[Federal Register Volume 62, Number 202 (Monday, October 20, 1997)]
[Rules and Regulations]
[Pages 54552-54558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-27725]


      

[[Page 54551]]

_______________________________________________________________________

Part IV





Environmental Protection Agency





_______________________________________________________________________



40 CFR Part 80



Transitional and General Opt Out Prodecures for Phase II Reformulated 
Gasoline Requirements; Final Rule

Federal Register / Vol. 62, No. 202 / Monday, October 20, 1997 / 
Rules and Regulations

[[Page 54552]]



ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[FRL-5903-3]


Transitional and General Opt Out Procedures for Phase II 
Reformulated Gasoline Requirements

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: This final rule revises the regulations for states to opt-out 
of the federal reformulated gasoline (RFG) program for areas where a 
state had previously voluntarily opted into the program. The previously 
published opt-out provisions provide that EPA-approved opt-out 
petitions become effective 90 days from approval. Under today's action, 
if a state has not submitted an opt-out petition to EPA by December 31, 
1997, it must participate in the federal RFG program until December 31, 
2003. The Agency believes this rule is necessary to ensure a smooth 
transition between the two phases of the reformulated gasoline program. 
The use of Phase II RFG will provide greater health benefits than Phase 
I by requiring further reductions from the refiners' 1990 gasoline 
baseline for volatile organic compounds (VOCs) and toxics by about 25% 
and 20% respectively. The requirements also include a nitrogen oxides 
(NO<INF>X</INF>) reduction of about 6%.
    Effective January 1, 2004, the current opt-out procedures become 
effective again. States that want to end their involvement in the 
federal RFG program prior to December 31, 1999, and not participate in 
Phase II of the program, must submit a complete opt-out petition to EPA 
by December 31, 1997.
    Today's action does not affect the regulations for opting in to the 
RFG program. In a separate action EPA will publish a final rule which 
would permit former ozone nonattainment areas to opt into the federal 
reformulated gasoline program.

EFFECTIVE DATE: This final rule is effective November 19, 1997.

FOR FURTHER INFORMATION CONTACT: Christine Hawk or Diane Turchetta at 
U.S. Environmental Protection Agency, Office of Air and Radiation, 401 
M Street, SW (6406J), Washington, DC 20460, (202) 233-9000.

SUPPLEMENTARY INFORMATION: A copy of this action is available on the 
OAQPS Technology Transfer Network Bulletin Board System (TTNBBS) and on 
the Office of Mobile Sources' World Wide Web cite, <a href="http://www.epa.gov/
OMSWWW">http://www.epa.gov/
OMSWWW</a>. The TTNBBS can be accessed with a dial-in phone line and a 
high-speed modem (PH# 919-541-5742). The parity of your modem should be 
set to none, the data bits to 8, and the stop bits to 1. Either a 1200, 
2400, or 9600 baud modem should be used. When first signing on, the 
user will be required to answer some basic informational questions for 
registration purposes. After completing the registration process, 
proceed through the following series of menus:

(M) OMS
(K) Rulemaking and Reporting
(3) Fuels
(9) Reformulated gasoline

A list of ZIP files will be shown, all of which are related to the 
reformulated gasoline rulemaking process. Today's action will be in the 
form of a ZIP file and can be identified by the following title: 
OPTOUT.ZIP. To download this file, type the instructions below and 
transfer according to the appropriate software on your computer: 
<D>ownload, <P>rotocol, <E>xamine, <N>ew, <L>ist, or <H>elp Selection 
or <CR> to exit: D filename.zip
    You will be given a list of transfer protocols from which you must 
choose one that matches with the terminal software on your own 
computer. The software should then be opened and directed to receive 
the file using the same protocol. Programs and instructions for de-
archiving compressed files can be found via <S>ystems Utilities from 
the top menu, under <A>rchivers/de-archivers. Please note that due to 
differences between the software used to develop the document and the 
software into which the document may be downloaded, changes in format, 
page length, etc. may occur.

Regulated Entities

    Entities potentially regulated by this action are those which 
produce, supply or distribute motor gasoline. Regulated categories and 
entities include:

------------------------------------------------------------------------
                                                Examples of regulated   
                 Category                             entities          
------------------------------------------------------------------------
Industry..................................  Petroleum refiners, motor   
                                             gasoline distributors and  
                                             retailers.                 
State governments.........................  State departments of        
                                             environmental protection.  
------------------------------------------------------------------------

This table is not intended to be exhaustive, but rather provides a 
guide for readers regarding entities likely to be regulated by this 
action. This table lists the types of entities that EPA is now aware 
could potentially be regulated by this action. Other types of entities 
not listed in the table could also be regulated. To determine whether 
your business is regulated by this action, you should carefully examine 
the list of areas covered by the reformulated gasoline program in 
Sec. 80.70 of title 40 of the Code of Federal Regulations. If you have 
questions regarding the applicability of this action to a particular 
entity, consult the person listed in the preceding FOR FURTHER 
INFORMATION CONTACT section.

Extended Summary

    EPA published a Notice of Proposed Rulemaking on March 28, 1997, 
(62 FR 15077) proposing changes to the existing opt-out rule which 
provides criteria and general procedures for states to opt-out of the 
RFG program through December 31, 1997. This final rule promulgates the 
revisions as proposed by EPA with minor changes. 61 FR 35673 (July 8, 
1996).
    This final rule applies to areas where the state voluntarily opted 
into the federal RFG program and subsequently decides to withdraw from 
it referred to as ``opt-out.'' This final rule establishes the criteria 
and procedures for states to opt-out from the RFG program after 
December 31, 1997. Today's rule does not change the process a state 
must follow to petition for removal from the program or the criteria 
used by EPA to evaluate a request. For example, the rule maintains the 
requirements that the governor, or the governor's authorized 
representative, submit an opt-out petition. This rule changes the time 
period before the opt-out becomes effective for opt-out petitions 
received from January 1, 1998, through December 31, 2003. This period 
includes the remaining two years of Phase I (January 1, 1998 to 
December 31, 1999) and the first four years of Phase II (January 1, 
2000, to December 31, 2003).
    This final rule specifies that for all opt-out petitions received 
on or before December 31, 1997, the previously published procedures (61 
FR 35673) will apply and that the effective date that an area will no 
longer be a covered area as defined in 40 CFR section 80.70 will be 90 
days (or more at a state's request) from the date of EPA's letter of 
notification to the Governor of the requesting state or from the 
effective date of an agency approval of a revision to the State 
Implementation Plan (SIP) where applicable. States which have opted in 
to the RFG program that do not submit a completed opt-out request by 
December 31, 1997 and subsequently submit an opt-out request before 
January 1, 2004, will be required to participate in the federal RFG 
program, including

[[Page 54553]]

Phase II of the program, until at least December 31, 2003. The opt-out 
request will be effective January 1, 2004 or 90 days from the Agency's 
written notification to the State approving the opt-out petition, 
whichever date is later, unless the Governor requests a later date.
    The Agency may grant up to a five month extension to the December 
31, 1997 deadline in limited circumstances. An extension can be granted 
where the State's Legislature has pending legislation on the use of 
federal RFG that was active prior to March 28, 1997, when this opt-out 
rule was proposed. The request for an extension must demonstrate that 
the legislation cannot reasonably be acted upon until after the 
December deadline. Such legislation must be related to either opting 
out of or remaining in the RFG program. The Governor must submit a 
request for an extension to EPA containing such information before 
December 31, 1997. The Agency can then grant an extension up to May 31, 
1998.
    Today's requirements will also cover those areas opting into the 
RFG program subsequent to December 31, 1997; areas opting-in during 
that time period must remain in the program at least until December 31, 
2003. The opt-out procedures would revert back to the previously 
published rule (90 day requirements) as of January 1, 2004.
    Today's action will help provide certainty to the industry as it 
makes decisions that are likely to affect the supply and cost of RFG, 
which in turn could affect the cost-effectiveness of Phase II RFG. 
Additionally, the action maintains the flexibility that states have in 
air quality planning to the degree possible and practicable.

I. Opt-out Petitions Received January 1, 1998 Through December 31, 
2003; and After December 31, 2003

A. Background

    The federal reformulated gasoline (RFG) program is designed to 
reduce ozone levels and air toxics in areas of the country that are 
required to or volunteer to adopt the program. Reformulated gasoline 
reduces motor vehicle emissions of the ozone precursors, specifically 
volatile organic compounds (VOC), through fuel reformulation. RFG also 
achieves a significant reduction in air toxics. In Phase II of the 
program emissions of nitrogen oxides (NO<INF>X</INF>), another 
precursor of ozone, are also reduced. The Clean Air Act requires RFG in 
ten metropolitan areas with the highest levels of ozone.<SUP>1</SUP> In 
section 211(k)(6), Congress provided the opportunity for states to opt-
in to the RFG program for other areas classified under Subpart 2 of 
Part D of Title I as ozone nonattainment areas.
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    \1\ EPA recognizes that there are currently ten areas required 
to use Federal RFG and that these areas currently do not have an 
opt-out option. Those areas are: Los Angeles-Anaheim-Riverside, CA; 
San Diego County, CA; Hartford-New Haven-Meriden-Waterbury, CT; New 
York-Northern New Jersey-Long Island-Connecticut area; Philadelphia-
Wilmington-Trenton-Cecil County, MD; Chicago-Gary-Lake County, IL-
Indiana-Wisconsin area; Baltimore, MD; Houston-Galveston-Brazoria, 
TX; Milwaukee-Racine, WI; Sacramento, CA.
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    EPA issued final rules establishing requirements for RFG on 
December 15, 1993. 59 FR 7716 (February 16, 1994). During the 
development of the RFG rule, a number of states inquired as to whether 
they would be permitted to opt-out of the RFG program at a future date, 
or opt-out of certain requirements. This was based on their concern 
that the air quality benefits of RFG, given their specific needs, might 
not warrant the cost of the program, specifically focusing on the more 
stringent standards in Phase II of the program (starting in the year 
2000). States with that concern wished to retain the flexibility to 
opt-out of the program. Other states indicated they viewed RFG as an 
interim strategy to help bring their nonattainment areas into 
attainment sooner than would otherwise be the case.
    The regulation issued on December 15, 1993, did not include 
procedures for opting-out of the RFG program because EPA had not 
proposed and was not ready to adopt such procedures at that time. Since 
then, the Agency has adopted general procedures for future opt-outs. 61 
FR 35673 (July 8, 1996). These procedures apply to opt-out petitions 
received through December 31, 1997.
    Based upon EPA concerns regarding smooth implementation of Phase II 
of the RFG program and public comments that were received in response 
to the Notice of Proposed Rulemaking (60 FR 31269) published June 14, 
1995, EPA is changing the regulations in this final rule for opt-out 
petitions received between January 1, 1998, through December 31, 2003. 
The previously published procedures in place today (61 FR 35673) will 
take effect again beginning January 1, 2004.
    In the proposal to the previous opt-out rulemaking, EPA outlined 
its rationale for determining that it is appropriate to interpret 
section 211(k) as authorizing states to opt-out of the program. 60 FR 
31269 (June 14, 1995). EPA concluded that any conditions on opting out 
should be focused on achieving a reasonable transition out of the 
program. There were two primary areas of concern to the Agency. The 
first was coordination of air quality planning. The second involved 
appropriate lead time for industry to transition out of the program.
    Today's final rule addresses this lead time concern by changing the 
conditions for opting out during the period from January 1, 1998, to 
December 31, 2003. As the effective date for Phase II RFG (January 1, 
2000) approaches, industry must make investment decisions based in part 
on anticipated demand for RFG. Unanticipated changes in demand, due to 
opt-outs, could make cost recovery of investment difficult. To avoid 
this, refiners would tend to minimize capital investments and rely on 
costly operational changes which may be more to meet the Phase II 
requirements. This approach to compliance requirements could lead to 
higher gasoline prices which would diminish the cost-effectiveness of 
EPA's RFG program. Thus, EPA believes it must consider these special 
circumstances which affect industry directly and consumers indirectly 
and make appropriate changes to the opt-out procedures. Therefore, EPA 
is requiring states to decide by December 31, 1997 if they intend for 
opt-in areas to participate in Phase I RFG up to December 31, 1999, 
and/or to participate in Phase II RFG, which begins on January 1, 2000. 
If a state has not submitted an opt-out petition by December 31, 1997, 
it must continue to participate in Phase I RFG through December 31, 
1999, and participate in Phase II RFG until December 31, 2003. The 
Agency however may grant up to a five month extension to the December 
31, 1997 deadline if the state meets specific criteria.

B. Statutory Authority

    The statutory authority for the action in this rule is granted to 
EPA by section 211(c) and (k) and section 301(a) of the Clean Air Act 
as amended, 42 U.S.C. 7545 (c) and (k) and 7601(a). For a more complete 
discussion of statutory authority, see the proposal for general rules 
establishing criteria and procedures for states to opt-out of the RFG 
program. 60 FR 31271 (June 14, 1995).
    As discussed there, EPA believes it is appropriate to interpret 
section 211(k) as authorizing states to opt-out of the RFG program, 
provided that a process is established for a reasonable transition out 
of the program. EPA believes allowing states to opt out is consistent

[[Page 54554]]

with the Act's recognition that states have the primary responsibility 
to develop a mix of appropriate control strategies needed to reach 
attainment with the NAAQS. Given this deference to state decision 
making, it follows that the conditions on opting out should be geared 
towards achieving a reasonable transition out of the RFG program, as 
compared to requiring a state to justify its decision.
    EPA has identified two principal areas of concern in this regard. 
The first involves coordination of air quality planning. The second 
involves appropriate lead time for industry to transition out of the 
program. Today's rule addresses the latter concern. EPA's authority 
allows it the discretion to authorize opt-outs in a way that 
appropriately balances the interests of the parties affected by the 
regulations. The previous rule establishing opt-out criteria and 
procedures placed only limited conditions on the states, focusing on 
the information that must be submitted before EPA may approve an opt-
out request. The previous rule also generally required a 90-day time 
period to pass before an EPA-approved opt-out became effective. Today, 
EPA is proposing to lengthen this time period for certain future opt-
outs because it believes the circumstances affecting industry have 
changed enough to warrant an appropriate change.

C. Need for a Required Participation Period

    In the NPRM, EPA proposed a four year required participation period 
in Phase II for RFG opt-in areas. EPA solicited comments on the impact 
of future opt-outs during this time period, and the expected impacts on 
supply and cost from such opt-outs if they were allowed to occur. Two 
petroleum associations commented that they support the establishment of 
a minimum participation period for the Phase II RFG program which would 
provide market certainty and stabilization. One association 
specifically remarked that industry needs market certainty to not only 
ensure adequate planning and investments to satisfy RFG demand at the 
lowest cost, but to continue investments in RFG facilities by providing 
assurance that the program would be in effect for a reasonable time to 
allow a return on investment. It further commented that EPA must make 
every effort to guarantee a stable regulatory climate for the highly 
capital intensive RFG program. The other association remarked that it 
agreed with the U.S. Department of Energy's (DOE's) comments to the 
Agency's June 1995 NPRM, specifically the cost recovery issue. Several 
refiners/suppliers commented that they agree with the associations' 
comments. One company added that the Agency must take into account the 
long term impact on all parties, including small refiners and marketers 
when deciding RFG opt-ins or opt-outs. A state commented that consumers 
would benefit from a stable price market which would be encouraged by a 
long-term commitment to the program. The Agency did not receive any 
comments arguing against the need for a required participation period.
    Based on these comments, EPA maintains its belief in the need for a 
required Phase II participation period as proposed. The proposed 
requirement was prompted by the concerns expressed by DOE in its 
comments during the previous opt-out rulemaking. Specifically, DOE 
commented that a short time frame to opt-out by states who originally 
intended to participate in Phase II of the RFG program makes it 
difficult for refiners to recover their investments in refinery 
facilities needed to comply with the requirements of Phase II RFG. (Air 
Docket A-94-68) The Department further explained in its comments that 
the ability to price gasoline at a level that recovers investments 
depends very heavily on marginal supply and demand. Small unanticipated 
changes in demand, whether due to market forces or changing regulatory 
requirements, can make cost recovery of investment difficult, and cause 
gasoline prices to rise or fall.
    Refinery investments for Phase II RFG were originally estimated by 
the U.S. Department of Energy (DOE) to be about $1 billion for East 
Coast refiners and about $2 billion for Gulf Coast PADD III refiners. 
These estimates were included in DOE's December 1994 report, Estimating 
the Costs and Effects of RFG. Using improved modeling and real-world 
RFG production volume data, EPA worked closely with API and DOE to 
improve the DOE refinery model. This work was conducted in concert with 
EPA's review of the NO<INF>x</INF> waiver petition submitted by the 
American Petroleum Institute (API). Based on the over 200 improvements 
and changes to the refinery model, DOE released an updated report in 
1997 entitled Re-Estimation of the Refining Cost of RFG NO<INF>x</INF> 
Control. The updated investment estimates in this report for 6.8% 
NO<INF>x</INF> reduction range from about $0.2 to $0.8 billion for PADD 
I and about $0.0 to $0.6 billion for PADD III.
    The investment estimates decreased for several reasons but 
predominantly because refiners are producing a lower volume of RFG than 
was originally anticipated in 1994 due to subsequent opt-outs, due to a 
smaller quantity of spillover than anticipated, and because the 
refinery models used have been revised to more accurately project 
capital investments by the refining industry. Although the investment 
estimates are lower, EPA agrees with DOE's assessment that the 
estimated investments remain significant and that a required 
participation period is still appropriate. Such a requirement will 
encourage refiners to make the appropriate investments which in turn 
will help keep RFG prices low.
    Refiners who expect to be producing Phase II RFG starting January 
1, 2000, and who need additional facilities to meet the requirements of 
that gasoline, are likely to begin making commitments to refinery 
investments in 1997, two years in advance of the Phase II start date. 
The decision to invest in the capital needed to comply with Phase II 
RFG is based on each refiner's product capabilities, desire to 
participate in the program, and likely anticipated demand.
    Those refiners who chose to supply Phase II RFG are each uniquely 
situated to comply with the year 2000 Phase II requirements. Different 
levels of investment will be pursued by each refiner when investment is 
chosen or is necessary. The largest investments are expected to be made 
in the areas of desulfurization and alkylation to control sulfur and 
olefins. Some are expected to make early refinery changes to come into 
compliance with the complex model requirements in 1998. While the 
economic burden of Phase II compliance will fall disproportionately on 
some refiners, the Agency's main concern in this final rule is to 
provide a stable regulatory environment which will not unreasonably 
inhibit cost recovery, given that this could lead to supply problems 
and cost fluctuations that could diminish the appeal and cost-
effectiveness of the RFG program.

D. Four Year Required Participation Period From January 1, 2000 to 
December 31, 2003

    In the NPRM, EPA proposed a four year required participation period 
to attempt to strike a balance between the potential adverse impacts if 
refiners have too little time to recoup their Phase II investments and 
the need of states for some flexibility in using RFG. The Agency 
solicited comments on the range of investment recovery periods needed 
by the refineries who plan to invest capital in refining equipment for 
Phase II RFG.

[[Page 54555]]

    Several refiners and petroleum associations commented that a four 
year commitment period is not necessarily sufficient or is the minimum 
amount of time refiners would need to recover investments made to 
produce Phase II RFG. These commenters referenced DOE's comments that 
an eight year period is more adequate given the current competitive 
gasoline market, as well as EPA's statement that refiners would need a 
six year investment recovery period assuming a 10% real rate of return 
(62 FR 15077). Two refiners encouraged EPA to adopt a six year 
participation period while one suggested at least ten years based on 
the argument that manufacturing Phase II RFG is a long range project 
with expected pay outs of 10-20 years. Conversely, two states and two 
refiners/suppliers of RFG commented that a four-year period is adequate 
for several reasons including that it strikes a balance between 
sufficient certainty for RFG producers and flexibility for states to 
chose air quality control measures, markets tend to become more 
efficient over time, and that an extended required period may not 
provide additional cost recovery but instead create a disincentive to 
continue participation in the program.
    The above comments do not represent any new information or 
compelling arguments to change the proposed four-year participation 
period beyond four years. Thus the EPA continues to believe that a four 
year period is the most appropriate. The Agency is not trying to assure 
that all refiners will recover investments made in Phase II RFG 
production in a given time period. EPA is instead seeking to structure 
the federal RFG program in a way that minimizes the potential abrupt 
decrease in demand that could occur to refiners, thereby making it 
difficult to recover investments associated with producing this 
product. The potential for such decreases in demand soon after the 
implementation of Phase II RFG could be a disincentive to refiners to 
invest in the kind of capital that would tend to reduce future supply 
problems and to sustain the cost-effectiveness of the program. This is 
because a refiner's decision to invest in Phase II RFG is based, in 
part, upon an opt-in state's decision to have EPA require the sale of 
Phase II RFG in a particular area. RFG market uncertainty is increased 
when opt-in states are not bound to remain in the RFG program and by 
the relatively simple process for states to opt out of the RFG program 
provided for in the previously published rule. Without greater 
assurance of the markets for Phase II reformulated gasoline over a 
sufficient period of time, refiners may limit or delay investments and 
prepare for a smaller than currently-predicted RFG demand.
    EPA is committed to ensuring that non-attainment areas around the 
country attain the National Ambient Air Quality Standards (NAAQS), 
including the ozone standard. EPA recognizes, however, that under the 
Clean Air Act the states play a primary role in attaining the NAAQS, 
including choosing those control measures they prefer to include in 
their plans to attain and maintain the NAAQS. EPA is committed to 
maintaining, if possible and practical, the flexibility that states 
have in air quality planning by establishing procedures to opt out and 
substitute alternative control measures where the state considers 
appropriate. The Agency believes that requiring RFG in opt-in states 
for a period greater than four years may create a disincentive for 
continued participation in those areas where this program is currently 
considered a cost-effective control measure for the control of ground-
level ozone and toxics.
    EPA believes that today's action achieves a balance between 
allowing states with voluntary RFG areas the flexibility to opt-out of 
the program and giving industry a certain level of assurance as to a 
predictable demand for Phase II RFG during the important investment 
recovery period of the program's early years. Today's action helps 
maintain a consistent market, adequate supplies and reasonable prices, 
thus maintaining the RFG program's cost-effectiveness.

E. Effective Date for Approved Opt-Out Petitions

    In the NPRM, EPA proposed to change the date on which EPA-approved 
opt-out petitions become effective for opt-out petitions received 
January 1, 1998, through December 31, 2003. The EPA proposed that 
States which previously opted in to the RFG program that do not submit 
an opt-out request by December 31, 1997, and subsequently submit a 
completed opt-out request before January 1, 2004, will be required to 
participate in Phase II of the program until December 31, 2003. The 
opt-out request will be effective January 1, 2004 or 90 days from the 
Agency's written notification to the State approving the opt-out 
petition, whichever is later.
    The Agency also proposed that if a state submits an opt-out request 
prior to December 31, 1997, the state can designate the opt-out to 
occur at any future date beyond the minimum 90-day period required 
under current opt-out procedures as long as it is not a date beyond 
December 31, 1999. Areas opting into the RFG program subsequent to 
December 31, 1997, will be treated the same as areas opting in prior to 
that date and will also be included in Phase II of the program until 
December 31, 2003.
    A state commented that the December 31, 1997 deadline should be 
extended if the Agency revises the National Ambient Air Quality 
Standards (NAAQS) in the summer of 1997. It stated that a change in the 
NAAQS would require analysis to verify the appropriateness of RFG as a 
control strategy and that the proposed opt-out deadline would not be 
sufficient for the state to make such a decision. The Agency 
understands this air quality planning concern for a revision to the 
NAAQS, but extending the opt-out deadline a few months would not be of 
any significant value to the states for purposes of making decisions on 
control strategies to meet the new ozone standard. Extending the 
deadline much beyond December 31, 1997 could jeopardize the intent of 
the rulemaking by not providing industry with sufficient lead time to 
make necessary investment decisions.
    A representative of the state of Maine commented that the opt-out 
deadline should be extended at least until end of May 1998. The state 
discussed the controversy within that state surrounding the decision of 
whether or not to stay in the RFG program and expressed the importance 
of providing its legislature the opportunity to approve such decisions. 
The state's legislative session ended June 1997 and is not scheduled to 
reconvene until January 1998. In January 1997, a bill was introduced in 
Maine's Legislature to opt the state out of the RFG program. The 
Legislature did not act on this legislation and carried it over to the 
next legislative session beginning January 1998 for consideration. The 
EPA believes that a limited extension is justified under these 
circumstances and that a limited extension would not negate the intent 
of the rulemaking since only a small refining market would be affected. 
Thus in this final rule EPA is allowing a Governor, that requests an 
extension so the legislature can consider a decision, to submit a 
letter to EPA before December 31, 1997 to request an extension up to 
May 31, 1998. To be eligible for an extension, the State's Legislature 
must have pending RFG legislation that cannot reasonably be acted upon 
until after the December deadline. Such legislation must be related to 
either opting out of or

[[Page 54556]]

remaining in the RFG program and it must have been introduced prior to 
March 28, 1997, the date of the opt-out proposal. The Governor must 
submit a request for an extension to EPA containing such information 
before December 31, 1997. The Agency then may grant an extension up to 
May 31, 1998.

F. Return to Existing Procedures

    EPA further proposed that, beginning on January 1, 2004, opt-out 
requests from states again be approved based on the opt-out provisions 
in effect before January 1, 1998. A petroleum association commented 
that opt-outs must follow formal rulemaking process as provided for 
under the CAA, and that approved opt-outs published by July 1 in a 
given year should be effective January 1 of the following year to 
provide adequate time for refiners to meet averaging requirement 
planning and survey programs.
    EPA does not agree that a separate rulemaking must be conducted for 
each future opt-out request. The petition based process established in 
the previous opt-out rulemaking (61 FR 35673) addresses, on a case by 
case basis, future individual state requests to opt out of the federal 
RFG program. The regulations establish clear and objective criteria for 
EPA to apply in these future non-rulemaking actions. These criteria 
address when a state's petition is complete and the appropriate 
transition time under the regulations. This application of regulatory 
criteria on a case by case basis to future individual situations does 
not require notice and comment rulemaking, either under section 307(d) 
of the Clean Air Act or the Administrative Procedure Act.
    The EPA believes the petition approach is the most appropriate as 
it will allow for expeditious and consistent Agency action on the 
individual opt-out requests presented by states. It also provides 
greater certainty in the market than individual rulemakings could 
provide. Lastly, it provides quick approval for opt-out requests while 
maintaining a sufficient transition period to minimize costly market 
disruptions. In certain cases, the affected parties will be able to 
comment on the state action. In those states where the RFG program is 
included as a part of an approved state implementation plan (SIP), 
affected parties that are concerned with the impacts of an opt-out 
would have the opportunity to comment on a state's revised plan that 
removes RFG as an air control measure.
    At a state's request, the opt-out could be effective later than 90 
days after approval of the petition or revised SIP. In such a case, a 
state must indicate in its petition to the Agency the desired effective 
date for the opt-out. EPA recommends that a state consider an opt-out 
date which becomes effective on one of the RFG program's natural 
transition points. These natural transition points are identified as 
January 1, the start of the averaging season, and May 1 and September 
15, the beginning and end, respectively, of the VOC control season. The 
Agency supports state efforts to accommodate these natural transition 
points.

G. Variations to Proposal

    In the NPRM, EPA requested comments on two specific possible 
variations to the proposal in anticipation of interest in these options 
by outside parties:
    (1) An area that reaches attainment of the ozone standard and is 
redesignated during the period of January 1, 1998, through December 31, 
2003, would be allowed to submit an opt-out request to be approved by 
EPA using the same 90 day opt-out effective date applicable before 
December 31, 1997 (See 61 FR 35673, July 8, 1996). A petroleum 
association commented that it opposed this variation of allowing areas 
to opt out of the program if they redesignate to attainment. It 
specified that this variation would undercut, possibly negate, the 
opportunity for cost recovery, create investment uncertainties and 
instability that EPA is trying to avoid through this rulemaking, and is 
inconsistent with the rationale underlying the rest of the proposal. 
Most comments from industry agreed with the association's argument 
against the variation. One RFG supplier, however, commented that such a 
variation is important to state, local, and consumer involvement to 
have every incentive to reach attainment classification as soon as 
possible.
    The EPA believes that this variation could jeopardize the intent of 
the rule and thus is not including it in the final rule. While the 
Agency agrees that states should have every incentive to reach 
attainment, EPA does not believe this variation provides an incentive 
great enough to outweigh the risk of undercutting the purpose of the 
rule. If some states have areas that are redesignated to attainment 
during the required participation period, their state implementation 
plans (SIP), if applicable, would need to be revised. Even if these 
processes were completed within the required period, it is likely that 
the state would need to retain RFG in its maintenance plan to remain in 
attainment. Thus this variation would not necessarily provide an 
additional incentive to reach attainment of the ozone standard but 
instead would retain an element of market uncertainty which contradicts 
the purpose of the requirement.
    (2) A similar participation period for areas first opting into the 
RFG program subsequent to December 31, 1999, requiring these areas to 
participate in Phase II of the program for at least four years from the 
date of their opt-in. This variation, referred to as a ``rolling 
required period'', would establish the effective date for the removal 
of an area from the program as January 1, 2004, or 90 days from the 
Agency's written notification approving the opt-out, or four years from 
the effective date of their opt-in, whichever date is later, for all 
opt-out requests received after January 1, 2000.
    Several commenters supported a rolling period to avoid stranded 
investments. However, one supplier remarked that it may not be 
necessary to continue with a four year period beyond 2003. The EPA 
believes that with the information available today and with the 
uncertainty of the future, the Agency cannot conclude that there is a 
need for a rolling period to assure a continued cost-effective RFG 
program. The Agency did not receive a compelling argument or 
information to continue with a required period for new opt-in areas. 
The program which began in 1995 has remained very stable with only one 
new opt-in. If a few areas were to opt-in the future, they may well be 
located near a pipeline or appropriate infrastructure to meet the new 
demand without additional refinery investments. However, if new areas 
opt in remote locations or if there are numerous new areas, industry 
may need to make unanticipated investments which could impact the price 
of RFG. In this latter instance a rolling period may be necessary.
    EPA believes that based on information available today there is not 
sufficient justification to include a rolling period in this final 
rule. However, since the Agency is committed to ensuring a cost-
effective RFG program to achieve air quality goals, EPA will take any 
necessary action in the future if new information indicates a rolling 
period is warranted.

II. Environmental Impact

    If an area opts out of the RFG program, it will not receive the 
reductions in VOCs, oxides of nitrogen (NO<INF>X</INF>), and air toxics 
that are expected from this program. Instead, the areas would be 
subject to the federal controls on Reid vapor pressure for gasoline in 
the summertime, and would only

[[Page 54557]]

receive control of NOx and air toxics through the requirements of the 
conventional gasoline anti-dumping program. These latter requirements 
are designed to ensure that gasoline quality does not degrade from the 
levels found in 1990. These areas would be foregoing the air quality 
benefits obtained from the use of RFG.
    In this final rule, EPA continues to recognize that states have the 
primary responsibility to develop the mix of control strategies needed 
to attain and maintain the NAAQS, and should have flexibility in 
determining the mix of control measures needed to meet their air 
pollution goals. However, the final rule also seeks to ensure through 
the required participation period that the potential for a state to 
decide to opt-out of Phase II of the RFG program does not cause adverse 
impacts on the market demand for Phase II RFG during the initial years 
of the program and thus maintains the cost-effectiveness of the RFG 
program. EPA expects that states will in fact act prudently in 
exercising their ability to opt-out under these rules. Any 
environmental impacts of opting out are, therefore, not expected to 
occur in isolation, but in a context of states exercising their 
responsibility and developing appropriate control strategies for their 
areas' air pollution goals.

III. Executive Order 12866

    Under Executive Order 12866,<SUP>2</SUP> the Agency must determine 
whether a regulation is ``significant'' and therefore subject to OMB 
review and the requirements of the Executive Order. The Order defines 
``significant regulatory action'' as one that is likely to result in a 
rule that may:
---------------------------------------------------------------------------

    \2\ See 58 FR 51735 (October 4, 1993).
---------------------------------------------------------------------------

    (1) Have an annual effect on the economy of $100 million or more, 
or adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local or tribal governments of communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof, or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
this Executive Order.<SUP>3</SUP>
---------------------------------------------------------------------------

    \3\ Id. at section 3(f)(1)-(4).
---------------------------------------------------------------------------

    It has been determined that this rule is not a ``significant 
regulatory action'' under the terms of Executive Order 12866 and is 
therefore not subject to OMB review.

IV. Unfunded Mandates

    Under Section 202 of the Unfunded Mandates Reform Act of 1995 
(``UMRA''), P.L. 104-4, EPA must prepare a budgetary impact statement 
to accompany any general notice of final rulemaking or final rule that 
includes a Federal mandate which may result in estimated costs to 
State, local, or tribal governments in the aggregate, or to the private 
sector, of $100 million or more. Under Section 205, for any rule 
subject to Section 202 EPA generally must select the least costly, most 
cost-effective, or least burdensome alternative that achieves the 
objectives of the rule and is consistent with statutory requirements. 
Under Section 203, before establishing any regulatory requirements that 
may significantly or uniquely affect small governments, EPA must take 
steps to inform and advise small governments of the requirements and 
enable them to provide input.
    EPA has determined that today's final rule does not trigger the 
requirements of UMRA. The rule does not include a Federal mandate that 
may result in estimated annual costs to State, local or tribal 
governments in the aggregate, or to the private sector, of $100 million 
or more, and it does not establish regulatory requirements that may 
significantly or uniquely affect small governments.

V. Economic Impact and Impact on Small Entities

    The Administrator has determined that this rule will not have a 
significant impact on a substantial number of small entities. A 
regulatory flexibility analysis has therefore not been prepared. This 
final rule is not expected to result in any additional compliance cost 
to regulated parties and in fact is expected to decrease compliance 
costs and decrease costs to consumers in the affected areas by 
providing more certainty for regulated parties. This final rule imposes 
no new requirements on states.
    With respect to the portion of today's action which requires 
participation until January 1, 2004, of opt-in areas unless they 
request to opt-out prior to January 1, 1998, today's final rule is not 
expected to result in any additional compliance cost to regulated 
parties. It does no more than maintain the status quo for those 
entities who have been supplying RFG to the RFG opt-in areas and 
imposes no additional requirements on parties that must comply with the 
RFG regulations.
    With respect to the portion of today's final rule which would apply 
to opt-out requests applied for on or after January 1, 2004, the final 
rule is not expected to result in any additional compliance cost to 
regulated parties and in fact is expected to decrease compliance costs 
to those entities who previously supplied RFG to the area opting out. 
This rule also establishes a transition period which maximizes affected 
parties' ability to plan for smooth transition from the RFG program, 
minimizing disruption to the motor gasoline marketplace. This 
transition period is reasonably expected to allow parties to turn over 
existing stocks of RFG to conventional gasoline.

VI. Paperwork Reduction Act

    This action does not add any new requirements under the provisions 
of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. The Office of 
Management and Budget (OMB) has approved the information collection 
requirements contained in the final FRG/anti-dumping rule and has 
assigned OMB control number 2060-0277 (EPA ICR No. 1591.03).
    Burden means the total time, effort, or financial resources 
expended by persons to generate, maintain, retain, or disclose or 
provide information to or for a Federal agency. This includes the time 
needed to review instructions; develop, acquire, install, and utilize 
technology and systems for the purposes of collecting, validating, and 
verifying information, processing and maintaining information, and 
disclosing and providing information; adjust the existing ways to 
comply with any previously applicable instructions and requirements; 
train personnel to be able to respond to a collection of information; 
search data sources; complete and review the collection of information; 
and transmit or otherwise disclose the information.
    An Agency may not conduct or sponsor, and a person is not required 
to respond to a collection of information unless it displays a 
currently valid OMB control number. The OMB control numbers for EPA's 
regulations are listed in 40 CFR Part 9 and 48 CFR Chapter 15.

VII. Submission to Congress and the General Accounting Office

    Under 5 U.S.C. 801(a)(1)(A) as added by the Small Business 
Regulatory Enforcement Fairness Act of 1996, EPA submitted a report 
containing this rule and other required information to the U.S. Senate, 
the U.S. House of Representatives and the Comptroller General of the 
General Accounting

[[Page 54558]]

Office prior to publication of the rule in today's Federal Register. 
This rule is not a ``major rule'' as defined by 5 U.S.C. 804(2).

List of Subjects in 40 CFR Part 80

    Environmental protection, Fuel additives, Gasoline, Imports, Motor 
vehicle pollution, Penalties, Reporting and recordkeeping requirements.

    Dated: October 9, 1997.
Carol M. Browner,
Administrator.

Final Rulemaking

    Accordingly, 40 CFR part 80 is amended as follows:

PART 80--REGULATION OF FUELS AND FUEL ADDITIVES

    1. The authority citation for part 80 continues to read as follows:

    Authority: Secs. 114, 211, and 301(a) of the Clean Air Act, as 
amended (42 U.S.C. 7414, 7545 and 7601(a)).

    2. Section 80.72 is amended by revising paragraphs (a) and (c) to 
read as follows:


Sec. 80.72  Procedures for opting out of the covered areas.

    (a) In accordance with paragraph (b) of this section, the 
Administrator may approve a petition from a state asking for removal of 
any opt-in area, or portion of an opt-in area, from inclusion as a 
covered area under Sec. 80.70. If the Administrator approves a 
petition, he or she shall set an effective date as provided in 
paragraph (c) of this section. The Administrator shall notify the state 
in writing of the Agency's action on the petition and the effective 
date of the removal when the petition is approved.
* * * * *

    (c)(1) For opt-out petitions received on or before December 31, 
1997, except as provided in paragraphs (c)(2) and (c)(3) of this 
section, the Administrator shall set an effective date for removal of 
an area under paragraph (a) of this section as requested by the 
Governor, but no less than 90 days from the Agency's written 
notification to the state approving the opt-out petition, and no later 
than December 31, 1999.
    (2) For opt-out petitions received on or before December 31, 1997, 
except as provided in paragraph (c)(3) of this section, where RFG is 
contained as an element of any plan or plan revision that has been 
approved by the Agency, other than as a contingency measure consisting 
of a future opt-in, then the effective date under paragraph (a) of this 
section shall be the date requested by the Governor, but no less than 
90 days from the effective date of Agency approval of a revision to the 
plan that removes RFG as a control measure.
    (3)(i) The Administrator may extend the deadline for submitting 
opt-out petitions in paragraphs (c)(1) and (2) of this section for a 
state if:
    (A) The Governor or his authorized representative requests an 
extension prior to December 31, 1997;
    (B) The request indicates that there is active or pending 
legislation before the state legislature that was introduced prior to 
March 28, 1997;
    (C) The legislation is concerning opting out of or remaining in the 
reformulated gasoline program; and
    (D) The request demonstrates that the legislation cannot reasonably 
be acted upon prior to December 31, 1997.
    (ii) The Administrator may extend the deadline until no later than 
May 31, 1998. If the deadline is extended, then opt-out requests from 
that state received during the extension shall be considered under the 
provisions of paragraphs (c)(1) and (2) of this section.
    (4) For opt-out petitions received January 1, 1998 through December 
31, 2003, except as provided in paragraph (c)(5) of this section, the 
Administrator shall set an effective date for removal of an area under 
paragraph (a) of this section as requested by the Governor but no 
earlier than January 1, 2004 or 90 days from the Agency's written 
notification to the state approving the opt-out petition, whichever 
date is later.
    (5) For opt-out petitions received January 1, 1998 through December 
31, 2003, where RFG is contained as an element of any plan or plan 
revision that has been approved by the Agency, other than as a 
contingency measure consisting of a future opt-in, then the effective 
date for removal of an area under paragraph (a) of this section shall 
be the date requested by the Governor, but no earlier than January 1, 
2004, or 90 days from the effective date of Agency approval of a 
revision to the plan that removes RFG as a control measure, whichever 
date is later.
    (6) For opt-out petitions received on or after January 1, 2004, 
except as provided in paragraph (c)(7) of this section, the 
Administrator shall set an effective date for removal of an area as 
requested by the Governor, but no less than 90 days from the Agency's 
written notification to the state approving the opt-out petition.
    (7) For opt-out petitions received on or after January 1, 2004, 
where RFG is contained as an element of any plan or plan revision that 
has been approved by the Agency, other than as a contingency measure 
consisting of a future opt-in, then the effective date for removal of 
an area under paragraph (a) of this section shall be the date requested 
by the Governor, but no less than 90 days from the effective date of 
Agency approval of a revision to the plan that removes RFG as a control 
measure.
* * * * *
[FR Doc. 97-27725 Filed 10-17-97; 8:45 am]
BILLING CODE 6560-50-P