not agree with this assumption Many of these hypothetical recipes are likely to be technically
and/or economically infeasible and represent little or no CaRFG3 production, while others are
likely to represent substantial amounts of production Since the emissions performance of each
allowable zero oxygen or two percent oxygen recipe was given the same weight when calculating
the average NOx performance of its group, this average may not represent true average
performance Thus, CARB’s simulation shows that the predictive model leaves room for better
NOx performance in zero oxygen CaRFG3 than in two percent oxygen CARFG3, but does not
force better NOx performance Furthermore, even if the simulation accurately predicted average
performance for the zero oxygen and two percent oxygen pools, granting the waiver would not
guarantee that the full 1.7 percent NOx performance advantage would be realized The actual
difference would depend on the extent to which oxygenated and non-oxygenated CaRFG3 were
produced.

In a waiver scenario, it is likely that a mix of oxygenated and non-oxygenated CaRFG3
would be produced, but a performance benefit may or may not apply to the non-oxygenated
portion of the market relative to the oxygenated portion Any such benefit would depend on the
fuel properties associated with both the non-oxygenated portion of the gasoline pool and the
oxygenated portion of the pool.

2. Penetration levels of non-oxygenated fuels in California

We do not believe that elimination of the oxygen mandate would eliminate the use of
oxygen in California reformulated gasoline. In fact, we expect that refiners would use a
significant amount of ethanol to help compensate for gasoline volume and octane loss resulting

from California’s MTBE ban Refinery modeling, conducted by MathPro, Inc., supports this

57


incorporates consideration of all exhaust and evaporative emission changes from on-road vehicles
(including commingling and permeation), as well as changes in off-road source emissions

In Table 31 the columns for VOC emissions reflect the estimated impact of a waiver on
actual VOC emissions (in tons/day), considering exhaust and evaporative emissions, including
commingling and permeation, from on-road and non-road vehicles The columns differ based on
the estimates of average increase in RVP associated with commingling For example, “VOC 0.1
psi boost” would reflect the impact of a waiver on the VOC inventory if commingling increases
the average RVP by 0.2 psi, but this increase is treated as partially offset by CARB’s adoption of
a0 1 psi reduction in RVP ® The column “VOC no boost” would reflect the impact on the VOC
inventory if commingling increases RVP by 0 1 psi, and this increase is treated as fully offset by

CARB’s adoption of a 0 1 psi reduction.

8 This column would also reflect the umpact of a waiver on the VOC inventory if commingling increases the

average RVP of the gasoline by 0 1 psi and the impact 1s not offset

121


random® The statistical software available to develop the Phase 3 predictive model was a
substantial improvement over that which was used to develop the Phase 2 model’ Consequently,
according to CARB staff, an RVP-by-oxygen interaction term in the Tech 4 model was no longer
statistically significant using the newer software, and was not included in the revised model
According to CARB staff, this term would not have been in the Phase 2 model had the newer
software been available; thus the Phase 2 Tech 4 model would have looked much like the Phase 3
Tech 4 model *

As can be seen from the above, the development of a model relating gasoline properties to
emissions requires a number of decisions For both the complex and predictive models, some of
the most important decisions included the acceptance or rejection of data, treatment of high
emitters, selection of statistical modeling methodology, inclusion or exclusion of certain terms
during model development, and choice of a final model from alternative candidate models These

decisions cannot always be made solely by objective means, such as the application of a statistical

A “fixed effects” model of this kind makes no attempt to estimate the error introduced by
sampling from some larger population of vehicles or fuels The model just describes
quantitatively the relatonships among vanables that are present in the dataset that was analyzed
A “mixed” model, as was used by CARB 1n both the Phase 2 and Phase 3 predictive models’
construction, attempts to go beyond description of the available data to make statistical inference
to some larger population from which the available data were sampled In this case CARB
treated the vehicle effects as random (assuming that the test vehicles were sampled from some
larger fleet) while fuel effects were treated as “fixed” (assuming that all fuels of interest were
represented in the data) Such a modeling approach makes tt possible to estimate the probable
error in modeled effects in a way that is not possible with a fixed effects model The approach,
moreover, improves the accuracy of the significance measures used to decide which terms to
include in the model

The important difference was development of an improved algorithm for guiding a sequence of
iterations In the earlier version the iterative process came to a premature conclusion and slightly
mus-estimated the explanatory power of certain terms

See January 24, 2000 memorandum from Win Setiawan, CARB, to Steve Brisby, Manager Fuels
Section, CARB (in Docket A-2000-10, Document Number II.D.-18h),

23


TABLE OF CONTENTS

L CHRONOLOGY OF EVENTS AND GENERAL DESCRIPTION OF

CALIFORNIA’S SUBMITTALS ....... . 1... . sobeeeee al
A Governor Davis’ April 12, 1999 petition for waiver ......... wee el
B. California Air Resources Board (CARB) July 9, 1999 submittal . vee 2
C_ CARB September 20, 1999 response to EPA questions fbn ee eee . 3
D_ CARB December 24, 1999 submittal Lee rr)
E CARB February 7, 2000 submittal 2 0 0. eee eee 6
Tl. SUMMARY OF CALIFORNIA’S WAIVER REQUEST... Lo. 8
Il. EPA’S EVALUATION OF CALIFORNIA’S PETITION ......... .... 16
A Evaluation of the oxygen content-NOx emission relationship Lees 18
1 CARB’s Phase 3 Predictive Model (PM3) we eee 18

2 Description and comparison of available models for predicting ‘NOx emissions
evens Loeeeeee . -..20
3 “Audit and verification OfPM3 ....... 00 eee . 24
a. Handling of Vehicle Technology Groupings ...... 24
b The Dataset Beene ne ee ee eee 25
c. Statistical approach . 2 ww... bbe beeen eee 27
d. Statistical treatment of “High-Emitters” . : 28
e Choiceoffinl model ..... «1... 28
4 Effect of Oxygen on NOx Emissions from Tech 5 Vehicles . . 29
a. Studies of the Impact of Fuel Quality on Tech 5 Vehicle Emissions .... 31
b The Auto Oil Study Se eee eee 32
c. The CRC Study ...... be eee ees . 34
d The Toyota Study 2 ....... .. . 37
e. Conclusions ... . eee eee 39
5. EPA Model Building For Tech 4 Vehicles beeen . . 40
a. Tech 4 modeling decisions and assumptions .............. 2. 41
b. Statistical methods ..... bebe e ee eb eee 2. 45


4. Off-road vehicles and engines

Changes in fuel formulation are expected to affect emissions of off-road vehicles and
engines (off-road sources) as well as on-road vehicles. Directionally, a decrease in fuel oxygen,
all else constant, would be expected to increase exhaust HC and CO emissions and decrease NOx
emissions for both off-road sources and on-road vehicles. Emission models such as CARB’s
predictive model and EPA’s Complex Model, however, were based solely on emissions test data
from on-road vehicles These models may not accurately quantify the response of off-road
sources to changes in fuel properties, because of substantial differences in engine and emission
control technology between the two categories. There is no comparable fuel effects model for
off-road sources nor are there extensive test data available to characterize fuel effects on off-road
source emissions.

CARB staff used the Tech 3 portion of the predictive model, which represents older on-
road vehicles, as a tool to estimate exhaust emission effects from off-road sources. CARB noted
in their February 7, 2000 letter that the Tech 3 model may represent the exhaust emissions effect
from larger four-stroke off-road sources reasonably well CARB recognized that the model’s
usefulness may be very limited in predicting emissions effects for smaller engines and in two-
stroke engines responsible for the majority of reactive organic gas emissions from off-road
sources

We share CARB’s concern about the limited ability of the predictive model to represent
off-road source emissions The Tech 3 portion of the predictive model is intended to be
representative of older closed-loop three-way catalyst vehicles. This technology is not

representative of the current off-road source fleet.

117


likely to provide a more severe test of the hypothesis that there is a NOx benefit associated with
oxygen removal.**

The CEC MathPro study described a series of cases in which the CaRFG3 production
was split between fuel oxygenated with ethanol at 2 7 weight percent oxygen and non-oxygenated
fuel MathPro did not report fuel properties for split market cases in which the oxygenated
portion of fuel was produced with 2.0 weight percent oxygen

As explained earlier, we elected to use a set of fuel properties with oxygen at 2 0 percent
to represent CaRFG3 in a “no-waiver” case We had no clear indication that, if a waiver were
granted, the portion of gasoline produced with oxygen would be oxygenated at a substantially
different oxygen level than in a “no waiver” case In the absence of such evidence, we were
reluctant to assume a 2 7 percent oxygen level in the oxygenated CaRFG3 in a split market
(Again, the increasingly steep NOx response to oxygen limits oxygen content.) If we were to
incorrectly assume a higher oxygen content for “waiver case” CaRFG3 than “no waiver” CaRFG3
we would likely underestimate the NOx emission benefit attributable to the waiver. On the other
hand, we do not believe that, if a waiver were granted, any significant amount of oxygenated
CaRFG3 would be produced with less than 2 percent oxygen Suppliers will be motivated to use
more than 2 0 percent oxygen in order to take advantage of the PM3 CO credit and the federal
ethanol tax credit. Noting the uncertainty about the oxygen content of CaRFG3 in a split market,

we elected to assume that it would be at 2 0 percent

36 Thus assumes that a fuel with 2 7 percent oxygen has poorer NOx performance than a fuel with 2 0 percent

oxygen We could possibly reach that conclusion even if comparing a 2 0 percent oxygen and a 2 7 percent
oxygen fuel with equivalent PM3 NOx performance because we employed different modeling assumptions
and considered non-road NOx emissions

66


Table 13: EPA Tech 4 Model “Waiver” to “No Waiver” NOx Percent Changes

Percent NOx | Percent NOx

Change non- | Change oxy
No Waiver | Waiver Nationwide oxy to oxy (waiver) to oxy
Oxy level Oxy level | MTBE Use | Unocal Patent (no waiver) (no waiver)
20 2.0 Reduced Patent not avoided 3.80 117
27 27 Reduced Patent not avoided 541 0.79
27 20 Reduced Patent not avoided 528 262
20 2.0 Continues Patent not avoided 447 002
27 27 Continues Patent not avoided 518 009
27 2.0 Continues Patent not avoided 596 145
20 2.0 Reduced Patent avoided 446 -0.52
2.7 27 Reduced Patent avoided 617 0.24
27 20 Reduced Patent avoided 6.47 139
20 20 Continues Patent avoided 454 014
27 27 Continues Patent avoided 595 0.46
27 20 Continues Patent avoided 655 1.78

This table shows that, for each comparison, Tech 4 vehicle NOx emissions increase with

increasing oxygen. This is true not only for the non-oxygenated to oxygenated fuel changes, but

for the oxygenated to oxygenated fuel changes where the oxygen level is higher in the “no

waiver” fuel

estimate the effect of the waiver on Tech 4 NOx emissions

These factors, inverted to give “no waiver” to “waiver” changes, were used to

This calculation was done in the

same basic manner as in our earlier analysis. In this analysis, we used the oxygenated and non-

oxygenated market shares associated with each specific case, apportioned the inventory according

to these market shares, and applied the appropriate change FACTOR

77



Table 1. Boundary values for fuel properties in CARB’s simulation analysis

Lower Bound Upper Bound Increment
Aromatics 15 35 5
Olefins 0 10 1
Sulfur 0 60 2
TSO 175 220 2.5
T90 285 330 25
Benzene 0.1 1.1 01

CARB generated over 10 million combinations of fuel properties within the bounds in
Table 1, and using the PM3 identified the subset of these hypothetical fuels which would comply
with CARB’s standards for its Phase 3 CaRFG. ,

CARB’s simulation analysis showed that on average among the large number of
complying formulations, the additional reduction in NOx associated with going from a 2 weight
percent oxygen fuel to a zero oxygen fuel is about 1 5 percent On the basis of this simulation
analysis CARB claimed that the reduction of NOx is greater without oxygen independent of which
fuel properties are varied.

CARB’s analysis indicates that at zero oxygen, 90 percent of the 3.2 fuels modeled and
that comply with the CaRFG3 regulations would have NOx reductions of -0 7 percent, at 2
percent oxygen by weight, 90 percent of the 3.5 million fuels modeled and that comply with the
CaRFG3 regulations would have NOx reductions of -0.2 percent The average NOx reduction for
a complying non-oxygenated fuel was 4 2 percent, for a complying fuel at 2 percent oxygen by

weight, the average NOx reduction was 2 4 percent. CARB argued that its analysis verifies the

13


a neutral or even a detrimental impact on ozone even using California’s relative reactivity
approach Based on all the evidence before the Agency, it is reasonable to believe that if a waiver
were granted to California, there would be an expected reduction in NOx, an increase in CO, and
significant uncertainty about the overall change in VOCs. The evidence is not clear what impact
the emissions changes from a waiver would have on ozone and does not clearly show whether a
waiver would reduce, not affect, or even increase ozone..

All three of the pollutants discussed above influence ozone formation. The atmospheric
chemistry is complex, but directionally we would expect NOx reductions to reduce ozone
formation, CO increases to contribute to ozone formation, and VOC emissions to either increase
or reduce ozone, depending on whether VOC emissions increase or decrease. In order to
determine the direction of the overall impact on ozone from the changes in these three pollutants,
‘we must consider the expected change in each of them and the overall balance that results from
the directionally different impacts on ozone

EPA does not believe that the evidence provided by California and developed through its
own analyses clearly demonstrates what effect a waiver would have on ozone This is because 1)
there are three pollutants whose emission rates would be altered by a waiver, and all three affect
ozone formation, 2) these pollutants are not equivalent, on a ton-for-ton basis, in their effects on
ozone formation, and 3) while NOx will decrease with a waiver, CO is expected to go up and
VOC may go up or down resulting in an uncertain impact on ozone.

EPA has carefully evaluated all of the information in front of it, including information
submitted by CARB, other interested parties, and developed by EPA. After considering what

effect a waiver might have on the properties of California reformulated gasoline, and the effect

126


under paragraph (k)(1) ® Paragraph (2) of section 211(k) establishes a number of general content
requirements applicable to federal RFG. These include, in addition to the oxygen content
requirement, a cap on NOx emissions from RFG,TM a limitation on benzene content, and a ban on
heavy metals (such as lead or manganese)

Because one of the primary objectives of the RFG program is to help areas achieve the
NAAQS for ozone by requiring reductions in VOC emissions, clearly EPA may consider the
impact of the oxygen content requirement on VOC emissions when evaluating waivers under
section 211(k)(2)(B) The impact of the oxygen requirement on NOx and CO emission is also a
relevant consideration for waivers decision **

The limitation on increases in NOx emissions in 211(k)(2)(A) includes the following
language.

If the Administrator determines that compliance with the limitation on emission of

oxides of nitrogen _is technically infeasible, considering the other requirements

applicable under this subsection to such gasoline, the Administrator may, as

appropriate to ensure compliance with this subparagraph [regarding NOx

emissions], adjust (or waive entirely), any other requirements of this paragraph

(including the oxygen content requirement . . )

8 Section (k)(3) directs the agency to require compliance with the more stringent of either an RFG formula or
an RFG performance standard EPA determined that the performance standard was the more stringent
See, Standards for Reformulated and Conventional Gasoline, 59 Fed Reg 7716, 7722 (Feb 16, 1994)
Section (k)(1) provides EPA wath the general authonty to require the greatest emission reductions
achievable considering certain other factors such as cost and other environmental impacts

94

While 211(k)(2)(A) prohibits NOx emissions from RFG that are greater than such emissions from baseline
gasoline, EPA exercised its general authority under 21 1(c\(1) to require reductions in NOx emission from
Phase II RFG of 6 8%

9s ‘NOx and CO emissions may contribute to concentrations of ground level ozone, and NOx emissions may
also contribute to PM.

132


zero We believe that, in the absence of other fuel property changes, engineering judgement
would support this assumption. The more sophisticated engine management and fuel control
systems in these newer vehicles are likely to reduce the effects of fuel oxygen on combustion
Thus, we would expect that both engine-out and post-catalyst emissions would be less sensitive to
the changes in fuel oxygen content. Although we cannot extend this conclusion to changes in
other parameters, particularly sulfur, we believe that the higher degree of uncertainty associated
with the Tech 5 model, and the greater potential for error introduced by incorrectly forecasting
fuel sulfur changes, points to this zero-effect assumption as the best compromise Even if the
sulfur effect is not small, however, the EPA MathPro modeling suggests that the sulfur changes
are likely to be small Thus, the zero effects assumption, even if it is erroneous, is unlikely to
introduce a substantial error in EPA’s analysis.
b. Results of most recent analysis

The CEC MathPro modeling did not use a finalized version of the phase 3 predictive
model and we were unsure if subsequent changes to reference specifications would have
substantially affected the modeling results We elected to compare “waiver” and “no waiver
cases” where oxygenated CaRFG3 was oxygenated at 2.0 weight percent The CEC MathPro
modeling, however, only included split market cases where the oxygenated CaRFG3 was assumed
to be oxygenated at 27 weight percent Consequently, in the earlier analysis, we selected a single
set of fuel properties, estimated for a 100 percent ethanol market share at 2 7 weight percent, to
represent 2 0 weight percent oxygenated CaRFG3 for both the 100 percent ethanol “no waiver”
and split market “waiver” conditions We retained the property estimates from a split market

case to represent the non-oxygenated portion of the CaRFG3 pool.

72


use of palladium, and catalytic converters with two different layers of catalytic materials These
differences can cause a different response to fuel quality

Accurately modeling the impacts of fuel quality on emissions from Tech 5 vehicles is
important, as these vehicles will dominate the vehicle fleet beginning in the middle of the first
decade of this century For example, California projects that Tech 5 vehicles will emit 53% of in-
use NOx emissions from light-duty vehicles and light-duty trucks in 2005.

California attempted to create an independent Predictive Model for Tech 5 vehicles based
solely on emission data from these vehicles, as it did for Tech 3 and Tech 4 vehicles However,
this effort failed due to a lack of emission data reflecting the effect of a wide variety of
independently varying fuel parameters. Only a few test programs have included Tech 5 vehicles
Of these programs, only the effect of sulfur on emissions was studied Another study varied
oxygen content, but with only 11 vehicles Other fuel parameters were not varied sufficiently to
discern their effect on emissions, or multiple parameters were varied at same time, preventing the
discernment of the impact of individual fuel parameters.

To circumvent this problem, California grouped the emission data from both Tech 4
(1986-1993 MY) and Tech 5 vehicles and generated a Tech 5 Predictive Model from the
combined set of data The vast majority of the test data were from Tech 4 vehicles (roughly 85
percent) The Tech 5 model was allowed to have two sulfur effects, one for Tech 5 vehicles and
one for Tech 4 vehicles. Otherwise, each fuel parameter was allowed to have only a single,
unified effect, derived from both Tech 4 and Tech 5 vehicle emissions data Tech 5 vehicle
emissions were found to be much more sensitive to sulfur than Tech 4 vehicles. However,

because the statistical model only allowed a common effect for other fuel parameters and the vast

30


examined, based on the penetration of non-oxygenated fuel for that particular scenario, and

multiplying that amount by 0 6 to represent the change in the SCAQMD, since that region makes

up approximately 60 percent of all RFG used in California. Table 27 below contains estimates,

based on the above assumptions, of the reductions in permeation emissions that would occur

under the various comparison scenarios

Table 27 VOC Emission Reductions due to reductions of permeation losses with
Waiver
Permeation Emission Change (tons
VOC /day)
No Waiver Matver NationwideUnocal Non-oxy [xy no waiver Pxy no waiver |Total
pxy wt pct. bxy wt pct MTBE Use Patent Penetration Pct _fo non oxy 10 Oxy waiver

20 2 0 Reduced Patent now 65 51 00] -51
avoided

27 27 Reduced Patent now 60 6.3 00] 63
avoided

2.7 2.0 Reduced Patent now 65 68 0.9] -78
avoided

20 20(Continues Patent now 50 39 00} 39
avoided

27 2.7{Continues Patent not 40 42 OO}; 42
pvoided

27 20(Continuess Patent not 50 53 14] 66
avoided

20 2.0 Reduced Patent avoided 74 -5.8 0.0] -5.8

27 27 Reduced Patent avoided 54 5.7 OO} -57

27 2.0 Reduced Patent avoided 74 78 0.7] -85

20 2.0 Continues Patent avoided 50 39 0.0] -3.9

27 27[Continues Patent avoided 35 37 0.0{ -3.7

27 20Contmues Patent avoided 50 53 -14] 466

There is considerable uncertainty associated with estimation of permeation losses. Thus,

these quantitative estimates should be viewed with caution The insufficiency of information to

estimate waiver-related permeation effects with a high degree of confidence is discussed below

101


raises serious doubts about the ability of the Tech 5 Predictive Model to accurately project the
NOx emission impacts of fuel quality differences of all sorts
d. The Toyota Study

The third study, conducted by Toyota, consisted of testing one TLEV, six LEVs and two
ULEVs on two fuels: 1) a Phase 2 California RFG with 2 weight percent oxygen in the form of
MTBE and 2) a Phase 2 California RFG with roughly 3.2 weight percent oxygen in the form of
ethanol Neither fuel actually met the formal Phase 2 RFG requirements, but they were close
The ethanol blend had an RVP of 7.6 psi, which is far above the allowable RVP cap of 7 psi and
well above the RVP of 6 8 psi of the MTBE blend. The T50 and T90 levels of the ethanol blend
were also both seven degrees Fahrenheit higher than that of the MTBE blend It is not apparent,
then, that these fuels differed only in the oxygen content and type of oxygenate used.

Toyota found that the ethanol blend increased NOx emissions for 7 of the 9 vehicles The
absolute emission data (in g/mi) were not provided, but the car-specific emissions changes
averaged to a 5.5 percent increase across the cars in the study The fuel-related differences in
NOx emissions (provided as a single percent change for each test car) showed a high degree of
scatter among the cars, with the greatest increase being over 20 percent and the greatest reduction

being over 10 percent. Despite the predominance of NOx emissions increases with increasing

* The MTBE blend actually fails the exhaust THC emission performance standard by less than 1%,
assuming that this fuel was being certified against the flat limits Against the average limits, it
fails the THC performance standard by a larger margin. The ethanol blend fails NOx emission
performance by 2% against the flat limits and fails both NOx and exhaust THC performance
against the average limits Toxics performance cannot be assessed as the benzene content of the
fuels 1s unknown

37


Table 10 shows non-oxygenated CaRFG3 shares ranging from 35 percent to 74 percent,
with six of the eight cases being greater than the 40 percent non-oxygenated share we had
assumed based on earlier modeling. The analysis predicts, all else being constant, a decrease in
non-oxygenated market share with an increase in oxygen content from 2 0 percent to 2 7 percent
by weight (This is found by comparing each 2 0 percent waiver case with its corresponding 2 7
percent case ) Also, it predicts that a reduction of MTBE use outside of California would result
in an increase in the non-oxygenated market share of the CaRFG3 pool (This is found by
comparing each of the cases which differed only by national MTBE use This relationship is
expected since reduced use of MTBE outside of California would result in higher ethanol prices
for California refiners.) The Unocal Patent may also affect the non-oxygenated/oxygenated
market split ** (According to MathPro, avoidance of T50 less than 210° F could limit the use of
alkylate for premium CaRFG3, possibly increasing the use of oxygen ) MathPro has also
concluded that the economic advantage of using 2 7 percent oxygen versus 2 0 percent oxygen in
a split oxygenated/non-oxygenated waiver market is “too close to call”. Consequently, we
cannot rule out either oxygen content as unlikely, and restrict the range of market share estimates
on this basis (The lowest non-oxygenated market share, 35 percent, occurs in a 2 7 percent case,
the highest, 74 percent, in a 2 0 percent case). Thus, we can conclude that under a number of
sets of foreseeable “waiver” circumstances, there will be substantial quantities of both oxygenated

and non-oxygenated CaRFG3 produced The previous estimate of 40 percent non-oxygenated

3 The Unocal patent described reformulated gasoline in terms of broad ranges of properties such as RVP,

50, T90, olefins, paraffins, and octane The first four of these properties are specifically covered by the
Califorma RFG regulations

62


percent Thus, two conclusions can be drawn from this CO emission data. First, Tech 5 vehicle
CO emissions were not affected by oxygen content. Since CO emissions are thought primarily to
be a function of the engine’s ability to maintain the proper air-fuel ratio (notwithstanding the
sulfur effects on catalytic activity), this lack of response to additional oxygen in the fuel is a strong
indication that these vehicles’ air-fuel ratio control systems (the combination of ported fuel
injection, and feed-forward and feed-back computer control) is sufficiently accurate and fast to
almost completely adjust fuel injection rates for the additional oxygen. Second, this ability of
Tech 5 vehicles to adjust is dramatically better than that of Tech 4 vehicles

Moving to NOx emissions, the same trends occur The impact of the additional oxygen on
NOx emissions from the Tech 5 vehicles is again essentially zero (1 percent decrease from the
Tier 1 vehicles and no change from the advanced prototypes). This result is consistent with the
finding of no impact on CO emissions Both pollutants are sensitive to changes in air-fuel ratio in
both the engine and the catalyst, though in opposite directions. Oxygen content in fuel is believed
to affect emissions primarily through changes in air-fuel ratio Again, in contrast, the additional
oxygen increased NOx emissions from the Tech 4 vehicles by 4 percent. This is consistent with
the 10 percent decrease in CO emissions because of the opposite response of the two pollutants to
air-fuel ratio

Thus, the Auto-Oil study indicates that Tech 5 vehicles’ NOx response to oxygen differs
dramatically from that of Tech 4 vehicles. It also strongly suggests that oxygen does not affect
either CO or NOx emissions from Tech 5 vehicles This conclusion is consistent with CARB’s

finding that oxygen content does not affect CO emissions from Tech 5 vehicles However, it

33


CaRFG3 properties in a “no-waiver” scenario. MathPro modeled cases in which ethanol is
blended at 2 0 weight percent and 2.7 weight percent oxygen. Although the federal RFG oxygen
per-gallon standard is 2.0 weight percent, ethanol has traditionally been blended in federal RFG at
10 volume percent ethanol (about 3 5 weight percent oxygen), in order to take full advantage of
tax incentives As discussed earlier, the complex model shows a decrease in NOx with increasing
oxygen Thus, compliance with the federal NOx performance standard does not constrain the
amount of oxygen that can reasonably be used in federal RFG California’s PM3, however,
shows an increase in NOx with increasing oxygen (at a much higher rate than PM2). The PM3
NOx-oxygen relationship is also non-linear, with the rate of NOx increase increasing directly with
fuel oxygen content. This response effectively limits the amount of oxygen that can used in
CaRFG3, because substantial changes in other fuel parameters must be made to compensate for
the NOx increase associated with an increase in oxygen. MathPro’s December 7, 1999 report
noted that its refinery model could not produce a complying gasoline at 3.5 percent oxygen.
Although MathPro’s model did find a feasible 2 7 percent oxygen fuel, we selected the 2 0
percent oxygen fuel described in the report as “Case 2a CARB” to represent the “no waiver” case.
We believed at the time that selection of the 2 0 percent fuel as the basis for comparison was
appropriate because this oxygen level is the oxygen content standard for Federal RFG.

Furthermore, we felt that selection of a 2 0 percent oxygen fuel as the basis for comparison was

35 For example, while holding other PM3 parameters at the phase 3 flat lumut values, increasing oxygen from

20 to2 7 percent would require about an 11 ppm sulfur reduction (from 20 to 9 ppm) to maintain the same
NOx emissions If oxygen were increased an additional 0 7 weight percent from 2 7 to 3 4 percent,
reducing sulfur to 0 ppm would still not fully compensate for the NOx increase due to oxygen

65


e. Confidence regarding permeation effects

This subsection provides additional data on permeation losses and associated VOC
emissions Fuel system permeation is well documented in the automotive industry There are at
least 17 papers published by the Society of Automotive Engineers (SAE) since 1990 that deal
with the issue Toyota recently presented the results of a study to CARB and EPA that concludes
that the switch from MTBE to ethanol in California gasoline will increase evaporative emissions
due to permeation CARB's predicted increases are based on conservative estimates of probable
fuel system permeation sources, flexible fuel supply hoses, plastic fuel tanks, and fuel tank filler
neck hoses in on-road vehicles The vehicles are at rest, without the effects of increased
temperatures and other conditions that could be expected to increase or add to permeation losses
(ie, permeation losses that occur independent of ethanol content). Typical vehicles were
represented by two theoretical fuel system designs, fuel injected and carbureted, each using
different hose materials and hose lengths that are approximations on current and older technology
vehicles Permeation estimates for the designs were based on representative types of hose
material and the wetted surface areas The permeation rates were provided by Dupont, a leading
supplier of fuel system materials The rates are from two Dupont studies published by the Society
of Automotive Engineers (920163 and 970307) The fuel system configurations and the choice of
permeation rates are reasonable approximations in the absence of detailed survey information to

describe California's on-road fleet ®

Presentation by Brent Crary, Toyota Motor Corporation, “Effects of Ethanol on Emissions of
Gasoline LDVs”, Ann Arbor, Michigan, May 4, 2000

102


Table 32: Components of Total VOC Change

On-Road VOC Changes Non-Road VOC Changes
|No Waiver |Waiver — |Nationwide |Unocal Patent
Oxy Level JOxy Level IMTBE Use Exhaust [As- vipst 102 pst Penmeation Exhaust [As- vipst 02 psi
ended |Communglin |Comminglin [Blended |Comminglin {Commuingling
svap ig iEvap
20 2 0|Reduced [Patent not avoided 205 3 32) 555 1122 51 2 92) 0 60) 101 2 03)
27 2 7[Reduced [Patent not avoided 281 -13 08) 515 10 41 463 3:70 237 0.94) 189
27 2 O|Reduced [Patent not avoided 244 -13 08) 515 10 41 78 454 -237 0.94) 189
20 2 0[Continues _ [Patent not avoided 147 3 32) 555 11.22 3.9) 225 0 60 101 203)
27 27\Continues {Patent not avoided 158 -8 10) 5.25 1061 42 247 -147 096) 192
27 2.0{Continues [Patent not avoided 185 ~13 08 515 1041 466 385 237 094 1.89
20 2 0|Reduced [Patent avoided 233 -7 56 5 38) 10 87 58) 3.33 -137 0 98) 197
27 2.7{Reduced [Patent avoided 2 56: -10 45 5 22) 10 54 57) 3 33 -189 0 94 1.9]
27 2 0[Reduced tent avoided 2 83 12 59 517 10.45 85 496 -2 28 0.94, 190)
20 2 0|Continues tent avoided 178 -7 03 5.39 10.89 3.9 225] -1.27 0.98] 197
2.7 27|Continues [Patent avoided 186] -821 5 26| 10 63 —3.7{_216| -149 096 1.92|
27 20|Continues [Patent avoided 2.28 -12 08 5 18) 10 47) 66 385 2:19 0 94) 190]

86

The sum of these components, in some cases, differ tnvially from the totals shown 1n the previous table due to rounding

124



After some discussion and preliminary analysis, EPA decided to use T50 and T90 to
represent the distillation properties of the test fuels, despite some theoretical reasons for
preferring E200 and E300 ”° Information adequate to determine the E200/E300 values was not
present for all of the fuels in the data, and corrections attempted without full information might
introduce error of unknown magnitude and direction.

Where CARB elected not to model high-emitters separately, EPA decided to explicitly
identify them and model their behavior in its analysis. In the Complex Model the high emitters
actually had a NOx slope with oxygen that was different in direction from that of the normal
emitters The ability to predict high emitter effects separately was more important in constructing
the Complex Model than for subsequent modeling efforts, since such vehicles were substantially
under-represented in the data. But the effect was deemed potentially important enough to
examine in this analysis, especially since the categorical variable representing the high-emitters
was determined as a function of hydrocarbon and carbon monoxide emissions rather than the NOx

emissions measure used by CARB ”*

Changes in E200 and E300 refer to changes in the volume percentage of fuel which distill at or below 200
deg F and 300 deg F, respectively As such, changes in E200 and E300 are directly related to the change in
the fractions of fuel which evaporate in the engine's intake system and the combustion chamber pnor to the
imitation of combustion A 5 volume percent increase in E200 implies that 5 percent more of the fuel 1s
likely to evaporate prior to combustion Since emissions are a strong function of unbumed fuel, E200 and
E300 are theoretically related to the emission forming process Also, the units of E200 and E300 (being
volume percent) are analogous to those for aromatic and olefin content (which are also in the form of
volume percentages) and thus, form a more consistent set of modeling parameters Finally, the weakness of
distillation temperatures (T50 and T90) are that they hold the percentage of fuel evaporated constant (at 50
percent and 90 percent, respectively) and vary the temperature needed to obtain these evaporation
percentages Thus 1s not analogous to the thermodynamic processes existing in the engine's intake system or
combustion chamber For example, when a fuel gets heavier (TSO and T90 increase), less fuel evaporates
in the engine, as opposed to more heat getting sent somehow to the engine to evaporate the same amount of
fuel E200 and E300 more naturally reflect the response of the engine to lighter or heavier fuels

2 Also called a “dummy”, such a vanable 1s actually a set of binary-coded variables numbering one
fewer than the number of categories to be represented. In this case, since each vehicle 1s either a
high emitter or not (two categories), there need be only one variable placed in the data set and
coded “O" for normal emutters and “1" for high emitters. The problem of correlations between

43


Table 17: Estimated Standardized Coefficients for First Half of Stepwise Regression Fit
to Log(NMHC) (Bold italics indicate non-significant terms at 0.05
significance level)

Standardized
Term Step 0 Step 1 Step 2 Step 3 Step 4 Step 5 Step 6

Intercept -1.2801| _-1.5610| _-1.5687| _-1.5814| -1.5806| -1.5837| _-1.6014
RVP 0.008740| _0.01102| 0.006478] 0.007653| 0.01206| 0.01253| 0.007747|
T50 0.04687| 004991{ 0.04072/ 0.05697/ 0.06454] 0.06525] 0.06042
T90 0.02168] 0.02064] 0.03167] 0.02465] 0.02068] 0.02023] 0.02143
AROM 0.01417{ 0.07302] 0.02050] 0.01538] 0.01382] 0.01379] 0.01049)
OLEF 0.01522 -0.01491| -0.02153] -0.01850[ -0.01548] -0.01522] -0.01570|
OXYGEN -0 01673] -0.01545] -0 01991] -0.01244] -0.00875| -0.00875| -0 01351
SULFUR 0.04645} 0.04337] 0.04120] 0.04363] 0.04575] 0.05343] 0.05441
HI-EMI 1.7080 1.7040 17055 T7073 1.6903) 1.6914
T90*T90 0.02570] 0.02000| _0.01851| 0.01844] 0.07840)
T50*TSO 0.02036] 0.02836] 0.02853] 0 02899)
T9O0*OXY 0.01680] 0.01713] 0.01817,
SUL*HI -0.03006| -0.03043)
OXY*OXY 0.01470)

Table 18: Estimated Standardized Coefficients for Second Half of Stepwise Regression
Fit to Log (NMHC) (Bold italics indicate non-significant terms at 0.05
significance level)

Standardized

Term Step7 [ Steps’ | Step9 [| Step 10
Intercept -1.5957| -1.5980| -1.6038] —-1.6039)
RVP 0.008474] 0.008977} 0.01064] 0.01173
T50 0.06125} 0.06499] 0.06545] 0.06376
T90 0.02084] 002104] 0.02188] 0.02421
AROM 0.008729] 0.008465] 0.01032] 0.01070
OLEF ~0.01426] -0.01430] -0.02481 657
OXYGEN -0.01329| -0.01378] -001444| -0.01560
SULFUR 0.05505} 0.05495] 005697] 0.05630
HI-EMIT 1.6909] 1.6935] 1.6939] 1.6937
T90*T90 0.01617] 0.0160. 0.01444] 0.01515
T50*T50 0.02494] 0.02477] 0.02523] 0.02383]
T90"OXY, 0.01589] 0.01576] 0.01595] 0.01579)
SUL*HI -0.03174[ -0.03172] -0 03141] -0.03123
OXY*OXY 0.01256} 0.01353] 0.01393] 0.01367
T90*ARO. 0.006908] 0.007013] 0.007963} 0.008756)
T50°HI -0.02609| -0.02579] -0.02529)
OLEF*OLEF 0.006272| 0.007654]
T90*OLEF -0.00400

85


2)

3)

A demonstration that the CO increases associated with reductions in oxygen in
gasoline would not counterbalance NOx decreases resulting from the waiver, if
granted, and

A demonstration that the ethanol commingling effect would not counterbalance the

NOx decreases resulting from the waiver, if granted”.

Subsequent to the above memo being sent, EPA staff met with CARB staff on January 24

and 25, 2000 regarding these and other issues CARB indicated at the meeting that it would

provide additional information to EPA CARB provided this information to EPA in a submittal

dated February 7, 2000.

E. CARB February 7, 2000 submittal

Ina submittal dated February 7, 2000, (filed in docket A-2000-10, document numbers II D.-20

and 21, also available at http /Avww arb ca gov/cbg/Oxy/Avav/029799 pdf and

http //Awww arb ca gov/cbg/Oxy/wav/029799at pdf) CARB provided EPA with information on six

topics.
1)
(2)

@)
(4)

Comparison of CaRFG3 Predictive Model to the EPA’s Complex Model
Identification of the NOx benefits representative of non-oxygenated gasoline and
ethanol RFG blends produced to meet the CaRFG3 standards

Discussion of CO, hydrocarbons and NOx issues

ARB’s efforts to address commingling effects

Commungling refers to the muxing of non-oxygenated RFG with ethanol RFG blends in the gas
tanks of consumer’s automobiles. Even if a waiver were granted, there would still be ethanol
RFG blends, so that commungling would occur Since the presence of ethanol causes an increase
in the volatility of the gasoline (as measured by the Reid Vapor Pressure or RVP), such
commingling would contribute to an increase in evaporative VOC emissions

6


LIST OF TABLES

Table 1.
Table 2

Table 3
Table 4
Table 5
Table 6
Table 7
Table 8
Table 9

Table 10
Table 11

Table 12
Table 13
Table 14
Table 15

Table 16
Table 17

Table 18

Table 19

Table 20

Boundary values for fuel properties in CARB’s simulation analysis .. 13
Estimated Percent Change in NOx for Oxygen Content Change from 2% to 0%
(Other properties at Ca Phase 3 flat limits) see sees 21
Comparison of Measured Versus Predicted Change in NOx Emissions from Phase
2: California RFG Versus Conventional Gasoline (%) . . . .35
Predicted Change in NOx Emissions for Individual Fuel Parameters Which Varied
Between Phase 2 California RFG and Conventional Gasoline in CRC Testing (H}6

Means and Standard Deviations of Fuel Properties : 45
Estimated Coefficients for First Half of Final Models Fit to Log(NOx) : 48
Estimated Coefficients for Second Half of Final Models Fit to Log(NOx) ..... 49
List of Candidate Models for NOx Emissions ............ 1. .49

NOx Emissions change resulting from adding 2 weight percent oxygen to fuel that
initially contained no oxygen (holding other parameters at California flat limits) 51

Summary of refinery modeling results ....... .. . . 61
Predictive model parameters of the two fuels in the December 7, 1999 analysis (for
California Energy Commission) .......... 67
NOx Emission Change from adding 2 percent Oxygen to Fuel (values i in%) .69
EPA Tech 4 Model “Waiver” to “No Waiver” NOx Percent Changes... .77
Estimated South Coast On road NOx Emission Inventory Changes With Waiver

(tons/day) 2... eee eect e eee tenn beeen ee 78
Estimated Percent Change in Exhaust HC for Oxygen Content Change from 2% to
0% (Other properties at Ca Phase 3 flat limits). .... ..... 2.79
Means and Standard Deviations of Fuel Properties ..... ............ . .82

Estimated Standardized Coefficients for First Half of Stepwise Regression Fit to
Log(NMHC) (Bold italics indicate non-significant terms at 0 05 significance leveBS
Estimated Standardized Coefficients for Second Half of Stepwise Regression Fit to
Log (NMHC) (Bold italics indicate non-significant terms at 0 05 significance
level) wee ee ee . 85
Measures of. Fit for Models From Stepwise Regression Fit to ‘Log(NMHC)

bette eee 86
Estimated Percent Change i in 1 exhaust HC for Oxygen Content Change from 2% to
0% ran . .. 88

iv


Finally, too many issues surround the quality of the Toyota testing and its ability to focus

solely on oxygen content to draw any meaningful conclusions from its results.
Pending new information, EPA therefore believes the best assumption to make for Tech 5
vehicles is that oxygen content does not affect either NOx or CO emissions
5. EPA Model Building For Tech 4 Vehicles

After careful review of CARB’s development of the Phase 3 NOx model as discussed in
Section III A 3, EPA has reached the following conclusions.

1 There is a substantial disparity between the NOx-oxygen relationship that emerges
from the Phase 3 Predictive Model and from the other two major modeling
efforts-the EPA Complex Model and the CARB Phase 2 model

2 The three studies mentioned above have a substantial fraction of their data in
common

3 The NOx-oxygen relationship is known (from the Complex Model work) to be a
relatively weak one, when compared to all of the other factors affecting NOx
emissions, including such fuel factors as sulfur and olefins

4 No single reason for the difference between previous models’ characterization of
the NOx-oxygen relationship and that contained in CARB’s PM3 model emerged
clearly from EPA’s review of that model’s construction

It is difficult to identify precisely why these models reach different conclusions regarding
the impact of oxygen content on NOx emissions, since the statistical techniques being used and
the software to implement them have not been automated to any significant degree The kind of

“trial-and-error” exploration that might be carried out with more ordinary “general linear models”

40


conjunction with other information, to estimate the effect of the waiver on Tech 3 NOx
emissions “

The CEC MathPro 0 percent to 2 percent oxygen fuel response from the Tech 5
component of PM3 is a 1 66 percent decrease in NOx This response is directionally different than
the “flat limit” response in which only oxygen was varied As stated earlier, the sulfur effect on
NOx is much greater in the Tech 5 model than in the Tech 4 model. Our selection of the specific
MathPro modeling cases to represent non-oxygenated and oxygenated CaRFG3 results in
non-oxygenated CaRFG3 with higher sulfur content than oxygenated CaRFG3_ This is contrary
to the sulfur content relationship shown in CARB’s December 24, 1999 letter.*? (While
reductions in sulfur could help offset increases in PM3 exhaust HC emissions resulting from
oxygen removal, oxygen removal also reduces PM3 NOx emissions, potentially allowing increases
in sulfur ) Thus, in addition to significant doubts about the accuracy of the Tech 5 model due to
lack of underlying data, we are uncertain about the directional change in sulfur content, the fuel
parameter which becomes substantially more important in these newer vehicles. Since we are
currently unable to resolve these areas of uncertainty, we have assumed, for evaluation of this

waiver request, that the net effect of changes in fuel oxygen content on Tech 5 NOx emissions is

2 35.31 tons/day x 40% x (~4.88%) yielding a 0 69 ton/day reduction

8 In CARB’s December 24, 1999 submittal see Table 2, “Example Fuel Properties”, and Table 3,
“Example Future In-Use Fuels”, both showing lower sulfur in the zero oxygen fuel then in the 2
percent oxygen fuel. (In Docket A-2000-10, Document II-D-6 also available at
http //Awww arb ca gow/cbg/Oxy/wav/122499 pdf) In the EPA MathPro modeling, the sulfur in
the zero oxygen CaRFG3 was either lower or higher than the sulfur in the non-waiver
oxygenated CaRFG3I, depending on the scenario. In this modeling, the sulfur in the oxygenated
fuel with the waiver also differed from the sulfur in the oxygenated fuel without the waiver in
most scenarios When sulfur differences in both the oxygenated and non-oxygenated portions of
the CaRFG3 pool are considered, the market-share weighted net sulfur difference between
waiver and no waiver CaRFG3 1s small (<3 ppm in all scenarios).

71


Since reducing the oxygen content may adversely affect hydrocarbon emissions,
elimination of the oxygen mandate could potentially result in a reduction in NOx emissions with a
concurrent increase in VOC emissions This VOC increase could reduce or negate the ozone
benefit occurring from the NOx decrease As with NOx, however, the net effect of oxygen
removal on VOC emissions depends not only on the change in oxygen content, but on the changes
in other fuel properties that would occur with the oxygen content change Thus, quantifying the
net effect of an oxygen content waiver on VOC emissions depends on the selection of the model
or models which may reasonably represent the relationship between VOC emissions and fuel
properties, as well as the same fuel property and non-oxygenated market penetration
considerations applicable to the oxygen/NOx analysis Since EPA had some of the same concerns
with CARB’s VOC modeling as with their NOx model, we decided to independently examine the
relationship between the fuel properties and VOC emissions in much the same way as was done
with NOx

EPA, through its consultant, investigated alternative hydrocarbon models for the Tech 4
portion of the California fleet. Unlike the CARB Tech 4 model, in which the dependent variable
in the regression was total exhaust hydrocarbons, the alternative models developed by EPA’s
consultant used non-methane hydrocarbons (NMHC) as the dependent variable A NMHC model
should better estimate the vehicle emissions regulated in California The selection of NMHC as
the dependent variable resulted in the exclusion of a substantial amount of data, since this value

was not reported for all emission tests in the predictive model database ““ EPA believes that the

“6 Had EPA built a total exhaust HC model the sample size would have been 7031 tests, the number
of observations used for the NOx model The NMHC model sample size was 5441 tests

80


SEPA meme one 201

Technical Support Document:

Analysis of California’s Request for
Waiver of the Reformulated Gasoline
Oxygen Content Requirement for
California Covered Areas

Transportation and Regional Programs Division
Office of Transportation and Air Quality
US Environmental Protection Agency

Docket A-2000-10
Document Number II-B-2


Various models estimate the commingling effect under differing input assumptions about
the amount of ethanol used, base RVP of the fuels, and consumer refueling habits ® Perhaps the
most important factors for predicting the commingling effect in an ethanol/non-oxygenated
market are brand loyalty (i e , to what extent consumers refuel with one brand, several brands or
many brands of gasoline), and market share (i e , the fraction of the gasoline sold in an area that
contains ethanol) ” Both the EPA model and D M Rocke’s probability model indicate that when
“loyalty” is held constant, the commingling effect peaks at or near 50 percent ethanol market
share (For the EPA model the effect peaks at 30 to 50 percent market share, depending on the
model parameters selected ) These models also show that as loyalty decreases at a constant
market share, ie as consumer refueling choices become more random, the commingling effect
increases

Although these models may accurately predict the magnitude of the commingling effect
for a given set of input conditions, the conditions that would be applicable to the Federal RFG
areas in California if a waiver were granted are largely unknown CARB staff has estimated the
likely commingling effect to be about 0 1 psi in a ethanol/non-oxygenated market with an oxygen
waiver in effect (See Docket A-2000-10, Document II D 18-b) The assumptions used in their
analysis included ethanol in 100 percent of premium gasoline and 46 percent of regular gasoline

They further assumed no grade switching Thus, they assumed that commingling could occur only

° Specifically, SAE paper 940765, cited earlier, describes a model developed by Caffrey and Machiele of
EPA Also, Dr DM Rocke, University of California at Davis, developed a probability model (“UCD
model”) to study commungling A description of the model developed by Dr D M Rocke, University of
Califorma at Davis for CARB 1s available at http //www arb ca gov/cbe/carfg3/Comming] PDE The
computer code for the model 1s available at http //www arb ca gov/cbg/carfa3/Comnung PDF

‘With the assumption that a given brand will not sell both ethanol and non-ethanol gasoline in the same
geographic area

106


Clean Air Act section 211(k)(2)(B), 42 U S C. § 7545(k)(2)(B), requires that
reformulated gasoline contain at least 2 0 percent oxygen by weight This statutory provision also
allows EPA to waive the oxygen content standard under certain circumstances Section
211(k)(2)(B) states

The oxygen content of the gasoline shall equal or exceed 2.0 percent by weight

(subject to a testing tolerance established by the Administrator) except as

otherwise required by this Act The Administrator may waive, in whole or in part,

the application of this subparagraph for any ozone nonattainment area upon a

determination by the Administrator that compliance with such requirement would

prevent or interfere with attainment by the area of a national primary ambient air

quality standard

Thus, the RFG regulations must contain a 2.0 percent oxygen content requirement,”
unless the agency makes a determination that compliance with this requirement will prevent or
interfere with an area’s ability to meet a primary NAAQS TM If EPA makes such a determination,
EPA may reduce or eliminate the oxygen content requirement for gasoline sold in that area EPA
may consider waiving the oxygen requirement either in response to a request from an outside
party or at the agency’s own initiative Moreover, because the statute directs EPA to waive the
oxygen requirement “in whole or in part” upon making the necessary determination, it would

appear that Congress intended for EPA to determine, where reasonably possible, how much of a

EPA’s regulations allow for compliance with a 2 0 percent per gallon oxygen standard, as well as a2 1
percent average oxygen standard (refiner by refiner), with a per gallon mumumum of 1 5 percent oxygen by
weight

a EPA also may waive the oxygen content standard, pursuant to section 211(kX2X(A), if it causes NOx

emussions to increase above baseline levels

129


D Conclusion . ... 00 ee 145

iii


in vehicles using regular gasoline They assumed that regular gasoline made up 75 percent of the
gasoline pool, with the remaining 25 percent premium Additionally, they assumed that 63
percent of regular grade customers switch brands, potentially resulting in commingling. Using a
“simplified” analysis they calculated the RVP boost for each possible outcome under two
scenarios (three refills with initial tank volume at quarter tank level and 4 refills at half tank level)
and averaged the results for each scenario. They estimated the RVP increase of the gasoline pool
by multiplying the average result by the commingling probability (63 percent) and the regular
grade market share (75 percent). Average increases (above 7 psi) were 0 12 psi for the 1/4 tank
scenario and 0 16 psi for the half tank scenario. These calculations were based on ethanol content
of 10 volume percent (about 3 5 weight percent oxygen) in ethanol oxygenated gasoline. CARB
determined, based on the UCD commingling model, that the boost with 5.7 volume percent
ethanol content RFG (about 2.0 weight percent oxygen) would be about 80 percent of the boost
with 10 volume percent Consequently, they applied an 80 percent adjustment factor to their 10
volume percent RVP boost estimates to estimate the boost if 5 7 volume percent ethanol content
oxygenated RFG were used. Resultant estimates were 0.10 psi average RVP increase for the
quarter tank scenario and 0 13 psi for the half tank scenario.

The commingling effect under a waiver is difficult to forecast, depending on
oxygenated/non-oxygenated market share, the oxygen content used in ethanol-oxygenated RFG,
brand loyalty and other factors related to owner refueling behavior Considering available
information, however, we are concerned that CARB’s 0 1 psi estimate of the commingling

average RVP effect is likely to be low, even given many of CARB’s underlying assumptions.

107


present in the Phase 2 model no longer met the significance criteria for inclusion, leading to a
model with a steeper slope relating NOx emissions to fuel oxygen content.

We also believe that CARB’s choice of candidate terms to consider for possible inclusion
in the final model was appropriate The only exception to this is the question of a high-emitter
term, which is discussed separately below.

d. Statistical treatment of “High-Emitters”

CARB initially considered the possibility that normal and high emitter classes might differ
in their response to changes in fuel parameters When building its NOx model, CARB concluded
that there was no statistically detectable difference between the behavior of high emitters and
normal emitters. EPA was surprised by that finding, since high emitters were found to behave
quite differently from normal emitters in the Complex Model development process An
explanation for the difference was found in CARB’s definition of “high emitters” in NOx terms
rather than the hydrocarbon/carbon monoxide (HC/CO) terms used by EPA when building the
Complex Model. CARB was reluctant to introduce a NOx high-emitter term into a model
designed to predict NOx out of concern for the statistical complications that could result
(complicated correlations between the high-emitter terms and the model’s error term). While
EPA understands the reasons behind CARB’s approach, we believe that there are engineering
reasons for carefully considering a HC/CO high emitter term when modeling NOx emissions
High HC/CO emission levels may indicate a damaged or disabled catalytic convertor and/or
ineffective control of fuel/air ratios-these conditions could make the NOx emission impact from
changes in fuel composition different for such vehicles than it would be for normal emitters

e. Choice of final model

28


EPA selected the “Step 7" model for farther investigation, since this model showed the
highest AIC and BIC values. Unlike the alternative NOx models which we investigated, this
model contained a statistically significant property by high emitter interaction term, specifically a
sulfur by high emitter term. (The NOx models contained a high emitter term but did not contain
any high emitter interaction terms.) Thus, this model predicts that normal and high emitters
would show a different NMHC response to changes in fuel sulfur Consequently, when this
model is used to evaluate the percent emissions difference between the zero oxygen and two
percent oxygen MathPro fuels, which also differ in sulfur content, the result depends on the
emitter status assumed. (The MathPro study which defines these fuels was previously cited in
Section IIL.B 2 b. and is available in Docket A-2000-10, Document Number II-D-66.) The
emitter status assumption does not affect the percent difference calculation when other properties,
including sulfur, are held constant Table 20, below, shows the “Step 7" model percent responses

for the above cases, together with the PM3 Tech 4 responses

models, while others might appear very infrequently It 1s, of course, wildly impractical to
actually repeat the experiment, but statistical theory offers us some tools for differentiating
between models that are likely to be successful at explaining variation in most such hypothetical
experiments and those that might be unique to the particular experment that was actually
performed and thus poor predictors of the NMHC response to changing fuel parameters Models
emerging from the stepwise process after the peak values of AIC and BIC were reached are likely
to be “overfit” in this sense and be poor predictors. Our attention should thus center upon models
that are near the peak values of these measures

87


requirements for the use of most regression techniques “* After data deletions, the seven fuel
properties’ values were standardized so that each had a mean of zero and a standard deviation of
one. This was done to hold down the size of the coefficients, Table 16 lists the information
needed to destandardize model coefficients

Table 16 Means and Standard Deviations of Fuel Properties

Fuel Standard Sample
Term = |Mean Deviation Size
RVP 8.509825: 0.781459 5441
T50 205 616633 17.612534) 5441
T90 310 646370 20.869732| 5441
AROM 27.635030! 6.561886) 5441
OLEF 6 927366 5.143184) 5441
OXYGEN 1.492613 1 249356 5441
SULFUR 183.142492 143 055894: 5441

Repeat tests on the same vehicle with the same fuel were retained as distinct observations
in the dataset in order to preserve and account for all of the sources of variation in the dependent
variable Finally, a categorical variable was introduced into the dataset to differentiate high-
emitting vehicles from normal emitters This last procedure requires some further discussion

In their NOx model, CARB elected not to incorporate a high-emitter dummy variable both
because their preliminary analysis showed such a variable to be capable of explaining relatively
little variance, and also because of the potential statistical difficulties involved in having NOx

emissions on both sides of the regression equation, i e , in both the dependent variable and in

« Use of regression requires the assumption that the variance of the dependent variable not differ

substantially for different fixed regions of the independent vanable(s) This assumption, termed
“homoscedasticity”, cannot easily be met by a dependent variable that 1s strongly skewed without
a corrective transformation

82


(CEC). Analysis of California Phase 3 RFG Standards”, MathPro Inc , December 7, 1999
(available at http://www arb ca gov/regact/carfg3/appp pdf) The refinery modeling that
MathPro conducted for the CEC modeled the composition and production cost of gasolines
meeting the proposed CaRFG3 regulations CARB used estimates of formulations for non-
oxygenated and oxygenated fuels as inputs to CARB’s Predictive Model to estimate the reduction
in NOx associated with elimination of oxygen in gasoline, as well as changes in exhaust and
evaporative VOC. (CARB’s analysis and our subsequent analyses, including refinery modeling
that we had MathPro conduct, are discussed in greater detail in Section III B) Based on the
reduction in NOx emissions estimated by CARB’s Predictive Model, CARB then applied these
emissions using its mobile emission model EMFAC7G, and applied the result to the amount of
Vehicle Mile Traveled in the federal RFG areas in California to calculate the difference in NOx
emissions if a waiver were granted CARB estimated that an additional 5 tons/day reduction in
NOx in the South Coast Air Quality Management District (SCAQMD) would result from Phase
Ill reformulated gasoline with zero percent oxygen relative to Phase I reformulated gasoline
with oxygenate requirement (See Docket A-2000-10, Document II-D-54 ) These estimates
reflect the emission reductions that would occur if the entire South Coast used oxygen-free Phase
III gasoline, ie , 100 percent market penetration

In the Sacramento RFG area CARB estimated (using EMFAC7G) that an additional 1
ton/day of NOx would result from Phase III reformulated gasoline with zero percent oxygen
relative to Phase III reformulated gasoline with oxygenate requirement This again assumes 100
percent market penetration of non-oxygenated gasoline (See Docket A-2000-10, Document II-

D-54)

10


it gives all of the models equal weight, including some models with comparative disadvantages
relative to the others (significantly lower AIC and/or BIC measures)

Based upon substantially lower information content (AIC and BIC values), we decided
upon removal of the CARB model, the Step-1, and the RB-3 models (in the case of the RB-3
model, there are additional reasons for removal that have already been discussed) Other models
were dropped from consideration on the grounds that they explained insufficient additional NOx
variability relative to earlier models (with fewer terms) and thus represented a condition of
“overfit” Eliminated in this fashion were the Step-5, 10, and Step-4 models Six models
remained after these exclusions were made The Step-2 and Step-3 models and models 5 and 6
predict the NOx emissions effect of adding 2 percent oxygen by weight at approximately a 5
percent increase, models 3 and 7 predict values closer to a 3 percent increase These effects are
all calculated with other parameters at the California flat limits, a situation unlikely to occur under
real-world conditions where the non-oxygenated gasoline would be formulated differently from
the oxygenated gasoline

Left with six models that are all almost indistinguishably good predictors of NOx
emissions generally, but that yield somewhat divergent predictions of the effect of oxygen on
NOx, EPA is disinclined to select a single model We prefer to determine this effect as an average
of the predictions from the six remaining models. Such an approach might not be the best option
for a regulatory agency developing a tool to certify gasoline, due to the added complexity it
would impose on refiners trying to make compliant gasoline In the uses to which the NOx
models are to be put in this waiver evaluation, oxygen varies more than other NOx-related

properties. Oxygen is a critically important variable in this analysis, one that these candidate

52


interaction terms which predict that “normal emitters” and “high emitters” respond differently, on
a percent change basis, when two fuel formulations are compared. In Section IV.C 3, we
evaluated the NOx emission performance for twelve of the sixteen possible “waiver”/’no waiver”
comparisons that we constructed from the cases which MathPro analyzed for EPA Tables 24
and 25 below show the averaged “Waiver” to “No Waiver” NMHC percent changes for these
same comparison scenarios, for “normal emitters” and “high emitters” respectively:

Table 24 Normal Emitter EPA Tech 4 Model “Waiver” to “No Waiver” NMHC
Percent Changes

No Percent Change | Percent Change
Waiver Waiver Nationwide non-oxy to oxy | oxy (waiver) to
Oxy level | Oxy level | MTBE Use | Unocal Patent (no waiver) oxy (no waiver)
20 20 Reduced Patent not avoided 254 -128
27 2.7 Reduced Patent not avoided -258 -2 82
2.7 20 Reduced Patent not avoided 261 -135
20 20 Continues Patent not avoided -2.62 -0.38
27 27 Continues Patent not avoided -195 -113
27 2.0 Continues Patent not avoided -2 68 -044
2.0 20 Reduced Patent avoided -2.87 -081
27° 27 Reduced Patent avoided 3.09 +153
27 20 Reduced Patent avoided -3.01 ~0.95
20 20 Continues Patent avoided -3:10 -0 36
27 27 Continues Patent avoided -197 -162
27 20 Continues Patent avoided -3 24 -050

94


The assumption of the same properties for oxygenated CaRFG3 with and without a waiver
simplified our previous analysis of emission effects Under this assumption we needed to consider
only the NOx exhaust emissions changes occurring because a portion of the “no waiver”
oxygenated CaRFG3 pool would be replaced by non-oxygenated CaRFG3 The properties of
oxygenated CaRFG3, however, are likely to differ under “no waiver” and “waiver” conditions.
Thus, our previous analysis ignored the potential exhaust emissions changes occurring because a
portion of the “no waiver” oxygenated CaRFG3 would be replaced by “waiver” oxygenated
CaRFG3 Furthermore, we would expect that the refiners’ decisions regarding how to formulate
non-oxygenated gasoline under a waiver could be affected by the how they formulate the
oxygenated portion of the CaRFG3 Our use of non-oxygenated CaRFG3 properties from a 2.7
percent/non-oxygenated refinery modeling case to represent non-oxygenated CaRFG3 in a 2.0
percent/non-oxygenated split market could therefore also introduce error in our estimate of
emissions effects Additionally, we were uncertain about the oxygen weight content that would
be used in ethanol-oxygenated CaRFG3 with and without a waiver. Thus it was unclear that our
assumption of a 2 0 percent oxygen level in oxygenated CaRFG3 with and without a waiver
represented the most likely scenario

Consequently, EPA commissioned MathPro to further investigate, through refinery
modeling, the issues of non-oxygenated market share, fuel property values, and oxygen content
for CaRFG3 if the oxygen requirement were waived with an MTBE ban in place. (Previously
cited in Section III B.2.b , available in Docket A-2000-10, Document Number II-D-66) EPA

also required, for comparison purposes, an estimate or estimates of fuel property values for

73


differs from CARB’s implicit assumption that NOx emissions from Tech 5 vehicles will respond
to oxygen content in a similar fashion as Tech 4 vehicle emissions.
c. The CRC Study

The second study, performed by the CRC, tested twelve California LEVs (two each of six
different models) on five fuels which primarily differed in terms of sulfur content However, two
sets of two fuels had the same sulfur content, but differed in other non-sulfur fuel parameters.
Fuels C1 and S1 both contained 30 ppm sulfur and fuels C3 and S2 both contained 150 ppm
sulfur '* Fuels C1 and C3 were otherwise typical U.S. fuels not containing oxygen (Their quality
was very similar to that of the baseline fuel for federal RFG defined in Section 211 (k)(10)(B)(@)
of the Clean Air Act.) Fuels $1 and $2 were Phase 2 California RFGs, which contained 2 weight
percent oxygen Thus, the two matched pairs of fuels based on sulfur differed in terms of nearly
all the other fuel parameters These fuels, then, are not ideally chosen if our purpose is to isolate
and quantify the effects of oxygen The usefulness of this study for our purposes stems, rather,
from the fact that the vehicles being tested reflect later emission control technology than the
Auto-Oil study discussed above Also, the oxygen content did differ dramatically between the
two fuels

Because numerous fuel parameters differed in these two sets of fuels, the separate effect
of each non-sulfur fuel parameter cannot be determined. The total effect of all of the non-sulfur
fuel parameters, however, can be determined and compared to the predicted change in emissions

from California’s Tech 5 Predictive Model, which essentially reflects the impact of fuel quality on

1s These are nonunal sulfur contents The “matched sulfur” fuels actually differed slightly from
each other in sulfur content

34


ones) whose p-value rose above 0.05 were taken out, but remained candidates for possible later
re-inclusionTM.

When no candidate terms with p-values less than 0 05 remained to be considered for
inclusion, the initial model construction process was complete The next steps involved
evaluation of the resulting models. Measures of information contentTM were used to evaluate the
models created at each step after the linear terms, identifying the point at which additional terms
cause an “overfit” condition, where additional terms fail to explain enough additional variance to
justify their inclusion and may actually detract from the model’s ability to predict results outside
of the sample data The measures of model information content that were employed in evaluating
these models are designed to assess a model’s overall ability to predict the dependent variable--
NOx emissions, in this case as a function of all of the predictor variables included The AIC and
BIC numbers are excellent screening tools to isolate a set of models that do a good job of
explaining the variance in NOx, but they do not really help to determine which of the otherwise
best fitting models best describe the relationship between NOx emissions and fuel oxygen

content”*,

4 Terms may move in and out of the model 1n this way because of the way they are correlated with

other terms being considered
2s Akaike’s Information Criterion (AIC) This is a comparative measure of the information content
ina model It is particularly useful in deciding whether additional terms should be added to the
model or terms already added should be retained It, like the BIC below, has no maximum value
and, thus can’t be used to say how good a particular model 1s in an absolute sense Schwarz’s
Bayesian Criterion (BIC) Outwardly similar to the AIC above, this cntenion 1s sensitive to
slightly different aspects of model behavior. It has the same limitations that the AIC does

6 For example, a model that explained a large fraction of the NOx emussions vanance (using values of sulfur,

olefins, etc ) might badly mis-charactenize the NOx oxygen relationship (all things being equal) because of
gaps in the distribution of oxygen content across the fuels in the dataset Despite its poor and counter-
intuitive handling of the NOx/oxygen relationship, such a model might have very high AIC and BIC values
because of its overall explanatory power

46


Removing oxygen from gasoline will tend to increase emissions of CO for the on-road
vehicle fleet. CARB in its February 7, 2000 submission has estimated the expected CO emissions
from representative non-oxygenated gasoline, as well as gasoline containing 2.0 weight percent
oxygen, both of which would meet the CaRFG3 standards CARB estimates that reducing
gasoline oxygen content from 2 0 weight percent to zero would result in an estimated increase of
4.6 percentinCO This CARB-estimated increase does not take into account mitigative effects
claimed by CARB of reducing the sulfur content from 20 ppm to 10 ppm and reducing T50 from
211° F to 205° F to offset the increase in exhaust VOC. According to CARB’s February 7, 2000
submission, (available in Docket A-2000-10, or at
http /Avww arb ca gov/cbg/Oxy/wav/oxywav htm ) the net result of removing oxygen from
California gasoline would be an increase in CO of about 2.7 percent (95 tons per day divided by
4,995 tons per day) (CARB felt that reduction of sulfur and T50 were necessary in order for the
non-oxygenated fuel to meet the CaRFG3 regulations )

We used CARB’s assumptions regarding oxygen effect on CO (as detailed in Appendix G
of its staff report for the CaRFG3 rule) in calculating CO increases ** For conservatism, we did
not adjust the CO increases for sulfur or T50 reductions.” We split the CO increase among the

Tech 3, Tech 4 and Tech 5 categories as CARB did, assuming that there would be no change in

1 More specifically, we used the percent CO reductions per weight percent increase in oxygen reported in

Appendix G, Table 4 of CARB’s staff report on CaRFG3 (Appendix G available at

http /Avww arb ca gov/regact/carfg3/appg pdf) These factors were converted to percent CO increases per
‘weight percent reduction in oxygen to calculate increases due to oxygen removal CARB did report CO
increases per weight percent oxygen reduced in other tables in the appendix These factors differ slightly

76 Reductions in T50 and sulfur may result in lower CO emissions However, we are uncertain of the basis for

the quantitative estumates of these effects contained mn Appendix G of the CARB staff report, and cannot
provide alternative estimates (Appendix G available at http //www arb ca gov/regact/carfg3/appp pdf )
We also note that comparison of certain MathPro modeling cases indicates that sulfur may be higher in non-
oxygenated CaRFG3 than oxygenated CRFG3

115


Table 9: NOx Emissions change resulting from adding 2 weight percent oxygen to fuel
that initially contained no oxygen (holding other parameters at California

flat limits)
Model NOx % change @ 2%
oxy
Step-3 529
6 523
Step-2 4.87
5 4.84
10 482
Step-4 320
Step-5 316
3 307
1 291
7 2.80
CARB 142
RB-3 064

Other than the CARB Phase 3 model and the random balance model developed from the
Step-3 model, the models’ predictions fall into two clusters, with NOx changes of approximately
5 percent and 3 percent, respectively These “clusters” do not necessarily remain together in the
face of changing other fuel properties, but they do provide a useful summary of the modeling
results
d. Model selection

Given the fairly large amount of predictive error that can be expected from a single model
when predicting NOx emissions as a function of oxygen content and the substantial variability
among the models themselves regarding that relationship, selecting the most appropriate model or
set of models to carry forward in this overall analysis was not entirely straightforward As
mentioned previously, selection of the single model with the highest values of the AIC and BIC
criteria could not be easily justified Averaging the effects (on NOx emissions) of varied oxygen

and other fuel components of all of the models shown in Table 9 above is also problematic, since

51


criteria for waiving preemption — “necessary to achieve the NAAQS” — could be reasonably
interpreted as more stringent than the criteria for waiving the RFG oxygen content requirement —
“interfere with the attainment” of the NAAQS. That is, it would be reasonable for EPA to
conclude that the oxygen content standard could imferfere with attainment without a waiver being
necessary to achieve attainment, as EPA has interpreted this term for purposes of section
211(c)(4)(C)

As discussed above, EPA may reasonably interpret “interference” as referring to
something less profound that “prevention” In turn, EPA could interpret the phrase “necessary to
achieve,” as defined in section 211(c)(4), as falling somewhere between prevention and
interference Accordingly, EPA’s implementation of section 211(c)(4)(C) may provide some
guidance regarding an appropriate interpretation of section 211(k)(2)(B) Agency precedent
under section 211(c)(4)(C) is discussed in section 3 below

As with these other section 211 provisions, the focus in section 211(k)(2)(B) is on the air
quality impact of changes in fuel composition In particular, section 211(k)(2)(B) is concerned
with the impact of such changes on attainment of the NAAQS Therefore, it is important to
consider all of the pollutants that could reasonable be expected to affecting such attainment,

including but not limited to NOx

2. Legislative history

During consideration of the 1990 Clean Air Act Amendments, members of both the House

and Senate expressed concerns about the impact of oxygen on emissions of air pollutants from

136


In addition to the models that were generated directly by the stepwise process, several
other models were examined Most of these came from situations where a set of terms that were
candidates for inclusion at a particular step had similar p-values Certain of these rejected terms
were added to the model and their AIC and BIC values computed to see if they were competitive
with the models that emerged from the stepwise process described above We also considered
two models developed using the “random balance” method developed by H T. McAdams and
used by CARB in the development of their predictive model and in the construction of the EPA
Complex Model. This technique, explained at greater length in the previously cited SwRI report
on building the NOx model, simplifies an already-developed model by eliminating terms that
contribute minimally to explaining variance in the dependent variable within a restricted range of
the various fuel properties The “Step-3" model was put through this process, and the result was
to eliminate the RVP and oxygen-by-sulfur terms When the “step 5" model was analyzed
similarly, the squared sulfur term and, again, the oxygen-by-sulfur term were eliminated While
the simplified version of the “Step-5" model (now called RB-3) was carried forward into
subsequent consideration, EPA ultimately elected not to use the random balance-generated
models. The simplification achieved by random balance, though useful when developing a model
for regulatory/compliance purposes (where model simplicity is extremely important to those who
must use the model to formulate gasoline), was not needed in the context of evaluating this
waiver request (where the most important objective is to characterize the relationship between
NOx emissions and oxygen content as precisely as possible). All of the models that were

developed from the stepwise process and other approaches (as described above) are listed in

47


As noted previously, MathPro’s analysis for EPA concluded that, in the “waiver” cases,
the relative economics of blending to 2.0 percent and 2 7 percent oxygen are too close to call
MathPro also concluded that there was a small, but significant advantage to use of 2 7 percent
oxygen in the “no waiver” cases MathPro’s modeling, however, was an aggregate analysis of
California refining The economics for a given refinery might favor blending at 2.0 percent in a
“no waiver” case, depending on its technology Additionally, since MathPro characterized the
advantage of 2.7 percent in the “no waiver” cases as small, this advantage is likely to be highly
sensitive to the technical and economic assumptions used in the modeling Consequently, EPA
believes that within this subset it is reasonable to consider both 2 7/2 7 and 2.7/2.0 “no
wraiver” waiver” comparison scenarios We assume that those refineries which, because of their
configuration, would choose to blend at 2.0 percent oxygen in a “no waiver” case would also
likely choose to blend at 2 0 percent in a “waiver” case. Therefore, we have ignored the four
2 0/2.7 “no waiver”/’waiver” comparison scenarios since we do not expect these scenarios to
represent the overall CaRFG3 pool, or any subset of California refiners

We previously identified a set of “preferred “ alternative Tech 4 NOx models (6,5, Step-3,
Step-2, 3 and 7) and elected to average the response of those models to derive a percent change
FACTOR to utilize in our emission estimates Table 13 shows the average estimated NOx
percent change from non-oxygenated “waiver” fuel to oxygenated “no waiver” fuel for the twelve
comparison scenarios evaluated This table also shows the average estimated NOx percent

change from oxygenated “waiver” fuel to oxygenated “no waiver” fuel

76


After Step10 there were no additional terms that had potential to explain NMHC
emissions, and so the “stepwise” process stops there. “Measures of fit” were computed for the
eleven models resulting from the stepwise process. These measures are presented in Table 19,
below

Table 19. Measures of Fit for Models From Stepwise Regression Fit to Log/NMHC)

No. of Added Vehicle

Step Terms Fuel Term AIC BIC RMSE Error
0 7 7 Linear 1013.7 995.0 0.1287 0.8526
1 8 HI-EMIT 1353.2 1334.5 0.1288 0.4978
2 9 T90*T90 1409.4 1386.1 0.1263 0.5002
3 10 T50*T50 14526 1426.9 0.1248 0.5006
4 11 _T90*OXY 1470.8 14428 0.1241 0 5002
5 12 SUL*HI 1470.1 1439.8 0.1241 0 5013
6 13 OXY*OXY 1485 8 1453 1 0.1237 0.4986
7 14 90°ARO 1507.6 1472.6 0.1227 0.4984
8 15 TSO*HI 1506.7 1471.7 0.1226 0 4982
9 16 OLEF*OLEF 1504.0 1469 0 0.1227 0.4980
10 17 T90*OLEF 1501.1 1466.2 0.1226 0.4978

The measures presented in the table are indicators of the information content of the
models and of the extent to which the models serve to reduce errors in predicting NMHC
emissions ** The AIC and BIC indicators, measuring different aspects of the models’ fit, together
indicate a kind of “peak” in the stepwise process beyond which additional terms are not adding
significantly to the predictive utility of the model and may actually be “overfit”, a condition in
which the model is explaining variation in the sample data that is not likely to be seen upon

resampling *

2 These statistical measures were introduced 1n the section discussing EPA’s building of alternative

Tech 4 NOx models See Section IV B

To explain this another way, if we were to repeat the entire “experiment” multiple times (sample
new vehicles, test them on the same fuels, and then go through the data preparation processes
and model-building) some of the terms would be likely to appear 1n almost all of the resulting

86


would prove extremely time-consuming when using the statistical approach adopted by CARB
and also believed by EPA to be the most appropriate now available for this kind of analysis.

Given the above considerations and questions discussed above raised by the audit of the
CaRFG3 NOx model, EPA determined that it should undertake an independent modeling effort
This work investigated the direction, nature, and strength of the NOx-oxygen relationship, taking
other fuel parameters into account. Because the Tech 3 vehicles’ influence on the NOx emissions
of future vehicle fleets is declining, and because Tech 3 modeling efforts are relatively settled, the
Agency decided not to re-examine these vehicles’ response to oxygen For different reasons,
Tech 5 vehicles were excluded from this effort as well The database on Tech 5 vehicles’
response to fuel parameters other than sulfur, as discussed above, is almost nonexistent and
certainly not adequate to draw any strong conclusions. Thus EPA’s statistical modeling effort
was confined to Tech 4 vehicles (model years 1986 through 1993) EPA’s statistical consultant’s
report of this analysis may be seen in the docket for this rulemaking (See Docket A-2000-10,
Document Number II-D-65."Building the NOx Model," Work Assignment No 2-9, Contract 68-
C-98-169, SwRI Project 08 04075; December 20, 2000) Some assumptions underlying this
analysis are presented below, along with the results of the work.
a. Tech 4 modeling decisions and assumptions

The overall body of data analyzed by CARB for its Phase 3 model had not been
significantly expanded at the time of EPA’s analysis. Since this analysis was performed for the
purpose of drawing conclusions about California emissions, EPA followed CARB’s convention of
confining the analysis to California-certified vehicles To EPA’s knowledge, the overall database

used by CARB is the only major body of data available for answering questions about fuel effects

41


this change in fuel properties would have on emissions from highway and off-road sources, EPA
concludes that there has been no clear demonstration as to what effect a waiver would have on
ozone There is significant uncertainty associated with determining the expected emissions impact
of a waiver, largely based on uncertainty regarding the expected impact on VOCs produced when
gasoline containing ethanol is mixed with other gasolines in the marketplace As a result, there is
significant uncertainty in balancing the emissions impacts of the three different pollutants
involved, each of which affect ozone, and determining their overall effect on ozone This

uncertainty has not been resolved, even using the approach suggested by CARB.”

89 We need not discuss the technical issues associated with an expected reduction im NOx and any associated

reduction in PM

127


RVP boost estimate at the lower end of the range of likely RVP increases (i ¢., 100 percent
ethanol use in premium gasoline, no grade switching, and ethanol content at 5 7 volume percent).
Furthermore, EPA’s analysis indicates that even with these assumptions concerning ethanol use,
content and grade switching, the commingling effect is still likely to be about 0.17 psi which is
closer to 0 2 psi than 0 1 psi. Also, if any of CARB’s assumptions do not strictly hold, the
commingling effect is likely to increase above this estimate.

EPA acknowledges that the octane characteristics of ethanol may result in preferential use
in premium gasoline, that many owners do not switch grades, and that RFG suppliers may well
elect to use ethanol at 5.7 volume percent. There are, however, to our knowledge no hard data to
support CARB’s assumptions with respect to ethanol use in 100 percent of premium gasoline and
the total absence of grade switching. EPA’s model also shows that the magnitude of the
commingling effect increases as brand loyalty decreases Under “no loyalty” conditions, the
model predicts commingling effects of up to about 0.4 psi. Adjusting this result with the 80
percent factor shows that a commingling effect in excess of 0.3 psi could occur when ethanol is
used at 5 7 volume percent. While a “no loyalty” assumption is extreme and is not likely to
approximate owner behavior, this result shows that there is a potential for the commingling effect
to exceed 0 2 psi Since commingling is very sensitive to variables such as brand loyalty which
have been only crudely estimated, a plausible case can be made for commingling effects ranging
from an average RVP increase of 0.1 to 0.3 psi

In order to offset the effect of commingling, the CaRFG3 regulations contain a 0 1 psi
reduction from Phase 2 in the RVP flat limit (from 7.0 to 6 9 psi). This 6 9 psi flat limit is

applicable to refiners electing to use the predictive model evaporative compliance option. It

111


changes the conclusions that we would reach based on analysis of on-road impacts only The
off-road estimates are shown below in Table 30 and the total estimates are summarized in Table
31 in Section I D

Table 30: Estimated South Coast Off Road Emission Inventory Changes With Waiver

Emussion Inventory Changes (tons/day)
No Waiver voc | voc | voc

Oxy Level | Waiver | Nationwide no O.1pst | 0.2 psi

Oxy Level | MTBE Use | Unocal Patent NOx | comm. | boost | boost | CO

20 20 Reduced Patent not avoided 334 232 333 | 435 | 10118
27 27 Reduced Patent not avoided 389 133 226 | 322 | 13282
27 20 Reduced Patent not avoided 494 217 310 | 406 | 16131
20 20 Continues _| Patent not avoided 257 165 266 | 368 7783
27 27 Continues | Patent not avoided 259 100 195 | 292 8855
27 20 Contisues _| Patent not avoided 428 148 241 | 337 | 13558
20 20 Reduced Patent avoided 380 196 293 | 393 | 11518
27 27 Reduced Patent avoided 3.50 144 239 | 335} 1954
27 20 Reduced Patent avoided 534 268 362 | 457 | 17675
20 20 Continues |} Patent avoided 257 098 196 | 295 7183
27 27 Continues | Patent avoided 227 067 162] 260| 7748
27 20 Continues} Patent avoided 428 166 260 | 356 | 13558

D. Effect of total emission changes

The changes in NOx, VOC, and CO inventories are based upon refinery modeling
predictions of the most economic levels of oxygen use for both a waiver and non-waiver scenario
considering various possible developments regarding nationwide MTBE use and the Unocal
patent (as discussed in Section II A2) Table 31 below summarizes the effect of a waiver on
NOx and VOC and CO inventories for twelve of sixteen possible “no waiver’/’waiver”

comparison scenarios which can be constructed from MathPro’s modeling for EPA. Table 31

120


In its February 7, 2000 submission CARB asserts that ozone impacts from increases in
CO emissions (because of the decrease in oxygen in gasoline) would be offset by the
corresponding VOC decreases CARB argued that the accompanying decrease in VOC emissions
(because of the reduction of permeation losses associated with diminished use of ethanol) would
serve to offset these CO increases While California's petition included an analysis generally
intended to support this conclusion, that analysis relied heavily upon relative reactivity factors
(developed by Dr Carter of the University of California, Riverside) *” Even using the relative
reactivity approach that California employs, it is not at all clear that the changes in CO and VOC
that occur with a waiver of the oxygen content requirement would be neutral with respect to
ozone Specifically, our examination of 12 scenarios shows that 2 of the scenarios result in a
VOC increase even at 0 1 psi commingling effect, and therefore no offset of CO emissions The
10 remaining scenarios each show a VOC decrease; however, 30 to 50 percent of these scenarios
show VOC decreases that would be inadequate (using California's relative reactivity factors) to

offset the CO increase.** Consequently, at the very least, there is a significant question regarding

whether the combination of VOC and CO emission changes associated with a waiver would have

7 In the past, the Agency has not relied upon the use of such relative reactivity factors for evaluating the

impact of emissions on ozone formation [see 63 FR 48792 and 65 FR 42924]
ba CARB used reactivity factors of 2 21 g ozone/g VOC (representing evaporative VOC emussions) and 0 065
ozone/g CO, as developed by Dr Carter Since reductions in VOC are associated with evaporative
emussions (1 e , reduced RVP of non-oxygenated fuel as predicted by MathPro, and decreased permeation
losses due to reduced use of ethanol), the reactivity factor associated with evaporative VOC 1s more
representative than a weighted reactivity factor representing exhaust and evaporative VOC Using the
reactivity factor for evaporative VOC results mn a relationship of one ton of VOC equivalent to 32 tons of
CO, that 1s for each 32 ton increase in CO, a one ton reduction in VOC would provide an offset in terms of
ozone neutrality in terms of the Carter reactivity factors Using a weighted reactivity of 50 percent exhaust
and 50 percent evaporative emissions results in a reactivity factor of 2 6 g ozone/g VOC, and a relationship
of one ton of VOC equivalent to 40 tons of CO Using the factor of 2 6 g ozone/g VOC results in 30
percent of the scenarios in which there are VOC decreases failing to offset the CO increases, using 2.1 g
ozone/gVOC results in 50 percent failure -

125


c Variability in model predictions ... ....... 0... . .... 50

d Model selection © 0.0.0... 0.0... c eee ee cee cee ee 51
6 Summary offindings. 2.0.00 wk cece eee eee ....53
B_ Effects on NOx of reduced oxygen use in California ws... . 54
1. Actual fuels that would be used in California if a waiver were granted... 54
2. Penetration levels of non-oxygenated fuels in California » oe wee. 57
a Previousanalyses  =Ssiw¥ ww. ss ww . bee ee a. 58
b. Results of most recent analysis 5 ww... ee 60
3 NOx reduction due to reduced oxygen use taking into account actual fuel use
Le eee e eet t tee e eet beeen 63
a Previous analyses using results from early MathPro refinery modeling
eee on 63
b Results of most recent analysis . beeen en eee Lee 72
Cc. Foreseeable effects of reduced oxygen on other pollutants and off-road vehicles in
California. 6... eee cee cea
1. Quantification of oxygen/VOC effect .....
a. Statistical Methodology .
b. Consideration of Alternative Models
c Final Model Selection . :
d Integration of VOC/oxygen relation with refinery modeling results
cece eee beeen eee 93
e Confidence regarding permeation effects 2 2 wwe. wee . 101
2 Commingling effect ..... see See 103
3. CO effect of decreasing oxygen 114
4. Off-road vehicles and engines 116
D_ Effect of total emission changes.......... : ce ee 120
APPENDIX A. What is EPA’s statutory authority under 211(k)(2)(b)? . ....  ... 128
A Section 211(k)(2)(B) Generally ...... 6.0.00 waa . .. 129
B Interpreting interference with attainment © .. 1. 2. wees . 131
1. The statutory text... 000 wee eee eee bbe eee eee 131
a Section 211(k) ....... Lee cote eee ee . . 131
b Section211(m)(3) .. ww eee : beens : 134
c Section211(c) ....... cece 135
2 Legislative history . .. See ee eee 137
3  AgencyPrecedent . ........ Lee eee »oveee 5 139
a Fuel control preemption waivers ..... oe Lee . 140
b SiPrevisions .............. Lobes ees foe 142
Cc Policy Considerations cee tee bese Lo 144

ii


approved — no matter how small that increase happened to be Thus, any increment of emissions
contributing to nonattainment would be considered interference for purposes of that provision.
Additionally, EPA stated that if there were reasons to believe that a substantial change in
the emissions inventory had occurred since the attainment demonstration was prepared (that
might change the margin of attainment) a revised demonstration would be necessary to support a
SIP revision. In fact, the proposed revision for Navistar was based on an attainment
demonstration prepared by the State in 1979, the adequacy of which was brought into question by
the fact that measured violations of the ozone NAAQS had been detected in 1983 and 1984 (after
the 1982 attainment date) Based on these violations the EPA argued, among other things, that
the 1979 attainment demonstration could not be relied upon for purposes of showing non-
interference, and that any revision to the SIP would require a revised attainment demonstration in
order to document that the proposed changes would not interfere with timely attainment and

maintenance See Navistar, 941 F 2d at 1347. Thus, EPA interpreted non-interference as

requiring that there be no increment of emissions increase above the limit necessary to
demonstrate attainment EPA also declined to make a determination of non-interference where
there was a question about whether the available evidence accurately reflected the conditions
within the State, and whether it clearly demonstrated that there would be no interference with
attainment

EPA’s interpretation of non-interference in the context of SIP revisions supports our
interpretation of interference under section 211(k)(2)(B) Particularly, this precedent supports the
view that EPA has significant discretion to determine what level of impact on air quality may

constitute interference This precedent also supports our interpretation of section 21 1(k)(2)(B) as

143


RVP of the resulting mixture is approximately 9.1 psi, a 1 1 psi RVP increase * Because of this
RVP boost associated with ethanol blending, a blendstock with a sufficiently low RVP must be
used to achieve the desired RVP in the ethanol-blended gasoline. The initial amount of ethanol
added to non-oxygenated gasoline results in greater incremental increases in RVP than subsequent
amounts This non-linear increase makes small amounts of ethanol very important to RVP

An RVP boost will also occur when ethanol-blended gasoline is mixed with non-
oxygenated or ether-oxygenated gasoline For example, the RVP of a mixture containing equal
volumes of a 7 psi ethanol-oxygenated RFG blend and a7 psi non-oxygenated RFG blend would
be greater than 7 psi When an ethanol-oxygenated gasoline is mixed with an MTBE-
oxygenated gasoline the resulting increase in RVP is somewhat smaller than it is when an ethanol-
oxygenated gasoline is mixed with a non-oxygenated gasoline Mixing of ethanol-oxygenated
gasoline with other gasoline is called commingling and the associated RVP boost is called the
commingling effect Federal and California regulations prohibit or restrict commingling in the
distribution system. These restrictions do not apply to commingling in vehicle fuel tanks,
however In the discussion that follows, commingling refers to the mixing of ethanol-gasoline
with non-ethanol gasoline in vehicle fuel tanks.

The commingling effect is of concern because non-exhaust hydrocarbon emissions from
vehicles increase with increasing RVP Commingling has not been an issue within Federal RFG

areas in California because there has been virtually no ethanol used in these areas © With the

6 SAE paper 940765, “In-Use Volatility Impact of Commuingling Ethanol and Non-Ethanol Fuels” Peter J
Caffrey and Paul A Machiele, US EPA

66 RFG surveys, which collected samples from retail stations in Los Angeles, San Diego and Sacramento
confirm this

104


variants differed in the reference fuel specifications incorporated into the model As explained
earlier, acceptability of a candidate recipe under the predictive model depends on emissions
equivalency between the candidate recipe and the reference fuel An acceptable fuel must show
equivalency for all pollutants-hydrocarbons and toxics as well as NOx The refinery model sought
an economic optimum, subject to various resource constraints, for a refinery operation which
produced, among other products, fuel which meets California Phase 3 predictive model
performance requirements. The refinery model estimated the predictive model input parameters
for the gasoline production modeled and included a version of the predictive model so that
emissions performance constraints could be applied to the CaRFG portion.

One series of cases, the cases designated as “2" in the CEC MathPro study assumed a
reference fuel (“Reference fuel B”) with properties of the proposed flat limit recipe, including the
69 psi optional RVP limit At the time of the report, the reference standards for CaRFG3 had not
been adopted. Subsequent to the report, CARB staff recommended a change in the T50 standard
(from 211 F to 213 F) but made no other changes Based on past performance, we anticipated
that most California refiners would produce California reformulated gasoline using the flat limits
in the predictive model. Since Reference Fuel B most closely represented the flat limit recipe
that we expected to be codified, we believed that, among the cases modeled in the MathPro CEC
report, results from the “2" cases were likely to predict the fuel properties for CARFG3 most
accurately

In order to quantify the net NOx-oxygen effect as well as the VOC and CO effects

associated with granting the waiver, we needed, as a basis for comparison, an estimate of

The CARB Phase 3 staff report (October 22, 1999), cited earlier states on page 6 that about 75 percent of
all Califorma gasoline at this tme 1s being made using the flat lumits

64


A number of checks on the most promising models were performed at this stage of the
analysis process including residual analysis and additional exploration of high-emitter effects
These checks, which are discussed in more detail in the SwRI report on building the NOx model,
did not identify any problems with the set of models or any significant amount of “outlier” data
The high-emitter term and its interaction terms contributed significantly to explaining NOx
variability, but the HC/CO high emitter data differed from the normal emitter data mostly with
regard to their overall level of NOx emissions (high HC/CO emitters also tended to have high
NOx emissions). The NOx emissions of these vehicles did not seem to respond differently from
the emissions of normal emitters to changes in fuel oxygen
c. Variability in model predictions

Considering that oxygen was only one of several predictor variables involved in modeling
NOx emissions, it is not surprising that a set of alternative NOx emissions models would have
quite different predictions of the NOx emissions effect obtained by changing the oxygen
concentration in the fuel Table 9 shows the variability among the various models in predicted
NOx emissions change as a function of changing the oxygen concentration from zero to 2 percent

by weight

50


Table 26 Estimated South Coast On Road Exhaust+As-Blended Evaporative VOC
Emission Inventory Changes With Waiver (tons/day)

Waiver Ory Level | Nationwide MTBE

No Waiver Oxy Level Use Unocal Patent voc

20 20 Reduced Patent not avoided 127
27 27 Reduced Patent not avoided +1027
27 20 Reduced Patent not avoided 1064
20 20 Continues Patent not avoided 185
27 27 ‘Continues Patent not avoided. 652
27 20 ‘Continues Patent not avoided 1123
20 20 Reduced Patent avoided 523
27 27 Reduced Patent avoided +789
27 20 Reduced Patent avoided 976
20 20 Continues Patent avoided +525
27 27 Continues Patent avoided 634
27 20 ‘Continues Patent avoided 979

We have so far considered the changes in VOC emissions from non-oxygenated fuel
associated with attendant changes in exhaust and “as-blended” evaporative VOC. There are two
additional non-exhaust VOC emission effects which must be considered: the effect of ethanol on
permeation and commingling Specifically, CARB points out in its February 7, 2000 submittal
that soft fuel components of automotive fuel systems tend to be more permeable to ethanol than
to other hydrocarbons in gasoline The commingling effect refers to the RVP increase (with
resultant emission increase) that occurs when ethanol-oxygenated gasoline and other gasoline are
mixed EPA’s consideration of permeation and commingling is discussed in subsequent sections
of this document Specifically, CARB points out in its February 7, 2000 submittal that soft fuel
components of automotive fuel systems tend to be more permeable to ethanol than to other

hydrocarbons in gasoline

99


test of significance To a large extent, these modeling decisions require application of engineering
judgement or consideration of limitations of computer hardware/software Divergent decisions at
different points in the model development process can clearly lead to substantially different final
results

In an attempt to resolve the uncertainty about the NOx/oxygen relationship, EPA staff and
a consultant audited the process that CARB staff used to develop the Phase 3 predictive model
Additionally, we independently developed alternative models for NOx as a function of fuel
properties for the Tech 4 vehicles This work is described in the two sections that follow.
3. Audit and verification of PM3

We engaged in a several step process to evaluate and verify the oxygen-NOx effects
projected by California’s PM3 This process and its results are outlined below
a. Handling of Vehicle Technology Groupings

In order to predict emissions for the entire vehicle fleet as a function of fuel
characteristics, the Predictive Model must make predictions for each of the three major groups of
vehicle technologies that make up the bulk of the vehicle fleet at present and for the immediate
future The Tech 3 group is not a significant part of the predictive model, since these vehicles
contribute a rapidly shrinking proportion of fleet emissions as they are replaced and as the
remaining vehicles drive fewer miles per year. The body of data for Tech 3 vehicles in CARB’s
Phase 2 and Phase 3 Predictive Models is quite similar. Tech 5 vehicles, on the other hand,
constitute an increasing percentage of the overall vehicle fleet, but present a problem due to lack
of data on the emissions effects of fuel changes. There are some test programs that have

examined the NOx impact of varying fuel sulfur content for tech 5 vehicles, but there is very little

24


credit, a function of oxygen content (for oxygen greater than 2 percent by weight), recognizes the
ozone forming capacity of CO. If the evaporative option is used, exhaust HC, evaporative HC
and the credit for CO reduction are combined using a formula that considers relative reactivity
and emissions fractions A refiner’s candidate specification is acceptable only if the model shows
equivalent or better ozone formation than the reference specification.

2. Description and comparison of available models for predicting NOx emissions

California relied on the Phase 3 predictive model to demonstrate that removal of the
oxygen requirement would likely result in further reductions in NOx emissions beyond those that
would be achieved with oxygenated CaRFG3. Consequently, consideration of the NOx/oxygen
relationship in the Phase 3 predictive model is an essential element of our evaluation of
California’s waiver request We have examined the response of this model to changes in oxygen
content We have also compared this response to that of the Phase 2 predictive model, and to
EPA’s Complex Model EPA’s Complex Model is used to determine compliance with the
emissions performance requirements for federal RFG It compares the emissions performance of
a candidate fuel to a baseline fuel, for common baseline vehicle technology The baseline fuel and
the baseline vehicle technology represent 1990 fuels and the vehicle technology used in model
year 1990 light-duty vehicles. See CAA §211(k)(3)(10).

The following table summarizes responses to a change from two-percent oxygen to zero
oxygen in a recipe where other fuel properties are held constant at the phase 3 flat limits These
emission changes are expressed as a percent change from the NOx emissions at the two-percent
level, with a negative number indicating a decrease in emissions. Table 2 shows responses for

both the entire phase 2 predictive model (PM2) and the entire phase 3 predictive model (PM3), as

20


CARB acknowledges the lack of sufficient vehicle information to allow satisfactory
characterization of vehicles and their permeation potential but believes the approximations are
directionally correct. We believe that the estimates are uncertain, but nonetheless useful for
evaluating California’s petition.

We agree that additional data are necessary to allow the emissions modeling that would
support and quantify the ethanol permeation effect. CARB’s Resolution 99-39 requires CARB to
conduct research on permeation and calls for a progress report in October, 2000 (which has been
completed) and a final report on the results of permeation testing by December, 2001. A contract
is also planned that includes a literature search for the ethanol permeation rates of fuel system
materials, collection of information regarding fuel system materials that will be in use in year
2003, distribution of vehicles in that year's fleet, and an estimate of the fleet-wide effect of
permeation emissions. Until more data regarding these factors is developed, it is not possible to

better characterize the permeation effect.

2. Commingling effect
When ethanol is mixed with gasoline, a non-linear increase in Reid Vapor Pressure (RVP)
occurs For example, if gasoline with an RVP of 8.0 psi is mixed with non-denatured ethanol

(which alone has an RVP of 2 4 psi) in a 90 percent gasoline/10 percent ethanol mixture, the

bad In our recent rulemaking for Tier 2 Motor Vehicle Emissions Standards (65 FR 6793, February
10, 2000) we recognized the potential for higher evaporative emissions due to fuel permeation
when using ethanol blend gasolines and we included a requirement for emissions deterioration
factors to be developed using fuels containing 10 volume percent ethanol or to demonstrate that
alcohol-resistant, low permeability materials were used

103


The third study of the impact of oxygen on Tech 5 vehicle emissions was performed very recently
by Toyota Corporation
b. The Auto Oil Study

The Auto-Oil study compared emissions using two fuels which met California Phase 2
RFG emission performance specifications, but one contained 2 weight percent (wt%) oxygen in
the form of MTBE and the other contained no oxygen."? These two fuels were tested with eight
Tech 4 vehicles and eleven Tech 5 vehicles (six 1994 model year, Federal Tier 1 vehicles and five
more advanced prototypes indicative of post-1994 technology)

CARB cited this study in Appendix J of its decision document in support of its CaARFG3
regulation '* Appendix G of the decision document addresses the impact of oxygen content on
CO emissions CARB points out that the Auto-Oil study shows that an increase in oxygen
content of 2 weight percent decreases CO emissions from Tech 5 vehicles by only a very small
amount and that this CO decrease is not statistically significant CO emissions from the Federal
Tier 1 vehicles decreased by 1 percent, while those from the more advanced prototypes increased
by 1 percent Based solely on this information, CARB concluded that oxygen did not impact CO
emissions from Tech 5 vehicles It is interesting to note that this study indicated that the 2 weight

percent oxygen did statistically significantly reduce CO emissions from Tech 4 vehicles by ten

2 “Effects of Ethanol on Emissions of Gasoline LDVs,” Toyota Motor Corporation, Presented to
the staff of the California Air Resources Board, May 4, 2000.

B “Technical Bulletin No 17, Gasoline Reformulation and Vehicle Technology Effects on Exhaust
, Emissions,” Auto-Oil Air Quality Improvement Research Program, August 1995

“ Califorma Air Resources Board (CARB) Staff Report Imtial Statement of Reasons, Proposed
Califorma Phase 3 Reformulated Gasoline Regulations, released October 22, 1999 (Available in
docket A-2000-10, Document II-D-6, also available at www arb ca gov/regact/carfg3/carfg3 him
under “Public Hearing Notice and Related Materials”.)

32


However, according to the draft protocol for CARB’s commingling study, (as modified March
31, 2001, see Docket A-2000-10, Document Number II-D-81) we anticipate that the study will be
conducted at retail gasoline facilities in northern California that are currently marketing non-
MTBE gasoline Thus, even if the CARB commingling study accurately evaluates commingling
effects within the study area, it is somewhat uncertain that these results will be applicable to the
South Coast Air Quality Management District. The magnitude of the commingling effect is highly
sensitive to brand loyalty, which conceivably could differ significantly from area to area The
magnitude of the RVP boost is mitigated somewhat by the presence of MTBE. A commingling
study done prior to the elimination of MTBE could potentially underestimate the effects of
commingling on RVP The focus of EPA’s waiver analysis has been to estimate the emissions
effect of the waiver in the SCAQMD after MTBE has been phased out Potentially, CARB could
conclude from a field study that the commingling impact is sufficiently addressed, when in fact it
is not in the area and time of concern.

It is also not clear whether the 0 1 psi RVP adjustment adopted by CARB should be
treated, for purposes of evaluating California’s waiver request, as offsetting the VOC emissions
associated with commingling The 0 1 psi reduction in RVP applies regardless of whether a
waiver is granted, hence the emissions benefit of the reduction occurs whether or not a waiver is
granted while the commingling emissions occur only if a waiver is granted Consequently, EPA
estimated the effect of commingling RVP increases on VOC emissions for each of the twelve

scenarios considered, assuming commingling RVP increases of 0.1 and 0.2 psi”

For purposes of this decision EPA does not need to decide whether it 1s appropriate to offset the expected
imcrease in emissions from commingling with the 0 1 psi RVP reduction adopted by CARB This 1s
because even if the 0 1 pst offset 1s applied, as discussed below, VOC reductions are too uncertain to
tesolve what effect of a waiver would have on ozone

113


provision in 211(k)(2)(B), on the other hand, would allow EPA to waive the oxygen requirement
whenever EPA found that there was sufficient evidence to conclude that a waiver would result in
real-world changes in NOx and/or other emissions, such that without a waiver compliance with
the oxygen requirement would have an adverse impact on attainment of the NAAQS — whether
or not such impact would make compliance with the section 211(k)(2)(A) NOx limitation
technically infeasible. Considering section 211(k) as a whole, this is a reasonable interpretation of
the interaction between these two waiver provisions.

Consequently, while the statute is ambiguous as to the meaning of “prevent or interfere”,
Congress did not clearly intend for section 211(k)(2)(A) to be the only mechanism for EPA to
.waive the oxygen content requirement based on NOx emission impacts EPA may appropriately
consider the impact of compliance with the oxygen content requirement on NOx emissions when

evaluating waivers under section 211(k)(2)(B) as well

b. Section 211(m)(3).

The oxygenated fuels program, section 211(m), requires gasoline in certain CO
nonattainment areas to contain not less than 2.7 percent oxygen by weight during the portion of
the year in which the area is prone to high ambient concentrations of carbon monoxide (ie ,
during the winter) This section of the Act also includes an oxygen waiver provision that is

similar to the section 211(k)(2)(B) waiver language ® Section 211(m)(3) reads

While EPA has received waiver requests under this section of the Act, EPA has not expressly interpreted
this waiver provision Notices were published in the Federal Register for both Califorma and Utah on April
23, 1993, and June 10, 1993, respectively, announcing that these States had requested partial warvers of the
27 percent oxygen content requirement Both States argued that the higher oxygen requirement would
result in increased NOx emussions EPA approved Califorma’s SIP with an oxygen content requirement
lower than 2 7, but did not expressly interpret the 211(m)3) waiver provision

134


reference specifications California reported that the average reduction, relative to the reference
specifications, for the certifiable zero oxygen recipes was 1 7 percent greater than the average
reduction for the two percent recipes 7”

The simulation demonstrated that various hypothetical zero oxygen recipes will satisfy the
predictive model emissions equivalency constraints for NOx, HC and toxics; i.e are allowable
under the CaRFG3 regulations. The simulation also demonstrated that a number of allowable
hypothetical zero oxygen recipes have better NOx emissions performance than a number of
allowable hypothetical two percent oxygen recipes The simulation did not find that all identified
allowable zero oxygen recipes have better NOx emission performance than all identified allowable
two percent oxygen recipes It found, rather, that the average NOx performance of these zero
oxygen recipes was better than the average NOx performance of these two percent oxygen
recipes.

Had the simulation found superior NOx performance in all zero oxygen recipes, it would
have arguably confirmed that the net effect of oxygen removal would be a decrease in Phase 3
predictive model-estimated NOx emissions, regardless of other fuel property changes. Use of the
difference in average performance between zero oxygen and two percent oxygen recipes to
estimate the net effect of oxygen removal is problematic, however. To argue that the simulation
methodology employed— use of averages as measures of NOx performance-reflects what would
occur if a waiver were granted, implicitly assumes that each allowable zero oxygen or two percent

oxygen recipe would represent an equal volume of gasoline in its respective gasoline pool. We do

” The December 24, 1999 letter from Michael P Kenney to Robert Perciasepe reported the
simulation-based difference as 1 5% The February 7, 2000 letter revised this estimate to 1 7%.

56


While it is possible that this scenario could occur, CARB’s own evaluation of the commingling
effect does not identify this as the likely commingling scenario.

EPA has also examined the Sierra Research report prepared for the American Methanol
Institute Sierra Research modified the EPA commingling model to allow variation of the ethanol
content of ethanol-oxygenated gasoline and to allow different base RVPs for the ethanol-
oxygenated and non-oxygenated portions of the gasoline pool Sierra Research generated RVP
boost curves as a function of ethanol market share for a scenario in which a 6.9 psi RVP ethanol
blend was used in conjunction with a 6 5 psi RVP non-oxygenated fuel Sierra Research
estimated minimum, maximum and average commingling impacts at various market shares EPA
understands the minimum curve estimates the commingling impact when gasoline containing 5.75
volume percent is used, the average curve with 7 8 percent and the maximum curve with 10
percent The minimum curve peaks at around 0 2 psi and is fairly flat, with the RVP boost close
to 0 2 psi for ethanol market shares between about 30 to 70 percent This curve is at or above
0 1 psi between about 15 and 90 percent market share EPA has not validated the modifications
to the model Additionally, MathPro’s refinery modeling does not indicate that there will be a
substantial difference in RVP between ethanol-oxygenated and non-oxygenated CaRFG3 in a
shared market However, Sierra’s analysis does conclude that the commingling effect, if ethanol
is used at 5 7 volume percent, is likely to be around 0.2 psi over wide range of market shares

We believe, in the absence of better information that it is at least, if not more, reasonable
to assume for waiver evaluation that the commingling effect would be around an average RVP
increase of 0 2 psi rather than 0 1 psi. CARB estimated the commingling effect by calculating a

small number of refueling iterations under a set of assumptions that would tend to produce an

110


CaRFG3 if a waiver were not granted (ie , 100 percent ethanol-oxygenated CaRFG3 in federal
areas) :
EPA believes that this additional MathPro modeling provides an improved forecast of the
potential characteristics of CaRFG3 under “waiver” and “no waiver” conditions because
1 This analysis incorporated the Beta 3 (final) version of the predictive model and
flat limit reference specifications
2. This analysis incorporated estimates of prospective supplies and prices of crude oil
and blendstocks “imported” (from outside of California) blendstocks which were
revised to reflect more recent market conditions and forecasts
3. The MathPro linear programming refinery model incorporated newly-obtained
technical information that may have affected the relative economics of ethanol
blending at 2 0 weight percent and 2.7 weight percent and the “optimal” shares of
oxygenated and non-oxygenated CaRFG3
As noted in the discussion of market penetration, the EPA MathPro modeling investigated
a number of cases in which refiners blended CaRFG3 with and without a waiver using the phase 3
predictive model, the flat limit reference specifications, and the exhaust plus evaporative VOC
compliance option. In these cases the impact of various factors was considered Specifically, we
evaluated the properties of CaRFG3 where oxygen was used at 2 0 percent or 2 7 percent by
weight, the constraints of the Unocal patent were imposed (requiring refiners to avoid the
parameter ranges established by the patent, called “patent avoided”) or eliminated (assuming, the
patent did not lead to a change in the fuel formulation, for whatever reason, called “patent not

avoided”), and where MTBE use outside of California was assumed to be reduced (e g , because

74


Before analyzing the data, CARB removed observations made using fuels that would not
ever be used in California These specifications are described fully in the contractor’s report (the
Audit)"®, but included among other things a restriction on oxygen content that removed data from
fuels with oxygen in excess of 4 percent by weight EPA staff and contractor agreed that these
deletions were appropriate, given CARB’s intent to specifically model California gasoline
Inclusion of data from fuels outside these bounds might distort the model and limit its ability to
predict the emissions behavior of fuels that would actually be used in California While these
property limit restrictions did admit fuels with property values exceeding CARFG3 caps, they
excluded fuels with property values exceeding those which would normally occur in conventional
or reformulated gasoline (e.g fuels with oxygen in excess of 4 percent by weight ) Automobile
manufacturers would not be expected to design vehicles to operate with such fuels, and such fuels
could produce unrepresentative emission results

CARB also decided to remove data from certain “high influence” vehicles ' It is puzzling,
however, that CARB removed these data from the dataset for the purpose of developing both the
VOC emissions model and the NOx emissions model, since the data deleted were identified solely
on the basis of their influence on the VOC emissions model Without some indication that these

data would similarly skew the results of the NOx emissions model, their exclusion from the NOx

” See Docket A-2000-10, Document Number II-D-64 ("Assessment of California Predictive
Model," Work Assignment No 2-9, Contract 68-C-98-169, SwRI Project 08 04075), December
20, 2000

Where a small number of data points exert disproportionate leverage over the estimates of
coefficients in a regresston analysis, these observations are said to be “influential observations”
In a simple bivariate regression, points that are isolated from the mass of data and are relatively
distant from the means of both variables are candidates for this designation. These are points
whose exclusion or inclusion alters the coefficients in the equation substantially

26


without its complexity being problematic. Use of the Step 7 and Step 8 models generates

separate effect estimates for normal and high emitters from each of the two models For the Step

7 and Step 8 models, their normal emitter effects and their high emitter effects must be weighted

by the estimated contributions to fleet reactive organic gasses (ROG) emissions attributable to

normal and high emitters, respectively,** to obtain an overall predicted effect for each of these

models Model 12 requires no such weighting. Then these three model effects are averaged to

obtain an estimated effect on NMHC emissions from adding 2 weight percent oxygen to gasoline

The result of these calculations for the fuel properties of the CEC-sponsored MathPro modeling

effort is a -0 83 percent change in NMHC exhaust emissions

Table 23. Exhaust NMHC Emission Change from Adding 2 Percent Oxygen to Fuel

MathPro CEC MathPro CEC Other Properties at
Fuels/ Normal Fuels/ High CA RFG3 Flat
Model Emitters Emitters Limit Values
Step 7 -0 73% -0 45% -431%
Step 8 -0 76% -180% -449%
Model 12 -0 83% -0 83% -442%

While we have elected to develop our own models for evaluating exhaust NMHC

emissions from Tech 4 vehicles, just as we did for NOx emissions, we have chosen not to do so

for the Tech 3 and Tech 5 vehicles The reasoning behind this decision for hydrocarbon modeling

closely parallels the corresponding decisions made for our NOx model. Tech 3 vehicles’ NYHC

56

CARB provided these estimates from the EMFAC7g model in an email message dated November
16, 2000. Specifically, 77 percent of 2005 ROG emissions from Tech 4 vehicles were attributed
to “normal” emitters (< 2 times the HC standard), and 23% were attributed to “high” emitters (>
2 times the HC standard)

92


(5) Additional information on the simulation analysis of future gasolines produced to
comply with CaRFG3 specifications

(6) Sensitivity analysis to evaluate the effect of not including off-road emissions in the
CaRFG3 Predictive Model

The Agency then began an independent evaluation of the data and modeling, as well as the

other information submitted by California in support of its request for a waiver from the federal

RFG oxygen content requirement.


of MTBE bans or refiner liability concerns) or assumed to continue at current levels. The -
CaRFG3 property values and market share information for these cases was shown in Table 11 in
Section III B 2. eight sets of fuel properties for which waiver-no waiver emissions comparisons
can be made We cannot rule out the possibility that refiners may elect to blend ethanol-
oxygenated CaRFG3 at different oxygen content under waiver and no waiver conditions. Thus
we have sixteen possible waiver-no waiver NO, emissions comparisons These possible

comparisons are illustrated in the tree diagram shown below (Figure 1) “

27 Warer |
27No Case
adver ux
2.0 Water
No Patent Case
] 27 Warer
Cone
Mtge use] 20%
reduced: | Waiver Casa
20 Wawer
Case
2700 27 Waser
| becwercee| [|e
Patent
‘Avoided L__] 20Warer
Case
27 Werner
20% Case
L | verve cose
‘20 Waner
Cosa
Figure 1

‘The tree diagram uses the term “no patent”, consistent with the MathPro report, to describe those cases
where the constraints of the Unocal patent are not avoided The term “no patent” means that the predicted
properties for the blends could fall within the patent ranges MathPro did not assign additional costs for
producing such blends In subsequent sections of this document EPA has used the term “patent not
avoided” to identify those scenarios The Patent Office 1s still bemg asked to reconsider their patent
decision Some refiners may choose pay a premium to produce gasoline within the constraints of patent
MathPro’s modeling did not study the effect of a premium on patented gasoline

75


objective of accurately modeling the emissions components controlled by California regulatory
efforts outweighed the loss of data. Some of the data from the original set were excluded for
other reasons as well. The specific exclusions and the reasons for them are detailed in the EPA
consultant’s report (See Docket A-2000-10, Document Number II-D-63 “Building the NMHC
Model," Work Assignment No. 2-9, Contract 68-C-98-169, SwRI Project 08.04075, December
20, 2000) and generally parallel similar decisions made when modeling NOx emissions, as
discussed earlier. CARB excluded data from four studies on grounds that the vehicles involved in
the studies were “high influence” vehicles. EPA elected to retain the data from these vehicles on
grounds that our use of a “high-emitter” term would permit the model to adequately incorporate
the effects of these data without distortion

a, Statistical Methodology.

In most respects the statistical approach used in developing EPA’s Tech 4 NOx emissions
models was also followed in modeling NMHC: A “mixed effects” statistical model was used, as
described earlier in connection with the NOx modeling Until recently, this type of model could
not be used with large datasets because of the computational intensity and the lack of appropriate
software. Such a mixed effects model made it possible to treat the fuel effects as fixed effects,
while handling vehicle effects as if the vehicles had been sampled from some larger population of
vehicles

As has been done in almost all statistical analysis of vehicle emissions data of this sort,”
the dependent variable was subjected to a log transformation to correct the strong positive skew

in the distribution of NMHC and to make it possible for the dataset to meet certain basic

“ EPA’s Complex Model development and CARB’s modeling of fuel effects are examples of this
81


. Given CARB’s statement that a waiver of the summertime oxygen requirement
would be appropriate, we questioned whether elimination of the minimum oxygen
requirement of 1 5 weight percent might be an acceptable scenario in lieu of a
waiver.

. In light of CARB’s stated concerns that the oxygen mandate would prevent the
maximum NOx reduction possible via its Phase 3 California reformulated gasoline
(CaRFG3) regulations (which at that time had not been promulgated), what

assumptions were made about the CaRFG3 fuel in the analysis?

C. CARB September 20, 1999 response to EPA questions
CARB responded to EPA’s August 6, 1999 letter in a letter dated September 20, 1999. (Filed in
docket A-2000-10; document number II.D.-3, also available at
http //www arb ca gov/chg/Oxv/wav/092099 pdf) CARB’s July 20, 1999 response to our
questions indicated that RVP and sulfur were the two key parameters in setting new baseline fuel
specifications “because emissions are most sensitive to these parameters and when either is
reduced, emissions of regulated pollutants go down” CARB claimed that if the other properties
were changed, emissions of one or more pollutants would decrease (usually to a much smaller
degree) but emissions of at least one other pollutant would increase. CARB concluded that these
other parameters are much less useful in making complying fuels with the needed NOx reductions
With respect to the assumptions made for the CaRFG3 fuel in its analysis, CARB stated
that “there was no need to assume anything for Phase 3 CaRFG other than there still exists a need

for further reductions in emissions.” CARB also claimed that “the ability to reduce NOx and


MathPro’s refinery modeling for EPA estimated ethanol-oxygenated market shares
between 26 percent and 65 percent for various waiver scenarios, For waiver scenarios where
oxygen content was 2.0 weight percent, oxygenated market shares ranged from 26 percent to 50
percent MathPro’s refinery modeling also predicted an as-blended RVP of about 6.6 psi for
oxygenated and non-oxygenated CaRFG3 in these 2 0 weight percent oxygen scenarios EPA’s
commingling model, with a base RVP of 6.6 psi estimated an average RVP increase of 0.27 psi
from commingling at 26 percent ethanol market share, and a 0.28 psi average RVP increase at 50
percent market share (with other model parameters as in previous runs ) Adjusting these
estimates to 5 7 percent ethanol content using the 80 percent factor results in an average RVP
increase of about 0 22 psi.

If the overall market share of ethanol-oxygenated gasoline was 50 percent, and it was
assumed, as CARB suggests, that ethanol was used in 100 percent of premium, the ethanol
market share in regular grade (with a 25/75 premium/regular split) would be around 33 percent.
EPA’s model estimated an average RVP increase of 0.29 psi at 33 percent market share with the
other parameters as above Adjusting for 5 7 percent ethanol, and applying this increase to 75
percent of the gasoline pool results in an average RVP increase of about 0 17 psi. If the
oxygenated market share was 26 percent and ethanol was used in 100 percent of premium, with
CARB’s assumptions, virtually no oxygen would be used in regular gasoline Consequently,
under these conditions the average RVP increase due to commingling could be negligible.
CARB’s commingling analysis considered a scenario where ethanol was used in 100 percent of
premium and zero percent of regular, with the only commingling coming from a small amount of

grade switching CARB estimated a commingling effect under this scenario of around 0 02 psi.

109


Cc. Foreseeable effects of reduced oxygen on other pollutants and off-road vehicles in
California
1. Quantification of oxygen/VOC effect
When gasoline oxygen content decreases, all else constant, exhaust hydrocarbon emissions
are expected to increase. Table 15 shows the percent change in exhaust hydrocarbons emissions
estimated by various models when oxygen content is changed from two percent to zero percent
while other properties are held at California Phase 3 flat limits ““ CARB’s predictive models and
EPA’s complex model predict that HC emissions will increase with decreasing oxygen, all else
constant.

Table 15: Estimated Percent Change in Exhaust HC for Oxygen Content
Change from 2% to 0% (Other properties at Ca Phase 3 flat limits)

Model Percent Change in Exhaust HC
(positive indicates increase)
PM3-Tech 3 only 4.45
PM3-Tech 4 only 284
PM3-Tech 5 only 2.97
PM3-composite 3.15
PM2-Tech 3 only 4.48
PM2-Tech 4 only 224
PM2-composite 2.69
Phase II Complex Model 073

4s A simular table for NOx was shown in Section III.A.5.c. (Table 9) See the explanatory note

regarding comparison of results from different models
719


requirement of 2 0 weight percent oxygen content in effect, the phase-out of MTBE in California
could result in some commingling of ethanol and MTBE-oxygenated gasolines if MTBE and
ethanol were both used during the phase-out period Commingling would no longer be a
significant issue once the phase-out of MTBE is complete, if all gasoline sold within federal RFG
areas was then ethanol-oxygenated gasoline, as expected. (Some commingling within federal
RFG areas could still occur in theory, however, when a vehicle is refueled both inside and outside
of a federal RFG area, however, in California this is unlikely to involve a substantial fraction of
the gasoline). In the case of an oxygen waiver, however, ethanol-oxygenated and non-oxygenated
RFG could share the market within federal RFG areas in California In the waiver scenario, we
would expect the incidence of commingling to be substantially higher than in the other scenarios
described. Consequently, a waiver of the oxygen content requirements may cause an increase in
non-exhaust HC emissions due to commingling.”

Although mixing of ethanol with gasoline produces a nominal 1 0 psi RVP boost over a
wide range of ethanol blending volumes, the actual average RVP increase that will occur in a
mixed ethanol/non-oxygenated market would be, under any foreseeable set of conditions,
Significantly less than 1.0 psi % The effect of commingling on average RVP depends on a number

of factors

or This would be true either for a complete waiver of the oxygen requirements, or any partial waiver which

includes removal of the per-gallon mumumum oxygen requirement (1 5 weight percent), allowing some non-
oxygenated CaRFG3 1n federal areas
6 The term “average RVP increase” refers to the actual increase in RVP caused by commungling in a subset
of the enture gasoline pool, averaged over the entire gasoline pool

105


their NMHC emissions respond to fuel parameter changes—oxygen content changes in particular *
The coefficients of Model 12 are shown in Table 21.

Table 21. Estimated Coefficients for Model 12 for log NMHC (coefficients that were
not statistically significant at the 0.05 level are indicated in bold)

Standardized Term | Model 12
Intercept -1 6012
RVP 0 007973
T50 0.06046
T90 0 02133
AROM 0 008759
OLEF -0 01457
OXYGEN -0 01391
SULFUR 0 04696
HI-EMIT 17091
T90*T90 001633
T50*T50 0.02469
T90*OXY 0.01552
OXY*OXY 0.01288
T90*ARO 0.006814

c. Final Model Selection
Clearly, whatever model or models we select for NMHC must do a good job of predicting

NMHC emissions as a function of all of the different fuel properties that are measured under

ss While mode! 12 contains a high emutter term, that term affects only the intercept of the
regression equation This difference in intercept would be profoundly important if we were using
the models to estimate expected emission inventories In this case, though, we are interested in
percent changes in emissions as a function of fuel parameter changes By itself the high emitter
term does not influence these changes in fuel effects

90


conclusion MathPro, under separate contracts to Chevron/Tosco” and to the California Energy
Commission (CEC)”, used its refinery linear programming model to investigate the likely effects
of an MTBE ban and the elimination of the oxygen mandate on gasoline reformulation in
California We examined these MathPro modeling studies to help define how CaRFG3 would be
made and the likely penetration levels of non-oxygenated CaRFG3 in a waiver scenario. These
studies, however, were completed before the Phase 3 predictive model was finalized, contained
questionable assumptions, and did not consider certain other factors likely to influence the extent
of oxygen use in California RFG in the absence of an oxygen mandate. Section III B 2a below
provides a description of these studies as background to the most recent analysis conducted
a. Previous analyses

The Chevron-Tosco analysis looked at various combinations of ethanol price assumption,
predictive model mode (i.e. flat limit or averaged limit compliance), and time period
“intermediate” 3 year and “long term” 5 year) The Chevron-Tosco report concluded that the
optimal “cost minimizing” share of non-oxygenated CARB gasoline ranges from about 20 percent
to 40 percent, depending on time period and predictive model mode. This analysis assumed the
Phase 2 predictive model requirements, and that oxygenated RFG would contain 2 7 percent
oxygen in a split market

MathPro analysis for the CEC included modeling of various split market cases, with fuel

requirements determined by versions of the Phase 3 predictive model This modeling also

oad “ Potential Economic Benefits of the Feinstem-Bilbray Bill”, MathPro Inc , March 18, 1999
Included as Appendix O 1n the CARB staff report “Proposed California Phase 3 Reformulated
Gasoline Regulations” October 22, 1999.

29 “Analysis of California Phase 3 RFG Standards”, MathPro Inc , December 7, 1999

58


oxygen use in California fuels cannot be determined solely by investigating the validity of the
Phase 3 predictive model We must also consider the properties of actual non-oxygenated and
oxygenated fuels that would be used in California if a waiver were granted, as well as the likely
penetration levels of non-oxygenated fuels. Quantification of expected NOx reductions is

explored in Section III B below

B. Effects on NOx of reduced oxygen use in California
1. Actual fuels that would be used in California if a waiver were granted

In order to determine the likely impact of a waiver on NOx emissions performance, it is
necessary to consider the changes in all fuel properties that would occur as a result of oxygen
removal and the net effect of these property changes on NOx emissions Each refiner would make
refinery-specific decisions about how to most profitably blend CaRFG3 in the absence of an
oxygen mandate A refiner may elect to produce oxygenated CaRFG3, non-oxygenated CaRFG3,
or both Each refiner’s blending decisions may impact the way other refiners produce both
oxygenated or non-oxygenated CaRFG3, since they may purchase ethanol and other blendstocks
whose price is affected by supply and demand. In addition to these economic considerations,
refiners must meet the predictive model’s emission equivalency requirements for hydrocarbons (or
ozone formation), and toxics Refiners must also compensate for the volume and octane loss
associated with oxygenate removal Replacement of the oxygenate with other refinery streams
will result in changes to other properties which are parameters of the predictive model and

alternative models

54


Ti. EPA’S EVALUATION OF CALIFORNIA’S PETITION

The Clean Air Act requires that, in order to waive the federal RFG oxygen requirement,
EPA must determine that compliance with the requirement prevents or interferes with attainment
ofa relevant NAAQS The key question before the agency therefore involves the air quality
impacts of a waiver for the relevant NAAQS.

To address the air quality impact, it is critical to consider both the potential changes in
gasoline quality which could occur if a waiver were granted and the potential emissions impacts of
these changes All relevant categories of emissions should reasonably be considered This
information is needed to evaluate the impacts of a waiver on each applicable NAAQS. This
section provides details on our evaluation of California’s petition

Our evaluation of California’s request for a waiver contained three critical areas for
review

qd) NOx, VOC and CO emissions vary directly with the amount of oxygen in the

fuel

CARB’s predictive model shows that NOx varies directly with the amount of oxygen in

the fuel We audited CARB’s Phase 3 Predictive Model (PM3), and created our own predictive

16


that treated the fuel effects as fixed We discussed the advantages of such an approach above in
connection with CARB’s modeling effort which used the same approach, and they are treated at
greater length in the previously cited “Building the NOx Model” (See Docket ’A-2000-10,
Document Number II-D-65)

Candidate terms initially made available for possible use in the model included, in addition
to the seven linear properties, the squares of the same seven properties (allowing for non-linear
effects), 21 interactive terms (products of two linear terms), a high-emitter term, and the seven
interactions of the high-emitter term with the fuel properties

The seven linear fuel properties were forced into the model without regard to their p-
values” in order to ensure that the linear form of any variable that was subsequently involved in
higher-order or interactive terms would be present Beyond this stage, terms were introduced one
by one in what is termed a “stepwise” manner in order of their statistical significance (the term
with the smallest p-value is introduced first, and soon) At each step the significance level of

each of the terms already in the model was examined, and any terms (other than the seven linear

For the purpose of this discussion, the p-value may be understood as the likelihood that a decision
to include the term in question in the equation will prove to be a bad decision in the sense that
the term actually fails to explain any variance in the dependent vaniable~NOx emissions 1n this
case Soa p-value of, say, 0 02 can be taken to mean that there are 2 chances in 100 that a
decision to include the term 1n question will not really improve the amount of NOx variance
explained, given the other terms that are already in the model The p-value is a function of a
number of factors involved in the analysis and is a quantitative indicator of what is called
“statistical significance”. The 5% level, more frequently referred to as the 0 05 level, 1s a cut
point for the p-value, established by common convention for concluding that a term has little to
offer in the way of explanatory power. A term with p>0 05 is considered to be a poor term to use
in building a model

45


Table 7. Estimated Coefficients for Second Half of Final Models Fit to Log(NOx)
(old italics indicate non-significant terms at 0 05 significance level)

Standardized

Term RB-3 Step-4 10 CARB Step-5

Intercept -06829 -0.6791 -0.6550 -0.6159 -06690
RVP 0.009120 0.006838 0.005756 0.006922 0.00487
T50 0.000275 -0.00062 0.001255 -0.00036 -0.00061
T90 0.005640 0.006002 0.005456 0.005731 0.005237
AROM 0.009442 0.01139 0.01395 0.009896 0.01126
OLEF 0.01915 0.01924 0.02039 0.01944 0.02003

OXYGEN 0.01245 0.009105 0.01385 0.01324 0.009231
SULFUR 004520 0.04232 004677 0.04518 004710

HI-EMIT 0.3982 0.3974 «=: 0.3847 0.3961
OXY*SUL -0.01464 -0.01598 0.01434
TS50*TSO 0.005102 0 006929 0.006771
OXY*OXY 0.01521 0.01128 0.01226 0.01132
SUL*SUL 0.00606 -0,00615
OXY*TSO 0.00804

OXY*ARO ~0.00633

SUL*T90 0.005984

A group of models emerging from the above processes were carried forward as candidates

and subjected to further examination This group of models is listed in Table 8 below, along with

2,

measures of the models’ “goodness of fit” to the data

Table 8. List of Candidate Models for NOx Emissions

No of Vehicle Fuel Terms
Model Terms AIC BIC RMSE Error (In Addition to Linear Terms)
Step-1 8 2657.0 2633.1 0.1138 0.5809 HI
Step-2 9 2673.1 2646.8 0.1133 0.5825 HI, OXY*SUL
3 9 26701 2643.8 0.1129 0.5813 Hi, OXY*T90
Step-3 10 2681.9 2653.2 0.1126 0.5827 Hi, OXY*SUL, T50*T50
5 10 2678.7 2650.0 0.1128 0.5827 HI, OXY*SUL, OXY*T50
6 10 2675.6 26469 0.1129 0.5825 HI, OXY*SUL, OXY*ARO
7 10 2672.6 2646.3 0.1132 0.5823 HI, OXY*SUL, OXY*OXY
RB-3 10 2665.7 2639.4 0.1130 0.5808 HI, OXY*OXY, T50*T50
CARB 10 2622.9 2596.6 0.1134 0.6433 OXY*ARO, OXY*OXY, SUL*T90
Step-4 11 26815 2652.8 0.1125 0.5824 Step-3 Terms, OXY*OXY
10 11. 26775 2648.8 0.1128 0.5834 HI, OXY*SUL, OXY*TS50, SUL*SUL
Step-5 12 26804 2651.7 0.1125 0.5833 Step-4 Terms, SUL*SUL

49


As in our earlier analysis, we estimated Tech 3 NOx emission changes using the Tech 3
portion of the Phase 3 predictive model. The “waiver” non-oxygenated to “no waiver”
oxygenated changes ranged from 0.40 to 4.19 percent, all showing a net NOx increase with
oxygen The “waiver” oxygenated to “no waiver” oxygenated changes were mixed and ranged
from -2 81 percent to 315 percent As before, we assumed no fuel-related emission effects for
the Tech 5 vehicles. The resultant emission changes are shown in Table 14 below, with a
negative number indicating a reduction in emissions with a waiver.

Table 14: Estimated South Coast On road NOx Emission Inventory Changes With

Waiver (tons/day)
NOx emission
change from
Waiver Oxy | Nationwide no waiver

No Waiver Oxy Level | Level MTBE Use Unocal Patent scenario

2.0 2.0 Reduced Patent not avoided -3 26

27 27 Reduced. Patent not avoided -3 64

27 20 Reduced Patent not avoided ~4 67

2.0 20 Continues Patent not avoided -251

27 , 27 Continues Patent not avoided 2.08

27 20 Continues Patent not avoided -3:93

20 20 Reduced Patent avoided -3 40

27 27 Reduced Patent avoided -3.58

27 20 Reduced Patent avoided -5 56

20 20 Continues Patent avoided -227

27 2.7 Continues Patent avoided -251

27 20 Continues Patent avoided 445

78



a. Fuel control preemption waivers

Section 211(c)(4)(C) of the Act provides that before a State may prescribe controls
respecting fuels or fuel additives it must demonstrate that such controls are “necessary to achieve”
the NAAQS *” We discuss the possible relationship between the language “necessary to achieve”
attainment and “prevent or interfere” with attainment in section 1 ¢ above

In implementing section 211(c)(4)(C) EPA has established a criteria for demonstrating
“necessity” that requires a State to (1) identify the quantity of emission reductions needed to
achieve the NAAQS, (2) identify all other possible control measures and the quantity of
reductions each would achieve, (3) explain in detail, with adequate factual support, which of those
identified control measures are considered unreasonable or impracticable, and (4) show that even
with implementation of all reasonable and practicable control measures, the additional emissions
from the proposed fuel control are needed to meet the NAAQS in a timely manner * See
Approval and Promulgation of Air Quality Implementation Plans, Pennsylvania, Gasoline
Volatility Requirements for the Pittsburgh-Beaver Valley Ozone Nonattainment Area, June 8,
1998 (63 Fed. Reg. 31116).

EPA’s implementation of the section 211(c)(4)(C) preemption waiver supports an,

interpretation of section 211(K)(2)(B) which would require a state to clearly demonstrate what

” California 1s excluded from this statutory preemption by CAA § 211(c4)(B)
8 EPA may make a finding of necessity without an approved attaznment demonstration so long as the state
includes specific information sufficient to make the statutory showing that the proposed measure 1s
necessary to meet the applicable NAAQS See Approval and Promulgation of State Implementation Plans,
Anzona—Manicopa County Ozone Nonattamnment Area, June 11, 1997 (62 Fed Reg 31734, 31736)

” EPA’s August 1997 guidance document, Guidance on Use of Opt-In to RFG and Low RVP Requirements
in Ozone SIPS, provides additional discussion of preemption waivers under CAA § 211(c)(4(C)

140


Thus, to the extent that the Administrator determines that the oxygen content requirement
makes it technically infeasible to reformulate gasoline without causing increases in NOx emissions
compared to baseline gasoline, the Administrator may waive the applicability of the oxygen
requirement This provision creates a relatively bright-line test, indicating that where it is
technically infeasible to comply with both requirements, compliance with the NOx limitation is
more important than compliance with the oxygen content requirement.

The broader waiver provision in (k)(2)(B) demonstrates a Congressional intent to address
the potential impact of oxygen content on emissions from gasoline, including NOx, even where
that impact does not make compliance with the NOx cap infeasible. Thus, Congress did not
intend for the agency to implement the oxygen content requirement with a disregard for the
impact that compliance with the standard would have on actual NOx and other emissions from
gasoline. Where compliance with the oxygen content requirement would interfere with an area’s
ability to achieve the NAAQS, it is evident that Congress intended for EPA to have the discretion
to determine that the oxygen content standard should give way.

It was reasonable for Congress to include both provisions, and it is reasonable to conclude
that Congress intended for both provisions to address, among other things, the potential impact of
oxygen content on NOx emissions Accordingly, the language of 211(k)(2)(A) would provide
EPA with a mechanism for avoiding NOx increases resulting from oxygen content, compared to
baseline gasoline, without requiring a potentially difficult determination of interference with
attainment of the NAAQS. Thus, the section 211(k)(2)(A) waiver provision would simply
preserve the integrity of the statutory NOx limitation where that limitation is incompatible with

any of the other provisions of 211(k)(2), including the oxygen content requirement. The waiver

133


(3) Discussion of CO and VOC issues

CARB provided estimates of the increase in CO emissions associated with a waiver based
on tests conducted using the Federal Test Procedure (FTP) and included the effect of lower sulfur
and T50 (CARB’s procedure is documented in Appendix G of the staff report for its CaRFG3
tule, available at http //www arb ca gov/regact/carfg3/appg pdf) CARB concluded that on
average, CO would increase 5 8 percent (per percent oxygen reduced) for vehicles of model years
1981-1985, 4 99 percent (per percent oxygen reduced) for model year vehicles 1986-1990, 1 39
percent (per percent oxygen reduced) for model year vehicles 1991 to 1995, and zero percent for
model year vehicles later than 1995 However, CARB also assumes that reductions in sulfur and
T50 would occur to offset any increase in exhaust HC resulting from oxygen removal, and that
these reductions would also lower CO emissions, partially mitigating the CO increase due to
oxygen removal Based on this procedure, CARB estimated an increase of 133 tons/day of CO in
covered RFG areas in California.

CARB also estimated the reduction in VOC emissions with a waiver, due to the decrease
in ethanol use and the associated reduction in permeation losses (this is discussed in further detail
in Section III C.1 e ) Permeation losses are the evaporative VOC emissions that escape through
soft fuel system components (such as hoses and seals), and that are associated with the use of
ethanol in gasoline CARB estimated that the difference in evaporative emissions (due to
permeation losses) between non-oxygenated gasoline and gasoline with 10 volume percent
ethanol (2 0 weight percent oxygen) is about 13 tons/day for all federal RFG areas in California,
assuming 100 percent penetration of non-oxygenated fuels Using relative reactivity factors,

CARB argued that its estimated 13 ton/day reduction in evaporative VOC (from the decrease in

11


The Administrator shall waive, in whole or in part, the requirements of paragraph (2)

[for 2.7 percent oxygen] upon a demonstration by the State to the satisfaction of the

Administrator that the use of oxygenated gasoline would prevent or interfere with the

attainment by the area of a national primary ambient air quality standard (or a State

or local ambient air quality standard) for any air pollutant other than carbon

monoxide

This language clearly supports the view that a primary objective of the fuel program in
section 211(k) of the Act is to provide air emission benefits to help ozone nonattainment areas get
closer to attainment of the NAAQS, and it is consistent with the idea that where compliance with
the oxygen content requirement is demonstrably inconsistent with attaining the ozone NAAQS (or
another primary NAAQS) EPA has discretion to determine that the provisions requiring oxygen

should yield

c. Section 211(c)

The statutory preemption provisions of section 211, and EPA’s interpretation of these
provisions, may provide some guidance regarding an appropriate interpretation of the term
“interfere” under section 211(k)(2)(B). Section 211(c)(4)(A) prohibits states from prescribing or
enforcing controls respecting those characteristics or components of fuels or fuel additives for
which the EPA has prescribed controls, unless EPA determines that the state control “is necessary
to achieve” the NAAQS. CAA § 211(c)(4)(C) The Act indicates that EPA may make such a
finding if “no other measures that would bring about timely attainment exist, or if other measures

exist and are technically possible to implement, but are unreasonable or impracticable.” Id. The

135


models do not all handle identically. Moreover, the uneven distribution of oxygen content among
the fuels in the database contributes to our uncertainty that any one of these models was clearly
preferable EPA believes that averaging the NOx predictions of this group of models is justified.
6. Summary of findings

In summary, our examination of the Phase 3 predictive model, and our effort to develop
alternative Tech 4 NOx models indicate that for Tech 4 vehicles NOx emissions do increase as
oxygen increases when the effects of other properties are held constant Our review of CARB’s
description of the Tech 3 model development process, the observation that little data were added
to the PM2 database for these vehicles, and that there was little change from the Phase 2 model in
the resultant NOx equation all suggest that this model may properly characterize the direction of
the NOx/oxygen relationship for these vehicles Our modeling effort supports the conclusion that
NOx increases with oxygen for Tech 4 vehicles. Our alternative models predict a somewhat
larger increase in NOx emissions with oxygen addition than CARB’s Tech 4 model, but the level
of uncertainty regarding this relationship makes difficult to quantify precisely this relationship with
high confidence

The small amount of Tech 5 data used to develop the Tech 5 portion of the predictive
model leaves considerable uncertainty about the NOx/oxygen relationship for this group For
reasons discussed in greater detail earlier, EPA believes the most reasonable assumption is that
fuel oxygen content changes would have no effect on the NOx emissions of Tech 5 vehicles

While we find that NOx emissions are likely to decrease as fuel oxygen decreases, either
as quantified by the predictive model or by some alternative model, such finding is not enough, by

itself, to decide whether to grant California’s waiver request. The effect on NOx of reduced

53


Table 21
Table 22
Table 23.
Table 24
Table 25
Table 26
Table 27
Table 28.

Table 29
Table 30

Table 31
Table 32

Estimated Coefficients for Model 12 for log NMHC (coefficients that were not
Statistically significant at the 0 05 level are indicated inbold) . . . 90
List of Candidate Models for NMHC Emissions 91
Exhaust NMHC Emission Change from Adding 2 Percent Oxygen to Fuel 92
Normal Emitter EPA Tech 4 Model “Waiver” to “No Waiver’ NMHC Percent

Changes Pe ee eee beet eee 94
High Emitter EPA Tech 4 Model “Waiver” to “No Waiver” NMHC Percent
Changes  —t.. nn. - 95
Estimated South Coast On Road Exhaust+As-Blended Evaporative VOC Emission
Inventory Changes With Waiver (tons/day) . . 99
VOC Emission Reductions due to reductions of permeation losses with Waiver
see 101

Estimated South Coast On Road Commingling VOC Increases With Waiver
(tons/day) 114
Estimated South Coast On Road CO Emission Inventory Changes With Waiver1 16
Estimated South Coast Off Road Emission Inventory Changes With Waiver

. 120
Waiver Impacts at Various Commingling-Related RVP Boosts 122
Components of Total VOC Change an 124


consistent with the flat limit responses They show that, even when other property effects are
considered, an increase in oxygen content is likely to result in an increase in NOx emissions
Conversely, a decrease in oxygen content is likely to result ina NOx decrease Furthermore,
comparison of results from EPA’s alternative models with the PM3 Tech 4 result suggests that
the PM3 Tech 4 model may underestimate the net NOx effect. EPA’s “preferred” models all
show a larger NOx increase than the PM3 Tech 4 model.”

Based on the average CEC MathPro fuel response from our “preferred” models (6,5,
Step-3, Step-2, 3 and 7), we estimated that an increase from 0 percent to 2 percent oxygen would
result in a 3 90 percent increase in NOx emissions from Tech 4 vehicles switching from non-
oxygenated to oxygenated CaRFG3 There would be a corresponding decrease in NOx emissions
of -3.74 percent resulting from a decrease in oxygen content of 2 percent to 0 percent by weight
We used this number (the FACTOR), in conjunction with other information, to estimate the
effect of the waiver on Tech 4 NOx emissions *

Analysis based on these CEC MathPro fuels indicate that a change in oxygen content from
0 to 2 percent would result in an increase in NOx emission of 5 12 percent in Tech 3 vehicles
Correspondingly, a decrease in oxygen from 2 percent to 0 percent would be accompanied by a

decrease in NOx emissions of -4.88 percent in these vehicles We used this FACTOR, in

0 See the earlier discussion of the model selection process, in which EPA identified some of the

alternative models as better than others. The CARB and RB-3 models, the two models which did

not show a larger increase in NOx, were not among the preferred models
“ We used an estimate of 289.45 tons/day NOx to represent on-road gasoline vehicle South Coast
NOx emissions in 2005 without a waiver We apportioned these emissions to the three Tech
groups using factors from the PM3 (12 2% to Tech3, 34 8% to Tech4 and 53.0% to TechS) We
multuphed our estumate of Tech4 NOx emussions 1n 2005 (100 73 tons/day) by our estimate of
the non-oxygenated market penetration with a waiver (40%) by the “2 percent to 0 Percent
FACTOR” (-3.74%) yielding a 1.50 ton/day reduction

70


information useful for examining the NOx emissions consequences of altering the oxygen content
of gasoline

CARB’s Tech 5 modeling seems to have drawn heavily upon Tech 4 data, to which is
added a small body of data on Tech 5 vehicles. EPA understands the difficulty of drawing
conclusions in the absence of good relevant data The changes to vehicle technology that give
rise to the “Tech 5” designation’, however, would seem to be at odds with CARB’s implicit
conclusion that these vehicles’ NOx performance will be similar to that of the Tech 4 vehicles as
oxygen is varied. This is a matter of judgment in the absence of a robust set of directly applicable
data, but EPA believes that California gave too much weight to the older Tech 4data, resulting in
a likely overestimation of the oxygen effect on NOx in Tech 5 vehicles, a technology grouping
that will be an important fraction of the vehicle fleet by the year 2005 As explained in Section
III A 4, we took a very different approach in determining the effect of oxygen on the NOx
emissions of Tech 5 vehicles
b. The Dataset

EPA’s contractor examined the dataset to verify that CARB correctly integrated the
Complex Model dataset and the information from various other sources into its Phase 2 and Phase
3 analyses No problems were found We note the inclusion of a substantial body of additional
data from vehicles identified as high-emitters, which we believe makes the dataset more

representative of the actual California vehicle fleet.

The computer systems and associated sensors typically used in Tech 5 vehicles exert more
effective control over air/fuel ratios than is typically the case for Tech 4 vehicles. Since the
emussions effects from adding oxygen to fuel results in large part from the “enleanment” effect of
the additional oxygen, there 1s reason to believe that tech 5 vehicles should be less sensitive to
fuel oxygen changes.

25


properties in samples do not exceed recipe specifications The California Energy Commission
specified compliance margins to be used in this modeling These compliance margins, if added to
the above properties, yield the specifications for the fuel * These resultant specifications must
satisfy the predictive model’s emissions performance criteria to be allowed by the refinery model
Table 12 presents the net NOx difference between the non-oxygenated and the oxygenated
CEC MathPro fuels (using the actual properties shown above) estimated by the composite PM3,
each component of PM3, and EPA’s alternative Tech 4 NOx models discussed earlier. The
percent change in NOx emissions when oxygen is changed from 0 to 2 percent with other
properties held constant at CARFG3 flat limits was shown earlier in Table 10. These “flat limit”

responses are repeated here for comparison

38 The compliance margins specified by CEC are listed in Table D of the MathPro report For

example, the RVP specification for the fuels shown above would be 6 6+0 22=6.82 psi.

68


allowing EPA to require a reasonably thorough analysis regarding the likely composition of
gasoline (with and without the oxygen content requirement in place) and the impact that any
changes in gasoline composition would have on emissions Further, this precedent supports the
view that EPA may require a clear demonstration of the overall impact of a waiver on the relevant
emissions inventories in an area, and a clear demonstration of the effect of such emission changes
on attainment of each relevant NAAQS The legislative history (discussed above) also supports

this interpretation of the Act

Cc. Policy Considerations

Because waiver of the oxygen content requirement is discretionary — that is, EPA “may”,
but is not obligated to, waive the oxygen requirement if the statutory criteria are met — EPA has
significant discretion to consider additional factors * So long as EPA’s exercise of its discretion
in this regard is not arbitrary, such considerations may appropriately serve as factors in such
discretionary decision-making, where they reasonably promote the underlying Congressional
objectives See Chevron, USA v. NRDC, 467 U.S. 837 (1984). Because we find that California’s
petition for waiver of the oxygen content standard fails to meet the minimum requirements
necessary for granting such waivers, we need not determine at this time each technical and policy
consideration that might be relevant for determining whether to grant or deny such waivers in the

future.

For example, even where a state has successfully demonstrated that 2 0 percent oxygen in RFG interferes
with attainment of the NAAQS by an area, it might be reasonable for EPA to deny a warver request based
on competing air-quality or non-air quality considerations

144


Table 10: Summary of refinery modeling results

Exhibit1 Summary of Refinery Modeling Results —
Gasoline Pool Splits and Gasoline Properties

Model Fe
No Unocal Patent, Pool Ftat Limtts, ‘Unocal Patent Avoided, Grade by Grade Flat Limits,
Hised Property Deltas Yariable Pre

| Natoma HSE isons _y_Nasonal TR Read? 1 Natal HERE Ua Cantina!

INo Watver Watver No Watver| ver Watver

Anon | ow | woos | anos on_|_ nex |
THANOL @2 0 1%
hare of Gas Pool 100%] 50%] 0%] 100%] 35%] 65%] © 100%) = Som] = Som] = 100%] «= 28%] 748
Properties
IRVE eee] 660/660}. «8, «8 60! «= 0] Sw 74) «= 2} go} 74] «= 60} ae}
loxygen 20) 20) oo) 20) 20 00) 20) 20) od) 20 20) 00)
JAromabcs zi] 265] 230]. 24s] 101] 286] 233] 243} 268] | 233] 288] 2a a}
Benzene oe! cea} 057} Seal, «077! ost] os} oud 057] 08s] aa)
lefins al 34 5a) ry) ae) 47] 39] 37| 24 39) 29) 30]
Suitur 45 7 al 15 17 7 10| 13] al 10| 12 10]
|E200 472] 480] a7] 72] a5 2] 87] ae4} 482] gat} aa] aes) 477
|E300 e76| 683} = 874) = 87@| = 806} «= 878] «= 887/77} «= 872] «= 887/882] 880}
50 208 208] 206 208] 213] 205] 210| 210 205, 210) 210| 206]
80 307 305] 307] 307 238) 207] 304 307 308| 304} 305| 308]
THANOL @ 2 7 1%
hare of Gas Poo! 100%] 60%] 40%! 100%] 40%] © Go] tom] «= 5%] = 35%] © 100%] ate] Sa
IRVP. ees] 676) 6 eo] © as] 860] © eo], as! «= 73| aot eae} Sw e0] 00}
Joxygen 27] 27 00) 27 27| 00] 27 27] oo) 27] 27] oo
JAromates 232] 257/248] = 232] 24} 288] «= 23.3] 283] «92h 2] 233} 083] (28 7|
[Benzene 070] 6a} sa} 070]. o71] oss] oes} «= 0es} «So Sa} 0a] «= as| aa]
[Olefins 36) 28 eo) 38] 28) at 38 19) e3) 38) 28] 39)
Isuttur 10] 10| 12] 10} 12 10) gl 3 1 9 19] Ql
[E200 4so] 482} «= 490] = 488} «= a4] = a2] ae] 9454] ave] = age} | 45.4) aa]
lE200 e51] 886] 85. esi} 877/74] = 880) = 90] Seas} = 8} 83} a7
50 208| 2101 2038) 214 202 208) 22208 209) 212 208]
80 305| 304} 312] 305} 307 307 308] 303,309} 308} 305 307|

* Delivered ethanol price of $40 to $45 per barrel
** Delivered ethanol price of $50 to $55 per barrel

Source Table 10 excerpted from MathPro, 2000,

“Analysis of the Production of California Phase

3 Reformulated Gasoline With and Without an Oxygen Waiver”, December, 2000, available in

Docket A-2000-10, Document Number II-D-66

61


uncertainty about the overall change in VOCs The evidence is not at all clear what the overall
effect of the emissions changes from a waiver would have on ozone.

A. Evaluation of the oxygen content-NOx emission relationship

1. CARB’s Phase 3 Predictive Model (PM3)

CARB developed the predictive model to allow evaluation of gasoline specifications, or
“recipes”, as alternatives to the flat and average property limits on gasoline specifications in
California’s regulations California’s regulations contain limits on specifications for eight fuel
parameters, RVP, sulfur, benzene, aromatic hydrocarbons, olefins, oxygen, T50 and T90 The
limits are either a flat per gallon limit, or an average limit with an accompanying per gallon cap.
Refiners of California reformulated gasoline may comply with California’s regulatory
requirements by producing gasoline that meets these flat or averaging limit specifications
Refiners may also specify alternative limit values for these properties if they demonstrate using the
predictive model that their alternative recipe produces equivalent (i e , no more than 0 04 percent
higher) or better emissions than the reference specifications for hydrocarbons, oxides of nitrogen
and potency-weighted toxics A prior version of the predictive model was available for use with
California’s Phase 2 RFG program, the PM3 model is an updated version for use with California’s
Phase 3 program

The predictive model consists of a number of sub-models which relate gasoline properties
to changes in emissions Each of the exhaust sub-models was derived by regression analysis of
the predictive model database This database of emission test results and fuel property
information was assembled from a number of separate studies which investigated the effects of

fuel properties on emissions The Phase 3 model includes eighteen exhaust sub-models These

18


Tech 4 vehicle emissions Table 3 summarizes the measured and predicted change in NOx

emissions from the twelve vehicles.

Table 3: Comparison of Measured Versus Predicted Change in NOx Emissions
from Phase 2: California RFG Versus Conventional Gasoline (%)
30 ppm Sulfur Fuels 150 ppm Sulfur Fuels
(Cl vs S1) (C3 vs $2)

Measured Change in NOx -17.4 -139
emissions (12 vehicle
average)
Predicted Change -01 +03

As can be seen, the emission measurements showed that the Phase 2 California RFG

(including 2 weight percent oxygen) reduced NOx emissions by 14-17 percent relative to

conventional (non-oxygenated) gasoline. In contrast, the Tech 5 Predictive Model predicts

essentially no change in NOx emissions (0 1-0.3 percent change). Thus, some aspect of California

RFG2 is causing NOx emissions to decrease more substantially, and/or is not causing as much of

an increase as those predicted by the Tech 5 Predictive Model.

Table 4 shows the predicted emission change for each fuel parameter using the Beta3

version of the Tech 5 Predictive Model, calculated while holding the other fuel parameters

constant.

35



A refiner electing to produce California RFG without oxygen could legally use a recipe
with exactly the same NOx emissions performance as the two percent flat limit reference fuel, as
long as the other predictive model performance constraints were met. In such a recipe, changes in
other predictive model parameters which increase NOx emissions, (e.g. olefins) would have
exactly negated any estimated NOx benefit due to oxygen removal. If that were to occur,
removing oxygen would not change the overall NOx emission levels for that fuel

Refiners will attempt to produce zero oxygen California RFG in an economically optimal
manner subject to the above constraints Their optimum recipes, however, may or may not
overcomply for NOx, or may just meet the NOx performance standard. We would not expect a
net NOx benefit from oxygen removal and other property changes unless NOx emissions decrease
with decreasing fuel oxygen content, independent of other properties Determining that this
directional relationship exists when other properties are held constant requires consideration of
the predictive model along with any alternative models which we developed. Determining that
this relationship exists when other properties are allowed to vary requires not only selection of the
model or models which may reasonably represent the relationship between NOx emissions and
fuel properties, but consideration of what these other fuel property values would be if oxygen
were no longer required

CARB attempted to demonstrate, through the use of a simulation, described in Sections
ID. and II, that the net effect of oxygen removal would be a reduction in NOx emissions This
simulation constructed possible combinations of fuel properties for zero oxygen gasoline and two
percent oxygen gasoline. The simulation identified those combinations which would be certifiable

using California’s Phase 3 predictive model with the recently adopted Phase 3 flat limits as

55


well as for each component of the two predictive models. Only the composite Phase II Complex
Model result is shown EPA’s Complex Model, consistent with RFG provisions of the Clean Air
Act, represents 1990 model year technology vehicles. The data used to develop the Complex
Model, however, were not restricted to 1990 model year vehicles, and a substantial amount of
data is common to the predictive model and Complex Model databases Since the vehicles
represented by the Complex Model fall within CARB’s Tech 4 category, it may be more
appropriate to compare the Tech 4 model, rather than the composite predictive model, to the
Complex Model

TABLE 2 Estimated Percent Change in NOx for Oxygen Content Change from 2% to
0% (Other properties at Ca Phase 3 flat limits)

Model Percent Change (negative
indicates decrease)
PM3 - Tech 3 only -2 76
PM3 - Tech 4 only -1.76
PM3 - Tech 5 only -1.75
PM3- composite® -1 88
PM2 - Tech 3 only -2 28
PM2 - Tech 4 only -0 14
PM2 - composite (see footnote 5) -0 52
Phase II Complex Model (see footnote 5) 023

Each of the composite models (including the Complex Model) 1s made up of separate technology
group effects weighted by their respective proportional contributions to fleet NOx emissions at
some point in time Since the models were designed to represent different tmes, these composite
effect levels are not directly comparable with each other. Each model was constructed using the
best statistical methodology and software that was available, but there have been major
improvements in the available statistical tools since the Phase II Complex Model was
constructed

21


disapproving Ohio’s proposed revision The revision would have provided a variance for
Navistar, granting Navistar extensions and relaxations of SIP requirements for several coating
lines In order to approve the SIP revision, the Act required EPA to determine that the SIP
provided for the timely attainment and subsequent maintenance of ambient air quality standards
See section 110(a)(2) (prior to the 1990 amendments) In such cases “the logical inquiry for the

EPA is to assess whether the proposed change interferes with attainment ” Navistar, 941 F 2d at

1342 (quoting United States Steel Corp_v EPA, 633 F 2d 671, 674 (3d Cir. 1980)

Ohio’s 1979 SIP demonstrated attainment by the end of 1982 Therefore, any revision to
the SIP was required to demonstrate that the State would continue to achieve attainment on the
same schedule, despite any relaxation of its provisions In a technical support document prepared
by EPA in connection with its decision on the Navistar SIP revision, EPA observed that a
demonstration of non-interference “would generally be done by comparing the margin for
attainment predicted by the approved ozone attainment demonstration and the increased emissions
that would result under the proposed [revision] ” Id at 1348 Therefore, so long as the
attainment demonstration would still show attainment on the same schedule, EPA could approve a
SIP revision even where such revision might result in increases in some emissions. However, if
the SIP revision would create a shortfall (an increase in emissions resulting in the attainment

demonstration no longer showing attainment on the same schedule) the revision could not be

EPA’s decisions on the Ohio SIP and the proposed revisions for Navistar’s were based on the provisions of.
Clean Aur Act prior to the 1990 amendments, therefore, the Court reviewed Navistar’s petition according to
the law in effect at the time of EPA’s final decision

101 This would have allowed Navistar to operate several coating lines without meeting the VOC limitations
identified in the SIP as representing implementation of reasonably available control technology (RACT)

142


Table 20: Estimated Percent Change in exhaust HC for Oxygen Content Change from 2%
to 0%

Case Percent Change in Exhaust HC (when oxy
decreased from 2 to 0% positive indicates
increase)

Step 7 Model-Other properties constant at flat 450
lumts

Step 7 Model-MathPro CEC Fuels-High Emitters | 0.45

Step 7 Model-MathPro CEC Fuels-Normal 074
Emutters

PM3-Tech 4-Other properties constant at flat 2.84
lumuts

PM3-Tech 4-MathPro CEC Fuels 004

Table 20 shows that the Step 7 model predicts a larger percentage change in exhaust
emissions than the PM3 Tech 4 model for comparable fuel property changes However, both
models show substantially smaller effects for the MathPro CEC fuels than for the fuels where
only oxygen was varied Both models indicate that changes in other properties concurrent with
changes in oxygen content could mitigate much of the hydrocarbon penalty associated with
oxygen removal EPA’s consultant performed a variety of diagnostic and evaluative
investigations on the Step 7 model, considering it to be representative of the better models that
emerged from the stepwise process Many of these checks involved examining the model’s
residuals® to look for outliers, to see whether any important statistical assumptions were violated
by the model These checks are presented in greater detail in the previously cited consultant’s

report (“Building the NMHC Model"; see Docket A-2000-10, Document Number II-D-63, Work

34 Residuals may be thought of as prediction errors The model being evaluated 1s used to predict
the dependent variable (NMHC, in this case) as a function of the fuel properties This predicted
NMHC value is compared to the actual NMHC value, and all of these differences are analyzed to
see if there are patterns which indicate problems with the fit of the model to the data

88


on California vehicle emissions The dataset was further restricted to eliminate tests performed on

fuels with extreme parameter values While it was desirable to begin the analysis with a generally

wide range of parameter values to permit sensitive detection of effects, some fuels in the body of

studies making up the database were judged to be outside of the range of usable fuels These

limitations, listed below along with other deletions made for practical or statistical reasons, are

very similar to those imposed by CARB

1

An observation was deleted if any of its fuel properties were in any of the
following categories RVP>10, Sulfur>1000, Oxygen>4, T50>250, or T90>374
All observations from Fuel “Y” in the ARBATLOX study were deleted because
CARB indicated this fuel generated spurious test results

Extreme temperature data were eliminated from the data base when the drybulb
temperature value for an emissions test was less than 68 or greater than 95 In
these situations, the entire observation was deleted from the data base. Such test
conditions violate the testing protocol and cannot be expected to yield reliable
results.

If an observation was missing any of the seven fuel properties under investigation,
the entire observation was deleted Thus, if a value for RVP, Aromatics, Olefins,
Sulfur, Oxygen, T50 or T90 was missing, the observation was deleted This was
necessary since NOx emissions were to be modeled as a function of all of the fuel
characteristics taken together.

For the GMCONFRM study, the ETBE, ETOH and TAME values were set to

zero since they were previously missing.

42


some of the independent variables * EPA, when modeling NOx, chose to include a high-emitter
variable, but one defined in terms of hydrocarbon and/or CO emissions rather than in terms of
NOx, as was done in the CARB analysis. This choice was based on engineering reasoning—that
the NOx emissions of vehicles with damaged catalytic convertors or impaired air/fuel ratio control
(and, therefore, high hydrocarbon and/or CO emissions) might respond differently to changes in
fuel composition than the emissions of vehicles in which these systems were intact. By defining
high-emitters in terms of HC/CO, the statistical problem of having some measure of NOx
emissions in both the dependent variable and, in a different form, in some of the independent
variables was avoided When modeling NMHC, though, the statistical problem is not so easily
avoided, and some measure of hydrocarbon emissions is present in both the dependent variable
and the high-emitter categorical variable. We decided that the possibility of learning something
new about effects on the emission behavior of high emitters outweighed the possible statistical
problems.”

The terms made available to the model-building process included the seven fuel properties,
the squares of the seven properties (to allow for non-linear effects), the two-way interactions

among the seven, the high-emitter term, and the seven interactions between the high-emitter term

° The specific difficulty involves a pattern of complex correlations between the high-emitter

dummy variable (coded “0" for normal emitters and “1" for high emitters) and the error term of

the particular model.
% High emitters were defined as vehicles whose average emissions of total hydrocarbons (THC)
exceeded 0.82 gram per mile and/or whose average carbon monoxide (CO) emissions exceeded
6 8 grams per mile About 13 percent of the vehicles involved in the NMHC modeling effort
were defined as high emutters by this criterion This percentage should not be taken to be an
estimate of either the fleet proportion of high emutters or the fraction of emissions that are due to
hugh emttters, since the vehicles included 1n this dataset are not a random or probabilistic sample
of vehicles from the in-use fleet

83


analysis >! Since both studies showed that a 40 percent non-oxygenated market share could be
optimum in various scenarios, and since the CEC study pointed to this market share, we believed
that a 40 percent assumption was warranted However, we recognized that there was
uncertainty about the likely oxygen content of oxygenated CaRFG3 in a split market. This
oxygen content assumption could affect the estimate of the optimum non-oxygenated market
share in a split market, as well as the estimates of likely fuel properties Thus, we elected to
conduct additional refinery modeling which estimated the likely non-oxygenated market share
under a variety of scenarios which included use of oxygen at both 2.0 weight percent and 2 7
weight percent in a split market >?
b. Results of most recent analysis

We contracted with MathPro to conduct additional refinery modeling to further resolve
questions about fuel properties, oxygenated/non-oxygenated market shares and oxygen content
(The results of MathPro’s analysis are contained in its report titled “Analysis of the Production of
California Phase 3 Reformulated Gasoline With and Without an Oxygen Waiver”, which is
available in Docket A-2000-10, Document Number II-D-66.) Both fuel property and

oxygenated/non-oxygenated market share estimates for the cases modeled are shown in Table 10

31 However, the MathPro CEC study did not incorporate the finalized CaRFG3 predictive model
teference specifications.

2 EPA’s rationale for conducting additional refinery modeling and utilizing the results to estimate
the likely emissions impacts of the oxygen waiver 1s discussed more fully in Section IV C 2

60


and the fuel properties Thus 43 terms were considered statistically for possible inclusion in the
models that were developed

The consultant applied a stepwise procedure, as with the NOx models, to select terms for
inclusion in the model. The seven linear terms were forced into the model first Then the
stepwise procedure introduced other candidate terms in order of their potential to explain NMHC
variance. After each new term was introduced, the status of non-linear terms already in the model
was examined to see if any of them were no longer statistically significant at the 0.05 level and
should thus be removed-no such removals proved to be necessary. Tables 17 and 18 present the

models that resulted from the straightforward stepwise analysis **

51 The coefficients in bold italics were not statistically significant at the 0.05 level in the model
where they occur This can happen for a variety of reasons In the case of the Step 0 model in
Table 14, the RVP term is not statistically significant (and, incidentally, 1s not statistically
significant in several of the other models). Since we forced the term into the equation rather than
allowing the stepwise process to select it, its non-significance should not be surprising The
other reason for some of the non-significant terms 1s illustrated by the Step 3, Step 4, and Step5
models Oxygen was a significant and strong predictor in the Step 3 model, but when the
T90*OXY interaction term came in on Step 4 the coefficient for oxygen became much smaller
By the Step 5 model, the oxygen coefficient is smaller yet and has become non-significant, the
variance that it initially explained taken over by other terms, most prominently an interaction
term involving oxygen

84


to evaluate commingling emission increases in on-road vehicles We have not attempted to
quantify any permeation emission changes associated with off-road sources

We have estimated the likely off-road source emissions impacts of a waiver on NOx, ROG
and CO for the comparison scenarios that we have included in our on-road analysis Given the
assumptions discussed above, it is obvious that off-road NOx is predicted to decrease, while CO
and exhaust ROG emissions are predicted to increase with a waiver under all scenarios (since
oxygen decreases) Evaporative ROG emissions are predicted to decrease with a waiver under all
scenarios (since as-blended RVP decreases). Our estimates of the impact of the waiver on off-
road emissions should be considered with some caution Clearly, the small amount of engine test
data and simplified analysis used to develop estimates of oxygen effects on off-road emissions are
not comparable to the large body of data and sophisticated analysis used to estimate fuel property
emissions effects in on-road vehicles Furthermore, we were unable to obtain inventory
information which explicitly identified the gasoline portion of South Coast off-road emissions, and
needed to make certain assumptions to derive these estimates.*°

We have added these off-road source estimates to the on-road estimates for each of the
scenarios to produce a total estimate of emission effects These total estimates include exhaust
and evaporative emission effects, including commingling and permeation. We realize that there is
considerable uncertainty associated with our estimate of the effect of a waiver on off-road
sources We believe, however, that we have made a reasonable effort to quantify these

emissions, and to consider whether the inclusion of the emission estimates of off-road sources

Our 2005 no-waiver baseline off-road inventory estimates in tons/day were NOx=25 51, exhaust
ROG=95 39, evaporative ROG=25 18, and CO=1073 84 See analysis in memo to Docket A-2000-10,
Document Number II-B-1

119


Table 31: Waiver Impacts at Various Commingling-Related RVP Boosts

‘Warver Case Oxygen Market Shares and Oxy Enussion Inventory Changes (tons/day) (On-road, off-road and all
Levels exhaust and evaporative VOC such as permeation and commingling)
Waiver
No Watver | Oxy Level | Nationwide % Nom Year-round voc VOC 01 pst | VOC 02
Oxy Level MTBE Use Unocal Patent % Oxyfuel_ | Oxyfuel Oxygen Avg NOx no boost —| boost pstboost* | CO
20 20 Reduced Patent not avoided 35 65 10 660 402 254 923 | 17313
27 27 Reduced Patent not avoided 40 60 15 733 1524 915 294] 22519
27 20 Reduced Patent not avoided 35 65 10 961 -16 23 -10 14 393 | 27424
20 20 Continues Patent not avorded 30 50 13 508 410 246 915 | 13318
27 27 Continues Patent not avoided 60 40 19 468 972 351 281 | 15012
27 20 ‘Continues Patent not avorded 50 50 13 821 +1635 -10 26 405 | 23093
20 20 Reduced Patent avoided 26 14 09 -720 905 269 379 | 19711
27 27 Reduced Patent avoided 46 34 16 -708 21212 596 033 | 20267
27 20 Reduced Patent avoided 26 14 09 -10 89 -15 55 944 320 | 30023
20 20 Continues Patent avoided 50 50 13 484 “817 -180 469 | 13318
27 27 ‘Continues Patent avorded 65 35 20 478 935 313 320 | 13136
27 20 Continues Patent avoided 50 50 13 873 +1473 861 -236 | 23093
2 This scenano 1s equivalent to a 0 1 pst RVP boost from commungling completely offset by Californsa’s 0 1 psi adjustment to its standards For purposes of
this decision EPA does not need to decide whether it 1s appropriate to offset the expected increase in emussions from communglmg with the 0 1 pst RVP
reduction adopted by CARB, as even if the 0 1 psi offset 1s applied , as discussed in III D , VOC reductions are too uncertain to resolve what effect a waiver
would have on ozone
8 Equivalent to a 0 2 psi RVP boost from commungling offset by California’s 0 1 psi adjustment to 1ts standards resulting m a net commungling effect of 01
pst
84

Equivalent to a 0 3 psi RVP boost from commingling offset by California’s 0 1 psi adjustment to its standards resulting in a net commungling effect of 0 2
psi

122


Based on the Audit, it appears that CARB’s Phase 3 model-building process initially
resulted in a model having too many terms, and one that did not seem to predict emissions from
certain fuels very well As a result, CARB discarded the primary results of the Phase 3 model-
building process and returned, with stakeholder support, to the terms from the earlier Phase 2
effort The Phase 2 terms were fit to the Phase 3 database, resulting in different coefficients, and
the result was adopted as the Phase 3 outcome. This abrupt change at the end of the analytic
process is surprising, and does not seem to have been driven by clearly evident statistical
principles This change in analytic approach does not appear to be based on a readily
understandable and supportable analytic process The resulting uncertainty, in combination with
the uncertainty related to some other of CARB’s decisions (discussed above), are the main
reasons for EPA’s decision to pursue an independent modeling effort
4, Effect of Oxygen on NOx Emissions from Tech 5 Vehicles

California developed models which predict the impact of fuel quality on emissions for
three groups of vehicles: Tech 3, Tech 4, and Tech 5. Tech 5 represents the most recent vehicle
technology and includes 1996 and later MY vehicles The three groups were developed based on
differences in their basic emission control technology Because vehicle manufacturers are
continually introducing improvements in their model lines and do so a few models at a time, there
is inherently some overlap between the three groups Still, some generalizations are possible
when describing the technology typical of each group. For example, Tech 5 vehicles, compared
to Tech 4 vehicles, generally have more efficient after treatment systems and meet tighter
emission standards, This is due to techniques including but not limited to better air-fuel ratio

control, improved oxygen storage in the catalyst, more closely coupled catalysts often involving

29


California Because, at that point, the assumptions supporting their argument as stated in the
July 9, 1999 submittal were no longer applicable, EPA was not in a position to further evaluate
California’s waiver request. In early November, CARB staff informed EPA that they were
producing an analysis to support the approach described in mid-October. They agreed that EPA
action on the waiver request would be delayed, pending receipt and review of the new analysis
from CARB _ Given these developments, we did not respond to CARB’s September 20, 1999
response to our questions

D. CARB December 24, 1999 submittal

CARB submitted additional material in support of California’s request for a waiver by
letter dated December 24, 1999 (Filed in docket A-2000-10, document number II.D.-6, also
available at http //www arb ca gow/cbhg/Oxy/wav/122499 pdf) The material contained the results
of a computer simulation using their recently modified Predictive Model (the CaRFG3 Predictive
Model, or PM3) The computer simulation evaluated a large number of complying fuels
containing 2 percent oxygen by weight versus a similarly large number of complying fuels
containing zero oxygen.

After our review of the December 24, 1999 submittal, we determined that we needed
additional information from CARB to conduct a thorough technical review of the request EPA
requested this additional information in a January 20, 2000 memorandum from Robert Perciasepe,
Assistant Administrator for Air and Radiation to Winston Hickox, Secretary California
Environmental Protection Agency, as follows:

1) An explanation of the difference in the effect of fuel oxygen on NOx emissions

between Phase 2 and Phase 3 of CARB’s Predictive Model,


gasoline, particularly NOx emissions For example, Senator Durenberger made the following
statements, in reference to section 211(k)(2)(A), during Senate Debate on the Conference Report
Both aromatics and oxygenates may increase NOX remissions (sic). The general
theory of this reformulated gasoline program is that aromatics will be decreased
and oxygenates will be added with offsetting impacts of NOX emission. Blended
properly this theory can be implemented in practice without any increase in NOX
emissions. However, if it turns out to be technically infeasible, the administrator

(sic) is given authority to adjust the oxygen requirement. [Legis Hist at 853]

These statements support the conclusion that the section (k)(2)(A) waiver was intended to
provide a test for waiving the other requirements of (k)(2) if any of these requirements turned out
to be incompatible with the NOx cap, without the need for any demonstration regarding impact
on attainment. The oxygen waiver provisions of section (k)(2)(B), however, was intended to
serve a different purpose. The (k)(2)(B) waiver was intended to allow EPA to waive the oxygen
content requirement in a broader range of circumstances, but with a potentially more complicated
factual demonstration EPA may waive the oxygen requirement, but only where such requirement
turns out to be demonstrably at odds with attainment of a NAAQS.

Senator Dole commented, during Senate debate on the Daschle-Dole amendment, on an
earlier version of a waiver provision that was very much like section 211(k)(2)(B)’ “Others have
charged that we have so limited the definition of reformulated gasoline that the fuel may be
environmentally damaging However, we have included a waiver for the limitations if the

administrator of EPA determines a fuel made under these broad specifications do lead to

137


D. Conclusion

In light of the above considerations, we interpret the standard for granting an oxygen
content waiver under section 211(k)(2)(B) to require, at least, a clear demonstration of what
impact a waiver would have on all relevant emissions in an area, and a clear demonstration that
the changes in emissions resulting from a waiver would have a beneficial impact for purposes of

attaining at least one NAAQS, and would not hinder attainment for any other NAAQS

145


EPA’s consultant subjected the NOx emissions dependent variable to a log transformation
to correct the strong positive skew in its distribution and to make it possible for the data to meet
basic requirements for use of the regression techniques that had been chosen to analyze the data”
After data deletions, the fuel properties’ values were standardized so that each had a mean of zero
and a standard deviation of one This was done to hold down the size of the coefficients. Table 5
lists the information needed to destandardize the coefficients of the models that result from the
analysis

Table 5. Means and Standard Deviations of Fuel Properties

Fuel Standard Sample
Term Mean Deviation Size
RVP 8.445335 0 780184 7031
T50 206.815503 17.906267 7031
T90 312.126198 22.099331 7031
AROM 28 082805 7.383169 7031
OLEF 6.974371 4.932872 7031

OXYGEN 1.347629 1.251882 7031
SULFUR 182.060319  140.783197 7031

b. Statistical methods
EPA decided that the most appropriate statistical model to use for this purpose was one

that treated the very large variability in NOx emissions among vehicles as a random variable, but

‘

the high emitter term (and any interaction terms that involve it) and the error term, discussed
earlier, is minimized in EPA’s analysis by the fact that the high emutter term 1s not constructed
from the same parameter as the dependent variable in the analysis, NOx emissions In this
analysis, a vehicle was coded as a high emutter if 1ts average total hydrocarbon (THC) emissions
exceeded 0.82 gram per mule and/or its average carbon monoxide (CO) emussions exceeded 6 8
grams per mile.

Use of regression requires the assumption that the variance of the dependent variable not differ
substantially for different fixed regions of the independent variable(s). This assumpton, termed
“homoscedasticity”, cannot easily be met by a dependent variable that 1s strongly skewed without
a corrective transformation

44


evaporative hydrocarbon emissions is greater without oxygen” independent of which fuel
properties are varied. This particular hypothesis was addressed more filly in a subsequent
analysis included in a December 24, 1999 submittal, discussed inI D below

CARB’s September 20 response also indicated that elimination of the 1 5 weight percent
oxygen minimum would have no effect on the conclusions reached in its July 9 analysis, stating
that under such a scenario the oxygen content in RFG in the summer months would average about
1 25 weight percent oxygen, and would provide very little flexibility to produce non-oxygenated
RFG: CARB’s response described the effect of a waiver on California refiners to produce non-
oxygenated RFG but provided no analysis of whether greater[?] NOx emission reductions could
be more easily achieved with 1.25 weight percent oxygen versus 2.0 weight percent

In mid-October, 1999, CARB staff provided new information CARB staff informed us
that the general assumptions stated in CARB’s July 9, 1999 technical submittal to EPA were no
longer applicable. Specifically, in the July 9, 1999 submittal, CARB stated that an additional 1 5
percent reduction in NOx reductions could be obtained with zero oxygen in the fuel and that it
would be impossible to achieve the same level of additional NOx reduction with 2.0 weight
percent oxygen in the fuel. In mid-October CARB staff now claimed that the Beta version of
their Predictive Model for use with the Phase 3 CaRFG (which CARB had not yet promulgated)
showed that California’s in-use fuel in fact produced more NOx reductions than the additional
15 percent they suggested could only be achieved with zero oxygen, and that their proposed
Phase 3 CaRFG would achieve even more CARB further indicated that additional NOx
reductions would be achieved by the Phase 3 CaRFG if the oxygen content requirement were

removed, and that such reductions were necessary in order to meet ozone and PM NAAQS in


oxygen, a statistical test failed to reject the no-effect hypothesis for these data at the conventional
95 percent confidence level '”

EPA staff met with Toyota staff on May 4, 2000 to discuss the testing in greater detail
Toyota staff indicated that the testing was performed at various points during durability testing of
certification vehicles. More details were not available at that time. Specifically, Toyota could not
provide a description of vehicles tested, the mileage points of the testing, the number of repeat
tests at each mileage point, the order of the testing at each mileage point, or the absolute emission
levels measured at each point. There was also some question about whether the fuel tank had
been completely drained between testing with the two fuels

It is difficult to place a high confidence in this testing for a number of reasons First, the
general lack of information about the testing itself creates uncertainty as to the overall quality of
the testing (e g , repeat testing, random ordering of fuels) Second, and more importantly, the
ethanol fuel not only contained more oxygen, but it had higher RVP and T50 levels The Tech 5
Predictive Model would not project that these differences in RVP or TSO would increase NOx
emissions by 5 percent. The CRC data presented above, however, indicates that NOx emissions
from LEVs are highly sensitive to some fuel parameter other than sulfur and oxygen Toyota has
presented information to EPA in the past indicating that increases in TSO and T90 levels in this
range can both significantly increase NOx emissions * Thus, it would be very questionable to

attribute even a confirmed increase in NOx emissions to just the increase in oxygen content

v7 Given the paucity of mformation about the test program, a two-tailed Wilcoxon Matched Pairs,

Signed Ranks test was chosen as the most powerful test that was clearly justified

ad “Before the U S EPA, Petition to Regulate Gasoline Distillation Properties,” DaumlerChrysler Corp , Ford
Motor Co , General Motors Corp , and Association of international Automobile Manufacturers, January 27,
1999

38


As an alternative, we have used information in an EPA document, Report No NR-003, to
estimate the changes in the exhaust emissions from off-road sources that would result if a waiver
were granted ® This report concluded that the fuel effects on exhaust VOC, NOx and CO
emissions for off-road sources are mainly due to changes in oxygen content. The report estimated
emission effects (in percent change in emissions per percent of fuel oxygen added) for four-stroke
engines based on tests of 13 engines These effects were -4 5% for HC, +11 5 percent for NOx
and -6 3 percent for CO. The report estimated emission effects for two-stroke engines as -0 6
percent for HC, +18.6 percent NOx, and -6.5 percent for CO based on tests of one engine

We combined the four-stroke and two-stroke effects into a single set of effects by
weighting them according to statewide two-stroke and four-stroke emission fractions of ROG,
NOx and CO calculated from emission inventories for 2005.” The weighted percent changes
per percent increase in oxygen are -2 25 percent for HC, +12 62 percent for NOx and -6 33
percent for CO.

RVP is expected to be the fuel property most influential in determining evaporative
emissions from off-road sources MathPro’s modeling for EPA shows that the as-blended RVP of
CaRFG3 is likely to decrease with an oxygen waiver We have assumed the same percentage
emissions decreases for evaporative emissions from off-road sources and on-road vehicles We
realize that some evaporative emission increases due to commingling could potentially occur in
off-road as well as on-road vehicles and engines In our analysis we assumed the same range of

possible RVP increases and applied the same percent change factors and calculation method used

* “Exhaust Emission Effects of Fuel Sulfur and Oxygen on Gasoline Nonroad Engines”, Report No NR-003,
November 24, 1997, Chnstian E Lindhyem, US EPA

ua See analysis n memo to docket (in A-2000-10, Document Number I-B-1)

118


model to evaluate the effect of fuel oxygen and other properties on NOx? Our investigation
generally verified CARB’s assertions (See Section III A) EPA also prepared a model for
exhaust VOC, and used pre-existing models for evaporative VOC, permeation losses, and
commingling We looked at both on-road and off-road emissions

(2) Refiners will actually produce and market significant amounts of. enat

gasoline in the relevant RFG areas with a waiver (See Section ITI B)

In a waiver scenario, it is likely that a mix of ethanol oxygenated and non-oxygenated
CaRFG3 would be produced, but a performance benefit may or may not apply to the non-
oxygenated portion of the market relative to the oxygenated portion. Any such benefit would
depend on the fuel properties associated with both the non-oxygenated portion of the gasoline
pool and the oxygenated portion of the pool. To assess likely market penetration and how fuel
would likely be formulated in a waiver scenario, we contracted with MathPro to conduct refinery
modeling Based on the predicted fuel formulations and market penetrations for non-oxygenated
fuels, we were then able to estimate emission changes resulting from a waiver of the oxygen
requirement.

(3) The overall emissions effects of a waiver indicate a reduction in NOx, an increase

in CO and significant uncertainty about VOCs

We evaluated the emission effects of the various scenarios from the refinery modeling for

NOx, VOCs and CO. The results indicate a reduction in NOx, an increase in CO, and significant

Stnctly speaking, these models (CARB’s and EPA’s) are all intended to predict NOx emussions as a
function of the formulation of the fuel being evaluated Removal of oxygen from California RFG would
necessarily bring about changes in fuel properties other than oxygen Any model used to analyze the effects
of removing oxygen from all or part of the fuel would have to be capable of examining the joint effects of
changes in all of the fuel properties, even though some properties might change little or not at all

17


permeation losses) would offset its estimated 133 ton/day increase in CO emissions. (CARB’s
analysis and our subsequent evaluation are discussed in further detail in Sections II C 1, III C 3
and IID )

(4)  CARB’s discussion of commingling effects

With a waiver VOC emissions would increase when non-oxygenated and ethanol-
oxygenated RFG commingled, or mixed together in vehicle fuel tanks) CARB estimated that the
ethanol commingling effect would result in an estimated 0.1 psi increase in the actual RVP of
gasoline in vehicle tanks in California’s RFG covered areas using an approach described in
further detail in Section II C 2. To compensate for any loss in air quality benefits in the event
that a waiver were granted, CARB incorporated into the CaRFG3 regulations a reduction of the

flat limit for RVP from 7 0 psi to 6 9 psi

(5) Simulation analysis of future gasolines produced to comply with CaRFG3

specifications

CARB conducted a computer simulation using their recently modified Predictive Model
(the CaRFG3 Predictive Model, or PM3) to evaluate a large number of complying fuels
containing 2 percent oxygen by weight versus a similarly large number of complying fuels
containing zero oxygen

CARB varied the values of the aromatics, olefins, sulfur, T50, T90, and benzene fuel
parameters of each of the two sets of complying fuels (i e , 2 weight percent oxygen fuels and

zero percent oxygen fuels) between the limits shown in Table 1 below:

12


L CHRONOLOGY OF EVENTS AND GENERAL DESCRIPTION OF
CALIFORNIA’S SUBMITTALS

A. Governor Davis’ April 12, 1999 petition for waiver

Ina letter dated April 12, 1999 from California Governor Gray Davis to Administrator
Browner (Filed in docket A-2000-10, document number II.D.-1, also available at
http //www arb ca gov/cbg/Oxy/wav/041299 pdf), California requested a waiver from the federal
oxygen requirement for reformulated gasoline, under Section 211(k)(2)(B) of the Clean Air Act
(CAA or the Act) EPA may waive the oxygen mandate, in whole or in part, “. upon a
determination by the Administrator that compliance with such requirement would prevent or
interfere with the attainment by the area of a national primary ambient air quality standard .”
CAA § 211(k)(2)(B). The April 12, 1999 submittal stated that “the ARB will be revising its
CaRFG program this year, and continuing the oxygen mandate will make it more difficult to
maintain the emission reductions benefits needed for California’s SIP.” The submittal did not,
however, contain the technical analysis to support the State’s conclusion that the oxygen
requirement would prevent or interfere with the attainment of the National Ambient Air Quality
Standards (NAAQS) in California. As such, the Agency believed that the request submitted by
California on April 12, 1999 did not provide enough detail about the underlying analyses upon
which the request was premised to allow EPA to make a careful and fully informed decision on

the request.


waiver is appropriate in connection with each individual waiver request. It is reasonable to
assume that Congress intended for EPA to limit a waiver to no more than that reasonably
necessary to address any identified interference.

Because the statute does not define the terms “prevent or interfere,” EPA may interpret
these ambiguous terms in a reasonable manner that is consistent with the statutory language and
Congressional intent Additionally, because the Act uses both the terms “prevent” and “interfere,”
we may reasonably conclude that the terms do not have identical meanings Moreover, it would
be reasonable for EPA to interpret the term “prevent” as referring to some effect that is more
serious than “interference ” While prevention could be reasonably understood as an effect that
stands as an absolute or practical barrier to achieving attainment, interference could be
understood as an effect that makes achieving the NAAQS more difficult, but that does not itself
necessarily prevent attainment Therefore, the determination necessary to waive the oxygen
content standard based on interference depends on the level of increased difficulty required and
the circumstances under which such effects will constitute interference for purposes of the
statutory provision

In determining what kinds of information and factual considerations are relevant for
grating a waiver of the oxygen content standard, and the minimum level of certainty required, it is
instructive to look at several sources of guidance, including the structure and language of section
211, the legislative history of the 1990 amendments to the Clean Air Act; and the use and
meaning of the term “interference” and similar terms elsewhere in the Act. Because we find that

California has failed to meet the minimum threshold for demonstrating interference, it is

130


EPA (Caffrey and Machiele) developed a model to help assess the average in-vehicle RVP
increases that could occur if ethanol-oxygenated gasoline were commingled with non-oxygenated
(or MTBE-oxygenated) gasoline during vehicle refueling” CARB’s oxygenate use and grade
split assumptions result in an overall oxygenated CaRFG3 share of about 60 percent EPA’s
model using this 60% oxygenated market share, CARB’s 7 psi RVP base and a loyalty curve
(curve 2) which the model’s authors felt “may be the best representation of customer brand
loyalty available for this model” estimated an RVP increase of 0 24 psi 7 This model assumes
that ethanol content would be 10 volume percent Applying the 80 percent adjustment factor
used by CARB to estimate the RVP boost with 5 7 percent ethanol, the average RVP increase is
019 psi

CARB also assumed that all premium gasoline would be ethanol-oxygenated so that
commingling would occur only within regular grade gasoline EPA’s model, with the other
parameters identical, but with the market share at 46 percent, CARB’s regular grade assumption,
estimated an average RVP increase of 0.28 psi If the 80 percent factor is applied to adjust to 5 7
percent ethanol content, the expected average RVP increase for regular grade is 0 22 psi
Assuming that this applies to the 75 percent regular grade portion of the pool, the overall average

RVP increase would be about 0.17 psi

n SAE paper 940765, “In-Use Volatility Impact of Commingling Ethanol and Non-Ethanol Fuels”
Peter J Caffrey and Paul A Machiele, US EPA

2 See the SAE paper for discussion of loyalty curve data For the EPA model runs relating to the

waiver evaluation user-specified parameters selected were owners=1000, fills=100 (simulating

1000 owners refueling 100 tumes ), loyalty curve= 2, fill curve=3, tank heel=0 1 The model was

mun for a non-reformulated gasoline scenario 1n order to simulate commungling of non-

oxygenated gasoline and ethanol-oxygenated gasoline rather than MTBE and ethanol gasolines

108


Ideally, for our purposes, CEC MathPro’s modeling would have included cases where the
market was split between 2 0 percent oxygen CaRFG3 and non-oxygenated CaRFG3. In the
absence of such cases, we assumed that the properties of oxygenated CaRFG3 in a split market
“waiver case” were those estimated for case 2a, our “no waiver” case We also assumed that the
properties of non-oxygenated CaRFG3 would be the same as those of non-oxygenated California
fuel in a 2.7 percent oxygen/non-oxygenated split market We selected the properties that
MathPro estimated for non-oxygenated CaRFG3 in the split market case, designated in the report
as “case 2e CARBno”. The predictive model parameters of these two fuels are shown in Table
11”

Table 11: Predictive model parameters of the two fuels in the December 7, 1999
analysis (for California Energy Commission)

Property Case 2a CARB Case 2e CARBno
RVP (psi) 66 6.6

Oxygen (wt percent) 20 00

Aromatics (vol percent) 24.2 19.3

Benzene (vol percent) 055 050

Olefins (vol percent) 33 57

Sulfur (ppm) 104 23.1

T50 (OF) 208 199

T90 (OF) 303 310

The above parameters are estimates of actual fuel properties This takes into account that

refiners allow compliance margins for various properties to ensure that measurements of these

7 See Exhibit 4 in the December 7, 1999 MathPro report for more extensive property summanes for these

and other cases

67


It is apparent from Table 2 that some disparity exists among the models in the estimated
direction and magnitude of the NOx response to changes in oxygen content, all else being
constant. California’s Phase 2 and Phase 3 models both indicate a NOx increase with increasing
oxygen, however the Phase 3 model shows a much steeper response. The Complex Model, by
contrast, predicts that NOx will decrease slightly as oxygen increases. It should be noted that the
magnitude of the NOx response to oxygen, even as predicted by the Phase 3 model, is not large
when compared to NOx emission differences between vehicles, or test-to-test variability in
emissions The small size of the oxygen effect on NOx emissions indicated in all of these models
makes it difficult to detect statistically and to precisely quantify.

We can, however, identify some of the potential causes for differences in the NOx/oxygen
response among these models, other than additions to available data For example, the Complex
Model contains separate equations for normal and high emitting vehicles, which are weighted by
an estimated emissions fraction for each group The normal emitter NOx equation indicates that
NOx emissions increase as oxygen increases, while the high emitter equation indicates that NOx
decreases as oxygen increases The predictive models, both Phase 2 and Phase 3, do not model
normal and high emitters separately

The Complex Model was developed using a fixed effects statistical modeling approach
Both versions of the predictive model were developed using a mixed-effects statistical modeling

approach, in which fuel effects were considered fixed and vehicle effects were considered

22


effect a waiver would have on all relevant emissions. Thus, an oxygen content waiver must be
supported by specific information that is sufficient to make the necessary findings. Such
information, would include an evaluation of the likely composition of gasoline in the area (with
and without the oxygen content requirement in place), and the impact of gasoline composition on
relevant emission inventories This evaluation must clearly demonstrate to what extent a waiver
of the oxygen requirement would reduce or increase the level of emissions of some relevant
pollutant, or pollutants (such as VOC, NOx, or CO) Additionally, this information should
clearly demonstrate the effect that any emission changes might have on attainment of a NAAQS,
and clearly demonstrate that any such changes would have an overall benefit for purposes of
attaining at least one NAAQS and not have an adverse impact on any other NAAQS. Therefore,
for example, if removal of the oxygen content requirement in an area would result in fuel
composition changes that affect the emissions of several pollutants, EPA should evaluate the
overall effect of these emission changes on the NAAQS in that area

b. SIP revisions.

In the context of revisions to state implementation plans EPA has interpreted NAAQS

non-interference. For example, in Navistar International Trans. Co. v. EPA, 941 F.2d 1339 (6"
Cir. 1991) the court affirmed EPA’s denial of a proposed revision to Ohio’s SIP based in part on
EPA’s conclusion that the State had failed to demonstrate that the revision would not interfere
with timely attainment and maintenance of the NAAQS

Navistar, a truck manufacturer, petitioned for review of EPA’s denial of a proposed
revision to the Ohio SIP. The Ohio Environmental Protection Agency (OEPA) submitted the

proposed revision to EPA in March, 1986. On September 13, 1989 EPA issued a final rule

141


I. SUMMARY OF CALIFORNIA’S WAIVER REQUEST

California’s analysis in support of its waiver request rests first on CARB’s assertion that
additional NOx reductions are needed in California Specifically, CARB claims that the South
Coast Air Quality Management District (SCAQMD) and Sacramento Metropolitan Air Quality
Management District (SMAQMD) need additional NOx reductions to meet a schedule of NOx
reductions associated with attainment of the National Ambient Air Quality Standards (NAAQS)
for ozone and particulate matter Specifically, in the SCAQMD, CARB claims that there is a
shortfall of 11 tons/day of the NOx reductions needed to meet the State’s 2005 ozone SIP
milestone for the SCAQMD. (SCAQMD must meet the ozone NAAQS by 2010 and the PM10
standard by 2006) In the Sacramento RFG area, there is a 4 tons/day shortfall of the NOx
reductions needed for that area to achieve attainment for ozone in 2005 (its attainment year)

Having addressed the need for additional NOx reductions in the SCAQMD and
SMAQMD regions, CARB then claims that without the oxygen requirement, CaRFG3 would
achieve greater NOx reductions This assertion is based on CARB’s evaluation of several
factors, including the relationship between gasoline oxygen content and NOx emissions, the likely
composition of California’s gasoline with and without a waiver; the impact of a waiver on vehicle
emissions other than NOx, and the impact of additional emissions from commingling of ethanol-

oxygenated and non-oxygenated gasoline in vehicle gas tanks


content requirement only where there is clear evidence that the oxygen requirement would
interfere with attainment of a NAAQS

Overall, while the legislative history does not resolve every ambiguity in the statutory text,
it does suggest that Congress did not intend for the waiver provision to be overly permissive.
That is, it is reasonable for EPA to require that the determination of prevention or interference
with the NAAQS involve, at least, a meaningful evaluation of the real-world emissions effects of
compliance with the oxygen content requirement in the relevant nonattainment area(s).
Moreover, it is reasonable for EPA to require that this evaluation provide a clear demonstration of
what these real world emission effects are, in order to determine whether they make it more
difficult for the area to attain the NAAQS.

In addition, the focus on promoting air quality in both the text of the statute and in the
legislative history support the view that the required evaluation should clearly demonstrate the
impact of a waiver on all relevant NAAQS, and that a waiver should not be granted where it may

be reasonably anticipated to adversely impact an area’s attainment of any NAAQS.

3. Agency Precedent

Prior to California’s April 12, 1999 petition, EPA had not received a request for waiver of
the oxygen content requirement under section 211(k)(2)(B). Therefore, EPA has not previously
interpreted this statutory provision However, other parts of the CAA use terms substantively
similar to “prevent or interfere” in the context of different provisions, and EPA’s interpretation of

such terms is instructive for determining when interference has occurred for purposes of section

211(K)(2)(B)

139


dataset would appear to be inappropriate. Likewise, CARB removed data from two other studies
as a result of discussions with stakeholders of their effect on the VOC equation. The intersection
of statistical criteria and engineering judgements as bases for data inclusion/exclusion is frequently
problematic, and we therefore hesitate to question these judgments for the VOC emissions model-
building process Nevertheless, these deletions do not seem to be well-justified for purposes of
building the NOx emissions model Taken together, these questionable or inadequately justified
data exclusions contributed to our decision to do our own modeling of NOx and VOC emissions
for Tech 4 vehicles
c. Statistical approach

We examined two issues in auditing the statistical approach that CARB used. the choice
of a statistical model and the statistical software used to implement that model. CARB chose a
“mixed” model (with random vehicle effects and fixed fuel effects) for both its Phase 2 and Phase
3 Predictive Model development processes These two models arrived at different results from
very similar datasets and using similar statistical modeling approaches The difference in results is
partially explainable by CARB’s use of different versions of the same software package The
SAS® PROC MIXED software selected for Phase 2 model development was substantially
improved before the Phase 3 development process, making the necessary iterative calculations
proceed to a more refined conclusion. We believe that California’s selection of a mixed model
was the right one (an option that was not available at the time of EPA’s Complex Model
development) The improvements in the software by the time of the Phase 3 model’s
development led to a better estimation of the “true” model The use of this newer software

resulted in an important difference in the selection of terms The RVP-by-oxygen term that was

27


from -5.83 percent to -2 40 percent. The “waiver” oxygenated to “no waiver” oxygenated
changes ranged from -3.48 percent to -0 43 percent We assumed no fuel-related exhaust VOC
emission effects for the Tech 5 vehicles This approach is the same used in our NOx analysis

We estimated the exhaust reactive organic gas (ROG) emission changes resulting from the
waiver for these various scenarios in a manner similar to our calculation of NOx emission
changes Since “normal emitters” and “high emitters” show slightly different percent change
responses it was necessary to allocate the Tech 4 exhaust ROG emissions inventory to normal and
high emitters Based on previously cited information from CARB, we attributed 77 percent of
2005 ROG emissions to normal emitters and 23 percent to high emitters. ** An example
calculation is provided °

The two sets of fuel properties which we selected from the CEC MathPro report to

represent non-oxygenated and oxygenated CaRFG3 had (to the one decimal place precision

5 When we developed our models, we categorized high emitters based on average total exhaust HC emissions

>0 82 grams per mule or average CO>6 8 grams per mule, twice the federal Tier 0 light duty velucle
standards CARB was able to provide us with an estimate (23 percent), based on EMFAC’,g, of the
proportion of Tech 4 emissions from vehicles emitting at greater than twice the applicable standard for
ROG, including vehicles certified to other than the federal standards CARB also provided us with an
estimate of the ROG emission proportion from vehicles exceeding twice the CO standard (10 percent), but
could not provide an estumate of the total proportion of ROG emussions attributable to vehicles exceeding
either or both of the standards We elected to use 23 percent, rather than 33 percent (23+10) on the
assumption that many of the vehicles exceeding twice the CO standard would also have exceeded twice the
HC standard so that adding these two percentages would have double-counted these emissions Since our
analysis indicates that normal and high emutters generally respond similarly on a percent change basis, our
conclustons are not substantially affected by the allocation assumptions
9 We used an estumate of 130 40 tons/day exhaust ROG to represent on-road gasoline vehicle South Coast
emissions in 2005 without a waiver We apportioned these emissions to the three Tech groups using factors
from the PM3, and apportioned Tech 4 into normal and high emutters (16 6% for Tech 3, 41 6% for normal
emutter Tech 4, 12 4% for high emutter Tech 4, and 29 4% for Tech 5) For the first scenario listed,
“20,2 0, reduced, patent not avoided”, the Tech 4 normal emitter model “waiver “to “no watver” responses
shown are -2 54 and -1 28 percent, with equivalent “no waiver” to “waiver” changes of 261 and 130
percent The non-oxygenated market share for this scenario 1s 65 percent We estimated the Tech 4 normal
emutter change in tons/day as +((130 4X65/100X2 61/100)+(130 4\35/100X1 30/100))(41 6/100)=1 17
tons/day

96


environmental damage.” [Legis Hist at 6835]. This statement is significant for two reasons
First, it can be reasonably interpreted to suggest that Congress intended for the section (k)(2)(B)
waiver provision to be generally available to address potential adverse impacts from oxygen
content, including NOx emissions impacts Second, it can be reasonably viewed as consistent
with the idea that, when making a waiver determination, EPA should assess whether a waiver of
the oxygen content requirement is likely to result in real-world emission reductions, so that EPA
can determine to what extent “environmental damage” would occur without a waiver
Presumably, such an assessment would, at least, include a comparison of the overall emissions
performance of gasoline in an area with and without the oxygen content requirement in place
Other statements in the legislative history acknowledge some ambiguity in the language of
the statute, and suggest that Congress wanted EPA to closely scrutinize waiver requests For
example, during the Senate Debate on the conference report Senator Simpson urged EPA not to
interpret the waiver provision too loosely “EPA should also avoid a proliferation of too many
different oxygen levels when it grants partial oxygen content waivers, to solve NOX cap or
NAAQS problems under other provisions of section 211(k) ” [Legis Hist at 1170] Similarly the
Conference Report indicated that “waiver of the oxygen requirements by petition must be the
exception rather than the rule” [Legis Hist at 1024] The Report further suggested that an
appropriate interpretation of the provision would require an area to “demonstrate that they are
trying to comply with [the oxygen content] provision within their capabilities” [Legis Hist at
1024] Collectively, in light of the legislative history, is reasonable for EPA to interpret these

statements in the legislative history to suggest that EPA should grant waivers of the oxygen

138


Assignment No. 2-9, Contract 68-C-98-169, SwRI Project 08.04075). None of the checks
indicated the presence of important problems with the model’s fit or violations of assumptions
b. Consideration of Alternative Models

There were two sources for alternatives to the stepwise models when modeling NMHC
emissions, The first of these was to apply the “random balance” technique to models that were
obtained by other means, primarily the stepwise process, to see if the existing models could be
simplified This technique, used in building the EPA Complex Model and applied at various
stages of CARB’s work, may succeed in simplifying an existing model when it will be used to
make predictions within a particular fuel parameter space. Random balance was applied to the
Step 7 model. None of the non-linear terms were eliminated, and the only effect was to disqualify
the linear RVP and T90 terms, which were left in for reasons discussed in Section III A.

The second source for alternative models was to examine the stepwise process looking for
terms that were close competitors for entry into the equation at various steps, but which had a
marginally higher p-value than the term that was actually selected Models containing such
substitute terms may turn out to have qualities that make them useful, despite their not having
been selected directly through the stepwise process. Model 12, one such model, is distinguished
by having fewer terms than the Step 7 and Step 8 models, by having the highest AIC and BIC
values of all of the models, and by lacking any high-emitter interaction terms Without the high
emitter interaction terms, Model 12 can be used for our purposes without having to estimate the
proportion of NMHC emissions attributable to high emitting vehicles. On the other hand, the

model is insensitive to any differences that may exist between normal and high emitters in the way

89


CARB’s submittal contained the following analyses and arguments.

1) A comparison of CaRFG3 Predictive Model to the EPA’s Complex Model

CARB’s Predictive Model shows that NOx emissions increase as a function of oxygen in
the fuel, which as discussed above is CARB’s main argument in support of its claim that the
oxygen requirement interfered with or prevented attainment of the NAAQS for ozone and
particulate matter (PM) (CARB’s analysis and our subsequent evaluation are discussed in further
detail in Section III A). CARB felt that its Predictive Model was an appropriate tool to use
because it felt that the statistical procedures and software tools used to develop its model were
more current than those used for the Complex Model Moreover, the available body of emissions
test data had expanded since the Complex Model was developed (especially data on high-emitting
vehicles and newer-technology vehicles) Compared to CARB’s Predictive Model developed for
Phase 2 RFG (PM2), CARB stated that the Phase 3 Predictive Model (PM3) displayed a steeper
NOx/oxygen response as a result of dropping the RVP-by-oxygen term which the earlier version
of the software had erroneously included

(2) Identification of the NOx benefits representative of non-oxygenated gasoline and

ethanol RFG blends produced to meet the CaRFG3 standards

CARB evaluated the factors it felt were likely to influence how refiners would make
gasoline to comply with the California Phase 3 RFG (CaRFG3) regulations for California’s federal
RFG areas . Because of the California’s ban on MTBE in gasoline (which takes effect in 2003),
CARB limited its analysis to how refiners would produce RFG with and without a waiver using
ethanol CARB relied on staff assessment of likely CARFG3 properties as well as on prediction

of fuel formulations from a study conducted by MathPro for the California Energy Commission


Table 25 High Emitter EPA Tech 4 Model “Waiver” to “No Waiver” NMHC Percent

Changes
Percent

No Waiver Change non- | Percent Change
Oxy level | Waiver Nationwide oxy to oxy oxy (waiver) to

Oxy level | MTBE Use | Unocal Patent (no waiver) oxy (no waiver)
20 20 Reduced Patent not avoided -2.90 -1.01
27 27 Reduced Patent not avoided +287 -2.50
27 2.0 Reduced Patent not avoided -2 89 -100
20 2.0 Continues Patent not avoided -281 -0 35
27 27 Continues _ | Patent not avoided 217 -103
27 2.0 Continues Patent not avoided -280 -0 34
20 2.0 Reduced Patent avoided -3 06 -078
27 27 Reduced Patent avoided -3:24 -137
27 20 Reduced Patent avoided 3.14 -0 86
20 20 Continues Patent avoided -3 37 -0 32
27 27 Continues Patent avoided -207 -149
27 2.0 Continues Patent avoided “3.44 -0 40

All of the percent change numbers in both tables are negative, indicating that these models
predict better exhaust NMHC emissions for Tech 4 vehicles with an oxygen mandate than with a
waiver. This is evident both in the differences between non-oxygenated “waiver” CaRFG3 and
oxygenated “no waiver” CaRFG3, and in the differences between oxygenated “waiver” CaRFG3
and oxygenated “no waiver” CaRFG3 Comparison of corresponding columns between the tables
shows that the differences in the normal and high emitter responses are not great.

We estimated Tech 3 exhaust VOC emission changes using the Tech 3 portion of the

Phase 3 predictive model Tech 3 non-oxygenated to “no waiver” oxygenated changes ranged

95


CARB points out in its February 7, 2000 submittal that fuels that do not use ethanol
achieve lower evaporative emissions because of the elimination of additional permeation losses
that can occur with ethanol use Thus, CARB asserts that the production of non-oxygenated fuel
would cause a decrease in VOC emissions due to elimination of these additional permeation
losses The elimination would be due to displacement of RFG blends using ethanol by non-
oxygenated RFG

Increased VOC emissions would be expected to occur from RFG blends using ethanol due
to increased evaporative emissions (of VOC from the entire gasoline blend) from fuel permeation
of soft fuel system components In its February 7, 2000 submittal, CARB estimates that the
difference in evaporative emissions when comparing non-oxygenated gasoline to gasoline/ethanol
blends with 2 0 weight percent oxygen is about 13 tons/day for all federal RFG areas due to
permeation losses, assuming 100 percent penetration of non-oxygenated fuels If we assume that
permeation emissions are proportional to ethanol content, the difference in evaporative emissions
between the displaced gasoline containing 2.7 weight percent oxygen and non-oxygenated
gasoline is equivalent to approximately 17 5 tons/day decrease in VOC for all federal RFG areas,
again assuming 100 percent penetration of non-oxygenated fuels. In certain of the scenarios we
considered, if a waiver were granted gasoline oxygenated at 2 0 percent would displace gasoline
oxygenated at 27 percent We would expect that some reduction in permeation emissions would
result from this change in the oxygen content of oxygenated CaRFG3. Assuming the same.
proportional relationship between oxygen content and permeation emissions, a reduction of about
45 tons/day would occur if the oxygen content of all CaRFG3 in federal areas were reduced from

27 percent to 20 percent We adjusted the VOC decrease for each of the scenarios that we

100


CO as a result of oxygen reduction in Tech 5 vehicles (which CARB assumed as well)” In our
assessment of a waiver’s effect on CO we included the effect, where applicable, of reduced
oxygen content in oxygenated CaRFG3 (ie , 2.0 percent versus 2 7 percent oxygen by weight)
Table 29 below summarizes our estimates of the on-road CO increases expected under various
scenarios (in tons per day).

Table 29: Estimated South Coast On Road CO Emission Inventory Changes With

Waiver
No Waiver Oxy Level (wt. %) | Walver Oxy Level Nationwide MTBE Unocal Patent CO increase (tons/day)
se
20 20 Reduced Patent not avorded 1196
27 27 Reduced Patent not avoided 9237
27 20 Reduced Patent not avoided 11293
20 20 ‘Continues Patent not avoided 5535
27 27 Continues Patent not avoided 6158
27 20 ‘Continues Patent not avoided 9536
20 20 Reduced Patent avoided 8192
27 27 Reduced Patent avoided 83:13
27 . 20 Reduced Patent avoided 123 48
20 20 Continues Patent avoided 5535
27 27 ‘Continues Patent avoided 53 88
27 20 ‘Continues: Patent avoided 9536

Oxygen removal is also likely to increase CO emissions from off-road vehicles EPA’s

estimate of off-road oxygen effects is discussed in detail in Section III C 4 below.

n Separate reductions were reported for MY86-90 and MY91-95 We combined these into a single factor to

represent Tech 4 vehicles using statewide tons per day estimates contained in Table 3, Appendix G of
CARB’s staff report on CaRFG3, as weights (Appendix G available at

http /Avww arb ca gow/regact/cartg3/appg pdf) The factors expressed as CO percent changes per percent
‘increase in oxygen, and parenthetically as changes per percent decrease in oxygen are -5 07% (5 34%) for
Tech 3, and -3 16% (3 26%) for Tech 4 We used 2414 tons/day CO to represent on-road gasoline velucle
South Coast emissions in 2005 without a waiver We allocated 14 2% to Tech3, 44 3% to Tech4, and

41 5% to Tech5, based on Appendix G, Table 3

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CaRFG3 falls within the range of estimates in the EPA MathPro modeling. This modeling shows
that the share could vary substantially, however, depending on the set of conditions that exist.
Clearly, the approach we took in our earlier analysis, which selected a fixed 40 percent non-
oxygenated CaRFG3 market share (and only a single set of oxygenated and non-oxygenated
CaRFG3 properties), did not provide a robust basis for the evaluation of the potential emission
impacts of this waiver The EPA MathPro modeling provides a number of alternative cases,
incorporating the finalized version of the Phase 3 predictive model and CaRFG3 flat limit
reference specifications This allows us to examine potential waiver emissions impacts under
various alternative scenarios and determine if the waiver is warranted under a variety of potential
conditions

3. NOx reduction due to reduced oxygen use taking into account actual fuel use.

We concluded that forecasts of CaRFG3 properties with and without an oxygen waiver
were necessary to rigorously evaluate the merits of the waiver request As noted in the preceding
section, our initial analysis of potential emission effects used property information extracted from
MathPro’s December 7, 1999 report to CEC. We realized, however, that additional refinery
modeling could potentially provide more accurate forecasts of CaRFG3 properties. Given the
importance of these property estimates to the waiver analysis, EPA utilized MathPro to perform
additional modeling, and used these results to re-evaluate the potential emission effects of the
oxygen waiver. Both the initial and the re-analysis are discussed in this section
a. Previous analyses using results from early MathPro refinery modeling

The modeling that MathPro conducted for the California Energy Commission (CEC)

considered several variants of the proposed California Phase 3 predictive model (PM3) These

63


Table 12: NOx Emission Change from adding 2 percent Oxygen to Fuel (values in %)

Percent change in NOx emissions for increase from 0 to 2 % oxygen
Model MathPro Fuels (Other Properties @ CA
RFG3 Flat Limit
Values (from Table 10)
PM3-composite 0.26 19]
PM3-Tech 3 $.12 283
PM3-Tech 4 157 179
PM3-Tech 5 -1.66 1.79

EPA “Tech 4" models:

6 5 20} 5.23
5 515 484
10 49] 484
Step-3 4.16 5 29
Step-2 4.2] 487
Step-1 23 29)
3 2.31 3.07
Step-4 228 3 20
Step-5 2 04 3.14
7 178) 2.80
CARB 132) 142
RB-3 -0 33} 0 64

Comparison of the CEC MathPro to the flat limit responses did show that changes in other
properties resulting from changes in oxygen level are likely to have some impact on net NOx
emissions percent change. For example, the higher sulfur and olefin levels for the MathPro non-
oxygenated CARFG3 tended to oppose the effect of oxygen removal on NOx emissions, since
these models predict that NOx will increase as these parameters increase This is most apparent in
the PM3 Tech 5 model, where the change in NOx emissions with change in oxygen is similar to
that of Tech 4, but the change in NOx emissions with change in sulfur is greater.” Except for the

Tech 5 component of the PM3, and the RB-3 model, however, the responses are directionally

a The substantial uncertainties associated with the Tech 5 model due to lack of underlying data

have been discussed.
69


consistency of the NOx reduction associated with reducing oxygen content in CaRFG3 from 2 to
zero percent by weight. (CARB’s analysis is discussed briefly in the context of refinery modeling

that MathPro completed for EPA in Section III B )

(6) __ Sensitivity analysis to evaluate the effect of not including off-road emissions in the
CaRFG3 Predictive Model

CARB based emission changes due to non-oxygenated fuels solely on the use of its
Predictive Model. The Predictive Model does not include off-road vehicle emissions data, it was
built solely from on-road vehicle emission data and was intended to represent only on-road
emissions CARB argues that off-road vehicles emit a disproportionate share of gasoline
emissions because they have remained uncontrolled until recently CARB further argues that
recent more stringent emissions standards on these engines should lead to the use of more
sophisticated emissions control technology such as advanced fuel control systems, post
combustion controls, and evaporative controls Finally, it asserts that as the number of newer off-
road vehicles increase, the effect of fuel property changes on emissions will be more like on-road
automobile emissions CARB concluded that it was appropriate to exclude off-road emissions
from its analysis

CARB conducted a sensitivity analysis using its Predictive Model, to examine the effects
of CaRFG3 fuel on emissions from older on-road vehicles (pre-1981) which CARB terms “Tech
3" vehicles. Through this analysis CARB essentially used the PM3 Tech 3 vehicle data-set to
represent off-road vehicles. CARB computed NOx, VOC, and CO emission from oxygenated and

non-oxygenated CaRFG3 fuels for these vehicles, and weighted the emission changes using,

14


reported) the same Reid Vapor Pressure (RVP)® with and without a waiver. Thus, using the
CEC MathPro report we would expect that the as-blended evaporative emissions characteristics
of CaRFG3 with and without a waiver would not differ significantly. (Permeation and
commingling, which will be discussed later, would likely result in differences in non-exhaust VOC
emissions with and without a waiver.) The EPA MathPro analysis consistently showed RVP
differences between “no waiver” and “waiver” CaRFG3_ Table 10 in section III.B.2 shows that in
each case, the RVP of the ethanol-oxygenated “no waiver” CaRFG3 exceeded that of either the
ethanol-oxygenated or non-oxygenated “waiver” CaRFG3. Therefore, based on this modeling we
would expect that the as-blended evaporative VOC emissions would decrease if a waiver were
granted

We have estimated the emission effect associated with the as-blended RVP difference
according to the following procedure We used an equation derived from CARB’s emission
inventory model, MVEI7G, and which was published in a report prepared by Sierra Research for
the American Methanol Institute. This equation related RVP to evaporative ROG emissions, in
tons per day, for the on-road fleet in the South Coast Air Basin © This equation is y = 2 6243x?
- 8 4856x + 6 2251 for year 2005, where y is tons/day and x is RVP in pounds per square inch
Using this equation, we computed the percent changes in evaporative emissions for RVP changes

between the “no waiver” and “waiver” fuels. We applied these percent change estimates to our

RVP 1s a measurement of gasoline volatility Evaporative emissions increase with increasing RVP

a Report No SRO0-0101 “Potential Evaporative Emission Impacts Associated with the Introduction of

Ethanol-Gasoline Blends in California” January 11, 2000

97


sub-models represent six pollutants (NOx, HC, benzene, 1,3 butadiene, formaldehyde and
acetaldehyde) in each of three technology classes. These technology classes are Tech 3 (model
years 1981-85), Tech 4 (model years 1986-1995) and Tech 5 (1996 and newer) * The predictive
model contains technology class weighting factors to combine emissions difference predictions for
a given pollutant into a single prediction, representative of a portion of the California fleet. The
Phase 3 predictive model weights for NOx and exhaust HC represent, for each of the two
pollutants, the fractional contribution of exhaust emissions from on-road gasoline fueled vehicles
in a particular Tech class to the total contribution of exhaust emissions from these three Tech
classes in year 2005. These factors were calculated using information in California’s mobile
source emissions model EMFAC/BURDEN7G

The Phase 3 predictive model differs significantly from the Phase 2 model because of
various updates and additions, some of which are described below. A substantial amount of new
data, mostly from 1986 and newer vehicles, were added to the database. Consequently, CARB
generated new regression equations to represent Tech 3 and Tech 4 vehicles. CARB staff also
determined that there were sufficient data to model the Tech 5 class, which was not represented
as a separate group in the Phase 2 model. The Tech 5 class represents vehicles, including low
emission vehicles, with more advanced emission control technology than Tech 4. The Phase 3
model also adds an evaporative emissions compliance option which contains a carbon monoxide
reduction credit The evaporative emissions option allows refiners to determine hydrocarbon

emissions equivalency based on a combination of exhaust and evaporative emissions. The CO

For development of the phase 3 model regression equations, data from model year 1994 and newer vehicles
in the predictive model database were classified as Tech 5 The Tech 5 category and emission weighting in
the model represents 1996 and newer vehicles

19


Tables 6 and 7 below, along with the CARB PM3 model (see the column titled “CARB” in Table
7) after refitting to EPA’s dataset (for comparison purposes).

Table 6. Estimated Coefficients for First Half of Final Models Fit to Log(NOx)
(Bold italics indicate non-significant terms at 0.05 significance level)

Standardized

Term Step-1 Step-2 3 Step-3 5 6 7

Intercept -0.6606 -0.6603 -0.6606 -0.6656 -0.6651 -0.6624 -06737
RVP 001257 0.009093 0.01172 0.009694 0.007673 0008390 0.006188
T50 0.000129 -0.00245 0.000084 0.001804 0.001173 0.000312 -0.00475
T90 0.006597 0.00719 0.007879 0.005543 0.006239 0.006213 0.007587
AROM 0.01498 0.01587 0.01431 001524 0.01407 0.01501 0.01209
OLEF 0.01978 0.01988 0.01949 0.01940 0.01966 0.01990 0.01969

OXYGEN 0.01795 0.01240 0.01728 0.01333 0.01371 001351 0008245
SULFUR 0.04449 0.04171 0.04387 0.04201 0.04201 0.04195 0.04205
HI-EMIT 0.3963 0.3960 0.3963 0.3965 0.3960 0.3961 0.3969
OXY*SUL -0.01506 * -0.01647 -0.01627 -0.01402 -0.01325
T50*T50 0.006974

OXY*OXY 0.01120
OXY*T50 -0.00830

OXY*T90 -0.00510

OXY*ARO -0 00547

48


emissions will be a rapidly decreasing fraction of overall fleet exhaust hydrocarbon emissions by
2005, and we are willing to rely upon California’s PM3 modeling for these vehicles *” For Tech 5
vehicles, on the other hand, we are neither comfortable accepting the assumptions by which
California arrived at effect estimates for these vehicles, nor do we have an adequate database to
use in developing our own models As discussed earlier in connection with decisions on NOx
emissions, we believe that the superior fuel/air ratio control that is typical in Tech 5 vehicles will
act to minimize the effects of oxygen changes on hydrocarbon emissions Thus we believe the
most reasonable assumption to make is that the Tech 5 vehicles’ hydrocarbon emissions do not
change at all with oxygen changes in the fuel in the range of zero to 2 0 percent by weight

Granting or denying the waiver is also expected to affect non-exhaust VOC emissions
through permeation and commingling These issues are discussed in separate sections of this
document The VOC/oxygen relation for off-road vehicles is also addressed separately
d, Integration of VOC/oxygen relation with refinery modeling results

As explained above, EPA selected three “preferred” exhaust NMHC models (Step 7, Step
8 and Model 12), and has chosen to average these model responses to estimate exhaust VOC

effects in Tech 4 vehicles. The Step 7 and Step 8 models have property by high emitter

7 While CARB modeled total hydrocarbon (THC) for the Tech 3 vehicles, EPA modeled non-
methane hydrocarbon for Tech 4 vehicles. For some purposes this difference would be
problematic when trying to determine the effects of oxygen changes on the exhaust hydrocarbon
emussions of the overall vehicle fleet. In this case the end product of our statistical modeling
(that 1s actually used in subsequent analysis) 1s a percent difference in NMHC emissions that
results when 2.0 Wt percent of oxygen 1s removed from gasoline. Since oxygen seems to have,
at most, a trivial effect upon Tech 3 vehicles’ NMHC/THC ratios in the range of 0.0% to 27%
oxygen (Pearson correlation coefficient = 0 165), we believe that the percent difference in THC
when 2% oxygen is removed 1s an acceptable estimator of the corresponding percent difference in
NMHC In any case, the quantitative importance of whatever error might be introduced by this
assumption is very low (Tech 3 vehicles are a minor part of the hydrocarbon emissions picture in
2005, and methane is a small fraction of total exhaust hydrocarbon emissions from Tech 3
vehicles)

93


majority of data were from Tech 4 vehicles, the Tech 5 Predictive Model for non-sulfur fuel
parameters is almost identical to the Tech 4 Predictive Model for these fuel parameters.

This merging of the Tech 4 and Tech 5 sets of data in developing the Tech 5 model differs
markedly from CARB’s approach to developing the Tech 3 and Tech 4 models As mentioned
above, only emission data from Tech 3 and Tech 4 vehicles were used to develop the Tech 3 and
Tech 4 models, respectively Thus, the impacts of fuel quality on Tech 4 vehicle emissions were
not allowed to have any impact on the Tech 3 model, and vice versa. As mentioned above,
CARB modeled emissions for Tech 5 vehicles differently because of the insufficiency of data with
respect to non-sulfur fuel parameters. However, by grouping Tech 4 and 5 data, CARB implicitly
assumed that, absent data, Tech 5 vehicles would reflect the same fuel-related emission effects as
Tech 4 vehicles

Below, we reevaluate the available data regarding the impact of oxygen content on NOx
emissions from Tech 5 vehicles to assess whether this assumption is the best one that can be made
in the absence of actual data from Tech 5 vehicles.

a. Studies of the Impact of Fuel Quality on Tech 5 Vehicle Emissions

There are three studies which address the impact of oxygen on NOx emissions from Tech
5 vehicles at least to some extent The first is a study performed by the Auto-Oil Air Quality
Improvement Research Program (Auto-Oil), The second study was performed by the

Coordinating Research Council (CRC), a consortium of auto manufacturers and oil companies

31


unnecessary for us to separately evaluate whether California has demonstrated that the oxygen

requirement “prevents” attainment

B. Interpreting interference with attainment

Congress included the oxygen content requirement in the Clean Air Act Amendments of
1990 to serve particular Congressional objectives * Congress also included the waiver provision
in section 211(k)(2)(B), which identifies the considerations that Congress thought important
enough to potentially outweigh the objectives of the oxygen content requirement. Determining
where to strike the balance between these competing interests is at the heart of interpreting and

implementing the oxygen waiver provision

1. The statutory text
a. Section 211(k)

The reformulated gasoline program provides air emission benefits that help nonattainment
areas achieve improvements in air quality The centerpiece of section 211(k) is the requirement
for EPA to promulgate regulations requiring the greatest reduction in emissions of VOCs and
toxic air pollutants achievable through the reformulation of conventional gasoline. Accordingly,
the performance standards under section 211(k)(3)(B) require certain minimum reductions in

VOC and air toxics from all federal RFG, and EPA can and has required additional reductions

Congressional objectives for the oxygen requirement included environmental consideratrons, as well as a
desire to support domestic agriculture and to enhance national energy secunty See, eg , 136 Conc Rec
$3504, $3522 (1990), reprinted in COMMITTEE ON ENVIRONMENT AND PUBLIC Works, 103° CONG ,4 A
LEGISLATIVE HISTORY OF THE CLEAN AIR ACT AMENDMENTS OF 1990, at 6836 (1993) [Hereinafter “Legis
Hist ”] (‘this amendment —_ will reduce toxic aromatics currently used to boost octane in gasoline, it will
reduce ozone-forming automobile emissions, it will begin to reduce our dependance on imported oil, and it
will enhance rural and farm economies ”) (Comments of Senator Conrad)

131


relative reactivity factors Based on its analysis, CARB concluded that any errors from not
including the off-road emissions in its analysis of fuel oxygen effects were relatively small and
would not affect its conclusions about the impact of a waiver on emissions in California’s RFG
areas (CARB’s analysis and our subsequent evaluation are discussed in further detail in Section

IC.4).

15


assumed a 2 7 percent oxygen content in RFG. The split market cases modeled a CaRFG pool
consisting of 39 1 percent non-oxygenated and 60 9 percent oxygenated gasoline The report also
analyzed cost savings for various fractions of non-oxygenated gasoline relative to a 100 percent
oxygenated (at 2 7 percent) case These cases showed that the cost savings increased rather
sharply between 29.4 percent and 39 1 percent non-oxygenated gasoline and remained fairly flat
at greater non-oxygenated proportions, up to 58 7 percent, the maximum non-oxygenated fraction
shown ”

In summary, neither modeling analysis precisely captured the set of conditions that will
apply with a finalized predictive model and CaRFG3 standards. However, this modeling did
indicate that, under a broad range of conditions, it is likely that the California RFG pool, in the
absence of an oxygen mandate, would contain substantial amounts of both oxygenated and non-
oxygenated gasoline We believed that this modeling, while not ideal, provided the best estimate
available at the time of our initial analysis of the non-oxygenated market share that would occur if
a waiver were granted Based on these studies, we reasonably anticipated that 40 percent of
CaRFG3 would be produced without oxygen. While the Chevron/Tosco modeling suggested
that 40 percent non-oxygenated penetration might be on the high end of the likely range, the CEC
modeling showed maximum cost savings above the 39.1 percent point Since this CEC
modeling more closely modeled the requirements applicable to CaRFG3, we placed more

emphasis on these results, and also used this study to derive fuel property estimates for our

30 See Exhibit 7 in MathPro (December 7, 1999). Cost savings are shown for non-oxygenated

gasoline volumes at increments of 100 kbbl/day for the refinery modeled. The 300 kbbl/day
volume represents 29.4 percent of the pool and 400 kbbi/day 1s 39.1 percent

59


APPENDIX A. What is EPA’s statutory authority under 211(k)(2)(b)?

For purposes of California’s waiver request, EPA interprets section 211(k)(2)(B) as
follows. The key question before the agency involves the air quality impacts of a waiver for the
relevant NAAQS — EPA believes it should not make a determination of interference or
prevention and should not grant a waiver unless the impacts of a waiver are clearly demonstrated
for each applicable NAAQS. Absent such a clear demonstration, EPA is not able to determine
whether a waiver would aid, hinder, or have no effect on attainment of a NAAQS. It is important
that the impacts of a waiver be clearly demonstrated for each applicable NAAQS, because EPA
believes it should not grant a waiver unless, at a minimum, it has been clearly demonstrated that
granting a waiver would aid in attaining at least one NAAQS, and would not hinder attainment for
any other NAAQS. Once this minimum threshold has been met, EPA would have the authority to
grant a waiver if the degree of impact were considered to interfere or prevent attainment While
EPA need not determine in this case what degree of impact is necessary to prevent or interfere
with the NAAQS, EPA would have significant discretion in making such a determination Even
once EPA determines that this minimum threshold is met, EPA has the discretion to consider
factors other than impact on the NAAQS in determining whether to exercise its discretion to grant
awaiver The following analysis explains the basis for using this interpretation in acting on

California’s waiver request.

A. Section 211(k)(2)(B) Generally

128


appears, based on available information, that most, if not all, refiners are likely to utilize the
evaporative compliance option with or without a waiver Thus, the absence or presence of a
waiver is unlikely to result in a difference in the utilization of this option. Moreover, CARB is
committed by resolution and state law, to conduct additional evaluations of the commingling
effect Through Resolution 99-39, CARB is required to evaluate the real-world emissions impact
of commingling in 2003 and beyond, and report its findings and recommendations to the Board by
December 2001 CARB will investigate the expected prevalence of ethanol and non-oxygenated
CaRFG3 by supplier, grade and geographic area. CARB will also collect information on refueling
patterns, brand and grade loyalty as well as samples of actual in-use fuels California state law
(Senate Bill 989) requires that CaRFG3 maintain or improve upon emissions and air quality
benefits achieved by California Phase 2 RFG in California as of January 1, 1999 Therefore, if
CaRFG3's more stringent RVP limit does not offset the commingling effect, this law would
require CARB to take additional measures to assure there would be no real-world increase in HC
emissions There is some uncertainty about the mitigative measures that California can and will
apply if the magnitude of the commingling effect exceeds CARB’s expectations. CARB would
first have to assess the magnitude of the commingling effect, and then determine what can be done
to offset this effect It does not appear that California would be required by state law or
resolution to take any action unless it determined that the commingling effect exceeds the 0 1 psi
that was anticipated Thus, any mitigative action would likely only serve to.maintain the
equivalent of the 0 1 psi waiver to no waiver differential

CARB intends to conduct a field study to evaluate the expected real world emissions

impact of commingling CaRFG3 containing ethanol with CaRFG3 not containing ethanol

112


EPA used the equation from the Sierra Research report, cited earlier, to estimate the
percent increase in evaporative VOC emissions that could be expected relative to the “as-blended”
state for each scenario and each level of commingling RVP increase We then applied these
percent change factors to our estimates of the “as-blended” evaporative VOC emissions inventory
to estimate the increase in evaporative tons/day associated with each scenario.” Table 28 below
gives our estimates of commingling VOC increases attributable to on-road vehicles assuming
various levels of RVP increase due to commingling

Table 28 Estimated South Coast On Road Commingling VOC Increases With Waiver
(tons/day)

No Waiver Oxy | Waiver Oxy | Nationwide Unocal Patent voc voc

Level Level MTBE Use O Ips boost | 02 psi boost
20 20 Reduced Patent not avoided 555 1122
27 27 Reduced Patent not avoided 515 1041
27 20 Reduced Patent not avoided 515 1041
20 20 Continues Patent not avoided 555 1122
27 27 Continues Patent not avorded 525 1061
27 20 Continues Patent not avoided sis 1041
20 20 Reduced Patent avoided 538 1087
27 27 Reduced Patent avoided 522 1054
27 20 Reduced Patent avoided S17 1045
20 20 Continues Patent avoided 539 1089
27 27 Continues Patent avoided 526 1063
27 20 Continues Patent avoided 518 1047

3. CO effect of decreasing oxygen

TM Again, using the “2 7,2 7,continues, patent avoided” scenario as an example, we calculated an 8 21 ton/day

VOC decrease due to the “as-blended” RVP difference, resulting in an “as-blended” waiver evaporative
VOC inventory of 130 79 tons/day (139 0-8 21) The average RVP, based on the MathPro RVP and
marketshare estimates, 1s 6 68 psi_ (6 60x35%+6 73x65%) Using the Sierra Research equation, we
estumated a 4 02 percent increase (69 449/66 763-1) in evaporative VOCs with a 0 1 psi boost to 6 78 psi
Applying this to the “as-blended” evaporative mnventory yrelds an estimate of 5 26 tons/day (130 79x4 02%)
increase in evaporative emussions from on-road vehicles if the commingling effect 1s 0 1 psi

114


B. California Air Resources Board (CARB) July 9, 1999 submittal

CARB provided a more detailed analysis in a submittal to EPA dated July 9, 1999. (Filed
in docket A-2000-10, document number ILD -2, also available at
http //www arb ca gow/chg/Oxy/wav/070999 pdf) CARB attempted to demonstrate that an
additional 1 5 percent reduction in NOx reductions could be achieved with zero oxygen in
California’s gasoline CARB also claimed that it would be impossible to achieve the same level of
additional NOx reduction with the 2.0 weight percent oxygen requirement in place. CARB
argued that additional NOx reductions are needed in order for California to attain ozone and PM
NAAQS CARB concluded that in light of these findings, the federal oxygen content
requirement interferes with attainment of both the ozone and PM NAAQS CARB based its
argument on the use of its Phase 2 Predictive Model’ The reductions in NOx under both the 2 0
weight percent oxygen and non-oxygen scenarios were based on reduction of sulfur in the fuel
and the relationship between NOx formation and oxygen level in the fuel No other parameters
were discussed in this submittal

EPA responded to CARB’s July 9, 1999 submittal on August 6, 1999, with a letter to

CARB, (Filed in docket A-2000-10 as document number II C -2) which included the following

questions
What other fuel parameters besides reduction of sulfur has CARB considered in
evaluating the extent to which NOx can be reduced with 2.0 weight percent
oxygen in gasoline?
, The Predictive Model 1s a spreadsheet model developed by CARB as a tool for determmning fuel compliance

with California’s emission requirements +The model estimates the emissions corresponding with the
specific fuel parameters of a candidate fuel The Phase 2 Predictive Model 1s the fuel certification model
developed in conjunction with Califorma’s Phase 2 RFG program

2


California’s program By the most appropriate objective measures, all three of the models
presented below in Table 22 perform that function Indeed, their measures of predictive utility, as
shown in the table, are so closely matched as to make use of those criteria for choosing one from
among them seem arbitrary Model 12 lacks any high-emitter interaction terms, a trait that makes
it easier to use in the course of subsequent analyses. On the other hand, the fact that Model 12
does not distinguish high-emitters from normal emitters makes it insensitive to effects of that kind
that the other two models capture, each in their own way (the Step-7 and Step-8 models each
incorporate a different high-emitter interaction term, which are designated as “HT” in the table

below)

Table 22. List of Candidate Models for NMHC Emissions

No of Vehicle Fuel Terms (In Addition to Linear Terms)
Model__ |Terms [AIC BIC_| RMSE | Error

12 13 | 1507.7 | 1475.1 | 0.1227 | 0.4973 |HI, T50*TS0, T90°T90, T90*OXY, OXY*OXY,
T90*ARO

Step-7 14 [1507.6 | 1472.6 | 0.1227 | 0.4984 | HI, T50°T50, T90*T90, T90*OXY, SUL*HI,
OXY*OXY, T90*ARO

Step-8 15 | 1506.7 | 1471.7 | 0.1226 | 0.4982 Step-7 Terms, T50*HI

Thus we have decided to use the same approach to model selection for NMHC as we used
with Tech 4 NOx emissions-to average the effects of the group of models that seem to be the best
overall predictors. As can be seen from Table 23 the differences among these models are slight
for normal emitters, but they differ a bit in their handling of the high-emitting vehicles. As
discussed in the section on NOx modeling, this approach would not be workable for developing a

compliance model, but can be used in the context of our evaluation of California’s waiver request

91


Table 4: Predicted Change in NOx Emissions for Individual Fuel Parameters Which
Varied Between Phase 2 California RFG and Conventional Gasoline in CRC

Testing (%)
30 ppm Sulfur Fuels 150 ppm Sulfur Fuels
(Cl vs S1) (C3 vs. $2)
Sulfur -0.9 -09
RVP -11 -12
T50 0.1 0.1
T90 0.7 1.0
Aromatics -06 -09
Olefins -0.5 -08
Oxygen 2.2 31
Total Change -0.1 +0.3

As can be seen from Table 4, the Predictive Model projects that none of the fuel
parameters will have a large impact on NOx emissions The greatest predicted individual
reduction is 1 1-1 2 percent due to lower RVP Oxygen is projected to cause the largest increase,
22-3 1 percent Assuming that the increase in NOx emissions due to oxygen content is correct,
the differences in the remaining fuel parameters must be causing a 17-20 percent decrease in NOx
emissions, or 14-17 percent more NOx reduction than projected by the Predictive Model If
oxygen content does not affect NOx emissions, the difference between the measured NOx impacts
and the model predictions is reduced to 11-15 percent. Neither of these differences between
actual and modeled emission impacts is easily explained However, assuming that oxygen content
does not affect NOx emissions, as suggested by the Auto-Oil data discussed above, reduces the
error significantly and is certainly more consistent with the CRC data than CARB’s implicit

assumption that Tech 5 vehicles respond to oxygen like Tech 4 vehicles The CRC data also

36


Table 31 shows that there would be a net NOx decrease and CO increase with the waiver
under all scenarios It also shows a VOC increase with the waiver for two of the twelve scenarios
at 0 1 psi commingling average RVP increase and for seven scenarios at 0 2 psi commingling
increase. This table also includes an estimate of a “Year-round Oxygen Average” *

Table 32 summarizes the individual components of the VOC change associated with the
waiver This table illustrates that the impact of a waiver on VOC emissions is considerably more
complex to model than the impact of a waiver on either NOx or CO emissions Thus, there is
significant uncertainty as to the overall VOC effect of a waiver-in both the amount and the

direction of the effect

§s This average was estimated considering likely oxygenate usage patterns dunng the winter season in the

absence of a mandate For purposes of this analysis, year-round oxygen averages for the waiver cases are
calculated based upon the summertume market share and oxygen levels modeled in the MathPro report and
assume wintertime oxygenated gasoline use patterns in San Diego and Sacramento to be the same as
summertime use pattems and wintertume oxygen use in Los Angeles to be at 2 0 weight percent in all
gasoline as required under the state’s wintertume oxygenated gasoline program In fact, there 1s reason to
believe that these wintertime oxygen use patterns would be the most likely wintertume use patterns to
emerge in a waiver scenario MathPro has concluded this in its analysis for EPA

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value for on-road evaporative ROG emissions in order to estimate the on-road evaporative

emissions impact of the waiver An example calculation is shown *

We added the exhaust emission estimates to the evaporative emission estimates These

totals are shown in Table 26, with a negative number indicating a decrease in emissions with a

waiver (i e , additional reductions beyond those that would be achieved with CaRFG3 fuel

without a waiver). Our estimates, combining exhaust and evaporative tons/day, indicate a net

decrease in on-road ROG emissions would occur for each scenario evaluated, if the only non-

exhaust VOC effect was due to differences in as-blended RVP

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We used an estimate of 139 00 tons/day for South Coast on-road evaporative emissions Using the

“27,2 7,continues,patent avoided” scenario as an example, the RVPs for oxygenated “no waiver”, non-
oxygenated and oxygenated “waiver” CaRFG3 are 6 84, 6 60 and 6 73 psi From the equation, we
estimated a percent change in evaporative emissions of -9 06% for the 35% non-oxygenated share going
from 6 84 to 6 60 psi, and a percent change of -4 20% for the 65% oxygenated share going from 6 84 to
673 psi The net evaporative emissions change 1s (139X35/100X-9 06/100)+(139)(65/100(-4 20/100)=-
821 tons/day reduction We are aware that the equation relating RVP to emissions in tons/day does not
reconcile with our baseline inventory estimate We believe that this 1s due, in part, to our inclusion of all
on-road gasoline evaporative emissions sources provided in the inventory we were using (light duty vehicle,
all categones of gasoline trucks and motorcycles) We are assuming that this equation will approximate the

. percent changes in evaporative emissions for all categories

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A number of automakers have completed testing LEVs with both oxygenated and non-
oxygenated fuels explicitly to address the relative impact of MTBE and ethanol on emissions No
deadline has been set for releasing the results of this study. EPA at this time does not have the
data, and therefore is not in a position to apply the results in assessing the impact of oxygen
content on NOx emissions Since EPA’s conclusions regarding the waiver (see Section III.D) do
not rely on the relationship between NOx and oxygen, however, the data from the automakers’
LEV study would not change our decision.

e. Conclusions

Overall, the results of these three studies provide much stronger support for the
conclusion that oxygen content likely has little or no impact on NOx emissions from Tech 5
vehicles than for the conclusion that Tech 5 and Tech 4 vehicles react similarly to oxygen content
Additional data from carefully controlled studies would be necessary to confirm this finding.
However, these data will not be forthcoming for some time. The Auto-Oil data provides the
strongest evidence for this conclusion It shows that increasing oxygen content from zero to 2
percent by weight with Tech 5 vehicles did not increase NOx emissions.’

The CRC data support this conclusion. While NOx emissions from Tech 5 vehicles appear
to be more sensitive to some fuel parameter than Tech 4 vehicles, it is highly unlikely that
increased oxygen content could be causing a large increase in NOx emissions with net NOx

reductions of 14-17 percent.

9 CARB used these same data to conclude that oxygen content did not affect CO emissions on Tech 5

vehicles, while it did affect CO in Tech 4 vehicles Using the same critena for NOx would lead to similar
conclusions regarding the lack of effect of oxygen on Tech 5 vehicles

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