust VOC     14.3  17.0
                           Nonexhaust VOC  51.3  51.3
                           Total VOC       39.1  40.0
                           NOX             -2.5  -2.0
                           Toxics          27.0  28.3

  D. Phase I Complex Model Performance Standards

  1. Phase I Complex Model Toxics Standards

    Under CAA section 211(k)(3), during 1995 through 1999, a reformulated
  gasoline's toxic emissions performance must meet or exceed that of a
  specified formula fuel or a 15 percent reduction from that of baseline
  gasoline, whichever is greater. As discussed in the SNPRM, the simple model
  predicts that the formula fuel achieves an average annual toxic emissions
  reduction of 16.5 percent, thus setting the toxic emissions standard for
  refiners certifying their reformulated gasolines under the simple model. The
  complex model for toxics emissions proposed above, however, predicts a
  different toxics emissions performance for the formula fuel. The complex
  model indicates that the annual average toxics performance of an MTBE-based
  formula fuel would be an 11.7 percent reduction in Class B areas and an 11.2
  percent reduction in Class C areas. The annual average toxics performance of
  the ethanol-based formula fuel would be an 11.5 percent reduction in Class B
  areas and an 11.0 percent reduction in Class C areas. The Agency estimates
  that formula fuels using other oxygenates, such as ETBE or TAME, would result
  in VOC and toxics performance similar to that of ethanol-based formula fuels.
  Since these emission reductions are smaller than the 15 percent minimum
  reduction specified in the Act, EPA proposes that the toxics performance
  standard under the complex model be set 15 percent below the toxics emission
  level of baseline gasoline.
    EPA has considered basing its toxics performance standard on the
  performance of simple model fuels rather than the statutory requirements. The
  Agency is not proposing such an approach in today's notice for the reasons
  outlined in the SNPRM. In particular, the Agency is concerned that such
  standards would have an adverse impact on refiners whose 1990 baseline levels
  of sulfur, aromatics, T50, and T90 are higher than CAA baseline levels of
  these parameters. Since the simple model does not include these parameters
  while the complex model does, such refiners may face additional expenditures
  in 1997 to comply with the statutory requirements. A more stringent set of
  standards in 1997 would raise the cost of the program substantially. As
  discussed in the Draft RIA, EPA does not believe that more stringent controls
  are cost effective in the case of toxics. EPA requests comment on the
  proposed toxics standards.

  2. Phase I Complex Model VOC Standards

    Both the simple model and the complex model predict that the VOC emission
  performance of the formula fuel would be less stringent than the 15 percent
  standard specified in the Act. As a result, Phase I VOC performance standards
  will not be determined by the performance of the formula fuel.
    As discussed in the NPRM and SNPRM, the Agency believes that Fuels 3 and 4
  are producible, with Fuel 3 considered more representative of typical Class B
  simple model fuels. Since such fuels (which will be required in Class B under
  the simple model) would achieve VOC emissions reductions of 38.7 to 39.6
  percent relative to the CAA baseline fuel under the complex model, EPA
  proposes that the Phase I performance standard for VOC emissions in Class B
  areas be set by the performance of Fuel 3, as predicted by the complex model.
  This performance standard amounts to a 38.7 percent reduction in VOC
  emissions relative to CAA baseline levels and a 22.7 percent reduction from
  the VOC emission level of Class B baseline gasoline.
    The above VOC reductions were based on fuels just complying with the 0.95
  volume percent benzene standard (with averaging) and aromatic content
  adjusted accordingly. Simple model fuels with lower benzene levels could have
  higher levels of aromatics. Due to beneficial effect of reduced aromatics on
  VOC emissions, Fuels 3 and 4 described above produce slightly greater VOC
  reductions than simple model fuels with lower benzene and higher aromatic
  levels. For example, with benzene levels at 0.80 volume percent, the VOC
  reduction decreases to 37.5-38.4 percent relative to CAA baseline gasoline
  and 21.1-22.3 percent relative to Class B baseline gasoline (see DRIA). EPA
  requests comment on setting the Class B VOC performance standard based on the
  performance of simple model fuels. EPA also requests comment on utilizing
  Fuel 3 to set this performance and, if Fuel 3 was not used, which particular
  simple model fuel should be used to set the performance standard.
    EPA is also considering setting the Class C VOC standard on the performance
  of simple model fuels. As shown above, Fuels 1 and 2 achieve greater than the
  15 percent minimum statutory requirement. However, with a lower benzene level
  of 0.8 volume percent is considered, the VOC performance of Class C fuels
  decrease slightly to 18.3-19.1 percent (see DRIA). EPA requests comments on
  setting the VOC performance standard based on the performance of simple model
  fuels and on where in the range of this performance. In both cases, the
  Agency invites comment on the air quality and cost impacts which would
  result.

  E. Dilution and Interactive Effects

    In the SNPRM and at a number of public workshops, EPA has indicated its
  concern over the possibility that mixtures of reformulated fuels may not
  achieve the emissions reductions of either fuel in isolation. The Agency has
  investigated the possibility of unfavorable dilution or interactive effects
  occurring between reformulated fuels. Since EPA has not been able to resolve
  these concerns, today's notice does not propose any measures to control such
  effects. EPA requests comment on whether and how it should account for and
  control such effects and refers the reader to Docket A-92-12 for additional
  information on this issue.

  VI. Phase II Reformulated Gasoline Performance Standards

  A. Legislative Requirements

    Section 211(k)(3)(B) of the Clean Air Act requires, in the year 2000 and
  beyond, that aggregate emissions of ozone forming volatile organic compounds
  (VOCs) and toxic air pollutants from baseline vehicles using reformulated
  gasoline be 25 percent below emissions from baseline vehicles using baseline
  gasoline during the high ozone season. The Act also specifies that the 25
  percent reduction level may be adjusted to provide for a greater or lesser
  reduction based on technological feasibility, including consideration of the
  cost of achieving the reductions. However, in no case can the required
  reductions be less than 20 percent. The required emission reductions are
  called, hereafter, the Phase II standards.
    The Phase II requirements would apply to gasoline which is sold in those
  ozone nonattainment areas required to receive reformulated gasoline and in
  those areas which have already opted into the program or which opt in at a
  later date. However, EPA is considering and requesting comment on an option
  that would permit states to opt-in to only Phase I and maintain the Phase I
  requirements beyond the year 2000. Compliance with the Phase II standards
  (and all reformulated gasoline certification) would not change relative to
  that with the Phase I standards for 1997 and beyond.
    Section 211(k)(1) of the Act specifies that the Administrator shall
  consider, in addition to cost, non-air quality and other air quality-related
  health and environmental impacts, and energy requirements associated with
  achieving the required emissions reductions. Summaries of the cost, health
  and environmental impacts of achieving the proposed emissions reductions are
  presented below and are more thoroughly discussed in the Draft RIA associated
  with this proposal.
    In addition to the VOC and toxic emissions reductions, section 211(k)(2)(A)
  of the Act specifies that there be no net increase in NOX emissions (over
  baseline NOX levels) resulting from the use of reformulated gasoline. The Act
  further specifies that if increases in NOX emissions are unavoidable due to
  the control of other fuel components, other requirements may be waived or
  adjusted. As will be shown below, NOX emission increases due to the use of
  reformulated gasoline are unlikely, and are definitely avoidable.
  Furthermore, the Agency believes that NOX emission control via reformulated
  gasoline may be a technologically feasible and cost-effective option. EPA /4/
  has reviewed a National Research Council study /5/ and other ambient ozone
  analyses and found that additional NOX reductions would significantly reduce
  ozone formation in some areas. Section 211(c) of the Act gives the Agency
  broad regulatory authority to regulate fuel quality if the emission products
  of such fuels contributes to air pollution.

  NOTE /4/ Lindhjem, C. TBA, 1992.

  NOTE /5/ "Rethinking the Ozone Problem in Urban and Regional Air Pollution,"
  National Research Council, December 18, 1991.

    Under section 211(c), the Agency must consider the effects of the emissions
  on public health, considering scientific data and other factors, including
  technological feasibility. Additionally, the fuels which may be used as
  substitutes may not endanger the public health or welfare more than the
  original fuel. Because any fuel producing a net reduction in NOX emissions
  would also have to meet the above performance standards for VOC and toxics
  emissions (i.e., will qualify as a reformulated gasoline), EPA does not
  expect that a reformulated fuel subject to NOX control could endanger the
  public health more than a fuel which is not subject to NOX control.
  Therefore, EPA is proposing a NOX emission reduction standard of 0 to 15.3
  percent in connection with the Phase II standards to further reduce ozone
  formation during the high ozone season. EPA requests comments on the need for
  NOX emissions control in reformulated gasoline areas and on the use of its
  authority under section 211(c) to add NOX control to the reformulated
  gasoline program.

  B. Determination of Proposed Standards

    The proposed emission reduction standards and their development are
  discussed below. The proposed standards are based on EPA analyses of the
  costs and emission reductions, particularly the cost effectiveness,
  associated with changes in different fuel components.

  1. Methodology

    The methodology for determining the cost effectiveness of fuel component
  changes is described in the Draft Regulatory Impact Analysis (RIA).
  Individual fuel component control costs and the effects of changes in one
  fuel component on the other fuel components are integral parts in the
  determination of the cost effectiveness of an emission control strategy. In
  this analysis, these two integral parts were estimated from the results of
  refinery modeling performed by Turner, Mason and Company (for the Auto-Oil
  Economics group) and Bonner & Moore Management Science (for EPA) and on
  survey results presented by the California Air Resources Board (CARB).
  Comments on the use of these studies for estimating individual fuel component
  control costs and coincident fuel component effects are requested.
    Individual fuel component control costs include operating costs and
  annualized capital costs. EPA believes it is reasonable to base the proposed
  Phase II standards on cost effectiveness, which EPA defines here as the ratio
  of the incremental cost of a control measure to the incremental benefit,
  e.g., tons of VOC or NOX emissions reduced or number of cancer incidences
  avoided. The use of cost effectiveness allows for the relative ranking of
  various control strategies so that a specified environmental goal can be
  achieved at minimum cost. EPA also evaluated the overall cost of the proposed
  standards to ensure they would be reasonable.
    All emission reductions for Class C area are calculated relative to the
  statutory baseline per the requirements of the Act and all emission
  reductions for Class B areas are calculated relative to a fuel with an RVP of
  7.8 psi and statutory baseline levels for all other parameters. As for Phase
  I reformulated gasoline, all Phase II reformulated gasoline must have at
  least 2.0 weight percent oxygen and maximum 1.0 volume percent benzene. The
  cost of these requirements is not accounted for in the determination of the
  incremental cost effectiveness of the Phase II standards (though the Draft
  RIA does contain updated costs for each of these two mandated controls). The
  cost effectiveness of incremental changes in fuel components is, thus,
  determined relative to the statutory baseline and the mandated reformulated
  gasoline requirements. EPA requests comments on the methodology used in
  determining the cost effectiveness of fuel component changes and on the
  individual fuel component control costs. Additional fuel component control
  cost data is also welcome.

  2. VOC and NOX Control

    a. Control Costs. The total cost (or manufacturing cost) of producing a
  reformulated gasoline is the sum of the capital recovery cost and the
  operating cost. In determining the cost of fuel changes for VOC and NOX
  control, EPA assumed that, because VOC control is mandated only during the
  high ozone season, the length of which was described in the NPRM and SNPRM,
  operating costs of changes made to produce reformulated gasoline would only
  occur in the summer and not in the winter, in effect, idling any process
  units built especially for the purpose of meeting the reformulated gasoline
  program emission requirements. However, capital costs would have to be fully
  recovered regardless of whether the equipment was used seasonally or not. EPA
  adjusted the capital costs accordingly, and used the sum of the adjusted
  capital cost and the original operating cost as the individual fuel component
  control cost in the VOC and NOX cost-effective analyses. An example of the
  individual fuel component costs and the associated incremental percent
  reduction in VOC emissions are shown for Class C areas in Table VI-1.
    Complete information on the development of the individual component costs
  for both Class B and C areas is provided in the Draft RIA. As will be
  discussed under the section on toxics control, in its estimate of the cost
  effectiveness of toxics control, EPA did not adjust the capital cost portion
  of the individual fuel component control costs as described above because
  toxics reductions are required year-round. Comments on the costs presented in
  Table VI-1 and on their derivation are requested, as well as additional fuel
  component control cost data and supporting description.

                   Table VI-1.--Class C Component Control Costs
                           and VOC Emission Reductions

                                                      Cumulative
                                                         VOC
                             Control    Incremental   reduction
                  Component   level    cost (c/gal)      (%)

                  Oxygen     2.0 wt%   /1/ 1.67-3.36         9.0
                  Benzene    1.0 vol%           0.69         9.0
                  RVP        8.1 psi            0.57        17.6
                  RVP        7.4 psi            1.67        25.3
                  Sulfur     160 ppm       0.35-0.57        26.4
                  Oxygen     2.7 wt%   /1/ 0.59-1.18        28.5
                  Olefins    5.0 vol%      1.81-2.44        30.2
                  Sulfur     50 ppm        1.45-1.86        31.2
                  Aromatics  20 vol%       0.61-0.98        31.4

                  /1/ Based on MTBE. Ethanol use is expected to
                  be less expensive under the provisions of
                  section II.

    b. Cost Effectiveness. In this analysis, the incremental cost effectiveness
  of an emission control obtained through fuel modifications is the ratio of
  the cost of a fuel component change to the additional reduction in emissions
  that occurs because of that fuel change. In determining the emission
  reductions and the associated cost effectiveness of VOC and NOX standards,
  EPA employed a convention typically used in estimating the benefit of both
  mobile and stationary source VOC controls. This convention requires the
  determination of cost effectiveness on the basis of annual tons of VOC
  reduced. Thus even though VOC emission reductions reduce ozone formation only
  during the high ozone season, the convention is to calculate the cost of the
  fuel component control per ton of VOC removed as if the high ozone season
  emission reductions were obtained over the whole year.
    EPA is proposing a range of VOC standards and NOX standards based on
  particular combinations of fuel component controls which reduce VOC (and VOC
  plus NOX) emissions at a cost of less than $5,000 and less than $10,000 per
  ton, respectively. EPA believes that these ranges represent the upper limit
  of costs which will be incurred by many ozone nonattainment areas in
  achieving attainment. EPA requests comments on the appropriateness of these
  limits. The combination of fuel components on which the proposed standards
  are based are, however, just one of many fuel formulations which could be
  used to achieve the standards. It must be stressed that the proposed
  standards are performance standards which may be met by the refiner's choice
  of fuel component controls.
    Normally, use of these cost per ton limits would determine the depth of RVP
  controls projected for Class B and C fuels. However, limited RVP control cost
  data below 7.2 psi prevented the determination of RVP levels which exceeded
  the cost-effectiveness limits. Instead, EPA based the proposed Phase II
  standards for Class B areas on a range of RVP levels of 6.5-7.2 psi. For
  Class C areas, the proposed standards are based on RVPs of 6.5-7.4 psi which
  result in the same nonexhaust VOC emissions in Class C areas as the range of
  Class B RVPs do in Class B areas.
    Comments are requested on the level of RVP control in each class which is
  reasonable for use in setting the Phase II standards.
    c. VOC and NOX Standards. Based on the complex model and the refinery
  modeling studies described above, EPA has found that the VOC performance
  standards listed in row A of table VI-2 could be met under the various RVP
  and cost per ton limits.

            Table VI-2.--Proposed Standards for Phase II Reformulated
                                    Gasoline

                        [Percent reduction in emissions]

                                     Cost effectiveness    Cost effectiveness
                                      <$5,000 per ton       <$10,000 per ton

                                     Class B               Class B
                                       /1/      Class C      /1/      Class C

   A. VOC standard                  18.5-26.6  25.3-25.3  22.1-30.1  28.5-36.2
   B. NOX standard                   6.3- 7.5   6.3- 7.8  14.0-15.0  14.0-15.3
   C. VOC standard w/NOX std        19.7-27.7  26.4-34.0  25.5-33.0  31.2-38.8
   D. Toxics standard from VOC std  16.9-21.5  28.4-28.4  23.9-26.3  30.4-32.7

   /1/ Class B standards relative to a Clean Air Act base fuel with RVP at 7.8
   psi.

    EPA is also proposing a range of NOX standards for comment. The lower end
  of this range is a year-round zero NOX increase, as required by section
  211(k)(2)(A) of the Act. In addition, under its authority provided by section
  211(c) of the Act, the Agency is proposing a range of NOX reduction standards
  to further reduce ozone formation. The range under consideration for the
  stringency of the NOX standards (i.e., NOX emission reduction requirements)
  is zero up to those shown in row B of table VI-2. As for VOC, the NOX
  emission controls would apply only during the high ozone season.
    These NOX reductions are possible for a cost ranging from less than $1,000
  per ton of NOX, to as high as $5,500 per ton of VOC plus NOX. EPA has found
  that the costs of other NOX control programs range from $300 to $6,000 per
  ton of NOX. Comments are requested on the cost-effectiveness limit to be used
  in determining the appropriate level of NOX control here.
    The additional fuel component changes which yielded the proposed NOX
  standards also further decreased VOC emissions. While these fuel component
  changes were not cost effective when based solely on VOC control, they are
  cost effective using the $5,000 and $10,000 per ton of VOC plus NOX targets.
  The VOC standards achievable within these cost-effectiveness limits when both
  VOC and NOX control are considered are shown in row C of table VI-2. Comments
  are requested regarding whether EPA should promulgate the more stringent VOC
  standards of row C if it also implements the NOX standards of row B or
  whether the slightly more relaxed standards contained in row A should be
  required.
    Regardless of whether the VOC standards are based on those of Rows A or C,
  the addition of a NOX performance standard would further restrict refiners'
  flexibility in producing qualifying fuels. EPA therefore requests comments on
  an option whereby the VOC performance standards shown in row A of table VI-2
  would be relaxed even further if a NOX reduction standard was promulgated.
  This decision would be based on the premise that NOX emissions reductions
  were more important for ozone control than VOC reductions and that the
  acceptable cost of VOC reductions should be lower than those considered in
  table VI-2. Comments are also requested on granting refiners the option to
  trade off VOC and NOX control within fixed limits on either standard and on
  whether the trade-off should be one for one (in percentage reduction terms)
  or on some other basis.
    As an additional alternative to EPA setting a single NOx reduction standard
  for all reformulated gasoline, EPA requests comments on an option whereby
  areas covered by the reformulated gasoline program would be permitted to
  choose between a VOC-reducing and a VOC and NOx-reducing reformulated
  gasoline. This decision could be made by each state based on detailed air
  quality analyses of their individual ozone nonattainment problems. A
  potential problem with this option is that it would require the production of
  another type of gasoline in one or more grades. Distribution problems and
  complications already expected with implementation of the reformulated
  gasoline requirements could increase. Comments are requested regarding
  benefits or drawbacks to providing optional NOx emission reduction standards.

  3. Toxics Control

    a. Control Costs. As discussed above, in determining the cost of fuel
  changes for VOC and NOx control, EPA adjusted the capital cost portion of the
  individual fuel component control costs to account for the fact that VOC and
  NOx control are necessary only during the high ozone season. Toxics
  emissions, however, must be controlled year-round and, thus, no adjustment is
  needed for capital costs already amortized on an annual basis. The individual
  fuel component costs shown in table VI-1 for VOC and NOx control are, thus,
  higher than those used in the determination of the cost effectiveness of
  toxics emissions control.
    b. Proposed Toxics Standard. Fuel controls for the sole purpose of reducing
  toxic emissions are not very cost-effective. Acceptable costs are typically
  between $1 and $10 million per cancer incidence reduced. However, based on
  the fuel component control costs used in this analysis, EPA estimates that
  fuel modifications for the control of toxics emissions would cost over $100
  million per cancer incidence reduced.
    At the same time, the control of fuel components to reduce VOC emissions
  also results in average reductions of toxics emissions of 17-33 percent, as
  shown in row D of table VI-2. However, EPA believes that Congress intended
  this program to provide fuel producers flexibility to produce a variety of
  complying fuel reformulations. While these toxics reductions would presumably
  be free since they would result from VOC and NOx controls, in this case, they
  would also automatically occur with or without a regulatory standard. If it
  were more economical for a particular refiner to use fuel modifications to
  meet the VOC and NOx standards which did not produce this degree of toxics
  reduction, then that refiner would be faced with controlling toxics
  explicitly, which appears to not be cost-effective. Thus, while a toxics
  performance standard greater than the 25 percent level specified in section
  211(k)(3)(B)(ii) of the CAA is feasible, it would not be cost effective and
  EPA proposes setting the standard at 25 percent. Section 211(k)(3)(B)(ii) of
  the CAA also permits EPA to reduce the toxics performance standard below 25
  percent to as low as 20 percent considering the cost of achieving such
  reductions in toxic emissions. The same arguments expressed above for not
  requiring greater than a 25 percent reduction are equally applicable below 25
  percent. Thus, EPA also proposes as a second option that the toxics
  performance standard be set at the 20 percent minimum level specified by
  section 211(k)(3)(B)(ii) of the CAA. Comments are requested on this standard
  and the decision to not require a greater toxics performance standard of the
  magnitude shown in row D of table VI-2.

  4. Technological Feasibility

    Per the requirements of the Act, the technological feasibility of producing
  fuels which would meet the proposed standards must be considered in
  establishing the standards. EPA believes that the refinery modeling results,
  from which the fuel component control costs were estimated, provide the
  justification for the feasibility of the proposed fuel component changes. The
  refinery models utilized only well-developed, demonstrated, commercially
  available technologies, and hence will only produce fuels within the limits
  of these technologies. In all likelihood new technologies will be developed
  between now and the year 2000 which will reduce the costs for certain types
  of fuel component changes. Thus, EPA believes that the determination of fuel
  component control costs using the results of such models is reasonable and
  that the feasibility of producing such emission-reducing fuels is
  justifiable.
    A key exception to this is the production of fuel with RVP below 7.2. EPA
  is in the process of conducting refinery modeling to assess this. Upon
  completion, the results will be placed in the docket to this rule.
    Because the standards proposed today will not take effect until the year
  2000, EPA does not believe that lead time issues should present problems to
  reformulated gasoline producers in achieving the proposed reductions, as all
  the processes needed to produce complying fuels are already commercially
  available.
    EPA has evaluated both driveability and safety concerns associated with the
  use of low RVP fuels and found no significant negative impacts. These issues
  are addressed in the Draft RIA. Comments are requested on potential
  technological barriers to achieving the proposed VOC, NOx and toxics
  emissions reductions.

  VII. Enforcement Provisions

  A. Introduction

    This section of today's proposal addresses enforcement topics that result
  from inclusion of the complex model in the reformulated gasoline program. In
  addition, it addresses several enforcement topics that were the subject of
  the April 16, 1992 SNPRM (57 FR 13416), but that EPA now believes merit re-
  proposal as a result of comments received on the SNPRM. EPA's approach has
  changed as a result of these comments and EPA believes an additional
  opportunity for comments on its current approach is warranted. The regulatory
  text being placed in the docket to accompany today's proposal includes new
  regulatory language for these re-proposed topics.
    These topics include: Changes to the gasoline quality survey necessitated
  by the possibility of gasolines that were certified under the simple model
  and under the complex model being present in a covered area at the same time;
  the inclusion of a ratchet of the minimum oxygen content standard based upon
  gasoline quality survey results; provisions for waiving certain enforcement
  mechanisms for gasoline produced under the State of California's reformulated
  gasoline program; and modification of the attest engagement requirements to
  allow use of internal auditors under certain circumstances.
    EPA intends to respond in the final rule to other comments made on the
  SNPRM, and in many cases EPA intends to make the change suggested by the
  commentor. Where EPA intends to make such other changes, EPA does not believe
  the changes are so different from the SNPRM that reproposal is necessary.
  These changes therefore are excluded from today's proposal, including the
  accompanying regulatory text. As a result, commentors to the SNPRM should not
  view omission from today's proposal or accompanying regulatory text of an EPA
  reaction to a particular SNPRM comment to be indicative of EPA's intentions
  regarding that comment.

  B. VOC Emissions Performance and Oxygen Standards Under the Simple Model

    Section 211(k)(2)(B) of the Clean Air Act requires that, with certain
  exceptions, reformulated gasoline must contain at least 2.0 weight percent
  oxygen. Section 211(k)(7) allows for oxygen credits for reformulated gasoline
  containing greater than 2.0 weight percent oxygen, and for the transfer and
  use of oxygen credits within the same nonattainment area to the extent such
  credits would not result in a lower average oxygen content than would occur
  in the absence of any credit use. Section 211(k)(3) sets a performance
  standard for VOC emissions.
    As a result of comments received in response to the simple model SNPRM, EPA
  is proposing certain changes to the approach proposed under the simple model
  for ensuring that the averaged standards for VOC emissions performance and
  oxygen content are met. These changes include a direct survey measure for VOC
  emissions performance, and an annual oxygen survey with adjustments for the
  oxygen minimum. These proposed changes are unrelated to the complex model.
    In the simple model SNPRM, EPA proposed a gasoline quality survey mechanism
  for ensuring that the average VOC emissions performance of reformulated
  gasoline in each covered area would at least equal the per-gallon standard.
  The purpose of compliance surveys is to ensure that refinery/importer
  averaging achieves the same compliance on average with the reformulated
  gasoline standards as covered area averaging, and thus does not result in
  poorer air quality than would have otherwise occurred with covered area-based
  averaging or with straight per-gallon standards. See SNPRM at 57 FR 13462.
  The gasoline quality survey is described in the simple model SNPRM at 57 FR
  13459-13464, and certain changes to the survey are discussed later in this
  section of the preamble. EPA seeks comment on the burden this area-by-area
  averaging scheme would impose on the regulated community.
    At the time of the SNPRM, there was no appropriate equation for measuring
  VOC emissions performance directly. As a result, under the simple model
  survey proposal, surveys conducted during the high ozone season would monitor
  average levels of RVP and oxygen content, the parameters through which
  compliance with the VOC emissions is based./6/ Under this simple model
  proposal, if a survey result showed an average RVP level above (or worse
  than) the per-gallon standard for RVP, the averaged RVP standard and the
  maximum per-gallon RVP standard would each be adjusted to be more stringent.
  In the case of oxygen under the simple model proposal, however, there would
  be no adjustments to the averaged oxygen standard. Instead, in the event the
  survey results showed an average oxygen content of less than 2.0 weight
  percent, the average and maximum RVP standards would become more stringent.
  See discussion at 57 FR 13458-13459.

  NOTE /6/ Although under the simple model sulfur, T90, and olefins also were
  known to affect VOC emissions performance, the average standards for these
  parameters are each refiner's or importer's 1990 average levels. As a result,
  compliance with these parameters would be based upon the total reformulated
  gasoline produced by each refiner or imported by each importer (or, in some
  cases, produced at each refinery), and could not be the subject of the
  gasoline quality surveys.

    Several commenters to the simple rule SNPRM stated that it would be more
  appropriate to apply survey measures of RVP and oxygen to a VOC emissions
  performance equation, rather than to survey for RVP and oxygen separately. If
  the results of this equation indicate inadequate VOC emissions performance,
  according to these commenters, it would be appropriate to adjust the averaged
  and maximum simple model standards for RVP. Because a suitable equation for
  measuring VOC emissions performance is available now, EPA agrees that this
  suggestion would more directly ensure compliance with the VOC performance
  standard.
    For these reasons, EPA is proposing that each survey conducted during the
  high ozone season would include measurement of RVP and oxygen, and that these
  two parameters would be applied to a VOC emissions reduction equation for
  each sample collected. The average VOC emissions reduction would then be
  calculated for all samples collected during the survey. The standard against
  which this result would be measured would be calculated by applying to the
  same VOC emissions reduction equation. In the event the survey result is less
  than the calculated standard, the averaged and maximum standards for RVP
  would be adjusted to be more stringent for the city.
    This proposal for monitoring the average VOC emissions reduction standard
  creates the possibility that the VOC standard could be satisfied for a
  particular survey, with an oxygen content below 2.0 weight percent. One
  commenter suggested an approach to address this concern that compliance with
  the statutory minimum oxygen content be ensured. Under this suggestion,
  compliance with the statutory requirement for 2.0 weight percent oxygen would
  be evaluated by determining the average oxygen content of all samples
  collected during all surveys during a calendar year. If this average falls
  below 2.0 weight percent, the minimum oxygen content standard would be
  adjusted to be more stringent.
    EPA agrees with this suggestion, and is proposing that the average oxygen
  content of all survey samples collected in each covered area during each
  calendar year would be calculated. If this average oxygen content falls below
  2.0 weight percent for any covered area, the minimum oxygen standard for that
  covered area would be adjusted to be more stringent./7/

  NOTE /7/ The general standards adjustment approach proposed in the simple
  model SNPRM, for making standards more and less stringent (57 FR 13462),
  would be followed for adjustments to the oxygen minimum standard. Failure of
  the oxygen survey in any year would result in an increase in the oxygen
  standard of 0.1 percent. After five years of survey failure, the adjusted
  oxygen standard would be equivalent to the per-gallon oxygen standard (2.0%).
  Note that an area may accomplish a one-time readjustment (decreasing the
  standard by 0.1%) under the oxygen standard by passing all oxygen content
  surveys during two consecutive years.

  C. Compliance Survey Under the Complex Model

    EPA is proposing certain changes to the compliance survey requirements that
  were proposed in the SNPRM./8/ These changes are necessary to enable the
  compliance surveys to function during the period prior to the date the
  complex model becomes mandatory, when regulated parties have the option of
  certifying reformulated gasoline under the simple model or the complex model.

  NOTE /8/ The compliance surveys are discussed in the SNPRM at 57 FR 13458-
  13464. Except to the extent described in today's proposal, the compliance
  survey requirements that are proposed for the SNPRM would apply under today's
  proposal.

    During the period that begins on January 1, 1995, and lasting until the
  date the complex model becomes mandatory, refiners and importers would be
  able to certify reformulated gasoline using either the simple model or the
  complex model. This results in the potential for both "simple model
  reformulated gasoline" and "complex model reformulated gasoline" to be
  present in any covered area at any time, up until the date that only use of
  the complex model will be allowed. This potential mixture of simple and
  complex model reformulated gasolines creates difficulties for the gasoline
  quality surveys.
    For example, under the simple model, reformulated gasoline meets the VOC
  emissions performance requirements based upon a VOC emissions performance
  equation that requires input of values for RVP and oxygen. Under the complex
  model, on the other hand, reformulated gasoline meets the VOC emissions
  performance requirements based upon the results of a more complex equation
  that requires inputs of several additional parameters, including sulfur,
  aromatics, olefins, T-50, and T-90. As a result, any particular reformulated
  gasoline certified under the complex model conceivably could meet the VOC
  emissions performance standard of the complex model, yet fail the
  requirements of the simple model. Conversely, any particular reformulated
  gasoline certified under the simple model could have RVP and oxygen levels
  that satisfy the simple VOC equation, yet as a result of the levels of other
  parameters included in the complex model VOC equation violate the VOC
  emissions performance standard when using the complex model.
    Similarly, toxics emissions performance under the simple model would be a
  function of a gasoline's oxygenate type and content, and its benzene content,
  while under the complex model toxics emissions performance would be a
  function of benzene, oxygen, sulfur, aromatics, olefins, T-50, T-90, and RVP.
  Based upon the same logic described above for VOC emissions performance, a
  sample of reformulated gasoline that meets the toxics standard under the
  simple model may not meet the toxics standard under the complex model, and
  vice versa.
    In order to avoid being confounded, therefore, for the gasoline quality
  surveys, EPA must use the simple model to evaluate reformulated gasoline
  certified under the simple model and must use the complex model to evaluate
  reformulated gasoline certified under the complex model. Moreover, mixtures
  of reformulated gasolines that are certified using the simple model and those
  that are certified using the complex model would not be susceptible to a
  survey analysis based upon either the simple or the complex models.
    For the foregoing reasons, EPA is proposing a mechanism that would allow
  the collection of samples of gasoline that are comprised only of either
  simple model-certified gasoline or complex model-certified gasoline. This
  proposed mechanism would include the designation by refiners or importers of
  all reformulated gasoline as being certified using either the simple or the
  complex model; the mandatory segregation of these two categories of
  reformulated gasoline at all points in the gasoline distribution system from
  the refinery or import facility through the terminal from which gasoline is
  transported to retail outlets; and the retention at retail outlets of product
  transfer documents for the most recent deliveries of gasoline, to enable
  survey sample-takers to know if the gasoline being sampled is simple model,
  complex model, or a mixture of the two. EPA seeks comment on whether the
  above-described proposed tracking requirements would obviate the need for
  surveys because refiners or importers would be creating an adequate paper
  trail for gasoline.
    Under EPA's proposal, the survey requirement would be satisfied if complete
  representative surveys are conducted of each category of reformulated
  gasoline being sold in each city subject to survey. That is, if both simple
  and complex model-certified gasoline is being sold in a city that is subject
  to the survey requirement, a set of representative samples must be collected
  of the simple model-certified gasoline, and a set of representative samples
  of the complex model-certified gasoline. If only simple or only complex
  model-certified gasoline is being sold in a city, however, a single set of
  representative samples would satisfy the survey requirement for that city.
    EPA believes that in the case of a city in which both simple and complex
  model-certified gasoline is being used the portion of gasoline in one of
  these categories may be so small that, in spite of good faith efforts to
  collect gasoline in both categories, collection of a set of representative
  samples of gasoline in that category would be infeasible. In such a case, EPA
  is considering whether it would be adequate to permit a regulated party (or
  group of parties) that is conducting the survey would be able to petition the
  Administrator to accept the survey as complete, even though a set of
  representative samples was collected only of one category of gasoline. EPA
  seeks comment on this issue.
    In the SNPRM (57 FR 13459) EPA proposed that the consequence of failure to
  submit a survey plan to the Administrator would be that only per-gallon
  standards would be allowed for all gasoline sold within the covered area for
  which the survey requirements were not met, and that the consequence of
  failure to properly carry out a survey plan would be that the surveys not
  properly carried out would be deemed to have been failed. These consequences
  also would apply for failure to submit or properly carry out the survey
  requirements regarding mixtures of simple and complex-model certified
  gasoline.

  D. California Enforcement Exemption

    On September 18, 1992, the California Air Resources Board ("CARB") adopted
  regulations for its Phase 2 reformulated gasoline program./9/ These
  regulations establish a comprehensive set of gasoline specifications designed
  to achieve maximum reductions in emissions of VOCs, NOX, CO, sulfur dioxide,
  and toxic air pollutants from gasoline-fueled vehicles.

  NOTE /9/ New sections 2260 through 2272 and 2298, and amended sections 2250,
  2251.5, 2252 and 2296, of Title 13, California Code of Regulations.

    The California Phase 2 reformulated gasoline regulations establish
  standards for eight gasoline characteristics--sulfur, benzene, olefin,
  aromatic hydrocarbons, oxygen, RVP, T-90 and T-50--applicable starting March
  1, 1996. The regulations also provide for the certification of alternative
  gasoline formulations based on vehicle emission testing.
    The standards for the six characteristics other than RVP and oxygen content
  include two tiers--an absolute limit ("cap") that will apply to gasoline
  throughout the distribution system (including alternative formulations), and
  a more stringent standard that will apply to gasoline when it is initially
  supplied from the producer or importer (gasoline qualifying as an alternative
  formulation will be exempt from this more stringent standard). For these six
  characteristics, producers and importers will have two options for complying
  with the standards applicable to their gasoline when it is first supplied--
  they can choose either a "flat limit" or a more stringent limit that can be
  met on average through a "designated alternative limit" process.
    The RVP standard of 7.0 psi applies during summertime control periods /10/
  to all gasoline throughout the distribution system, including gasoline
  certified as an alternative formulation. The oxygen content standards consist
  of a cap applicable to all gasoline (1.8% minimum and 2.7% maximum) and a
  flat limit for producers and importers (1.8% minimum and 2.2% maximum). The
  designated alternative limit option does not apply to the oxygen standards.
  Other standards apply on a year-round basis.

  NOTE /10/ In the federal reformulated gasoline areas, San Diego and Los
  Angeles (the San Diego and South Coast Air Basins), the RVP control period is
  April 1 through October 31.

    In enforcing the Phase 2 reformulated gasoline program, CARB has stated
  that it intends to

  maintain the strong enforcement presence we have developed over the more than
  20-year period we have been enforcing ARB motor vehicle fuels regulations.
  The ARB's Compliance Division currently uses four full time persons to
  inspect fuel facilities, including service stations, terminals, and
  refineries. They presently take roughly 2300 samples a year, on a year-round
  inspection schedule./11/

  NOTE /11/ January 14, 1993, letter from James B. Boyd, Executive Officer of
  CARB, to Mary T. Smith, EPA Office of Mobile Sources.

  CARB tests most of its fuel samples in a mobile fuels/toxics laboratory,
  which can be set up anywhere in the State within 12 hours, resulting in "a
  substantial increase in the number of gasoline samples taken by ARB
  inspectors and the number of analyses that have been performed."
    Section 43016 of the California Health and Safety Code provides a penalty
  of $500 per vehicle for violations of CARB reformulated gasoline and other
  fuels regulations by parties in the gasoline distribution network. To help
  assure the applicability of these "per vehicle" penalties to upstream
  parties, the Phase 2 reformulated gasoline regulations provide that each
  retail sale of gasoline for use in a motor vehicle, and each supply of
  gasoline into a motor vehicle fuel tank, is also deemed a sale by any person
  who previously sold the fuel in violation of the reformulated gasoline
  standards.
    EPA is proposing that the producers of certain gasoline that is produced
  and sold in the State of California under the California Phase 2 reformulated
  gasoline program ("California gasoline") would be exempt from certain
  enforcement provisions proposed in today's notice and in the SNPRM. EPA is
  including this exemption proposal because EPA believes that the standards for
  California gasoline are as stringent as, or more stringent than, the proposed
  content and performance standards for federal reformulated gasoline. EPA also
  believes that the enforcement mechanisms that will be employed by the State
  of California are sufficient to ensure that producers of California gasoline
  will in fact meet the California reformulated gasoline standards. As a
  result, EPA believes it is appropriate to rely on the California reformulated
  gasoline program to ensure compliance with the federal reformulated gasoline
  standards by producers of California gasoline.
    EPA is not proposing that producers of California gasoline would be exempt
  from the federal reformulated gasoline standards, only that these producers
  would be exempt from certain enforcement requirements designed to demonstrate
  compliance with the federal reformulated gasoline standards.
    Although, for purposes of brevity, the discussion in this section is
  couched in terms of "refiners" that produce gasoline in the State of
  California for sale in that State, the discussion applies equally to
  importers that import gasoline produced outside the United States into the
  State of California, and to oxygenate blenders in the State of California. As
  discussed more fully below, refiners who produce gasoline in other states and
  ship it into California would not be covered by the proposed exemption.
  California refiners who produce gasoline for sale outside the State would
  also not be covered by the proposed exemption for such "non-California"
  gasoline.

  1. Comparison of California and Federal Reformulated Gasoline Standards

    EPA has compared the properties of California gasoline to the properties of
  federal reformulated gasoline, and the VOC, toxic, and NOX emissions that
  result from both the California and federal reformulated gasoline. Table VI.1
  contains estimates of the emissions that are expected to result from
  California and federal reformulated gasoline (on both a per gallon and
  averaged basis), and a comparison of estimated emissions changes from Clean
  Air Act base fuel. Because some of the California standards are at, or
  outside, the range of the EPA model, the estimates for California gasoline
  are not as reliable as those for gasoline meeting federal standards.

          Table VII-1.--Comparison of California Gasoline With Federal
                  Reformulated Gasoline (VOC-Control Region 1)

                                        Cal.
                                       phase 2                Fed
                                CAA      /1/    Cal phase   phase 1  Fed phase
                                base    (per-       2        (per-       1
        Fuel parameters         fuel   gallon)  (averaged)  gallon)  (averaged)

  Oxygen (wt %)                     0        2           2        2         2.1
  Sulfur (ppmw)                   339       40          30      339         339
  RVP (psi)                       8.7        7           7      7.2         7.1
  T50 (F)                         218      210         200      218         218
  T90 (F)                         330      300         290      330         330
  Aromatics (vol%)                 32       25          22     26.2        26.2
  Olefins (vol%)                  9.2        6           4      9.2         9.2
  Benzene (vol%)                  1.5        1         0.8        1          95

                                        Absolute Emissions in mg/mile

  Exhaust VOC                   416.8    324.9       316.3    384.5       383.3
  Evap VOC (Class B)            860.5    394.7       394.7    441.8       418.0
  Total VOC                    1277.3    719.6       711.0    826.3       801.3
  Exhaust Benzene                25.4     14.1        11.1     18.7        18.6
  Evap Benzene (Class B)          9.7      3.2         2.5      3.5         3.1
  Total Benzene                  35.0     17.3        13.7     22.2        21.7
  Exhaust ACET                    2.1      2.0         1.6      1.8         1.7
  Exhaust FORM                    3.8      4.6         4.5      4.3         4.4
  Exhaust 1,3 BUT                 3.3      3.1         2.6      4.2         4.3
  Exhaust POM                     1.4      1.1         1.1      1.2         1.3
  Total Toxics                   45.6     28.1        23.4     33.7        33.5

  Total NOX                     660.0    568.6       549.2    674.3       677.0

                                Percent change (*) in Emissions from CAA Fuel
                                            (VOC-Control Region 1)

  Percent * in Exhaust VOC               -27.3       -29.3    -14.0       -14.3
  Percent * in Evap VOC                  -54.1       -54.1    -48.7       -51.4
  Percent * in Total VOC                 -45.0       -45.6    -36.8       -38.7
  Percent * in Exhaust
   Benzene                               -44.3       -56.1    -26.3       -26.9
  Percent * in Evap Benzene              -67.2       -73.8    -64.0       -67.5
  Percent * in Total Benzene             -50.6       -61.0    -36.2       -38.1
  Percent * in Total Toxics              -38.5       -48.8    -26.1       -26.7
  Percent * in NOX                       -13.9       -16.8     -2.2        -2.5

  /1/ The California Phase 2 program provides an oxygen "flat limit" of 1.8% to
  2.2%, which (as explained in the text) is likely in practice to be equivalent
  to "per gallon" and "averaged" standards of 2.0%. There is no designated
  alternative limit for oxygen.

     This analysis compares California gasoline to the federal reformulated
  gasoline that would be sold in VOC-Control Region 1, because California is
  located within this VOC-control region.
    In the case of VOC, toxic, and NOX emissions performance, the California
  gasoline has a greater emissions performance reduction, as compared to Clean
  Air Act base gasoline, than the federal reformulated gasoline. This analysis
  thus supports the enforcement exemption that is being proposed today.
    In the case of the oxygen content standards, the Agency has received
  assurances from CARB that the oxygen "flat limit" of 1.8 to 2.2% will in
  practice be equivalent to the 2.0% minimum oxygen content required by section
  211(k)(2)(B) of the Clean Air Act. In a January 14, 1993, letter to EPA, the
  Executive Officer of CARB sets forth several reasons why CARB expects
  refiners to target an oxygen level of 2.0% and to produce gasoline that on
  average will have an oxygen content at least equal to this percentage,
  including:
    ** The reproducibility of the test method used for CARB enforcement is
  larger than the oxygen content range, meaning that effectively the CARB
  standard represents "a 2.0% requirement with a testing tolerance of 0.2
  weight percent;"
    ** New limits on other gasoline characteristics will require fundamental
  changes in gasoline formulations and reliance on oxygenates to maintain
  current octane levels, likely resulting in refiners "blending oxygenates near
  the maximum end of the range to maximize the octane benefits of oxygenates;"
  and
    ** Some refiners may use the vehicle testing (or predictive model, when
  adopted) compliance alternative in the CARB regulations "to develop gasoline
  formulations which may contain oxygen levels up to 2.7 weight percent
  oxygen."
    The Agency agrees with CARB's assessment concerning the likely effects of
  the oxygen content range in its Phase 2 regulations. In any case, EPA will
  still have the authority to sample and test California gasoline to assure
  that it meets the federal reformulated gasoline minimum standard of 2.0%, as
  well as the right to review company records to ensure that the federal
  standard has been met. The enforcement exemptions proposed in today's notice
  would not impact these basic EPA enforcement capabilities.
    The Agency also believes that California's Phase 2 program will assure that
  the federal reformulated gasoline standards are met in each of the two cities
  (Los Angeles and San Diego) /12/ subject to those standards, as required by
  section 211(k) of the Act. Both the "flat limit" and "designated alternative
  limit" standards in the California program are substantially more stringent
  than the federal standards, as shown in Table VI.1. In addition, the RVP
  "cap" of 7.0 psi that applies throughout the distribution network is more
  stringent than the federal standard, and averaging is not allowed to meet the
  California oxygen standard. For all of these reasons, it is very unlikely
  that one of the two cities will not meet the federal standards./13/ The
  Agency requests comments on this issue.

  NOTE /12/ In his January 14, 1993, letter, the CARB Executive Officer stated
  that the State does not plan to opt into the federal reformulated gasoline
  program for any other nonattainment areas in the State.

  NOTE /13/ In addition, if the overall California "caps" result in gasoline
  that is at least as clean as gasoline that meets the federal standards, there
  would not be concerns about either or the two cities meeting federal
  requirements. EPA has not modeled the emissions effects of the caps, however.

  2. Applicability of California Enforcement Exemption Provisions

    EPA is proposing that the California enforcement exemption provisions would
  apply only to gasoline that is sold or dispensed within the State of
  California, and that is either produced in the State of California or is
  produced outside the United States and imported at an import facility located
  in the State of California. Gasoline that is produced at a refinery located
  within the United States outside California would not receive the proposed
  exemption, even if such gasoline is sold in the State of California.
    EPA believes gasoline sold in California but produced domestically outside
  the State of California should meet all of the proposed federal enforcement
  requirements because the producer of such gasoline would be required to
  implement all of the federal enforcement provisions for the refinery's non-
  California gasoline. The incremental cost of including the California-market
  gasoline in the refinery's compliance program would not justify excluding
  this gasoline from the federal enforcement mechanisms. Additional reasons for
  this distinction are: The ultimate market for gasoline may not be apparent
  when gasoline is produced, making an exclusion for only California-market
  gasoline difficult to apply in practice; and the California state enforcement
  mechanism includes refinery inspections, which may not be possible in the
  case of refineries located outside the California state boundary.
    Gasoline produced in California but shipped outside the State (e.g., to
  Nevada) would not be subject to the proposed enforcement exemption because it
  is not covered by the California reformulated gasoline program./14/ The
  Agency understands that California producers have developed means to
  differentiate between fuel that is subject to existing California fuels
  regulations and fuel that is not, for purposes of assuring compliance with
  the State's regulations. EPA is concerned about whether these practices are
  adequate to allow an enforcement exemption in regard to California gasoline
  produced at the same facility, and requests comments on this issue.

  NOTE /14/ Section 2260(a)(4) of the California Phase II reformulated gasoline
  regulations defines "California gasoline" as "gasoline sold, intended for
  sale, or made available for sale as a motor vehicle fuel in California."

    EPA is also concerned that a refiner that operates a refinery located
  outside the State of California that produces gasoline both for California
  and non-California markets could average very clean California gasoline with
  non-California gasoline, and produce non-California gasoline that is at the
  low-end of the average range of the federal standards. The non-California
  gasoline thus could easily be below the average federal standards, yet the
  refinery would be in compliance on average. In order to protect against this
  possibility, EPA is proposing that a refiner that operates a refinery outside
  the State of California would be required to separately exclude the gasoline
  that it sells in California from the refinery's compliance demonstration for
  federal reformulated gasoline and anti-dumping requirements. This would be in
  addition to demonstrating the overall compliance of all its gasoline with
  federal requirements.
    Under today's proposal, record keeping and reporting requirements of the
  proposed federal anti-dumping requirements would not apply in the case of
  California gasoline. EPA believes that an exemption from these provisions
  intended to demonstrate compliance with the proposed standards for
  conventional gasoline is appropriate because all gasoline sold in California
  is included in the California reformulated gasoline rule. In other words,
  there is no California corollary to the federal anti-dumping requirements. As
  a result, gasoline that will be sold in portions of California that are
  outside the federal covered areas--and that would be subject to the federal
  anti-dumping requirements--will be required to meet the full California
  reformulated gasoline requirements. This feature of the California program
  provides certainty that gasoline sold in California that is subject to the
  federal anti-dumping standards will exceed these federal standards. In
  addition, the proposed federal anti-dumping requirements would apply to
  California producers shipping conventional gasoline outside the State.
    There are several conditions under which the proposed California exemption
  would not apply, either in toto or in regard to specific parties. First, EPA
  believes that the exemption being proposed today should apply only so long as
  the California reformulated gasoline standards are at least as stringent as
  the federal standards for reformulated gasoline. EPA notes that the
  California regulations contain provisions that would allow the certification
  of additional, undefined gasoline formulations using a predictive model (Sec.
  2265 of the California Phase II reformulated gasoline regulations) or vehicle
  testing (Sec. 2266 of the California regulations). EPA is concerned because
  it is possible that a gasoline formulation certified by the State of
  California under one of these alternative methods could be less stringent
  than the federal reformulated gasoline standards, in which case the exemption
  being proposed today would not be appropriate.
    In order to protect against this possibility, EPA is proposing that the
  California exemption provisions would apply only so long as each gasoline
  formulation that could possibly be certified under the California program is
  at least as stringent as the federal reformulated gasoline standards. In the
  event that any formulation that is less stringent than the federal
  reformulated gasoline standards becomes certifiable, the entire California
  exemption would become null and void. If at any time EPA believes a less
  stringent formulation has been approved by the State of California, EPA
  intends to publish a notice of this conclusion and the date that the
  California exemption would no longer be applicable. This notice would give
  regulated parties a reasonable opportunity to take steps to implement the
  federal enforcement mechanisms that had been waived. This procedure would
  also be followed if the State revises its regulations to otherwise provide
  for less stringent standards than the federal program.
    Second, the Agency is concerned that the variance provision contained in
  the California regulations (Sec. 2271 of the California Phase 2 reformulated
  gasoline regulations) is not entirely consistent with the federal provision
  dealing with the inability to produce conforming gasoline in extraordinary
  circumstances (Sec. 80.73 of the proposed federal regulations). In
  particular, the proposed federal provision is limited primarily to Acts of
  God, while the California provision is not so limited. In addition, the
  federal provision would require a party to make payment to the U.S. Treasury
  of the amount of economic benefit derived from the nonconformity, while the
  California provision does not require such a payment. As a result, the
  California exemption being proposed today does not include relief from the
  proposed extraordinary circumstances provision in the federal regulations. A
  party that, due to extraordinary circumstances, intends to produce gasoline
  that does not meet the federal reformulated gasoline standards thus would be
  required to comply with the federal extraordinary circumstances provisions,
  regardless of any variance obtained from the State of California. If a party
  obtains a variance from the State, EPA proposes that the enforcement
  exemption would cease to apply to that party unless or until EPA grants
  relief for extraordinary circumstances under Sec. 80.73.
    Third, EPA believes that the proposed California exemption provisions
  should apply only for parties that are in fact in substantial compliance with
  both the California and the federal reformulated gasoline requirements. The
  presumption that a refiner subject to the California requirements is also in
  compliance with the federal standards would not be appropriate in the case of
  a party that has violated the California or federal requirements. As a
  result, the Agency is proposing that a regulated party that is assessed a
  penalty for a violation of either the California or federal reformulated
  gasoline requirements would automatically be subject to the loss of its
  California exemption. Under the proposal, the exemption would be lost no
  matter whether the penalty assessment was the result of a judicial or
  administrative adjudication, consent agreement, or settlement agreement. A
  party subject to the loss of its exemption could petition the Administrator
  for relief, in whole or in part, for good cause. The Agency could also grant
  such relief on its own initiative. Good cause could include a showing that
  the violation for which a penalty was assessed was not a substantial
  violation of the reformulated gasoline regulations.
    The Agency requests comments on whether it should base the loss of the
  California enforcement exemption for an individual refiner or importer on the
  basis of a judicial or administrative determination of violation rather than
  on the basis of a penalty assessment. EPA also requests comments on an
  appropriate date (e.g., 30 days after a final penalty assessment) on which
  the loss of the exemption would become effective, and on whether such a loss
  should be stayed during the pendency of a petition for relief.
    Fourth, the California Phase 2 regulations allow small refiners (as defined
  in the California regulations) to obtain a two-year extension until March 1,
  1998, to meet the specifications for sulfur, olefins, T-50, and T-90, under
  certain conditions. Small refiners will be subject to the same RVP, oxygen,
  aromatic hydrocarbon, and benzene requirements as other refiners under the
  California program. Because small refiners that obtain such an extension will
  not be required to produce gasoline that meets all the federal reformulated
  gasoline standards, EPA does not believe that it is appropriate to exempt
  such refiners from any of the federal enforcement provisions. Thus, the
  California gasoline exemption proposed in today's notice would not apply to
  gasoline produced under any small refiner extension granted by CARB.
    Finally, EPA believes that the proposed California exemption should apply
  only during the time the federal Phase I reformulated gasoline program is in
  effect, i.e., until the year 2000. EPA intends to reevaluate the California
  reformulated gasoline program before the year 2000, and to engage in a
  separate rulemaking if it believes that the California enforcement exemption
  should be extended beyond the year 2000. That rulemaking would allow the
  Agency the opportunity to structure any future enforcement exemption to be
  consistent with both the federal and the California rules that will be in
  effect at that time.

  3. Enforcement Provisions to Which Exemption Would Apply

    EPA is proposing that subsequent to the date the California Phase 2
  reformulated gasoline standards become effective, regulated parties that
  produce or import California gasoline and that meet the other criteria
  described in the preceding section would be exempt from meeting the proposed
  enforcement requirements dealing with compliance surveys (Sec. 80.69),
  independent sampling and testing (Sec. 80.70(c)), designation of gasoline
  (Sec. 80.70(d)), marking of conventional gasoline (Sec. 80.70(g)), downstream
  oxygenate blending (Sec. 80.72), record keeping (Sec. 80.74), reporting (Sec.
  80.75), product transfer documents (Sec. 80.77), and antidumping record
  keeping (Sec. 80.105) and reporting (Sec. 80.106).
    The Agency specifically requests comments on whether California gasoline
  should be exempt from enforcement provisions related to the renewable
  oxygenate program in the proposed federal record keeping and reporting
  regulations (Secs. 80.74 and 80.75), should this program become applicable to
  the Los Angeles and/or San Diego areas. Such an exemption may not allow the
  Agency to adequately enforce this program if regulated parties are allowed to
  freely transfer renewable oxygenate units among areas subject to this
  program, as proposed elsewhere in today's notice.
    EPA believes that it is appropriate to exempt producers of California
  gasoline from the independent sampling and testing, record keeping, and
  reporting provisions in the proposed federal regulations because these
  provisions deal solely with demonstrating compliance with the federal
  reformulated gasoline standards. Because the proposed exemption is predicated
  upon reliance on the California reformulated gasoline program to ensure
  compliance with the federal standards, these provisions are duplicative and
  therefore unnecessary. It is appropriate to include the survey provisions in
  the exemption because the purpose of the surveys is to adjust the federal
  averaged standards if surveys reveal unequal distribution of averaged federal
  reformulated gasoline. As discussed above, the need for such federal
  standards adjustments is believed unnecessary in California because it is
  highly unlikely that either of the two California cities in the federal
  reformulated gasoline program will exceed federal standards. The gasoline
  designation, conventional gasoline marking and product transfer document
  provisions are appropriate for exemption because they deal only with
  informing other regulated parties of the time and place of use restrictions
  of federal reformulated gasoline, considerations that are inapplicable within
  California because only reformulated gasoline may be sold for use within that
  State under its program.

  4. Enforcement Exemption During 1995

    The State of California's regulations provide that the California gasoline
  requirements become effective starting on March 1, 1996, fourteen months
  after the proposed January 1, 1995, effective date for the federal
  reformulated gasoline requirements. As a result, the enforcement exemption
  proposal described above would apply only beginning on the effective date of
  the California regulations. For the period prior to this date, EPA is
  proposing an exemption only from a more limited set of federal enforcement
  requirements, i.e., the proposed compliance survey and independent sampling
  and testing requirements (Secs. 80.69 and 80.70(c), respectively).
    EPA believes that it would be appropriate to exempt producers of California
  gasoline from the survey requirements in 1995 because the consequence of any
  survey failure in California--an adjusted averaged standard--would apply only
  in 1996, after the California program would be in effect. The Agency is
  concerned, however, that there would be no regulatory mechanism to assure
  that federal standards are met in 1995 in each of the California areas
  subject to the federal program since, unlike 1996 and later years, the
  State's program will not be in place. EPA requests comments on whether area-
  by-area averaging by refiners and importers, or some other tracking
  mechanism, should be required in lieu of compliance surveys in 1995.
    In the case of the proposed independent sampling and testing requirements,
  EPA believes the costs associated with establishing the mechanisms and
  laboratory capabilities that would be necessary to implement these provisions
  outweigh the benefits of having these requirements in place for only one
  year. In addition, in 1995 California refiners and importers would still be
  subject to the record keeping and reporting requirements of Secs. 80.74 and
  80.75, the latter of which requires batch-by-batch reporting of gasoline
  properties and characteristics. These properties and characteristics will
  have to be determined by in-house sampling and testing, and false reporting
  of these test results will make the reporting entity liable for both civil
  and criminal penalties. The Agency requests comments on the adequacy of these
  regulatory and statutory requirements as a substitute for independent
  sampling and testing during 1995.

  E. Attestation Engagements

    EPA is reproposing regulations governing the conduct of attestation
  engagements./15/ At the time of publication of the SNPRM, EPA's discussion of
  this topic with the regulated community and with the American Institute of
  Certified Public Accountants (AICPA) was not complete. There, EPA proposed
  several alternative methods for conducting attestation engagements./16/
  Today, EPA proposes to adopt one of those alternatives and to expand upon the
  SNPRM by allowing the regulated community to use internal auditors in
  appropriate circumstances.

  NOTE /15/ Provisions pertaining to attestation engagements were originally
  proposed in the Supplemental Notice of Proposed Rulemaking, 57 FR 13415, at
  13492 (April 16, 1992).

  NOTE /16/ An attestation engagement is to be distinguished from an audit. An
  audit refers to a review of financial records. An attestation engagement
  refers to a review of other than financial records to determine whether a
  representation by a company is supported by internal company records. An
  attestation engagement is "one in which a practitioner is engaged to issue or
  does issue a written communication that expresses a conclusion about the
  reliability of a written assertion that is the responsibility of another
  party." Statement on Standards for Attestation Engagements, Sec. 100.01
  (footnotes omitted).

    The regulation proposed today would apply to refiners, importers and
  oxygenate blenders. For purposes of simplicity, these parties are referred to
  collectively as refiners in this portion of the preamble.
    Concurrent with the gasoline production reporting requirements proposed in
  Secs. 80.75 and 80.108 of the proposed regulations, EPA proposes today that
  each refiner would be required to annually engage a certified public
  accountant or a firm of certified public accountants, or to commission an
  internal auditor to perform an agreed-upon procedures attestation engagement
  of the information which forms the basis of the reports required by these
  sections. The purpose of the engagement is to corroborate the reports
  submitted by the regulated party to EPA. The scope of the engagement would
  cover the activities of the refiner relative to the reformulated gasoline and
  anti-dumping requirements for the previous calendar year and which are the
  subject of the required reports to EPA. Further, the scope of the engagement
  procedures would be designed not to overlap with proposed independent
  sampling and testing requirements. The engagements would not verify the
  tested properties of specific batches of gasoline. Rather, the engagements
  would account for the accuracy of the designation of gasoline (i.e.,
  reformulated or conventional, VOC-controlled or not VOC-controlled, etc.) and
  verify that the proposed reporting requirements for downstream oxygenate
  blenders are being met. The engagements would also verify that the proposed
  reporting requirements for the renewable oxygenate program are met.
    EPA proposes that each refiner be required to commission such an engagement
  at the conclusion of each calendar year, and that reports of the engagement
  be filed with EPA by May 30 of the following year. Under EPA's proposal,
  submission of the attestor's report would be required and failure to do so
  would constitute a reporting violation by the refiner.
    The proposed attestation engagements are an outgrowth of EPA's experience
  with the lead phasedown program, which included averaging, banking, credits,
  and periodic reports, and for which EPA-conducted audits were an essential
  part. Because the reformulated gasoline program is significantly more complex
  than the lead phasedown program, EPA believes that attest engagements are
  correspondingly more important than in lead phasedown.
    These engagements are not intended as substitutes for enforcement audits
  conducted by EPA, but are intended to serve as a means of improving
  compliance with the reformulated gasoline program by identifying problem
  areas to the regulated parties.
    Such engagements would: Assure parties that the records on which they base
  periodic reports would be reviewed and cross-checked for accuracy by a
  disinterested third party, including an appropriate internal attestor (as
  well as possibly by EPA); lead to correction of simple arithmetic errors; aid
  in correcting misconceptions about regulatory requirements; and generally
  deter making false reports.
    In addition to the attestation provisions described above, EPA is today
  proposing additional regulations applicable to refiners and importers subject
  to the proposed renewable oxygenate program. Such refiners would be required
  to include compliance with the additional requirements as part of their
  annual attestation engagement. The purpose of these additional proposed
  requirements is to corroborate the reports submitted by the regulated party
  to EPA pertaining to the proposed renewable oxygenate requirements. The scope
  of these additional requirements would cover the activities of the refiner
  relative to all transactions involving the use of renewable oxygenates in
  reformulated gasoline and which are subject to the proposed required reports
  to EPA. The engagements would account for the accuracy of records reporting
  renewable oxygenate use and verify that the proposed requirements for such
  use are met.
    The proposed attestation requirements regarding the renewable oxygenate
  program would require the attestor to identify all batches of renewable
  oxygenate program reformulated gasoline supplied to each covered area. The
  attestor would be required to review a representative sample of records
  pertaining to those batches and verify that those products were properly
  transported to their point of dispensation for use; identify any changes in
  ownership or destination; compare laboratory analyses of the product before
  and after transportation for consistency; agree to the types and
  classifications of oxygenates used; and trace volumes of the product from
  refinery gate to the point of dispensation for use. The proposed requirements
  would culminate with the attestor including the results of inquiry in the
  agreed-upon procedures report described above.
    As with the reformulated gasoline program, the attestor would continue to
  be obligated to exercise independent judgment in collecting information not
  specified in the regulations that would otherwise form a basis for the
  agreed-upon procedures report.
    Because the renewable oxygenate program would be significantly new to the
  regulated community, EPA invites comment on all aspects of the proposed
  attest engagement requirements for this program.

  1. Standards for Attest Engagements

    a. Third Party or Internal Attestation Engagements. In the SNPRM, 57 FR
  13492, EPA proposed that "each refiner, importer and oxygenate blender
  commission an attestation engagement /17/ of the information which forms the
  basis of the reports" required by Secs. 80.75 and 80.108. The SNPRM proposed
  that the engagements be conducted by a certified public accountant ("CPA")
  and proposed the standards for conducting the engagement. The SNPRM
  contemplated that the CPA would be independent of the refiner commissioning
  the engagement.

  NOTE /17/ While the SNPRM discussed this proposed requirement in terms of an
  "audit" or "attestation engagement" interchangeably, the correct term for
  this procedure is an "attestation engagement."

    The proposed attestation standards pertained to the need for technical
  competence, independence of mental attitude from the regulated party's
  influence, due professional care, adequate planning and supervision,
  sufficient evidence, and appropriate reporting. The proposed standards
  contain a detailed description of the specific engagement requirements for
  each of the elements of the reformulated and anti-dumping programs which are
  subject to engagement review, and the records and procedures which must be
  included in the engagement. The records and engagement procedures which are
  specified are the minimum necessary for an engagement, however, and an
  attestor is expected to use professional judgment to devise engagement
  procedures to correspond with the facts of each individual engagement in
  light of the internal company's accounting, operating and administrative
  controls. The proposed regulations also provide that in the event that the
  specified engagement procedures are not followed for any reason, the
  deviation and the reason therefore must be included in the attestor's report.
    EPA received significant comments objecting to the proposal that regulated
  parties be required to engage independent CPAs. Commentors expressed concern
  that to require a third party CPA would impose undue costs on regulated
  parties which already had in-house attestation capability. Further,
  commentors desired to avoid such a precedent-setting requirement. Commentors
  were concerned lest they be subjected to the expense of engaging third party
  CPAs to attest to the gamut of federal, state and local regulatory activity
  engaged in by the commentors.
    Commentors asserted that EPA's interest in maintaining the integrity of
  reports would be adequately served by allowing appropriately qualified
  internal attestors to conduct the engagements. Commentors stated that because
  only larger regulated parties would be likely to employ internal attestors,
  such attestors would be sufficiently segregated from petroleum product
  manufacturing operations so as to avoid biasing influences from the subjects
  of the engagement. By contrast, smaller regulated parties in which there may
  be greater integration of company operations are less likely to employ in-
  house attestors and will need to commission independent CPAs to perform
  audits.
    EPA accepts the rationale of allowing qualified internal attestors to
  conduct attestation engagements. EPA's concerns with the integrity of the
  reformulated gasoline and anti-dumping program are well-served by the
  proposed requirement that an in-house attestor be a member in good standing
  of the Institute of Internal Auditors, Inc., and completes each engagement in
  accordance with the Codification of Standards for the Professional Practice
  of Internal Auditing, which are proposed to be incorporated into the
  regulations by reference.

    [Note: The Federal Register Document Drafting Handbook requires that each
  agency must submit a written request for incorporation by reference for
  approval from the Director of the Federal Register at least 20 days before
  the final rule document is submitted to the Federal Register for
  publication].

    In recognition of the eventuality that the Codification of Standards may
  eventually be modified, the regulations propose that parties may petition the
  Agency to implement procedures through future rulemaking which are consistent
  with those modifications.
    Internal engagements are subject to EPA compliance verification review. The
  sampling and testing requirements assure that the data underlying the
  engagement will be preserved sufficiently to allow EPA to verify any internal
  engagement. In addition, there are numerous checks and balances throughout
  the program (including the potential presumptive liability of downstream
  purchasers) to assure that internal engagements will be accurate. Finally,
  internal attestors are subject to civil and criminal liability under federal
  statutes proscribing the filing of false reports.
    Accordingly, EPA proposes that the regulations permit the use of two types
  of attestors:
    (1) Internal auditors may be used in certain situations. Many large
  companies have internal auditors on staff who may perform the attestation
  engagements required under these guidelines. Internal auditors may perform
  these duties provided they are Certified Internal Auditors (CIAs) or members
  in good standing of the Institute of Internal Auditors, Inc. (IIA). As such,
  the internal auditors will be required to act in accordance with the IIA's
  Standards for the Professional Practice of Internal Auditing. This
  requirement is intended to guarantee a number of things: That the internal
  auditor is independent of the activities being audited under these
  regulations; that the internal auditor is objective and proficient in his or
  her profession; and that the internal auditor is bound by a code of
  professional ethics.
    (2) When internal attestors meeting the criteria discussed above are not
  available within the refiner's organization, an independent CPA or firm of
  independent CPAs must be used to perform the attestation engagement proposed
  with these regulations.
    Whether an internal attestor or a CPA is engaged by a refiner, attestation
  engagements would have to be conducted in accordance with the applicable
  professional standards following agreed upon procedures contained in the
  proposed regulations. These regulations would cover a different range of
  services than an audit of historical financial statements. Rather, the
  proposed regulations involve review of non-financial records. EPA has worked
  closely with the AICPA and industry in establishing procedures which will
  accurately and efficiently provide the intended compliance information in the
  most cost-effective manner.
    The proposed regulations would require that an attestation engagement
  conducted by a certified public accountant must be done in accordance with
  the Statement on Standards for Attestation Engagements (Am. Inst. of
  Certified Pub. Accountants 1991) [note: The Federal Register Document
  Drafting Handbook requires that each agency must submit a written request for
  incorporation by reference for approval from the Director of the Federal
  Register at least 20 days before the final rule document is submitted to the
  Federal Register for publication], or by an internal auditor in accordance
  with the Standards for the Professional Practice of Internal Auditing. The
  proposed regulations also include specific instructions relating to the
  subject areas which must be included in each attestation engagement, and the
  minimum records and engagement procedures which are appropriate for each
  subject area. Nothing in the proposed regulations would preclude a CPA from
  requesting assistance from a refiner's internal auditors in accordance with
  the Statement on Standards for Attestation Engagements. In recognition of the
  eventuality that the Statement on Standards may eventually be modified, the
  regulations propose that parties may petition the Agency to implement
  procedures which are consistent with those modifications.
    b. Definitions. EPA has amended the proposed rule by adding a new proposed
  section defining terms for the purpose of attest engagements. The definitions
  are intended to clarify the scope and content of engagement analysis. These
  definitions provide the minimum scope of documents to be analyzed. EPA
  recognizes that many engagements may need to be adjusted on a case-by-case
  basis depending on the specific nature of the regulated facility. EPA
  anticipates that attestors will exercise their professional judgment in
  expanding the scope of engagement inquiry to assure the integrity of the
  engagement.
    c. Attestation Guidelines. The proposed rule includes a brief section
  describing the method of selection of sample size required of attestors
  relative to the population of inquiry. The sample size is prescribed so as to
  provide a statistical confidence level of 95% in the representative character
  of the sample.
    d. Agreed Upon Procedures for Refiners, Importers and Oxygenate Blenders.
  The new rule includes a specification of the minimum data to be analyzed by
  an attestor to comply with the attest engagement requirements. EPA recognizes
  that many engagements may need to be adjusted on a case-by-case basis
  depending on the specific nature of the regulated facility. EPA anticipates
  that attestors will exercise their professional judgment in expanding the
  scope of engagement inquiry to assure the integrity of the engagement.
    e. Agreed Upon Procedures Reports. The proposed rule provides that the
  attestor will issue to the regulated party a certified report summarizing the
  procedures performed and findings in accordance with the Statement on
  Standards for Attestation Engagements or the Standards for the Professional
  Practice of Internal Auditing. In turn, the proposed rule provides that the
  regulated party shall provide a copy of the attestor's certified report to
  EPA within a specified time. EPA intends to develop standardized refiner-
  reporting forms as a means of enhancing uniformity and consistency in the
  attestation engagement and agreed-upon procedures.

  VIII. Anti-Dumping Compliance and Enforcement Requirements for Conventional
  Gasoline

  A. Introduction

    Today's proposal for the anti-dumping program represents significant
  changes from the Supplemental Notice of Proposed Rulemaking published on
  April 16, 1992 (57 FR 13415) (hereinafter "SNPRM 92"). This proposal contains
  a dramatically different solution to the problem of accounting for
  blendstocks, as well as other minor changes to the SNPRM 92. To aid EPA in
  its consideration of the various options proposed in today's notice, as well
  as in prior proposals for this rulemaking, EPA invites comments on today's
  proposal (hereinafter "SNPRM 93"). The following is a brief summary of those
  changes with respect to the major provisions of SNPRM 92 and how they have
  remained the same or been changed in SNPRM 93:

    ** Regulated Parties. Under SNPRM 92 regulated parties include refiners,
  blenders and importers. Under SNPRM 93, the regulated parties remain the
  same, except for the exclusion of oxygenate blenders.
    ** 1990 Baseline. Under the SNPRM 92 refiners and importers were required
  to account for all gasoline and gasoline blendstocks in determining their
  1990 baseline. Under the SNPRM 93, these parties are no longer required to
  account for blendstocks in their 1990 baseline except as provided under
  Methods 2 and 3.
    ** Averaging Period. Under the SNPRM 92 refiners and importers would be
  required to demonstrate compliance by averaging certain properties of
  conventional gasoline over a year long period and demonstrating compliance
  with prescribed standards to be discussed more fully below. Under the SNPRM
  93, the averaging period is the same, except for the year that the Complex
  Model becomes mandatory in which two separate averaging periods would apply.
    ** Compliance Standards. Under the Simple Model standards in the SNPRM 92,
  refiners and importers would be required to demonstrate on an annual basis
  that average exhaust benzene emissions of conventional gasoline do not exceed
  the refiner's or importer's 1990 baseline for exhaust benzene emissions, and
  that sulfur, olefins and T90 do not exceed 125% of their average 1990
  baseline levels. Under the SNPRM 93, the Simple Model standards remain the
  same; under the optional use of the Complex Model (see further discussion
  below), annual average levels of exhaust benzene emissions would not be
  allowed to exceed the refiner's or importer's 1990 average exhaust benzene
  emissions; and under the Mandatory Complex Model standards, annual average
  levels of exhaust toxic emissions and NOX emissions would not be allowed to
  exceed the refiner's or importer's 1990 average levels for exhaust toxic
  emissions and NOX emissions. Under SNPRM 93, recipients of blendstocks under
  certain circumstances would have to adjust their compliance baseline based on
  the volume of such blendstocks. Under both the SNPRM 92 and SNPRM 93,
  refiners with more than one refinery have the option of demonstrating
  compliance for each individual refinery or for all their refineries in the
  aggregate.
    ** Blendstocks. Under the SNPRM 92, all gasoline blendstocks would be
  included in baseline determination and in subsequent compliance calculations.
  Under the SNPRM 93, blendstocks are accounted for in compliance calculations
  if the blendstock to gasoline ratio in a certain year exceeds the combined
  ratio for 1990 through 1994 by more than 10% and certain circumstances are
  met to be discussed more fully below. For the purposes of establishing the
  blendstock to gasoline ratio only, the SNPRM 93 provides that refiners and
  importers will account for nine (9) specified blendstocks.
    ** Other Provisions. The SNPRM 93 includes a new provision which requires
  that parties account for all blendstocks that are transferred for the purpose
  of evading a more stringent baseline.
    ** Registration of Regulated Parties. The SNPRM 93 remains the same as the
  SNPRM 92, except that refiners and importers are required to supply a
  statement of intent as to whether compliance will be achieved on the basis of
  individual or aggregate refineries; and whether they will be using the Simple
  Model or optional Complex Model standards prior to the date that the Complex
  Model becomes mandatory.
    ** Record Keeping. The SNPRM 93 remains the same as the SNPRM 92, except
  the provisions have been expanded to reflect the data necessary for
  determining compliance under the Simple model, Optional Complex Model,
  Mandatory Complex Model and blendstock accounting requirements as applicable.
    ** Reports. The SNPRM 93 remains the same as the SNPRM 92, except for the
  additional requirement for refiners and importers to report the blendstock to
  gasoline ratio for each averaging period, and for the years 1990 through 1994
  on a one-time basis.
    ** Company Audits. The SNPRM 93 remains the same as the SNPRM 92, except
  for the additional requirement of attest engagements specific to this new
  proposal.

    Generally, the SNPRM 93 would prohibit a refiner or importer from producing
  or importing conventional gasoline that on average exceeds the applicable
  compliance standards for any averaging period. Compliance standards would be
  based on the properties of the refiner's or importer's 1990 gasoline. In
  response to the numerous comments received on the issue of blendstocks as
  provided in SNPRM 92, EPA has eliminated the requirement for refiners and
  importers to account for blendstocks in their compliance calculations except
  in those cases where a refiner or importer has significantly increased its
  production or importation of blendstocks as evidenced by an increased
  blendstock to gasoline ratio. This is discussed more fully in a later section
  of the preamble. Refiners with more than one refinery would retain the option
  of demonstrating compliance for each individual refinery or for all their
  refineries in the aggregate. Here, as in the regulations, EPA will refer to
  refiners and importers with respect to the anti-dumping requirements;
  however, the requirements will apply similarly to individual refineries in
  those cases where a refiner has opted to determine compliance based on each
  refinery separately or a refinery with limited gasoline distribution based on
  certain geographic considerations as provided for in the regulations.
    The SNPRM 93 has three separate standards of compliance for refiners and
  importers based on the Simple Model standards, Optional Complex Model
  standards or the Mandatory Complex Model standards. All three model standards
  would require refiners and importers to average certain properties of
  conventional gasoline and demonstrate compliance with prescribed standards
  which in some cases are actual fuel properties and for others are emissions
  characteristics calculated from specific fuel properties./18/

  NOTE /18/ For a discussion of issues concerning which properties or
  pollutants are covered in the federal anti-dumping program, see the Notice of
  Proposed Rulemaking, published July 9, 1991, (56 FR 31219--31222).

    Under the Simple Model standards, refiners and importers would be required
  to demonstrate on an annual basis, that average exhaust benzene emissions of
  conventional gasoline do not exceed the refiner's or importer's 1990
  compliance baseline for exhaust benzene emissions, and that average sulfur,
  olefins and T90 do not exceed 125% of their average 1990 baseline levels.
  Under the Optional Complex Model standards, annual average levels of exhaust
  benzene emissions, as calculated under the Complex Model, would not be
  allowed to exceed the refiner's or importer's 1990 average exhaust benzene
  emissions. Under the Mandatory Complex Model standards, annual average levels
  of exhaust toxic emissions and NOX emissions would not be allowed to exceed
  the refiner's or importer's 1990 average levels for exhaust toxic emissions
  and NOX emissions, respectively. These standards implement the applicable
  requirements regarding the use of the Simple and Complex Models as agreed to
  during the negotiated rulemaking for compliance under the anti-dumping
  provisions.
    EPA is proposing that the year long averaging period be retained since it
  would provide maximum flexibility for refiners and importers in meeting the
  anti-dumping requirements. EPA is also proposing this time period because NOX
  and toxics are not a short term spiking problem that would require a short
  control period. Although NOX emissions contribute to ozone, which is a
  seasonal problem, the anti-dumping requirements do not apply in the major
  ozone nonattainment areas. In addition, Phase II RVP standards provide
  substantial ozone reductions where required, thus mitigating any potential
  seasonal problem associated with a year long averaging period. Therefore,
  there is no significant benefit that would offset the additional compliance
  and reporting requirements associated with a shorter compliance period.
    The proposal provides that beginning in 1995 and continuing up through the
  date that the Complex Model becomes mandatory, refiners and importers could
  determine compliance based on either the Simple Model anti-dumping standards
  or the Optional Complex Model anti-dumping standards, at their option.
  However, a refiner that produces and certifies reformulated gasoline under
  the Simple Model would have to comply with the Simple Model anti-dumping
  standards, and a refiner that certifies reformulated gasoline under the
  complex model would have to comply with the Optional Complex Model standards.
  For the period beginning with the date the Complex Model standards becomes
  mandatory through December 31 of that year, and for each subsequent averaging
  period, compliance will be based on the Mandatory Complex Model Standards.
  This will, therefore, create two shorter averaging periods during the year
  that the Complex Model becomes mandatory with different compliance standards,
  which will consequently reduce the flexibility of refiners and importers for
  meeting the applicable requirements for those periods. Although the proposal
  presently provides for two separate compliance periods, there are two options
  that exist for determining compliance during the calendar year in which there
  is a transition to the Complex Model. The options are as follows:

    1. Two separate averaging periods with different compliance standards,
  (i.e. determine compliance for the period before the complex model becomes
  mandatory under the simple model or optional complex model; and determine
  compliance for the period after that date under the final complex model).
    2. Average that portion of the year before the complex model becomes
  mandatory with the prior full year, and average that portion of the year
  after the complex model becomes mandatory with the subsequent full year (i.e.
  include early 1997 with 1996 and include later 1997 with 1998).

    EPA is concerned about the serious nature of air toxics and, therefore,
  proposes regulation of this problem over a period no longer than a year. EPA
  is aware that this option reduces the flexibility of regulated parties, but
  believes there is sufficient lead time to achieve compliance within these
  time periods. We request comments on other options as well.
    The SNPRM 93 provides that the anti-dumping enforcement program would
  consist of a combination of the following enforcement mechanisms to monitor
  compliance with the regulations, including: (1) Registration of regulated
  parties, (2) record keeping, (3) reporting, (4) company commissioned audits,
  and (5) Agency audits. This program remains unchanged from the SNPRM 92
  except for the changes mentioned above. The Agency believes that all the
  mechanisms proposed are necessary because they enable the Agency to collect
  and review data from regulated parties to ensure compliance with the anti-
  dumping requirements. This belief is based, in large part, on the Agency's
  experience in enforcing the lead phasedown program. In that program,
  compliance improved dramatically when the Agency shifted from an enforcement
  program based merely on the review of periodic reports to one that included
  compliance audits. The reports submitted under lead phasedown provided the
  agency the data necessary to monitor refiner and importer compliance and
  often provided clues to potential problems. The records retained by regulated
  parties provided the means for agency auditors to look behind the reports
  submitted and ultimately identify violations. EPA audits under lead phasedown
  also identified more honest mistakes or oversights by regulated parties,
  which would likely be uncovered through company commissioned audits.
  Therefore, the agency believes all the above mechanisms serve a useful
  purpose in assuring compliance with these requirements.

  B. Regulated Parties

    The basic anti-dumping requirement that gasoline and gasoline blendstocks
  must meet standards for exhaust benzene emissions, sulfur, T90, olefins,
  exhaust toxic emissions and/or NOX emissions, as applicable, would apply to
  refiners and importers. The terms "refiner" /19/ and "importer" /20/ have
  been defined and applied in earlier environmental regulatory programs
  involving gasoline /21/. EPA proposes that these definitions continue to
  apply for purposes of the anti-dumping requirements.

  NOTE /19/ "Refiner" is defined as any person who owns, leases, operates,
  controls or supervises a refinery," 40 CFR 80.2(i), and "refinery" is defined
  as "a plant at which gasoline is produced," 40 CFR 80.2(h).

  NOTE /20/ "Importer" is defined as "a person who imports gasoline or gasoline
  blending stocks or components from a foreign country into the United States *
  * *," 40 CFR 80.2(r).

  NOTE /21/ Current regulatory programs that involve gasoline include the lead
  phasedown program, 40 CFR 80.20, and the gasoline volatility program, 40 CFR
  80.27-28.

    The new anti-dumping requirement regarding the volume ratio of blendstocks
  produced or imported and transferred to others, would also apply to any
  producers or importers of blendstocks. In addition, any party that adds
  gasoline blendstock to gasoline /22/ or who combines gasoline blendstocks to
  produce gasoline (i.e., a "blender") is already encompassed in the definition
  of a refiner, because it is producing gasoline. EPA's proposal would not
  reach a person who is not a refiner (i.e. a person who does not own, lease,
  operate, control or supervise any facility that produces gasoline) or
  importers of products not produced at a gasoline refinery, such as a natural
  gas liquid plant. Similarly, chemical products produced at a refinery or
  imported but not sold for gasoline blending purposes, would not be subject to
  these requirements.

  NOTE /22/ "Gasoline" is defined as "any fuel sold in any state for use in
  motor vehicles and motor vehicle engines, and commonly or commercially known
  or sold as gasoline" (footnote omitted), 40 CFR 80.2(c).

    The SNPRM 93 proposes exclusion of parties that operate only as oxygenate
  blenders. The SNPRM 92 also proposed that oxygenate blenders not be required
  to comply with the antidumping requirements. In the case of downstream
  oxygenate blending, both proposals require that producers or importers of the
  base gasoline account for the applicable properties under the anti-dumping
  program. The addition of oxygenates will only improve the final blended
  properties of gasoline under the Simple Model. Although the addition of
  certain oxygenates will increase exhaust NOX emissions under the Complex
  Model, these emissions will be offset by reductions in VOC, toxics and CO on
  a mass basis. EPA believes that the net emissions impact is not of sufficient
  magnitude to justify the significant disruption and complexity that would be
  required for oxygenate blenders to comply with these anti-dumping
  requirements./23/ Therefore, under today's proposal such parties would not be
  subject to the requirements of this subpart.

  NOTE /23/ The preamble to the NPRM discussed how NOX increases from
  oxygenates are more than offset by decreases in VOC, toxics, and CO. See 56
  FR 31220-31222.

  C. Accounting for Gasoline Blendstocks

    The preamble to the SNPRM 92 discussed at great length the anticipated
  problem of blendstocks being "dumped" in conventional gasoline as a result of
  the stringent requirements placed on reformulated gasoline (57 FR 13484). The
  preamble set forth the economic incentives created by the differences in
  baselines between different refiners including those for whom the default
  baseline applies, and gave an example of how the goal of preventing "dumping"
  could be frustrated. These differences in baseline provide a mechanism for a
  refiner or importer to circumvent the requirements by shipping blendstocks to
  be used in the production of conventional gasoline to a party that was not in
  operation in 1990 and for whom the less stringent 1990 Clean Air Act default
  baseline would apply.
    During the negotiated rulemaking process it was recognized that certain
  segments of industry, such as downstream blenders or new refiners, could gain
  significant competitive advantage from the less stringent default baseline,
  however, there was no clear proposal to address this problem. Refiners will
  likely remove such components as benzene, aromatics, etc. from typical 1990
  gasoline in order to meet the reformulated gasoline requirements. This will
  result in the extensive availability of such components in the marketplace
  which will then have a high potential of being "dumped" into conventional
  gasoline. If the cost of these components is less than the cost of gasoline,
  as it is likely to be, they will almost assuredly be used to produce
  conventional gasoline if there is no mechanism to prevent it. EPA's prior
  experience with both the lead phasedown and fuel switching programs indicates
  that a few cents wholesale price differential provides sufficient incentive
  to violate and would certainly encourage dumping without appropriate
  controls. Several parties have brought this to EPA's attention. In light of
  the above, EPA believes that appropriate controls are necessary. Today's
  proposal is an attempt to develop a program that effectively addresses this
  problem without imposing unnecessary costs and burdens on the regulated
  community.
    As contrasted to the SNPRM 92, the SNPRM 93 would not require that refiners
  or importers account for all gasoline blendstocks that are produced or
  imported, and would also remove the prohibition and defenses associated with
  transporting, storing or containing the chemical marker required for certain
  blendstocks under the earlier proposal. After further review of this issue,
  EPA believes that accounting for all blendstocks for antidumping compliance
  and requiring the addition of a chemical marker for monitoring blendstocks
  use may be more burdensome and disruptive than necessary, without a clear
  indication of the need for such regulatory requirements at this time.
  Therefore, EPA believes that it may be more appropriate to identify a
  mechanism to monitor the transfer, sale and production of blendstocks as an
  indicator of possible dumping of blendstocks and to trigger further controls
  as necessary. EPA also believes that it is appropriate to propose a
  regulatory program now, rather than waiting until after a problem with the
  dumping of blendstocks is discovered. EPA also believes that it is more
  appropriate to limit the controls to circumstances where it is likely to be
  an environmental problem.
    The SNPRM 93 is intended to identify potential "dumping" by a refiner or
  importer, and to provide a mechanism to mitigate any adverse environmental
  effect in such a case. Under EPA's proposal, refiners and importers would be
  required to determine for each averaging period: (1) The total volume of
  certain specified blendstocks, as defined by the proposal, produced or
  imported and transferred to others; (2) the total volume of conventional
  gasoline produced or imported; and (3) the ratio of these blendstocks to
  gasoline (ratio). If this blendstock to gasoline ratio for any averaging
  period exceeds the blendstock to gasoline ratio for the overall average of
  calendar years 1990 to 1994 by more than 10%, the refiner or importer would
  be required to exercise one of two options. The refiner or importer would be
  required to either: (1) Inform any blendstock recipient that they are
  required to adjust their compliance baseline in the subsequent averaging
  period based on the refiner's or importer's compliance baseline for the
  volume of blendstock received, or (2) account for the properties of any
  blendstock in its own compliance calculations for the averaging period in
  which the blendstocks were transferred. The recipient of blendstocks under
  this provision may not have notice until late in the averaging period that
  the supplier has exceeded the 10% trigger, and, therefore, it would be
  unreasonable to require the recipient to make adjustments until the
  subsequent averaging period. On the other hand, the supplier should be
  monitoring its own blendstock transfers continuously and should be able to
  make the necessary adjustments to achieve compliance during the same
  averaging period. Additional reporting and transfer documentation
  requirements associated with each option are discussed more fully below.
  Blendstocks transferred between refineries with a common baseline would be
  exempt from accounting under this requirement.
    In order to further limit the application of these additional controls to
  only those circumstances where it is likely to be an environmental problem,
  the regulations exempt those refiners and importers from further controls
  regarding applicable blendstocks where: (1) Their blendstock production or
  importation is less than 3% of conventional gasoline produced or imported
  during the averaging period, or (2) their 1990 baseline is less stringent
  than the default baseline for all regulated fuel properties. EPA believes
  that the burden should be eased on low volume producers of blendstock where
  their blendstock production is not likely to adversely impact air quality.
  EPA believes that 3% of production is insignificant for any refiner or
  importer and, therefore, it would be unnecessary to even monitor changes in
  the blendstock to gasoline ratio at this low level. EPA seeks comments on the
  appropriateness of 3% as the trigger for this exemption. In addition, where a
  refiner's 1990 baseline is less stringent than the default baseline, there is
  no economic incentive to "dump" blendstocks. Therefore, EPA believes it would
  not be necessary to monitor blendstocks in that situation either.
    Under EPA's proposal, a comparison is made between the ratio for each
  averaging period and the aggregate four year ratio. EPA believes that the
  aggregate blendstock to gasoline ratio for calendar years 1990 through 1994
  would more comprehensively characterize the general use of blendstocks by a
  particular refiner or importer prior to the implementation of the
  reformulated gasoline requirements. The alternative of looking at the
  blendstock to gasoline ratio for any individual calendar year or, in
  particular, a peak ratio year, may not take into account legitimate
  fluctuations in the market. EPA is concerned that the use of a single peak
  year baseline would provide refiners and importers the opportunity to
  increase blendstocks in 1993 or 1994 so as to inflate the "baseline" ratio.
  Nevertheless, EPA invites comments on whether it is more appropriate to use
  an aggregate 1990 through 1994 ratio or the ratio for a single year for this
  purpose.
    Under EPA's proposal, a 10% increase in the blendstock to gasoline ratio
  would trigger the additional blendstock compliance requirements. EPA is
  currently analyzing a substantial amount of historical data regarding
  blendstock production, sales and transfers to determine whether this
  threshold is appropriate and will make this information available for review
  when complete. EPA may adjust the blendstock to gasoline ratio figure
  accordingly, based on the analysis results. EPA believes that until that
  process is completed, it is appropriate to take a relatively conservative
  approach, in order to identify refiners or importers that attempt to
  circumvent the anti-dumping requirements. At present, EPA believes that the
  10% figure is a sufficient threshold to allow for expected or normal
  fluctuations in blendstock production from year to year due to implementation
  of the reformulated gasoline requirements. EPA also believes this amount is
  small enough to reasonably identify any refiner or importer that may be
  "dumping" dirty gasoline blendstocks. However, we are requesting the
  submittal of appropriate data in this area and comments on other figures that
  might be more appropriate for this requirement.
    In addition, EPA is proposing inclusion under this provision of only those
  refinery products that may have an adverse effect on the regulated parameters
  under the anti-dumping program. This should minimize the burden on industry
  by limiting this provision to monitoring those products where there is an
  adequate environmental justification. This represents a significant reduction
  from the extensive list of blendstocks provided in the SNPRM 92. However, for
  purposes of determining 1990 baselines under Methods 2 and 3, it is more
  appropriate to include a complete list of all refinery products used as
  gasoline blendstocks in order to properly characterize 1990 gasoline in
  accordance with the intent of the anti-dumping program.
    EPA recognizes that blendstocks may be transferred to different parties in
  the distribution system, including brokers, and that there needs to be
  affirmative obligation to ensure proper notification of the applicable
  requirements to parties downstream. We have, therefore, required refiners or
  importers whose ratio exceeds the 10% threshold, and who follow the first
  option, to notify recipient parties by written notice, either stated on the
  transfer documents or by separate communication, that the blendstock
  recipient must adjust its compliance baseline for this blendstock. In
  addition, the refiner or importer must provide the necessary baseline data
  for making the adjustment. Alternatively, if the refiner or importer follows
  the second option, it is required to provide written notice that such
  blendstocks have already been accounted for in its compliance baseline and
  are to be excluded from the compliance calculations of any subsequent
  recipient. Thus, the appropriate transfer documents must convey with each
  transfer of blendstocks subject to these requirements. In the case of
  fungibly mixed products, EPA will leave it up to the parties involved to
  ensure that the proper notification takes place rather than prescribing
  detailed product accounting and notification procedures.
    As stated in the SNPRM 92, the inclusion of oxygenate volume for anti-
  dumping compliance calculations by refiners and importers would be optional,
  except as required in the calculation of other exhaust emission products
  under the applicable model. Any refiner or importer that elects to include
  oxygenate volume in its compliance calculations, however, would be required
  to include oxygenates in its 1990 baseline determination as well.
    Under EPA's proposal, gasoline and other petroleum products would be
  included in the anti-dumping compliance calculations only once, in order to
  avoid double counting of products. Thus, a refiner or importer would not
  include in its compliance calculations gasoline it did not produce or import
  or gasoline blendstocks accounted for by others. A refiner that uses
  blendstock accounted-for by another, would have to "back out" the properties
  and volume of such blendstock from the volume and properties of the final
  product.
    EPA believes the SNPRM 93 will address the environmental implications of
  increased blendstock production by requiring additional controls for
  specified refinery products only when it appears that a significant deviation
  from past practices has occurred, as evidenced by a 10% increase in
  blendstock to gasoline ratio. In addition, under the SNPRM 93 we are
  including only those blendstocks that have an adverse environmental effect on
  the regulated parameters. The Agency seeks comments on all aspects of the
  above scheme to prevent dumping and mitigate its effect as it relates to the
  requirements and intent of the anti-dumping program.
    EPA has included an additional requirement to address situations where it
  is clear that a refiner or importer is transferring dirty blendstocks to a
  party with a less stringent baseline in order to evade the anti-dumping
  requirements. Under proposed Sec. 80.102(i), a refiner or importer would be
  required to include in their determination of compliance any applicable
  blendstocks that were transferred in whole or in part to evade a baseline
  requirement.
    The 3% and 10% blendstock to gasoline ratio thresholds discussed earlier
  are intended to address the majority of potential anti-dumping problems.
  However, EPA believes that some refiners and importers may engage in
  blendstock transfers contrary to the intent of the anti-dumping regulations.
  As a deterrent to this practice, EPA will monitor such blendstock transfers
  to determine if they are occurring with this motivation. In making this
  determination regarding the transfer of blendstocks between parties, EPA will
  look at such factors as: The magnitude of differences in baselines; the
  nature of any prior business relationship; the extent of financial incentives
  for transferring blendstocks; the refiner's process for the production of
  reformulated gasoline, i.e. which blendstocks are removed to meet the
  reformulated gasoline requirements; the historical corporate relationship, if
  any, that existed between the parties; and whether this transfer represents a
  departure from any prior business practices. EPA will also look to see if
  other means were available to the blendstock producer to achieve compliance
  with the anti-dumping requirements without such transactions. EPA would
  consider enforcement under this provision when there is compelling evidence
  that a regulated party is dumping "dirty" blendstocks without accounting for
  the blendstocks in its own compliance determination.

  D. Compliance Calculations

  1. Compliance Baseline Calculation

    The compliance baseline calculation as discussed in the SNPRM 92 is based
  on the 1990 "equivalent" conventional gasoline volume (57 FR 13488). The
  SNPRM 93 would change the compliance baseline to reflect the receipt of
  blendstock from a refiner or importer that has exceeded the specified 10%
  blendstock to gasoline ratio, as discussed previously. The refiner or
  importer would be required to provide the recipient with the appropriate
  baseline values for making the adjustment. The blendstock recipient that must
  adjust its compliance baseline is required to make the adjustment in the
  subsequent averaging period because the producing refiner would not have
  notice that it activated the 10% trigger until the present averaging period
  was over. The producing refiner, on the other hand, has control over its
  gasoline and blendstock production during the year and, with proper planning,
  should be able to achieve compliance with such blendstocks included during
  the current averaging period.

  2. Compliance Determination

    The SNPRM 93 would expand the SNPRM 92 to include exhaust benzene emissions
  under the Optional Complex Model and exhaust toxics emissions and NOX
  emissions under the Mandatory Complex Model. In addition, refiners that
  produce reformulated gasoline during 1995, 1996 and early 1997 would have to
  use the same compliance model for their conventional gasoline during those
  averaging periods. Compliance levels would be determined on average for that
  averaging period and compared against the applicable 1990 baseline for those
  parameters as calculated in a similar manner. Individual refinery compliance,
  composite sampling and compliance based on combining the properties of
  individual blendstock batches would be unchanged from the SNPRM 92.

  E. Registration

    The SNPRM 93 expands the registration proposal in the SNPRM 92 (57 FR
  13488) to require refiners and importers to submit a statement of intent as
  to whether compliance will be achieved on the basis of individual or
  aggregate refineries, and whether compliance will be based on the Simple or
  Optional Complex Model for 1995, 1996, and the period prior to the date the
  Complex Model becomes mandatory.

  F. Record Keeping

    The SNPRM 93 expands the record keeping proposal in the SNPRM 92 (57 FR
  13488) to include the results of tests performed to determine compliance
  under the newly proposed Optional Complex Model and Mandatory Complex Model
  standards. EPA's proposal would require refiners and importers to retain
  documents pertaining to any adjustment of compliance baseline required and
  documents which demonstrate the transfer of blendstocks.

  G. Reporting

    All refiners or importers of conventional gasoline would be required to
  submit to EPA a report within thirty (30) days following the conclusion of
  each averaging period which contains the following information: Total gallons
  of conventional gasoline produced or imported during the averaging period;
  average exhaust benzene emissions, sulfur, olefins and T90 if using the
  Complex Model, exhaust benzene emissions if using the Optional Complex Model,
  or exhaust toxics and NOX emissions if using the Mandatory Complex Model, and
  the calculations used to derive such averages for the total volume of
  conventional gasoline produced or imported during the averaging period; the
  total gallons of blendstocks produced or imported and transferred to others
  for use in gasoline blending. These requirements would apply for refiners
  that produce conventional gasoline through the combining of blendstocks as
  well. The above reporting requirements would not apply in the case of any
  conventional gasoline or gasoline blendstock that is excluded from a
  refiner's or importer's compliance calculation.
    In addition, EPA is proposing a one-time reporting requirement in order to
  establish the "baseline" blendstock to gasoline ratio. Any refiner or
  importer of conventional gasoline would be required to submit to EPA, by
  January 31, 1995, a report containing the total volume of gasoline produced
  and imported for each calendar year 1990 through 1994 for which such data are
  available, the total volume of gasoline blendstocks produced and imported,
  and transferred to others for each calendar year 1990 to 1994 for which such
  data are available, and the ratio of total blendstock volumes to total
  gasoline volumes. Refiners and importers would be required to follow the same
  protocols for determining the availability of data that are being proposed
  for establishing 1990 baselines.

  H. Additional Procedures for Refiners and Importers of Conventional Gasoline
  and Blendstock

    The Notice of Proposed Rulemaking included attest engagement procedures for
  the production of reformulated and conventional gasoline. This supplemental
  notice includes additional procedures as a result of the changes made in the
  scheme for accounting for gasoline blendstocks. These procedures would
  require the review of a refiner's or importer's records for compliance with
  the requirements of this subpart, to include review of: (1) The relevant
  documents to determine the blendstock to gasoline ratio; (2) any adjustment
  to compliance baseline calculations; (3) application of the adjusted
  baseline; and (4) the refiner's or importer's quality assurance program for
  determining the applicable values of regulated fuel properties. This review
  would follow the same general criteria for sample selection and testing as
  outlined under the reformulated gasoline requirements. EPA is proposing
  attest engagement procedures for the same reasons set forth in the preamble
  to the reformulated gasoline requirements.

  IX. Anti-Dumping Requirements for Conventional Gasoline

  A. Introduction

    Section 211(k)(8) of the Act requires that average per gallon emissions of
  specified pollutants from non-reformulated, or conventional, gasoline use
  must not deteriorate relative to emissions from 1990 gasoline, on a refiner
  or importer basis. Compliance is measured by comparing emissions of a
  refiner's or importer's conventional gasoline against a baseline gasoline. An
  individual baseline is developed for each refiner or importer based on the
  quality of their 1990 gasoline, although under certain circumstances the
  individual baseline is set at the statutory baseline. To implement this
  requirement, EPA has proposed requirements known as the anti-dumping
  provisions for conventional gasoline producers and importers. Today's
  proposal describes additional anti-dumping provisions as well as
  modifications to previously proposed provisions applicable to conventional
  gasoline. These are detailed in the accompanying proposed regulations, and
  comments are requested on any or all of today's proposal. Further background
  information can be found in EPA's prior proposals.

  B. Proposed Requirements for Individual Baselines

  1. Baseline Determination

    In the SNPRM, EPA proposed a requirement for "sufficient" sampling of
  finished gasoline or blendstock streams, as appropriate by the methods
  proposed in the SNPRM. At this time, EPA believes that a minimum data
  requirement must be specified to ensure that enough samples are taken from
  which to develop a representative baseline and to minimize the picking and
  choosing of data. For a Method 1 determination, EPA is proposing to require
  that at least half of the shipments in a calendar month shall have been
  tested for a particular parameter. For Methods 2 and 3, EPA is proposing to
  require at least weekly sampling of continuous blendstock streams and, if
  blendstocks are produced on a batch basis, sampling of at least half of the
  batches of each blendstock produced in a month. EPA realizes that this
  proposal differs significantly from the SNPRM, but believes that such a
  requirement may be necessary to insure a sufficiently accurate baseline.
  Comments are requested as to the necessity of such a requirement, and on the
  minimum sampling requirements discussed above for each Method.
    In the SNPRM, EPA proposed that at least three months of summer and three
  months of winter data must be available for the determination of a parameter
  value by a particular method. Insufficient data would require use of the next
  method down (e.g., Method 2 instead of Method 1) or collection of additional
  data which would necessitate a Method 3 determination. If, following
  promulgation of the final rule, additional data needs to be collected because
  the minimum data requirements specified for using Method 1, 2 or 3 for
  determining a fuel component baseline value (per the proposed regulations)
  have not been met, EPA proposes that data shall be collected through the end
  of the third month of the first three full months during which summer
  gasoline is produced by the refiner following promulgation of the final rule.
  The requirement to collect at least three months of data on a refiner's
  winter gasoline and at least three months of data on a refiner's summer
  gasoline would still have to be met.
    In the case of a Method 1 determination, where actual 1990 gasoline
  shipment data is used, inconsistent sampling may have occurred causing a lack
  of data on one grade and abundant data on another. For example, if a refinery
  produced a special grade of gasoline, it may have tested each shipment of
  that gasoline for several fuel properties. In comparison, it may have only
  tested every other shipment of its typical gasoline for these same
  properties. Combination of all of the available data for a parameter would
  result in a baseline value which was skewed to the specially-produced
  gasoline. To minimize such skewing, and to thus get a more representative
  baseline, EPA proposes that average fuel parameter values be determined first
  for each grade of gasoline produced, and the resulting values weighted by the
  fraction of each grade sold in the period over which the value is determined.
  EPA proposes that "grade" mean each individual octane number of gasoline
  produced in the refinery (rounded to the nearest whole number). Comments are
  requested on this proposal, specifically on the ability of the proposal to
  minimize skewing of data, and as to whether each octane number of gasoline
  produced should be considered a separate grade. Comments on other
  "definitions" of grade for use under this proposal are requested.
    EPA also requests comments on allowing a refinery's own production volumes
  of summer and winter gasoline (based on RVP) to be used in the weighting of
  data on a summer and winter basis. EPA had proposed that a national average
  summer/winter percentage split of 46.8/53.2 be used, which was based on
  gasoline consumption during the summer and winter periods. Because fuel
  production can lead fuel consumption by up to 2 months, EPA believes that use
  of refinery-specific production volumes and time periods in the baseline
  determination will result in more representative baselines. Comments are
  requested on this proposal and as to how transitions in fuel production
  between seasons will affect this proposal and individual baseline
  determination.
    Testing of a refinery stream for one or more of the fuel properties for
  which a baseline value must be determined would be an unnecessary expense if
  a refiner can show that the refinery stream contains negligible amounts of
  one or more of certain fuel properties for which a baseline value must be
  determined. The properties that EPA proposes would not have to be determined
  under these circumstances are benzene, aromatics, olefins, saturates and
  sulfur. EPA proposes that the first four listed parameters would be deemed to
  exist in negligible amounts if they exist at less than 1.0 volume percent in
  a refinery stream. Sulfur would be deemed to exist in a negligible amount if
  it exists at less than 10 ppm in a refinery stream. Any properties shown to
  exist in a refinery stream in negligible amounts shall be assigned a value of
  0.0. For example, EPA believes it would be generally easy for a refiner to
  show that MTBE and alkylate streams have negligible aromatic, sulfur and
  benzene contents. Comments are requested on this proposal, particularly on
  the levels of each parameter which would be considered negligible. Comments
  are also requested as to whether EPA should require criteria, and what those
  criteria should be, to show that negligible quantities of a parameter exist.
  For example, one way to prove that one or more fuel parameters exist in
  negligible quantities may be to show that a stream consists of a single
  chemical compound (i.e., the criteria would be that the stream is 99 percent
  by volume pure component). Or, it may be possible to demonstrate using
  chemical reaction theory or general refinering practice supported by industry
  survey results that an alkylate stream, for example, which is a very complex
  mixture, still has aromatic and benzene contents of less than 1 volume
  percent without measuring the benzene content of the stream.
    EPA previously proposed that post-1990 finished gasoline could be used in a
  Method 3 determination if the volumetric fraction of each blendstock in post-
  1990 finished gasoline was within five (5) percent of the volumetric fraction
  of the same blendstock in 1990 finished gasoline. However, based on comments
  that typical year-to-year fluctuations would cause the blendstock volumetric
  fractions to exceed the proposed 5 percent requirement, EPA proposes to allow
  post-1990 finished gasoline data to be used if each of the post-1990
  blendstock fractions is within 10 percent of the respective 1990 blendstock
  volumetric fraction. Comments are requested as to whether the 10 percent
  criteria is appropriate.
    In a slight change from the SNPRM, EPA proposes that the Director of the
  Office of Mobile Sources approve baselines and grant petitions under
  circumstances where petitions are allowed.

  Establishment of Baselines by Foreign Refineries

    EPA has received comments pertaining to the establishment of 1990 baselines
  by foreign refiners. The 1990 baseline is relevant in the early years of the
  reformulated gasoline program for purposes of certifying reformulated
  gasoline under the Simple Model,/24/ and it is relevant from 1995 onward for
  purposes of measuring compliance with the anti-dumping provisions of this
  program.

  NOTE /24/ The proposed Simple Model would apply from January 1, 1995 until
  the Complex Model becomes mandatory during 1997.

    In the SNPRM (April 1992), EPA proposed that domestic refiners establish
  their individual baseline using one of three proposed methods to calculate
  their 1990 average fuel parameters. Method 1 would be used if sufficient data
  was available; if not, then Method 2; or Method 3, if insufficient data was
  available for Method 2. EPA proposed that importers of foreign gasoline
  establish their baselines using the first proposed method, and that importers
  "default" to the statutory baseline if sufficient data was not available for
  that method.
    EPA did not propose any methodology for foreign refiners to establish
  individual baselines. Rather, the quality of gasoline imported from foreign
  refiners was to be controlled by regulation of domestic importers. However,
  EPA proposed an exception to this scheme for refiners that were also domestic
  importers and that imported 75% of the gasoline produced at the refinery. EPA
  proposed that these importers be permitted to use the three methodologies for
  establishing an individual baseline.
    The proposed approach regarding the establishment of individual baselines
  by foreign refineries arose from three principle concerns by EPA:
    1. EPA was concerned that foreign refiners that imported less than a
  significant portion of their total production into the United States would be
  unable to produce verifiable data adequate to justify use of the three
  proposed methodologies. EPA did not believe that foreign refiners had records
  of the relevant fuel parameters necessary to accurately establish a 1990
  baseline for that fraction of their total 1990 gasoline production exported
  to the United States.
    2. EPA was concerned with its ability to conduct verification and
  compliance audits on foreign soil to verify the calculation of individual
  baselines for foreign refiners. Domestic refiners and importers are subject
  to regulation by the Agency, whereas regulation of foreign refiners raises
  significant questions on legal authority and regulatory jurisdiction. EPA's
  concern also extended to the effect product fungibility and mixing during
  shipment would have on the Agency's ability to correlate imported product
  with individual foreign refinery baselines.
    3. EPA was concerned that permitting foreign refiners to establish
  individual baselines would lead to "gaming" of the system. Specifically, EPA
  was concerned that foreign refiners that had exported gasoline to the U.S. in
  1990 that was cleaner than the statutory baseline would have economic
  incentives to default to the less stringent statutory standard. As a result,
  foreign refiners could use EPA's limited ability to auditor-verify a foreign
  refiner's records and intentionally default to the l;X stringent baseline.
  Such "gaming" might have the effect of skewing the anticipated average
  quality of gasoline characteristics within the United States, especially in
  areas where imported gasoline is a significant percentage of the total
  gasoline consumption.
    Petroleos de Venezuela S.A. (PDVSA) claims that EPA's first concern would
  be satisfied if a foreign refiner's data was sufficiently detailed such that
  the qualities of the 1990 gasoline exported to the United States could be
  determined, as compared to the qualities of the refiner's overall 1990
  gasoline production. In such a situation, PDVSA claims that a foreign refiner
  should not be precluded from using the three methods to establish individual
  baselines for its refineries.
    With respect to EPA's second concern, PDVSA claims that foreign refiners
  and their governments would be amenable to EPA conducting verification and
  compliance audits. This could be arranged through diplomatic instruments if
  necessary. With respect to EPA's concerns on reliably tracking the origin of
  gasoline to specific refiners and refineries, PDVSA believes that EPA could
  continue, if necessary, to regulate importers of foreign gasoline. A
  refiner's or refinery's individual baseline would follow its gasoline as long
  as its gasoline could be fairly tracked at the point of importation. For
  example, a foreign refiner could segregate its product from others, or the
  point of origin could be clearly traceable from the documentation
  accompanying the gasoline. If the point of origin could be clearly
  identified, then the importer would use the foreign refiner's baseline for
  that product's baseline. If the point of origin could not be clearly
  identified, then the importer would use the statutory baseline for that
  gasoline. In effect, the burden of clearly identifying the point of origin
  would be on the importer, and through them on the foreign refiner.
    Finally, with respect to the gaming concern, PDVSA believes there is no
  significant economic incentive for such gaming as it would be economic
  incentive for such gaming as it would not be economic for a refiner to
  intentionally degrade the quality of the gasoline it exports to the United
  States to the statutory baseline. In addition, PDVSA claims there is no
  realistic chance of an adverse air quality impact from this gaming potential.
  PDVSA also claimed that failing to allow foreign refiners to establish
  individual baselines could distort the export market in a way that
  potentially could disrupt the supply of gasoline in certain areas of the
  country.
    EPA invites comment on all of the above issues, including EPA's concerns
  and the suggestions of PDVSA. EPA also invites comments on alternatives to
  the approaches proposed today, including allowing foreign refiners to
  establish individual baselines under reasonably limited circumstances based
  on the concerns noted above, for use in the reformulated gasoline program
  under the Simple Model and/or for use in the anti-dumping program.

  2. Baseline Adjustment for Work-in-Progress

    In the SNPRM, EPA proposed that a work-in-progress (WIP) adjustment to a
  refiner's baseline would be allowed if certain criteria were met. One of the
  criteria presented in the SNPRM addressed the situation where a refiner's
  exhaust benzene emission value differed significantly when calculated with
  and without the WIP adjustment. EPA believes that the WIP adjustment should
  also apply to the fuel components which are capped when the simple model is
  used, and, per the regulatory negotiation's Agreement-in-Principle, to
  exhaust toxics and NOX emissions in the years when the complex model is
  required. EPA proposes that this adjustment apply when one or more of the
  following situations occur: (1) At least a 25.0 percent difference exists
  between sulfur, olefin and/or T90 values calculated with and without the WIP
  adjustment; (2) at least a 5.0 percent difference exists between the
  refiner's baseline exhaust benzene emissions calculated with and without the
  WIP adjustment; (3) at least a 5.0 percent difference exists between the
  refiner's baseline exhaust toxics emissions calculated with and without the
  WIP adjustment; (4) at least a 5.0 percent difference exists between the
  refiner's baseline NOX emissions calculated with and without the WIP
  adjustment. Comments are requested on the extension of the WIP adjustment to
  sulfur, T90 and olefins. Comments are also requested as to whether the
  proposed 25.0 percent difference requirement is an appropriate value.
    Another of the criteria proposed in the SNPRM required that a refiner show
  that failure to allow a WIP adjustment would result in a substantial portion
  of the capital associated with the WIP to be at risk. "Substantial" was
  proposed to be capital involved with the WIP which exceeded 10 percent of the
  refinery's depreciated plant and equipment value. Comments were received
  which stated that it is possible that this requirement could be biased
  against recently built or recently upgraded refineries because the
  depreciated value would be higher for these facilities than for older
  refineries of the same size. The commenter also claimed that newer facilities
  tend to be benefit the environment more than similar, older facilities, and
  thus could be unfairly penalized, compared to older facilities, by the
  proposal. Based on these comments, EPA proposes an alternative criteria which
  could be met in lieu of the "10 percent" criteria. EPA proposes and requests
  comments on the allowing either the "10 percent" criteria or minimum cost of
  the WIP to satisfy the capital-at-risk criteria. Comments are requested as to
  whether $10 million is an appropriate minimum cost.
    Because WIP was not previously clearly defined, EPA proposes that WIP
  include both projects actually under construction in 1990 and projects for
  which contracts were signed in 1990 such that construction would be completed
  in time to comply with the regulatory requirement motivating the WIP (per the
  discussion of this requirement in the SNPRM). Comments are requested as to
  whether this proposal is appropriate. Detailed comments are also requested
  which address the type of contracts that would qualify.

  3. Baseline Adjustment for Multiple Modes of Operation

    EPA proposed that separate individual baselines be developed for each of
  the different modes of refinery operation (as discussed in the SNPRM) to
  minimize anticompetitive effects which could hurt smaller refiners, blenders
  and importers. However, some refineries may be sufficiently integrated with a
  blending operation such that the blending operation would not exist without
  the refinery, or such that negligible blendstocks or gasoline are brought
  into the blending operation other than those which come from the associated
  refinery. In such a situation, the concern about anticompetitive effects is
  greatly reduced. EPA proposes that a refiner which is involved in both of the
  regulated modes of operation may petition EPA to develop a single baseline
  for the combined operation, if it can show to the Administrator's
  satisfaction that a closely integrated relationship exists. EPA does not
  expect "closely integrated" to apply broadly to refiners who happen to also
  have blending operations. Comments are requested on this proposal,
  particularly on the proof required to show "close integration".

  4. Ability to Petition for Extraordinary Individual Circumstance

    EPA requests comments on the use of an adjusted baseline if, due to the
  occurrence of extenuating or extraordinary circumstances in 1990, or due to
  its unique individual situation, a refinery's baseline is unrepresentative of
  the gasoline it would have produced in 1990. EPA also requests comment on
  what criteria would have to be met, or proof given, to demonstrate that 1990
  refinery operations were indeed different than if the special circumstance
  had not existed. EPA expects that a refiner would have to petition EPA, and
  would have to show the baseline values calculated without and without the
  adjustment.
    To limit petitions, EPA proposes that petitions may be granted only if
  certain proof is presented in the petition, in addition to the baseline
  parameters calculated with and without the adjustment. Such proof may include
  a showing that significant financial burden will exist or that the viability
  of the refinery is at stake. EPA could also require a showing that 1990
  operations were significantly different than 1988-89 and 1991-92 operations.
  Comments are requested as to the degree of financial hardship that might be
  required to be shown and on additional criteria which might have to be met in
  order to restrict any such petition to situations falling within the agency's
  authority under Alabama Power, as discussed in the SNPRM.
    Examples of extenuating circumstances could include the following two
  examples, and EPA requests comments as to whether such circumstances should
  be deemed extenuating: (1) Downtime which occurs every 4-5 years and which
  happened to occur in 1990 (nonannual turnaround); and (2) disasters which
  took out a gasoline blendstock producing unit for 30 days or more (and
  whether 30 days is appropriate). EPA requests comments as to whether, and
  what type of, other extenuating circumstances may exist.
    EPA also requests comment on whether it should consider allowing a baseline
  adjustment for the situation where (1) a fuel produced in 1990 under contract
  to the federal government (e.g., the military) will be phased out of
  production by 1995 due to changes in fuel requirements by the federal
  government, and (2) production of that fuel constituted at least 30 percent
  of a refiner's total production in 1990. For example, JP-4 jet fuel use is
  being eliminated by the Department of Defense. Because JP-4 is a naphtha/
  kerosene blend, feedstock previously used to produce it will in the future be
  used in gasoline. However, that feedstock cannot be used in gasoline without
  first going through a reformer to increase its octane to suitable gasoline
  levels. This will naturally increase the average aromatic content of a
  refiner's gasoline. Refiners for whom JP-4 production constituted a large
  portion of their total production will have low baseline aromatics and
  benzene values relative to the values of the gasoline that will be produced
  in lieu of JP-4. Under certain individual circumstances, a refinery may have
  to close if it cannot comply with the anti-dumping provisions because its
  baseline parameter values were determined while it was under contract to the
  federal government to produce a non-gasoline fuel. EPA requests comments on
  this situation, and if adjustments to a baseline determination are granted,
  how much of a refinery's 1990 production must have constituted the soon-to-
  be-eliminated fuel for the circumstance to be extenuating.
    For all of the above situations, EPA requests comments as to whether such a
  petitioner should get an individual adjusted baseline, the statutory
  baseline, or the statutory baseline on an individual parameter basis if only
  certain parameters were affected by the circumstance, and whether volume
  adjustments should be allowed.

  C. Auditor /25/ Requirements and Certification

  1. Introduction

    In the SNPRM, EPA proposed that an Agency-certified auditor be utilized to
  verify a refiner's or importer's 1990 individual baseline (i.e., the
  parameter determination) prior to submission of the baseline to EPA for
  approval. EPA also proposed that the auditor be independent of the refiner or
  importer and that EPA would certify the auditor based on criteria developed
  in consultation with persons knowledgeable in the technical aspects of
  gasoline refining. EPA recently held a public workshop on this topic and,
  considering the discussion at that workshop, EPA is proposing additional
  regulations concerning the certification of auditors and the submission of
  the individual baseline to EPA.

  NOTE /25/ EPA recognizes that the term "auditor" usually refers to a person
  who evaluates financial data. However, in the context of the baseline
  development discussed in this proposed rulemaking, "auditor" shall refer to a
  person who technically evaluates the baseline determination of a refiner or
  importer for correctness, as defined in this proposal.

  2. Requirements for Auditors

    For the attached regulations, EPA proposes that the term auditor mean an
  individual or an organization although various persons involved with the
  auditor may also have to meet certain requirements.
    EPA proposes that auditors (and where applicable, the auditor's
  organization and/or other persons) meet criteria in two areas in order to be
  certified by EPA to audit refiner and importer baselines. These proposed
  areas are (1) independence from the refiner or importer, and (2) technical
  capability to evaluate the process used to develop the baseline parameters.
  Although these general areas were proposed in the SNPRM, they are being
  reproposed today in more detail.
    Concerning independence, EPA proposes that auditors and any other
  individuals or organizations, including contracting and subcontracting
  personnel, who are involved in substantive aspects of baseline verification
  be independent of the submitter. For example, EPA proposes that all persons
  involved in the substantive aspects of baseline verification could not have
  worked in the past five years as an employee of the refiner or importer whose
  baseline is being verified. EPA expects such criteria to mitigate potential
  conflict-of-interest concerns that could arise concerning the verification
  process if the auditor were to have an intimate relationship with the refiner
  or importer. Additionally, EPA is proposing that the auditor and its
  contractors and subcontractors be financially independent of the submitter.
  Specific criteria are listed in the accompanying proposed regulations.
    However, EPA is proposing to allow a person to audit the baseline
  parameters for a particular refiner or importer even if that person also
  developed the baseline parameters for the same refiner or importer, as long
  as the person (and his/her contractors, etc.) meet all the requirements for
  an auditor. While larger refiners are likely to develop their baselines using
  in-house expertise, this proposal would most likely benefit smaller refiners
  and importers which are more likely to have their baselines determined for
  them by an outside company.
    EPA requests comments on how to ensure that the independence requirements
  remain intact throughout the duration of the relationship between the auditor
  and the refiner, and as to whether the independence requirements should be
  continued for a time period after the baseline is approved, and what this
  time period should be.
    EPA is also proposing that auditors be technically experienced and
  knowledgeable in refinery operations. This criterion is important because of
  the complexity of refinery operations and because refiners may have made
  substantial changes in feedstocks or refinery operating conditions between
  1990 and year(s) when data was collected. Such changes would have to be
  accounted for in the individual 1990 baseline determinations. Auditing the
  accounting for such changes and confirming that the necessary adjustments
  were made is expected to be technically challenging and only those persons
  with sufficient knowledge and experience would be capable.
    EPA is also proposing regulations which describe the technical role EPA
  expects auditors to fulfill in the verification process. Under these proposed
  regulations, the auditor would have to perform several tasks to verify
  certain aspects of the data collection and baseline calculations.
  Additionally, the auditor would have to describe a minimal amount of its
  verification process to EPA. As a part of this process, EPA would expect an
  auditor to know the relevant details and assumptions that went into the
  baseline determination it verified. Through the fulfillment of these
  requirements, EPA expects to gain sufficient confidence to approve many of
  the baseline parameter submissions. For baseline submissions where EPA has
  some uncertainty, EPA would follow up with the refiner or importer and its
  auditor to gain this certainty.
    EPA requests comment on its proposed criteria requiring that auditors be
  independent and technically capable of evaluating the baseline parameters.
  EPA also requests comment on what technical role and reporting role the
  auditor should play in the verification process, and if EPA should approve
  persons as auditors who were also involved in developing the baseline
  parameters for the refiner or importer.

  3. Auditor Certification

    Because regulations under section 211(k) of the Act are aimed at refiners
  and importers, EPA believes that the refiner or importer should be
  responsible for choosing an auditor who meets the proposed requirements. EPA
  is considering two options for certifying auditors, and requests comments on
  each of these options.
    Under the first option, the refiner or importer would be required to ensure
  that the auditor meets the criteria, and provide such proof with the baseline
  submission. The auditor would not be pre-certified by EPA. If an auditor who
  does not meet the criteria is used by the refiner or importer, the baseline
  submission would not be approved. This option allows the refiner or importer
  to begin working with an auditor immediately, if it believes it can prove
  that the auditor will meet the criteria promulgated in the final rule.
    Under the second option, the qualifications of potential auditors would be
  submitted (by a potential auditor or by a refiner or importer) to EPA after
  promulgation of the final rule. (EPA is proposing that all qualification
  submittals indicate for which refiners and importers the auditor, its
  organization, contractors, and subcontractors do not meet the independence
  criterion mentioned above.) If no response is received from EPA within 30
  days of application, that person would then be deemed an EPA-certified
  auditor. Refiners and importers would have to use such an EPA-certified
  auditor in order for their baseline submissions to be accepted. Comments are
  requested as to whether 30 days from application date is an appropriate
  response time, or whether a longer or shorter EPA response time should be
  considered.
    Alternatively, while EPA cannot certify auditors prior to the promulgation
  of the final rule, it may be appropriate to invite submission of applications
  by persons desiring to be auditors prior to the final rulemaking. EPA could
  begin processing auditor certification submissions prior to promulgation of
  the final rule, and could certify auditors soon after the promulgation date.
    Comments are requested on both of these options. EPA will consider other
  proposals certifying auditors.

  D. Baseline Submission and Approval

    In giving its approval of a baseline submission, EPA plans to rely heavily
  on the auditor's verification. That explains, in part, EPA's concern about
  auditor independence and technical abilities. Based on this reliance, if EPA
  discovers that an auditor has displayed gross incompetency or intentionally
  committed a significant error in the verification process, EPA may pursue
  debarment of the auditor under 18 USC 1001.
    EPA had proposed in the SNPRM that auditors submit a plan to EPA prior to
  beginning their verification process. After considering this proposed
  requirement further and discussing it at the public workshop, EPA is
  considering not adopting this requirement. Instead, EPA may require the
  auditor to meet certain reporting requirements in their report to EPA
  concerning the baseline verification process. EPA believes this change will
  help expedite the verification process.
    EPA is also proposing that each refiner or importer inform the
  Administrator of the name, associated organization, mailing address and
  telephone number of each auditor hired to verify the gasoline baseline
  parameter values. For example, if a refiner initially hired an auditor but
  then decided to use a different auditor for verifying its baseline
  parameters, then the refiner or importer would have informed EPA of both
  auditors as each was hired. EPA expects to gain insights into the quality and
  integrity of the baseline verification process. EPA requests comment on the
  proposed requirement that refiners and importers inform the Administrator of
  the auditor selected to verify the baseline parameter values.
    EPA proposes that baseline submissions be submitted by the refiner or
  importer to EPA within 6 months of the date of the final rulemaking. This
  timeframe is reasonable if most baseline auditors will be able to be
  certified by EPA, as discussed above, soon after promulgation of the final
  rule, or if the refiner or importer assumes responsibility for choosing an
  auditor which meets the requirements of the final rule, without pre-
  certification of the auditor by EPA. In the latter case, a refiner or
  importer could begin working with an auditor immediately. Comments are
  requested on the appropriateness of requiring submissions within 6 months of
  promulgation of the final rule.
    EPA proposes to accept only complete baseline submissions. As previously
  discussed, if data to be used in baseline development (per Method 3) is
  collected after promulgation of the final rule (because the minimum data
  requirements specified for using Method 1, 2 or 3 for determining a fuel
  component baseline value per the proposed regulations have not been met), EPA
  proposes that data may be collected through the end of the third month of the
  first three full months during which summer gasoline is produced by the
  refiner following promulgation of the final rule. Individual baselines which
  were determined using data collected after promulgation of the final rule
  shall be submitted to EPA by September 1, 1994. EPA requests comments on the
  above proposal.

  X. Environmental and Economic Impacts

    The environmental and economic impacts of the reformulated gasoline program
  are described in the Regulatory Impact Analysis supporting the rulemaking for
  reformulated and conventional gasoline, which is available in Public Docket
  No. A-91-02, located at Room M-1500, Waterside Mall (ground floor), U.S.
  Environmental Protection Agency, 401 M Street SW., Washington, DC 20460.

  XI. Public Participation

    EPA desires full public participation in arriving at its final decisions
  and solicits comments on all aspects of this proposal. Wherever applicable,
  full supporting data and detailed analysis should also be submitted, to allow
  EPA to make maximum use of the comments. All comments should be directed to
  the EPA Air Docket, Docket No. A-92-12 (See ADDRESSES). The close of the
  comment period will be announced in connection with a later Federal Register
  notice announcing the public hearing (See DATES).
    Any proprietary information being submitted for the Agency's consideration
  should be markedly distinguished from other submittals and clearly labelled
  "Confidential Business Information." Proprietary information should be sent
  directly to the contact person listed above, and not to the public docket, to
  ensure that it is not inadvertently placed in the docket. Information thus
  labeled and directed shall be covered by a claim of confidentiality and will
  be disclosed by EPA only to the extent allowed and by the procedures set
  forth in 40 CFR part 2. If no claim of confidentiality accompanies a
  submission when it is received by EPA, it may be made available to the public
  without further notice to the commenter.

  XII. Compliance With the Regulatory Flexibility Act

  A. Introduction

    Per section 605 of the Regulatory Flexibility Act (RFA), EPA needs to
  determine the extent to which significant adverse economic impacts on a
  substantial number of small business entities are likely due to the
  regulations being proposed today. The potential impacts due to the
  regulations for the complex model, Phase II reformulated gasoline standards,
  and renewable oxygenate incentive program are discussed briefly below. The
  full RFA is presented in the DRIA. Comments on the RFA are requested.
    Certain sectors of the gasoline industry are not likely to be more
  adversely affected by the complex model, the Phase II reformulated gasoline
  standards or the President's ethanol initiative than by previous proposals,
  such as the simple model. Comments are requested as to the validity of the
  conclusion that terminal operators, bulk plants and retail gasoline sellers
  will be relatively unaffected by these provisions.

  B. Complex Model Impacts on Small Entities

    The proposed complex model provides refiners (large or small) with the
  flexibility to choose the least cost method of fuel control in order to
  produce reformulated gasoline. It is expected that this flexibility will
  reduce the cost of producing reformulated gasoline for most refiners. Thus,
  it is not likely that small refiners will be adversely impacted by this
  proposal.
    The proposed complex model shows that oxygenate use affects other component
  values such that no net increase in NOX emissions occurs. Additionally,
  oxygen is a required component of reformulated gasoline. Thus demand for
  oxygenate is not expected to decrease due to the complex model, and oxygenate
  producers should not be adversely affected.
    EPA requests comments relative to its finding that small refiners and
  oxygenate producers are not likely to be adversely affected by use of the
  complex model.

  C. Phase II Standards

    Small refineries which choose to produce reformulated gasoline are likely
  to experience higher costs (per gallon) than large refineries in meeting the
  proposed Phase II standards. The Phase II standards are more severe than the
  Phase I standards, and thus more severe processing and/or capital equipment
  purchase may be necessary. Small refineries, which do not have the advantage
  of economies of scale, may have higher expenses and may have a more difficult
  time raising the necessary capital. However, a Sobotka analysis /26/ of this
  situation concluded that small refineries are not disadvantaged by the
  federal reformulated gasoline requirements (at current opt-in levels) because
  they either do not produce gasoline, do not ship a significant portion of
  their gasoline to the affected markets, or could readily serve conventional
  gasoline markets.

  NOTE /26/ "Evaluation of the Use of Ethanol and MTBE in Reformulated
  Gasoline," Prepared by Sobotka & Co., Inc. for U.S. EPA under Contract No.
  68-W9-007, September 30, 1992.

    Oxygenate producers should also not be adversely affected by the Phase II
  requirements, since increasing the oxygen content of reformulated gasoline
  over the minimum 2.0 weight percent may be a cost-effective method for
  meeting the proposed standards. Thus oxygenate producers should not be
  adversely affected by the Phase II requirements. It is possible that
  nonethanol oxygenates could be slightly negatively impacted relative to
  ethanol because the proposed Phase II standards are based on MOBILE5.0.
  MOBILE5.0 reduces the impact of evaporative emissions relative to exhaust
  emissions. If the contribution of ethanol's high blending RVP is thus
  reduced, ethanol use could become more attractive, to the benefit of ethanol
  producers. However, any potential "decrease" in the market share for
  nonethanol oxygenates would not represent a level lower than at present, but
  merely a level less than had previously been forecasted. EPA requests
  comments on the impact of the Phase II standards on oxygenate producers.

  D. President's Ethanol Initiative

    As background, it is worth pointing out that some refiners may be adversely
  affected and some actually benefitted by the ethanol initiative, depending on
  their pre-ethanol initiative plans for producing reformulated gasoline. If
  they were planning on using ethanol, they were intending having to make a
  nonoxygenated reformulated gasoline blendstock (RBOB) at 7.1 psi. Now, they
  can make that at 7.8 psi. However, if the refiner was not planning on using
  ethanol, it was planning to have its reformulated gasoline blendstocks meet
  the 8.1 psi requirement, and now must produce such blendstocks at 7.8 psi.
  Comments on the impact of the ethanol initiative on small refiners.
    It is also possible that the incentive to use renewable oxygenates could
  reduce the use of nonrenewable oxygenates such as MTBE in reformulated
  gasoline and, thus, affect the future increase in production that producers
  of these oxygenates would otherwise have obtained by the reformulated
  gasoline program. However, this would represent gains in production foregone
  as a result of today's proposal, and not reductions in production. Because of
  their higher costs, noncaptive (i.e., stand alone) MTBE producers would be
  more negatively affected than captive (on-site, refinery plants) MTBE plants.
  Adverse effects on any ether producer could be reduced if they have the
  ability to produce ethanol-based ethers. If MTBE producers are negatively
  impacted, methanol producers who supply the methanol feedstock to the MTBE
  process could also be negatively affected. Ethanol producers, on the other
  hand, will of course benefit from the initiative. EPA requests comments on
  the impact of the renewable oxygenate initiative on oxygenate producers.

  XIII. Statutory Authority

    The statutory authority for the standards proposed today is granted to EPA
  by sections 114, 211(c) and (k) and 301 of the Clean Air Act, as amended; 42
  U.S.C. 7414, 7545(c) and (k), and 7601.

  XIV. Administrative Designation and Regulatory Analysis

    Pursuant to Executive Order 12291, EPA must judge whether a regulation is
  "major" and therefore subject to the requirement that a Regulatory Impact
  Analysis be prepared. Major regulations have an annual effect on the economy
  in excess of $100 million, have a significant adverse impact on competition,
  investment, employment or innovation, or result in a major price increase.
  The Administrator has determined that Phase II reformulated gasoline will
  cost well in excess of $100 million per year and therefore should be
  classified as a major rule.
    A Draft Regulatory Impact Analysis (RIA) for the reformulated gasoline
  program has been prepared and placed in the docket for that rulemaking (A-92-
  12). The final RIA will be completed contemporaneously with the final
  reformulated gasoline rule. The Draft Regulatory Impact Analysis was
  submitted to the Office of Management and Budget (OMB) for review as required
  by Executive Order 12291. Written comments from OMB and EPA response to those
  comments have also been placed in the public docket for this rulemaking.

  XV. Reporting and Recordkeeping Requirements

    Under the Paperwork Reduction Act of 1980, 44 U.S.C. 3501 et seq., EPA must
  obtain OMB clearance for any activity that will involve collecting
  substantially the same information from 10 or more non-Federal respondents.
  These information collection requirements have been submitted for approval to
  the Office of Management and Budget (OMB) under the Paperwork Reduction Act,
  44 U.S.C. 3501 et seq. An Information Collection Request document has been
  prepared by EPA (ICR No. [1591]) and a copy may be obtained from Sandy
  Farmer, Information Policy Branch; EPA; 401 M St., S.W. (PM-223Y);
  Washington, DC 20460 or by calling (202) 382-2740.)
    Send comments regarding the collection of information, including
  suggestions for reducing the burden of this collection to Chief, Information
  Policy Branch; EPA; 401 M St., SW. (PM-223Y); Washington, DC 20503; and to
  the Office of Management and Budget, Washington, DC, 20503, marked
  "Attention: Desk Officer for EPA." The final Rule will respond to any OMB or
  public comments on the information collection requirements contained in this
  proposal.

    Dated: January 19, 1993.

  William K. Reilly,

  Administrator.

  [FR Doc. 93-4015 Filed 2-25-93; 8:45 am]

  BILLING CODE 6560-50-P