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Page **1** of **43 ENVIRONMENTAL PROTECTION AGENCY** 

**40 CFR Part 80 [EPA**  **- HQ**  **- OAR** **- 201**  **2 -**  **0 22**  **3 ; FRL** 
**– ]**  **Regulation of Fuels and Fuel Additives: Modifications**  **to Renewable Fuel Standard and Diesel Sulfur**  **Program s** 
**AGENCY** : Environmental Protection Agency (EPA). **ACTION** : Proposed Rule. **SUMMARY:** EPA is propos ing to amend the definition of heating oil in 40 CFR § 80.1401 in the Renewable Fuel S tandard (RFS) program under section 211(o) of the Clean Air Act . This amendment would expand the scope of renewable fuels that can generate Renewable Identification Numbers ( RI Ns ) as heating oil to include fuel oil produced from qualifying renewable biomass that would be used to generate heat to warm buildings or other facilities where people live, work, recreate, or co nduct other activities. Fuel oils used to generate process heat, power, or other functions would not be included in the amended definition. Producers or impo rters of fuel oil that meets the amended definition of heating oil would be allowed to generate R IN s , provid ed that the fuel oil meets the other requirements specified in the RFS regulation s . This proposed amendment would not modify or limit fuel included in the current definition of heating oil at 40 CFR § 80.2(ccc)
. We are also proposing amendments to the diesel sulfur program to provide additional flexibility for transmix processors that produce locom otive and marine diesel fuel. Specificall y, we are proposing to reinstate an allowance for***E.O. 12866 Review

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Page **2** of **43** transmix processors to p roduce 500 ppm sulfur diesel fuel for use in older technology locomotive and marine diesel outside of the Northeast Mid
- Atlantic Area. We are also requesting comment on extending this allowance to outside of the Northeast Mid
- Atlantic Area. These propose d amendments to the diesel transmix provisions are expected to result in reduced compliance costs for transmix processors and users of locomotive and marine diesel fuel while having a neutral or positive environmental impact. **DATES:** Written c omments mus t be received on or before [ **insert date 30 days from date of publication in the Federal Register**  ] , or 30 day s from the date of the public hearing, if a public hearing is requested
. A request for a public hearing must be received by [ **insert date 15 days from date of publication in the Federal Register**  ]
. If a public hearing is requested, we will publish a notice in the Federal Register announcing the date and location of the hearing at least 14 day s prior to the hearing. **ADDRESSES:** Submit your comments, identified by Docket ID No. EPA
- HQ
- OAR
2012
- 0223 , by of the following methods:

• www.regulations.gov : Follow the on
- line instructions for submitting comments.

• Email: a - and

- r- docket@epa.gov, Attention Air and Radiation Docket ID EPA
HQ
- OAR
- 2012
- 0223.

• Fax: 731
- 214
- 4051.Mail: Air and Radiation Docket, Docket No. EPA
- HQ
- OAR
2012
- 0223 , Environmental Protection Agency , Mailcode: 6406J, 1200 Pennsylvania Ave., NW, Washington, DC 20460.

• Hand Delivery : EPA Docket Center, EPA/DC, EPA West, Room 3334, 1301 Cons titution Ave., NW, Washington, DC, 20460, Attention Air and Radiation Docket, ID No. EPA
- HQ
- OAR
- 2012
- 0223 . Such deliveries are onl y accepted***E.O. 12866 Review

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Page **3** of **43** during the Docket’s normal hours of operation, and special arrangements should be made for deliveries of boxed info rmation. Instructions: Direct your comments to Docket ID No. EPA
- HQ
- OAR
- 2012
- 0223
. EPA’ s policy is that all comments received will be included in the public docket without change and may be made available online at www.regulations.gov , including an y personal information provided, unless the comment includes information claimed to be Confidential Business Information (CBI) or other information whose disclosure is restricted b y statute. Do not submit information that you consider to be C BI or otherwise protected through www.regulations.gov or e
- mail. The www.regulations.gov website is an “anon ym ous access” sy stem, which means EPA will not know y our identity or contact information unless y ou provide it in the body of your comment. If you s end an e
- mail comment directl y to EPA without going through www.regulations.gov your e - mail address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electronic comment, EPA recommends that you include your name and other contact information in the body of y our comment and with any disk or CD
- ROM y ou submit. If EPA cannot read your comment due to technical difficulties and cannot contact you for clarifi cation, EPA may not be able to consider your comment. Electronic files should avoid the use of special characters, an y form of encry ption, and be free of any

defects or viruses. For additional information about EPA’s public docket visit the EPA Docket Cent er homepage at http://www.epa.gov/epahome/dockets.htm
. Docket: All documents in the docket are listed in the www.regulations.gov index. Although listed in the index, some information is not publicly available, ( e.g. , CBI or***E.O. 12866 Review

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Page **4** of **43** other information whose disclosure is restricted b y statute )
. Certain other material, such as cop yri ghted material, will be publicly available only

in hard copy
. Publicly

available docket materials are available either electronically in www.regulations.gov or in hard copy at the Air an d Radiation Docket and Information Center, EPA, EPA West, Room 3334, 1301 Constitution Ave., NW, Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday , excluding legal holiday s. The telephone number for the Pub lic Reading Room is (202) 566
- 1744, and the telephone number for the Air Docket is (202) 343
- 2800 ). **FOR FURTHER INFORMATION CONTACT:** Kristien Knapp , Office of Transportation and Air Quality , Mail Code: 640 5 J, U.S. Environmental Protection Agency , 1200 Penns yl vania Avenue, NW, 20460; telephone number: ( 202 ) 343
- 9949 ; fax number: ( 202 ) 343
- 2800 ; email address: knapp.kristien @epa.gov
. **SUPPLEMENTARY INFORMATION** : **I. Why is EPA**  **Issuing a Proposed Rule ?**  This document propose s to amend the definition of heating oil in 40 CFR § 80.1401 in the renewable fuel standard (RFS) program that was promulgated under section 211(o) of the Clean Air Act
. This amendment would expand the scope of fuels that can generate RINs as home heating oil to include fuel oil that would be used to generate heat to warm buildings or other facilities where people live, work, recreate, or conduct other activities
. This document also proposes amendments to the diesel sulfur program to provi de additional flexibility to tran s mix processors to produce locomotive and marine (LM) diesel fuel. Specificall y, we are proposing to reinstate an allowance for transmix processors to produce 500 ppm sulfur diesel fuel for use in older technology***E.O. 12866 Review

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Page **5** of **43** locomoti ve and marine diesel outside of the Northeast Mid
- Atlantic Area (“NEMA”)
. We are also requesting comment on extending this allowance to the N E MA. These proposed amendments to the diesel transmix provisions are expected to result in reduced compliance cos ts for transmix processors and users of LM diesel fuel while having a neutral or positive environmental impact. We are publishing a separate document that will serve as a direct final rule in the “Rules and Regulations” section of this Federal Register
. The direct final rule amends the definition of heating oil and allows transmix processors to produce locomotive and marine diesel fuel. The direct final rule does not attempt to extend the transmix allowance to the N E MA; we request comments on that issu e only in this document
. If we receive no adverse comment on the direct final rule, or an y portion of the direct final rule, by the date provided in the **DATES** section above , the amendments to the definition of heating oil and the amendments to the diesel transmix provisions that apply outside the NEMA will become final
. If EPA receives relevant adverse comment on the direct final rule, an y portion of the direct final rule, or a hearing request, we will publish a timely withdrawal of the direct final rule or the portion receiving adverse comments in the Federal Register
. We will address all public comments in an y subsequent final rule based on this proposed rule. We will not institute a second comment period on this action. Any parties interested in commenting must do so at this time. For further information about commenting on this rule, see the **ADDRESSES** section of this document. **II .**  **Does This Action Apply to Me?*****E.O. 12866 Review

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Page **6** of **43** Entities potentially

affected by

this action include those involved with the production, distribution and sale of transportation fuels, including gasoline and diesel fuel, or renewable fuels such as ethanol and biodiesel , as well as those involved with the production, distribution and sale of other fuel oils that are not transportation fuel
. Regulated categories and entities affected b y this action include: **Category NAICS Codes**  **a SIC Codes**  **b Examples of Potentially**  **Regulated Parties** Industry Industry Industry Industry Industry Industry Industry Industry 324110

325193 325199 Various 424690 424710 424720 454319 2911

2869 2869 Various 5169 5171 5172 5989 Petroleum refiners, importers.

Ethyl alcohol manufacturers. Other basic organic chemical manufacturers. Transmix Processors Chemical and allied products merchant wholesalers. Petroleum bulk stations and terminals. Petroleum and petroleum products merchant wholesalers. Other fuel dealers. a North American Industry Classification S ys tem (NAI CS). b Standard Industrial Classification (SI C) s ys tem code. This table is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely

to be regulated b y this action. This table lists the types of entities that EPA is now aware could be potentially regulated by

this action. Other ty

pes of entities not listed in the table could also be regulated. To determine whether your entity is regulated b y this action, y ou should carefully examine the applicability criteria of Part 80, subparts D, E and F of title 40 of the Code of Federal Regul ations. If yo u have an y question regarding applicability of this action to a particular entity , consult the person in the preceding “FOR FURTHER I NFORMATION CONTACT” section above.***E.O. 12866 Review

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Page **7** of **43 III**  **. What Should I Consider as I Prepare My Comments for EPA?**  A. Submitti ng information claimed as CBI
. Do not submit this information to EPA through www.regulations.gov or e
- mail. Clearly mark the part or all of the information that you claim to be CBI. For CBI information in a disk or CD ROM that yo u mail to EPA, mark the outside of the disk or CD ROM as CBI and then identify electronically

within the disk or CD ROM the specific information that is claimed as CBI. In addition to one complete version of the comment that includes information claimed as CBI, a cop y of the comment that does not contain the information claimed as CBI must be submitted for inclusion in the public docket. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR Part 2. B. Tips for Preparing Your Comments. When submitting comment s, remember to:

• Id entify

the rulemaking by

docket number and other identifying information (subject heading, Federal Register date and page number).

• Follow directions
- The agency may ask you to respond to specific questions or organize comments by referen cing a Code of Federal Regulations (CFR) part or section number.

• Explain why

y ou agree or disagree; suggest alternatives and substitute language for your requested changes.

• Describe an y assumptions and provide an y technical information and/or data that you used.

• If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced.***E.O. 12866 Review

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Page **8** of **43** • Provide specific examples to illustrate y our concerns, and suggest alternatives.

• Explain your views as clearl y as possible, avoiding the use of profanity or personal threats.

• Make sure to submit y our comments by the comment period deadline identified. C. Docket Copying Costs. You may be charged a reasonable fee for photocopying docket materials, as provided in 40 CFR Part 2. **I V.**  **Am end**  **ed Definition of Heating Oil under the Renewable Fuel Standard**  **Program** EPA is issuing this proposed rule to amend the definition of heating oil in 40 CFR § 80.1401 in the renewable fuel standard ( “RFS” or “ RFS 2 ” ) program promulgated under section 211(o) of the Clean Air Act (CAA)
. This amendment would expand the scope of renewable fuels that can generate Renewable Identification Numbers (RINs) as “ home heating oil ” to include fuel oil that would be used to generate heat t o warm buildings or other facilities where people live, work, recreate, or conduct other activities. This proposed rule would allow producers or importers of fuel oil that meets the amended definition of heating oil to generate RINs, provid ed that other requirements specified in the regulation s are met . F uel oils used to generate process heat, power, or other functions will not be approved for RI N generation under the amended definition of heating oil
. The proposed amendment would not modify or limit fu el included in the current definition of heating oil at 40 CFR § 80.2(ccc)
. The RFS 2 program requires the production and use of renewable fuel to replace or reduce the quantit y of fossil fuel present in transportation fuel. Under EPA’s RFS***E.O. 12866 Review

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Page **9** of **43** program this is accomplished by providing for the generation of RINs by producers or importers of qualified renewable fuel. RINs are transferred to the producers or importers of gasoline and diesel transportation fuel who then use the RINs to demonstrate compliance with their renewable fuel volume obligations. RINs also serve the function of credits under the RFS program. Congress provided that EPA could also establish provisions for the generation of credits b y producers of certain renewable fuel that was not used in transportation fuel, called “additional renewable fuel.” 1 Additional renewable fuel is defined as fuel that is produced from renewable biomass and that is used to replace or reduce the quantity of fossil fuel present in home heating oil or jet fuel
. 2 In essence, additional renewable fuel has to meet all of the requirements applicable to qualify it as renewable fuel under the regulat i ons , with the only difference being that it is blended into or is home heating oil or jet fuel
. This does not change the volume requirements of the statute itself, however this can provide an important additional avenue for parties to generate RINs for use by obligated parties, thus promoting the overall cost
- effective production and use of renewabl e fuels. EPA addressed the provision for additional renewable fuels in the RFS2 rulemaking, specifically

addressing the category

of “home heating oil.” EPA determined that this term was ambiguous, and defined it b y incorporating the existing definition of heating oil at 40 CFR § 80.2(ccc). EPA stated that:

1 “EISA changed the definition of ‘renewable fuel’ to require that it be made from feedstocks that qualify as ‘renewable biomass.’ EISA’s definition of the term ‘renewable biomass’ limits the types of biomass as well as the types of land fro m which the biomass may be harvested.” Regulation of Fuels and Fuel Additives: Changes to Renewable Fuel Standard Program, 75 FR 14670, 14681 (March 26, 2010). 2 See CAA sections 211(o)(1)(A) and (o)(5)(E).***E.O. 12866 Review

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Page **10** of **43** EI SA uses the term “ home heating oil ” in the definition of “ additional renewable fuel. ” The statute does not clarify whether the term should be interpreted to refer only

to heating oil actually

used i n homes, or to all fuel of a ty pe that can be used in homes. We note that the term ‘home heating oil’ is ty picall y used in industry in the latter manner, to refer to a t ype of fuel, rather than a particular use of it, and the term is ty picall y used interch angeabl y in industry with heating oil, heating fuel, home heating fuel, and other terms depending on the region and market. We believe this broad interpretation based on ty pical industry

usage best serves the goals and purposes of the statute. If EPA inter preted the term to apply

onl y to heating oil actually

used in homes, we would necessarily require tracking of individual gallons from production through ultimate [ use ] in homes in order to determine eligibility of the fuel for RINs. Given the fungible nature of the oil delivery

market, this would likely be sufficientl y difficult and potentially

expensive so as to discourage the generation of RINs for renewable fuels used as home heating oil. This problem would be similar to that which arose under RFS1 for c ertain renewable fuels (in particular biodiesel) that were produced for the highway diesel market but were also suitable for other markets such as heating oil and non
- road applications where it was unclear at the time of fuel production (when RINs are ty pi call y generated under the RFS program) whether the fuel would ultimately

be eligible to generate RINs. Congress eliminated the complexity

with regards to non
- road applications in RFS2 by making all fuels used in both motor vehicle and nonroad applications subject to the renewable fuel standard program. We believe it best to interpret the Act so as to also avoid this ty

pe of complexity

in the heating oil context. Thus, under today ’s regulations, RI Ns may be generated for renewable fuel used as ‘heating oil,’ as defined in existing EPA regulations at § 80.2(ccc). In addition to simplifying implementation and administration of the Act, this interpretation will best realize the intent of EI SA to reduce or replace the use of fossil fuels. 3 The existing definiti on of heating oil at 40 CFR § 80.2(ccc) means “ an y #1, #2, or non - petroleum diesel blend that is sold for use in furnaces, boilers, stationary diesel engines, and similar applications and which is commonly or commercially known or sold as heating oil, fuel oil, or similar trade names, and that is not jet fuel, kerosene, or MVNRLM diesel fuel. ” The existing definition of non
- petroleum diesel at 40 CFR § 80.2 (sss) means a diesel that contains at least 80 percent mono
- alk yl esters of long chain fatty acids derived from vegetable oils or animal fats. Thus, in order to generate RINs for
3 75 FR 14670, 14687 (March 26, 2010).***E.O. 12866 Review

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Page **11** of **43** home heating oil that is a non
- petroleum diesel blend, the fuel must contain at least 80 percent mono - alk yl esters of long chain fatt y acids derived from vegetable oils or ani mal fats, as well as meeting all other requirements of the RFS2 regulations. Since the promulgation of the RFS2 final rule, we have received a number of requests to consider expanding the scope of the home heating oil provision to include additional fuel oils that are produced from qualifyingrenewable biomass but do not meet the regulatory definition of heating oil because they are not #1 or #2 diesel and do not contain at least 80 percent mono - alk yl esters . Parties raising this issue have suggested that limiting “home heating oil” to the fuel t ypes defined in 40 CFR § 80.2(ccc) disqualifies certain ty pes of renewable fuel oils that could be used for home heating and that this limitation does not align with our reasoning in the preamble to take a broad interpretation of the term “home heating oil” in CAA section 211(o)
. EPA has considered this issue further and is proposing to revise the definition of heating oil in the RFS program to expand the scope of fuels that can generate RINs as heating oil. EPA is proposing to revise the definition such that RI Ns also may

be generated b y renewable fuel that is fuel oil and is used to heat interior spaces of homes or buildings to control ambient climate for human comfort. This would not include fuel oils used to generate process heat, power, or other functions. The fuel oil would be used to generate heat to warm buildings or other facilities where people live, work, recreate, or conduct other activities. We are proposing to amend the existing definition of heati ng oil in 40 CFR § 80.1401 to include fuel oils that are used in this way . This is in addition to the fuel oils currently

included in the definition of heating oil at 40 CFR § 80.2(ccc), and would not modify

or limit the fuel included in the current definition.***E.O. 12866 Review

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Page **12** of **43** EPA believes this expansion of the scope of the home heating oil provision is appropriate and authorized under CAA section 211(o). As EPA described in the RFS2 final rule, Congress did not define the term “home heating oil,” and it does not h ave a fixed or definite commercial meaning. In the RFS2 final rulemaking , EPA focused on whether the provision was limited to heating oil actually used in homes. EPA noted that the term home heating oil is usually used in the industry

to refer to a ty

pe of fuel, and not to one specific use for the fuel. Given this more general usage of the term, and the practical barriers that would arise if the term was defined as fuel actually used to heat homes, EPA defined the scope of home heating oil in a more gene ral fashion by identifying those t ypes of fuel oils that are t ypically used to heat homes. EPA determined this was a reasonable interpretation of an ambiguous statutory provision that simplified implementation and administration of the Act and promoted ac hievement of the goals of the RFS program. In the RFS2 rulemaking , EPA focused on the kinds of fuel oils that can be used to heat homes. The expansion of the definition proposed in this rulemaking would address two ty pes of fuel oils not included in the current definition of heating oil. First, the proposed definition would include additional fuel oils that are actuall y used to heat homes, even if they

do not meet the current definition of heating oil. This is clearl y within the scope of the statutory provision for home heating oil. Second, the proposed definition would include fuel oils that are used to heat facilities other than homes to control ambient climate for human comfort . Under the current definition of heating oil, a fuel oil meets th e definition based on its phy sical properties and its use in furnaces, boilers, stationary diesel engines, and similar***E.O. 12866 Review

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Page **13** of **43** applications, not whether it is actually used to heat a home. The basic decision made in the RFS2 final rulemaking was to allow RIN gene ration for the group of fuel oils that are ty picall y used for home heating purposes
. Under the current definition the relationship of the fuel oil to heating homes is that the fuel oil is of the ty pe that is ty

pically used for and can be used for that pur

pose. 4 Inthe proposed amended definition, qualifying fuel oils would be used for heating places where people live, work, or recreate, and not just their homes. It focuses more on what is getting heated

– people

– and not where the people are located. EPA believes this is a reasonable interpretation of the phrase “home heating oil, ” while recognizing that it is not an obvious interpretation. This interpretation recognizes the ambiguit y of the phrase used by Congress, which is not defined and does not have a clear and definite commercial meaning. Itgives reasonable meaning to the term home heating oil , by limiting th e additional fuel oils to fuel oils when used for heating of facilities that people will occup y, and excluding fuel oil s when used for other purposes such as generation of energy

used in the manufacture of products. It also focus es on the aspect of home that is important here

– the heating of people

– r ecognizing that EPA has alread y determined that fuel oil can be included in the scope of home heating oil even if it is not actuall y used to heat a home. This interpretation will also promote the purposes of the RFS program b y facilitating the generation of RINs for renewable fuels that reduce emissions of greenhouse gases compare d to fossil fuels. For example, EPA has received information that such an expanded definition of heating oil would result in nearl y immediate production of 3.5 million gallons from existing facilities, with an additional

4 This is different from other renewable fuels in the RFS program, which are defined in terms of their use as transportation fuel or jet fuel. See 40 CFR § 80.1401, definitions of “rene wable fuel” and “transportation fuel.”***E.O. 12866 Review

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Page **14** of **43** projected production of up to 45 million gall ons per year within 24 months following regulatory

action. Although EPA believes the expanded definition in the regulations of “heating oil” would be a reasonable interpretation of the intent of Congress to allow additional renewable fuel to count towards the volume mandates if it is produced from renewable biomass and is used to replace or reduce the quantity of fossil fuel present in home heating oil , EPA invites comment on this interpretation
. For the text of the proposed regulatory changes please see the direct final rule , located in the “ Rules and Regulations” section of this Federal Register
. **V. Lifecycle Greenhouse Gas Assessment of the Amended Definition of Heating Oil** EPA has also evaluated whether an y revisions would need to be made t o Table 1 to 40 CFR § 80. 1426 that list s the applicable D c odes for each fuel pathway for use in g enerating RINs in the RFS2 regulations in light of the additional fuel oils included in the expanded definition of heating oil. As discussed below, EPA has d etermined that the applicable D code entries for heating oil in Table 1 to 40 CFR § 80. 1426 would continue to be appropriate and would not need to be revised in light of the expanded definition of heating oil. Under the RFS program, EPA must assess lifecy cle greenhouse gas (GHG) emissions to determine which fuel pathway s meet the GHG reduction thr esholds for the four required renewable fuel categories. The RFS program requires a 20% reduction in lifecy cle GHG emissions for conventional renewable fuel (except for grandfathered facilities and volumes), a 50% reduction for biomass
- based diesel or advanced biofuel, and a 60% reduction for cellulosic biofuel. For the final RFS2 rule, EPA assessed the lifecy cle gree nhouse gas emissions of multiple renewable fuel pathway s and classified***E.O. 12866 Review

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Page **15** of **43** pathway s based on these GHG thresholds. 5 Inaddition, EPA has added several pathway s since the final rule was published. The fuel pathway s consist of fuel ty pe, feedstock, and prod

uction process requirements
. GHG emissions are assessed at all points throughout the lifecy cle pathway . For instance, emissions associated with sowing and harvesting of feedstocks and in the production, distribution and use of the renewable fuel are examples of what are accounted for in the GHG assessment . A full accounting of emissions is then compared with the petroleum baseline emissions for the transportation fuel being replaced. The lifecy cle GHG emissions determination is one factor used to determ ine compliance with the regulations. There are currently

several fuel pathway s that list heating oil as a fuel t ype with various ty pes of feedstock and production process used, qualifying the heating oil pathway s as either biomass
- based diesel, advanced, o r cellulosic. The determinations for these different pathway s were based on the current definition of heating oil. The pathway s also include several t ypes of distillate product including diesel fuel, jet fuel and heating oil. The lifecy cle calculations and threshold determinations are based on the GHG emissions associated with production of the fuel and processing of the feedstock. Converting biomass feedstocks into heating oil products requires starting with trigl ycerides (if oils are used as feedstock) or hemi
- cellulose, cellulose, lignin, starches, etc . (if solid biomass feedstock is used) and through either a biochemical or thermochemical process converting those molecules into a fuel product. The existing heating oil pathway s were base d on the current definition of the fuel, and were based on a
5 See Table 1 to 40 CFR § 80.14 26.***E.O. 12866 Review

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Page **16** of **43** certain level of processing to produce #1, #2, or non
- petroleum diesel blend and the related energy

use and GHG emissions that were part of the lifecy cle determination for those fuel pathway s. T he main difference between the current definition of heating oil, which refers to #1, #2, or non
- petroleum diesel blend , and the expanded definition that is proposed in this rulemaking is that the expanded definition would include heavier ty pes of fuel oil with larger molecules. Based on the ty pe of conversion process, producing these heavier fuel oil products versus the #1, #2, or non
- petroleum diesel blend would affect the amount of energy used and therefore the GHG emissions from the process. There are two main paths for producing a fuel oil product from biomass. In one the biomass is converted into a biocrude which is further refined into lighter products. In this case producing a heavier fuel oil product would require less processing energy and have lower GHG emissions than converting the feedstock into a #1, #2, or non
- petroleum diesel blend
. In the other t ype of process the compounds in the biomass are changed into a set of intermediary products , such as hydrogen ( H ) and carbon monoxide ( CO )
. 6 T hese compounds are then either cataly tically or biochemically

converted into the fuel product. In this case , the vast majority of the energy

is associated with breaking down the feedstock into the set of intermediary compounds. The process used and the e nergy needed for it does not vary based on the t ype of fuel that is then produced from these intermediary

compounds. The ty

pe of fuel could affect the t yp e of catal ys t or biological process used to change the intermediary compounds into the fuel product, but this would

6 This describes the Fischer
- Tropsch process. Other processes rely on forming different sets of compounds from the biomass, and then producing the fuel product from the set of compounds.***E.O. 12866 Review

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Page **17** of **43** have no real impact on the energy used or the GHG emissions associated with converting the biomass into a different fuel product. Based on these considerations , EPA believes the GHG emissions associated with producing the fuel oil include d in the expanded definition would be the same or lower than the GHG emissions associated with producing #1, #2, or non
- petroleum diesel blend . Therefore, EPA believes the prior life cy cle anal ys is for heating oil would support applying the existing pathway s for fuel oil in the RFS2 regulations to the expanded definition of heating oil. EPA invites comments whether there are an y other factors to consider in addition to the reasons discussed above for extending the lifecycle anal ys is alread y conducted for heating oil in the final rulemaking for fuel oils under th e expanded definition of heating oil. For the text of the proposed regulatory changes please see the direct final rule , located in the “ Rules and Regulatio ns” section of this Federal Register
. **V I**  **. Additional Registration, Reporting , Product Transfer Document**  **and Recordkeeping Requirements**  **A. Additional Requirements for the Amended Definition of Heating Oil**  An important issue to address is how to implement such an expanded definition. As EPA recognized in the RFS2 rulemaking, fuel oils end up being used in a variety of different uses, where the fuel producer may have little knowledge at the time of productio n as to eventual use of the fuel. This is especially the case where the fuel oil is distributed in a fungible distribution sy stem. EPA addressed this in the RSF2 rulemaking by defining home heating oil as a t ype of fuel with certain characteristics, irre spective of where it was used. This approach avoided the need to track the fuel to its actual use, and***E.O. 12866 Review

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Page **18** of **43** including the characteristics of the fuel in its definition in 40 CFR § 80.1401 was adequate to retain a close tie to the concept underlying home heatin g oil. The proposed expansion of the definition raises this same issue but in a more significant way . While the proposed expansion of the definition includes some limited phy sical characteristics that fuel oils would need to meet in order to qualify for generating RINs, it does not provide sufficient specificity to differentiate between those fuels oils used to heat buildings for climate control for human comfort and those used to generate process heat or other purposes. Therefore , for eligible fuel oil s other than those qualifying under the existing definition in 40 CFR § 80.2(ccc), EPA is proposing that the renewable fuel producer or importer have adequate documentation to demonstrate that the fuel oil volume for which RI Ns were generated was used to heat buildings for climate control for human comfort and meets the expanded definition of heating oil prior to generating RINs
. EPA recognizes that under the current definition of heating oil no tracking or other documentation of end use is r equired, and some heating oils that meet the current definition could end up being used for other purposes. However , in all cases the heating oil under the current definition has to have the physical or other characteristics that tie it to the ty pe of fue l oil used to heat homes. In addition, the value of these heating oils generall y will lead to their use for heating of homes or other buildings , and not for generation of process heat. For the fuel oils included in the expanded definition , the tie to hom e heating oil would not be the phy sical characteristics of the fuel oil but instead its actual usage for heating for the purposes of climate control for human comfort
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Page **19** of **43** In order to verify that the fuel oils are actuall y used to generate heat for climate
c ontrol purposes, EPA is proposing the following registration, recordkeeping , product transfer document (PTD) and reporting requirements
. T hese proposed requirements would not apply

to fuels qualifying under existing 40 CFR § 80.2(ccc) of the regulations. We are also proposing that i f RI Ns are generated for fuel oils under the expansion of the scope of home heating oil in today ’s rule, and those fuel oils are not actually used to generate heat for climate control purposes, but for some other purpose, al l parties involved in either the generation, assignment, transfer or use of that RIN, including the end user of that fuel oil, are subject to and liable for violations of the RFS2 regulations and the CAA. For the text of the proposed regulatory changes pl ease see the direct final rule , located in the “ Rules and Regulations” section of this Federal Register
. **1 .**  **Registration** For the purpose of registration, EPA is proposing to require producers of the expanded fuel oil ty

pes to submit to EPA all ex isting contracts with their prospective clients for specified quantities of fuel oil that the prospective client intends to purchase from the producer for the sole purpose of heating homes or buildings . The submission of the contracts would help EPA to verify th e potential volumes the producer is requesting to register under the program for RIN generation. EPA recognizes that the producer may not have all contracts set up prior to registration that would equate to the facility ’s permitted capacity

or actual peak capacity

as defined in the 40 CFR § 80. 1401 of the rule that is currentl y used b y EPA to establish a facility’s baseline volume for registration purposes. EPA also recognizes that it would not be practical for program implementation***E.O. 12866 Review

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Page **20** of **43** to require these prod

ucers to continually

submit new and revised contracts for every client to the EPA, and for EPA to continually update the producer’s registered baseline volume based on these contracts to reflect every gallon of fuel oil produced up to the facility ’s permitted capacity or actual peak capacity . Therefore, EPA is proposing in this rulemaking to allow the producer of the expanded fuel oil ty pes to establish their facility ’s baseline volume in the same manner as all other producers under the RFS program, e.g. , based on the facilit y’s permitted capacity or actual peak capacity
. However, we are also proposing additional requirements for the submission of contracts executed prior to registration, as a means to verify the initial volumes that will be sold for heati ng purposes as defined in paragraph ( 2 ) of the amended definition of heating oil
. EPA is also proposing to require submissions of new and revised contracts that are executed after registration on an annual basis as part of the producer’s update to their
r egistration. Regardless of when the contract is executed, the producer of the expanded fuel oil ty pes would need to have contracts in place for all specified quantities of fuel oil that their client (s) purchase in order to generate RINs. A dditional ly , we are propos ing recordkeeping , product transfer documents ( PTD ) and reporting requirements discussed below that will be used as a means for verification of the remaining gallons up to the facility ’s registered capacity . The proposed registration requireme nts are detailed in the registration section in 40 CFR § 80.1450(b)(1)(ix) in the direct final rule located in the

“ Rules and Regulations” section of this Federal Register
. **2 .**  **Recordkeeping ,**  **Product Transfer Document s**  **and Reporting** For the purpose of continued verification after registration, EPA is proposing to establish additional requirements for recordkeeping in 40 CFR § § 80.1454(b)(6) and (7) ,***E.O. 12866 Review

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Page **21** of **43** PTD s in 40 CFR § 80.1453(d) , and reporting requirements in 40 CFR § 80.1451(b)(1)(ii)(T) for the expanded fuel oil ty pes . As stated earlier, these new requirements would not pertain to heating oil qualifying under 40 CFR § 80.2(ccc). The proposed recordkeeping, P TD and reporting requirements are detailed in the direct fi nal rule located in the “ Rules and Regulations” section of this Federal Register
. The proposed recordkeeping , PTD and reporting requirements would ensure that the expanded fuel oil ty

pes that are used to generate RI Ns are actuall y used in a qualifying appl ication. The proposed regulations would require contracts between the fuel oil producer and the final end user for the legal transfer of title of a specific volume of fuel oil that is designated for use, and is actuall y used, only for the purpose of heat ing interior spaces of homes or buildings to control ambient climate for human comfort . For instance, the additional recordkeeping requirements would stipulate that the producer of fuel oils maintain documents associated with each gallon of fuel oil that is under contract for sale and is sold to all of its clients , and affidavits from the client stipulating that they are using the fuel oil for purposes of heat ing interior spaces of buildings where people live, work, recreate, or conduct other activities to control ambient climate for human comfort
. Affidavits will be a required element of the contract between renewable fuel producer and prospective client(s), but a second affidavit will also be required from the end user of the qualifying fuel oil, each ti me the qualifying fuel oil is transferred from the renewable fuel producer to the end user with RINs assigned to that qualifying fuel. Additionally , producers are required to maintain all documents and records submitted for registration and registration u pdates as part of the producer’s recordkeeping requirements for the expanded fuel oil ty pes they register for RIN generation
. EPA believes the***E.O. 12866 Review

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Page **22** of **43** producer’s maintenance of these records would help to substantiate continued tracking and verification that the end use of the fuel oil is in compliance with the stipulations of the expanded definition of heating oil. The additional PTD requirement stipulates that the PTD used to transfer ownership of the renewable fuel would contain the statement: “This volume o f renewable fuel is designated and intended to be used to heat interior spaces of homes or buildings. Do NOT use for an y other purpose.” EPA believes that this PTD requirement would help to ensure that each gallon of fuel oil that is transferred from the producer to the end user is used for qualifying purposes under the expanded definition of heating oil
. If the fuel oil is sent to the end user, but the fuel oil is not actually used to generate heat for climate control purposes, but for some other non - qualifying purpose, then the RINs that were generated for that fuel oil must be immediately retired by

the party who owns the RI

Ns. If the fuel is used for some other non
- qualifying purpose, and RINs are not retired, then both the producer and end use r of that fuel are liable for violations of the RFS2 regulations and the CAA. The additional reporting requirements would stipulate that the producer of fuel oils report to EPA the total quantity of the fuel oils produced and sold to all its clients for qualifying purposes and the total volume produced or sold that did not qualify for RIN generation, including an explanation why these volumes of fuel oil did not qualify and to what entity

were the volumes eventuall y sold . EPA believes the additional requi rement to report the total gallons sold by the producers of fuel oils as well as the total gallons produced or sold that did not qualify for RIN generation would enable EPA to verify that the producers are producing and selling RI N
- generating fuel oil that falls within their***E.O. 12866 Review

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Page **23** of **43** allowable volume that is registered under the program and that it is be used in a qualified application
. EPA invites comments for an y other fac t ors to consider regarding these additional requirements for registration, PTD s , reporting and recordkeeping
. **B. Additional Requirement for RIN Generation**  We are also amending the general requirements for how RINs are generated and assigned to batches of renewable fuel b y renewable fuel producers and importers. We are explicitly clarifying a requirement that alway s existed: that producers and importer of renewable fuel who generate RINs must comply with the registration requirements of 40 CFR § 80.1450, the reporting requirements of 40 CFR § 80.1451, the recordkeeping requirements of 40 CFR § 80.1454, and all other applicable regulations of this subpart M
. This is a ge nerall y applicable requirement

– not specific to fuel meeting the definition of home heating oil. See amended section 80.1426(a)(1)(iii). **VI I**  **. Am**  **endments Related to Transmix**  The final regulations for the nonroad diesel program were published in the Federal Register on June 24, 2004 (69 FR 38958). The provisions in the nonroad diesel rule related to transmix processors were modified by the Category 3 Marine diesel final rule that was published on April 30, 2010 (75 FR 22896). This action proposes ad ditional amendments to the requirements for diesel fuel produced b y transmix processors. Below is a table listing the provisions that we are proposing to amend. The following sections provide a discussion of these proposed amendments and of additional po tential changes to the diesel transmix provisions that we are considering. **Proposed Amendments to the Diesel Program**  **Description*****E.O. 12866 Review

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Page **24** of **43** Section 80.511(b)(4) Amended to allow for the production and sale of 500
- ppm locomotive and marine (LM) diesel fuel produ ced from transmix past 2014. 80.513 (entire section) Amended to allow for the production and sale of 500
- ppm LM diesel fuel produced from transmix past 2014. 80.572(d) Amended to extend 500ppm LM diesel fuel label past 2012. 80.597(d)(3)(ii) Amended to include 500
- ppm LM diesel fuel in the list of fuels that an entit y ma y deliver or receive custod y of past June 1, 2014.

**A. Consideration of Extending the Diesel Transmix Provisions Outside of**  **the Northeast Mid -**  **Atlantic Area and Alaska Beyond 2014** Batches o f different fuel products commonly abut each other as they

are shipped in sequence b y pipeline. When the mixture between two adjacent products is not compatible with either product, it is removed from the pipeline and segregated as transmix. Transmix ty

p ically is gathered for reprocessing at the end of the fuel distribution sy stem far from a refinery . In addition to the long transportation distances to return transmix to a refinery for reprocessing, incorporating transmix into a refinery ’s feed also pres ents technical and logistical refining process challenges that ty pically make refinery reprocessing an unattractive option. Thus, transmix processers provide a valuable service in maintaining an efficient fuel distribution sy stem. Transmix processing fac ilities handle very low volumes of fuel compared to a refinery and hence***E.O. 12866 Review

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Page **25** of **43** are limited to the use of a simple distillation tower and additional blendstocks to manufacture finished fuels. There is currentl y no desulfurization equipment which has been demonstrated to be suitable for application at a transmix processor facility . Some products shipped b y pipeline such as jet fuel and heating oil are subject to relatively high sulfur specifications ( e.g. , maximum 3,000 ppm for jet fuel). The presence of such hi gh sulfur products in multi product pipelines and consequently in transmix constrains the ability of transmix processors to produce a low sulfur distillate product. The engine emissions standards finalized in the nonroad diesel rulemaking for new nonroad , locomotive, and Category 1 & 2 (C1 & C2) marine engines necessitates the use of sulfur
- sensitive emissions control equipment which requires 15
- ppm sulfur diesel fuel to function properly
. 7 Accordingl y, the nonroad rule required that nonroad, locomotive and marine (NRLM) diesel fuel must meet a 15
- ppm sulfur standard in parallel with the introduction of new sulfur
- sensitive emissions control technology to the in
- use fleet. Beginning June 1, 2014, the nonroad diesel rule required that all NRLM diesel fuel produced b y refiners and importers must meet a 15
- ppm sulfur standard. The nonroad diesel rule included special provisions to allow the continued use of 500
- ppm sulfur locomotive and marine (LM) diesel fuel produced from transmix beyond 2014 in older tec hnology

engines as long as such engines remained in the in
- use fleet. These provisions along with other now expired flexibilities in the diesel program were designed to minimize and postpone the impacts on transmix processors of transitioning to a conditi on where all highway , nonroad, locomotive, and marine diesel engines can onl y operate on 15
- ppm diesel fuel. The 500
- ppm LM diesel transmix provisions were limited

7 Control of Emissions of Air Pollution from Nonroad Diesel En gines and Fuel, Final Rule, 69 FR 38958 ( June 24, 2004 )
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Page **26** of **43** to areas outside of the Northeast Mid
- Atlantic Area (NEMA) and Alaska because it was judged that the heating oil market in these areas would provide a sufficient outlet for transmix distillate in these areas. 8 Excluding the NEMA area and Alaska also allowed us to exempt the NEMA area and Alaska from the fuel marker provisions that are a part of the compliance assurance regime. The continuation of the 500
- ppm LM diesel transmix provisions bey ond 2014 (finalized in the nonroad rule) was supported b y ongoing recordkeeping, reporting, and fuel marker provisions that were established to facilitate
e nforcement during the phase in of the diesel sulfur program. 9 In the development of the proposed requirements for Category 3 (C3) marine engines, EPA worked with industry to evaluate how the enforcement provisions for the new 1,000
- ppm C3 marine diesel fuel to be introduced in June of 2014 could be incorporated into existing diesel program provisions. 10 Our assessment based on input from industry

at the time indicated that incorporating the new C3 marine fuel into the diesel program enforcement mechanisms while preserving the 500
- ppm diesel transmix flexibility could not be accomplished without retainin g significant existing burdens and introducing new burdens on a broad number of regulated parties. We also concluded that the new C3 marine diesel market would provide a sufficient outlet for transmix processors distillate product in place of the 500
- ppm LM diesel market. Thus, we
8 The NEMA area is defined in 40 CFR § 80.510(g)(1) as follow s: (1) Northeast/Mid
- Atlantic Area, which includes the following States and counties, through May 31, 2014: North Carolina, Virginia, Maryland, Delaw are, New Jersey, Connecticut, Rhode Island, Massachusetts, Vermont, New Hampshire, Maine, Washington DC, New York (except for the counties of Chautauqua, Cattaraugus, and Allegany), Pennsylvania (except for the counties of Erie, Warren, McKean, Potter, Cameron, Elk, Jefferson, Clarion, Forest, Venango, Mercer, Crawford, Lawrence, Beaver, Washington, and Greene), and the eight eastern
mo st counties of West Virginia (Jefferson, Berkeley, Morgan, Hampshire, Mineral, Hardy, Grant, and Pendleton). 9 This included the now
- com pleted phase
- in of 15 ppm highway diesel fuel and 15 ppm nonroad diesel fuel as w ell as the phase
- out of the small refiner and credits provisions for LM diesel fuel that will be completed in 2014. 10 Control of Emissions From New Marine Compression
- Ignition Engines at or Above 30 Liters per Cylinder; Proposed Rule, 74 FR 44442 (August 28, 2009)
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Page **27** of **43** believed the 500
- ppm LM diesel transmix flexibility would no longer be needed after 2014. Hence, we requested comment on whether we should eliminate the 500
- ppm LM transmix provisions in parallel with the implementation of the C3 marine diesel sulfur requirement. This approach allowed for a significant reduction in the regulatory burden on a large number of industry stakeholders through the retirement of the diesel program’s designate
- and
- track and fuel marker requirements. A ll of the comments that we received on the proposed rule were supportive of the approach. Consequentl y, we finalized the approach in the C3 marine final rule that was published on April 30, 2010. 11 EPA received a petition from a group of transmix processo rs on June 29, 2010 , requesting that the Agency reconsider and reverse the 2014 sunset date for the 500
- ppm LM transmix flexibility
. 12 A parallel petition for regulatory review was filed with the U.S. Court of Appeals, D.C. Circuit. 13 The transmix processo rs stated that they were not aware of the changes to the 500
- ppm LM transmix provisions until after they were finalized. The petitioners also stated that they believe that the C3 marine market would not be a viable outlet for their distillate product give n the increased distribution costs compared to the 500
- ppm LM market. Based on the additional input that we received from transmix processors and other stakeholders in the fuel distribution sy stem during our consideration of the petition, EPA believes that it would be appropriate to extend the

11 Control of Emissions From New Marine Compression
- Ignition Engines at or Above 30 Liters per Cylinder; Final Rule, April 30, 2010, 75 FR 22 896. 12 Petition to Reconsider Final Rule: Control of Emissions from New Marine Compression Ignition Engines at or Above 30 Liters per Cylinder ; Final Rule, 75 FR 22,896 (April 30, 2010), Letter to EPA Ad ministrator Lisa Jackson dated June 29, 2010, from C het Thompson of Crowell and Moring LLP, on behalf of Allied Energy Company, Gladieux Trading and Marketing, Insight Equity Acquisition Partners, LP, Liquid Titan, LLC, and Seaport Refining and Environmental, LLC. 13 Petition for Review, Allied Energy Comp any, Gladieux Trading and Marketing, Insight Equity Acquisition Partners, LP, LiquidTitan, LLC, and Seaport Refining and Environmental LLC, v. Respondent; U.S. Environmental Protection Agency , United States Court of Appeals for the District of Columbia Cir cuit, Case 10
- 1146, Document 1252640, Filed 06/29/2010.***E.O. 12866 Review

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Page **28** of **43** 500
- ppm diesel transmix flexibility bey ond 2014. A proposed settlement agreement has been finalized between EPA and the petitioners under which EPA would propose regulatory

changes to reintroduce the 500
- ppm LM tran smix diesel flexibility for legacy LM equipment. 14 The proposed amendments to the diesel transmix provisions contained in today ’s action are in accord with the settlement agreement. Our anal ys is indicates that extending the 500
- ppm LM flexibility bey ond 20 14 would have a neutral or net beneficial effect on overall emissions. The use of 500
- ppm LM from transmix would be limited to older technology engines that do not possess sulfur
- sensitive emission control technology . We believe that the proposed 500
- ppm LM segregation and other associated requirements would prevent misfueling of sulfur
sensitive engines. To evaluate the environmental consequences of extending the diesel transmix provisions, we compared the potential increase in sulfate particulate matte r ( PM ) from the use of 500 ppm LM from transmix in older engines to the additional transportation emissions associated with shipment to the C ategory 3 (C3) marine market which might be deferred b y allowing continued access to the 500 ppm LM market. Market s for locomotive and marine diesel tend to be nearer to transmix processing facilities than markets for C3 marine diesel. Therefore, extending the diesel transmix provisions would result in a reduction in nitrogen oxides (NO X ) , volatile organic compounds ( VOC s) , carbon monoxide ( CO ) , as well as PM emissions that would otherwise be associated with transporting transmix distillate product to the more distant C3 market.

14 Notice of Proposed Settlement Agreement , Request for Public Comment, 76 FR 56194 (September 12, 2011).***E.O. 12866 Review

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Page **29** of **43** Although some batches of transmix distillate product may approach the 500 ppm sulfur limi t, we estimate that the average sulfur content of transmix distillate product would be no more than 300 ppm. 15 We estimate that approximately 500 million gallons of distillate fuel per ye ar is produced from transmix. 16 Assuming that all of the transmix dis tillate product would be used as 500 ppm LM in older engines, we estimate that an additional 70 tons of sulfate PM would be produced annuall y compared to the use of 15 ppm diesel fuel. 17 We believe that a substantial fraction of transmix distillate product would be used as heating oil and C3 diesel fuel regardless of whether the diesel transmix provisions are extended. Also, as the older LM engines are retired from service, the size of the potential 500 ppm LM market will diminish until all LM engines must use 15 ppm diesel fuel. Therefore, assuming that all transmix distillate product would be used as 500 ppm LM provides an upper bound estimate of the potential impact on PM emissions. We estimate on average that transmix processors would need to ship thei r transmix distillate product an additional 150 miles by tank truck to reach the C3 Emission Control Area ( ECA ) marine market as compared to the 500 ppm LM market. This would result in an additional 80 tons of PM emissions annually . Thus, the PM emission s associated with transport to the C3 marine market are roughly equal to the increased sulfate PM emissions associated with the continued use of 500 ppm L M. We estimate that the increased transport distances could also result in an additional 2,200 tons of NO X , 220 tons of VOC, and 650 tons of CO annuall y. Based on the above discussion, we believe

15 This is based on our review of data on the sulfur levels of transmix distillate product from various transmix processors. 16 Based on information provided by transmix processors, we estimate that approximately 750 million gallons per year of transmix is produced annually and that 2/3 of the transmix
- derived product is dist illate fuel and 1/3 is gasoline. 17 Sulfate PM w as converted to PM 2.5 to allow a com parison with PM 2.5 from increased fuel transport emissions.***E.O. 12866 Review

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Page **30** of **43** that the proposed extension of the 500 ppm LM provisions bey ond 2014 outside the NEMA area would have a neutral or positive environmental impact. The extensi on of the 500
- ppm LM transmix flexibility would defer additional transportation costs and provide a lower
- cost fuel for use in older LM engines. Therefore, extending this flexibility would reduce the overall burden on industry of compliance with EPA’s die sel sulfur program. Providing additional time for transmix processors to evaluate how the C3 ECA marine market will develop after 2014 would also facilitate a smoother transition for transmix processors from the 500
- ppm LM market as it graduall y disappear s due to fleet turnover. **B. Proposed Diesel Transmix Provisions**  Industry stakeholders suggested alternative enforcement mechanisms to support the extended flexibility

which would not necessitate reinstating and expanding the designate
- and
- track and fuel mar ker provisions that were retired b y the C3 marine final rule. Reinstatement and expansion of these provisions would likely place an unacceptable burden on a large number of stakeholders, most of whom would not handle 500
- ppm LM. The suggested alternative enforcement mechanism would impose minimal additional reporting and recordkeeping burdens only on the parties that produce, handle, and use 500
- ppm LM. We believe that this alternative enforcement approach would meet the Agency ’s goals of ensuring that the pool of 500
- ppm LM is limited to transmix distillate and that 500
- ppm LM is not used in sulfur
- sensitive emissions control equipment. The compliance assurance provisions that we are proposing to support the extension of the diesel transmix flexibility are similar to those that were used to support***E.O. 12866 Review

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Page **31** of **43** the small refiner flexibilities in Alaska during the phase
- in of EPA’s diesel sulfur program. 18 Inaddition to registering as a refiner and certifying that each batch of fuel complies with the fuel quality re quirements for 500
- ppm LM diesel fuel, producers of 500
- ppm transmix distillate product would be required to submit a compliance plan for approval b y EPA. This compliance plan would provide details on how the 500
- ppm LM would be segregated through to the ultimate consumer and its use limited to the legacy LM fleet. The plan would be required to identify the entities that would handle the fuel and the means of segregation. We believe that it is appropriate to limit the number of entities that would be all owed to handle the fuel between the producer and the ultimate consumer in order to facilitate EPA’s compliance assurance activities. 19 Based on
conv ers ations with transmix processors, we believe that specifying that no more than 4 separate entities handle the fuel between the producer and the ultimate consumer would not hinder the ability

to distribute the fuel. 20 The plan would need to identify the ultimate consumers and include information on how the product would be prevented from being used in sulfur
- se nsitive equipment. We understand that some transmix processors currently rely on shipment by pipeline to reach the 500
- ppm LM market. We are proposing that 500
- ppm LM could be shipped by

pipeline provided that it does not come into contact with distill ate products that have a sulfur content greater than 15 ppm. The compliance plan would need to include information from the pipeline operator regarding how this segregation would be
18 See 40 CFR § 80.554(a)(4). 19 An entity is defined as any company that takes custody of 500
- ppm LM diesel fuel. 20 In most cases, fewer entities would take custody of the product
. In many cases, only a single entity (a tank truck operator) w ould be in the distribution chain between the transmix processor and the ultimate consumer. However, we understand that as many as 4 separate entities may handle the product betw een the producer and ultimate consumer if it is shipped by pipeline: the tank truck operator to ship the product fr o m the producer to the pipeline, the pipeline operator, the product terminal that receives th e fuel from the pipeline, and another tank truck operator to ship the product to the ultimate consumer from the terminal.***E.O. 12866 Review

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Page **32** of **43** maintained. Discussions with transmix processors indicate that this requ irement would not limit their ability

to ship 500
- ppm LM by

pipeline. If 500
- ppm LM was shipped by pipeline abutting 15
- ppm diesel, the volume of 500
- ppm LM delivered would likely be slightly greater than that which was introduced into the pipeline as a c onsequence of cutting the pipeline interface between the two fuel batches into the 500
- ppm LM batch. This small increase in 500
- ppm LM volume would be acceptable. Product transfer documents (PTDs) for 500
- ppm LM diesel would be required to indicate that the fuel must be distributed in compliance with the approved compliance assurance plan. Entities in the distribution chain for 500
- ppm LM diesel fuel would be required to keep records on the volumes of the 500
- ppm that they receive from and deliver to e ach other entity . Such entities would also be required to keep records on how the fuel was transported and segregated. We would ty picall y expect that the volumes of 500
- ppm LM delivered would be equal to or less than those received unless shipment by pip eline occurred. Some minimal increase in 500
- ppm LM volume would be acceptable due to differences in temperature between when the shipped and received volumes were measured and interface cuts during shipment by pipeline. Entities that handle 500
- ppm LM would be required to calculate a balance of 500
- ppm LM received versus delivered/used on an annual basis. If the volume of fuel delivered/dispensed is greater than that received, EPA would expect that the records would indicate the cause. EPA requests co mment on whether it is appropriate to set an upper limit on the potential volume increase due to pipeline shipment and temperature swell, and if 2 percent would be an appropriate upper limit. If an entity ’s evaluation of their receipts and deliveries of 5 00
- ppm LM fuel indicated noncompliance with the product segregation requirements,***E.O. 12866 Review

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Page **33** of **43** the custodian would be required to notify EPA. All entities in the 500
- ppm LM distribution chain would be required to maintain the specified records for 5 y ears and provide them to EPA upon request. **C. Consideration of Extending the Diesel Transmix Provisions to Include the**  **Northeast Mid -**  **Atlantic Area** The nonroad diesel rule specified that the small diesel refiner, credit, and transmix provisions would not apply in the Northeas t Mid
- Atlantic (NEMA) area. Hence, all LM diesel fuel shipped from refineries, transmix processors, and importers for use in the NEMA Area must meet a 15
- ppm sulfur standard beginning June 1, 2012 when the 15
- ppm standard becomes effective for large refin ers and importers. 21 This approach allowed the NEMA area to be exempted from fuel marker provisions that are a component of the compliance assurance provisions associated with the small diesel refiner, credit, and transmix provisions. As discussed previo usly a significant factor in the decision made in the nonroad diesel rule to exclude the NEMA from the diesel transmix provisions was our assessment that the heating oil market would provide a sufficient outlet for transmix distillate product in this area. Since the publication of the nonroad diesel rule in 2004, a number of states in the NEMA area have moved towards implementing a 15
- ppm sulfur standard for heating oil. A significant fraction of heating oil in the area will be subject to a 15
- ppm sulfur standard beginning in 2012, and it is likely that other states will adopt a 15
- ppm sulfur standard for heating oil in the following ye ars.

21 LM diesel fuel in terminals located in the NEMA area is subject to a 15
- ppm sulfur standard beginning Augu st 1, 2012. LM diesel fuel at retailers and wholesale purchaser consumers must meet a 15
- ppm sulfur standard beginning October 1, 2012.***E.O. 12866 Review

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Page **34** of **43** Transmix processors and other fuel distributors in the NEMA area stated that they were concerned that the changin g state heating oil specifications would impact their ability to market transmix distillate product beginning in 2012 and increasingl y over time . They

requested that EPA extend the 500
- ppm LM flexibility to the NEMA area by 2012 to lessen the impact on th e fuel distribution system of complying with more stringent federal and state distillate sulfur standards. They stated that the enforcement mechanisms proposed above for use outside of the NEMA area after 2014 could apply equally well within the NEMA area beginning in 2012. They also stated that extending the proposed flexibility

to inside the NEMA would not have an adverse environmental impact because of the potential to defer significant additional transportation emissions to the more distant C3 marine market. The proposed provisions that would allow 500
- ppm LM from transmix to be used outside of the NEMA area after 2014 would reinstate a flexibility that was withdrawn by the C3 marine final rule. Allowing 500
- ppm LM to be used inside the NEMA area woul d provide more flexibility

than was previously

included in EPA’s diesel program. We believe that extending the 500
- ppm transmix flexibility to include the NEMA area will reduce distribution costs for their distillate product from transmix processors
. Con sequently , we are requesting comment on applyingthe proposed 500
- ppm LM transmix provisions discussed above to the NEMA area beginning June 2012. 22 G iven the current transition in the NEMA area to the use of 15
- ppm sulfur heating oil, it would be most useful to industry if the proposed flexibility could become effective as soon as possible.

22 Prior to 2014, parties outside of the NEMA area who distribute 500
- ppm LM would be covered by the existing complianc e assurance requirements.***E.O. 12866 Review

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Page **35** of **43** Similar to our analy sis for outside of the NEMA area, our anal ys is of the potential environmental consequenc es of extending the diesel transmix flexibility to include the NEMA area indicates the effect on emissions would be neutral or positive. We also agree that the compliance assurance requirements that we are proposing for outside of the NEMA area could be a

pplied within the NEMA area. A substantial fraction of the transmix processing industry markets fuel within the NEMA area. Thus, the potential cost reduction to industry and additional time to prepare for a transition to other markets for transmix distil late product that would be afforded by an extension of the proposed provisions to the NEMA would be significant. The implementation of the 1,000
- ppm sulfur C3 marine fuel requirements in 2014 would provide another outlet for transmix distillate product i n the NEMA area to replace the disappearing above
- 15
- ppm sulfur heating oil market. We request comment on whether, if we were to extend the 500
- ppm LM transmix flexibility to inside the NEMA area, such an extension should be limited to the time period unt il the C3 marine fuel requirements becomes effective. **VII I**  **. Statutory and Executive Order Reviews** A. Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review Under Executive Order 12866 (58 CFR 51735 (October 4, 1993), this action is a “significant regulatory

action.” Accordingl y, EPA submitted this action to the Office of Management and Budget (OMB) for review under Executive Orders 12866 and 13563 (76 FR 3821 (January

21, 2011) and an y changes made in response to OMB recommendations have been documented in the docket for this action. B. Paperwork Reduction Act***E.O. 12866 Review

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Page **36** of **43** The information collection requirements in this notice of proposed rulemaking and direct final rule have been submitted for approval to the Office of Management and Budget (OMB) under the Paperwork Reduction Act , 44 U.S.C. 3501 et . seq . The In formation Co llection Request (ICR) document prepared b y EPA related to the amended heating oil definition has been assigned EPA ICR number 2462.01 and the ICR document prepared b y EPA for diesel fuel produced b y transmix producers has been assigned EPA ICR number 2463 .01
. Supporting statements for these proposed ICRs have been placed in the docket. The proposed information collections are described in the following paragraphs. This action contains recordkeeping and reporting (registration and product transfer docum entation) that may affect parties who produce or import renewable fuels subject to the revised definition of heating oil. EPA expects that very few parties will be subject to additional recordkeeping and reporting. We estimate that 11 parties ( i.e. , RIN generators, consisting of up to 10 producers and one importer) may be subject to the proposed information collection. We estimate an annual reporting burden of 21 hours per respondent and an annual recordkeeping burden of 24 hours, yielding a total per
re spondent burden of 45 hours. Burden means the total time, effort, or financial resources expended b y persons to generate, maintain, retain, or disclose or provide information to or for a Federal agency . This includes the time needed to review the instruc tions; develop, acquire, install, and utilize technology and s ys tems for the purpose of collecting, validating, and verifying information, processing and maintaining information, and disclosing and providing information; adjust the existing way s to comply with an y previously applicable instructions and requirements; train personnel to***E.O. 12866 Review

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Page **37** of **43** be able to respond to a collection of information; search data sources; complete and review the collection of information; and transit or otherwise disclose the information. Burden is as defined at 5 CFR § 1320.3(b). This action also contains provisions related to diesel fuel that is produced by transmix processors. We have proposed reporting requirements that would apply to transmix processors (all of whom are refiners) and other parties (such as carriers or distributors) in the distribution chain who handle diesel fuel produced b y transmix producers. The collected data will permit EPA to: ( 1) Process compliance plans from transmix producers; and ( 2) Ensure that diesel fuel made from transmix meets the standards required under the regulations at 40 CFR Part 80, and that the associated benefits to human health and the environment are realized. We estimate that 25 transmix processors and 150 other parties may be subject t o the proposed information collection. We estimate an annual reporting burden of 28 hours per transmix processor ( respondent ) and eight hours per other party (respondent); considering all respondents (transmix producers and other parties) who would be sub ject to the proposed information collection, the annual reporting burden, per respondent, would be 11 hours . 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 the instructions; develop, acquire, install, and utilize technology

and sy stems for the purpose of collecting, validating, and verifying information, processing and maintaining informatio n, and disclosing and providing information; adjust the existing way s to compl y with any previously

applicable instructions and requirements; train personnel to be able to respond to a collection of***E.O. 12866 Review

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Page **38** of **43** information; search data sources; complete and review the collection of information; and transit or otherwise disclose the information. Burden is as defined at 5 CFR § 1320.3(b). An agency

may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it display s a currently valid OMB control number. The OMB control numbers for EPA's regulations in 40 CFR are listed in 40 CFR part 9. To comment on the Agency ’ s need for this information, the accuracy of the provided burden estimates, and an y suggested methods fo r minimizing respondent burden, EPA has established a public docket for this rule, which includes the I CRs described above, under Docket ID number EPA
- HQ
- OAR
- 2012
- 0223 . Submit any comments related to the ICR to EPA and OMB. See the **ADDRESSES** section at the beginning of this notice for where to submit comments to EPA. Send comments to OMB at the Office of Information and Regulatory Affairs, Office of Management and Budget, 725 17th Street, NW, Washington, DC 20503, Attention: Desk Office for EPA. Since O MB is required to make a decision concerning the I CR between 30 and 60 day s after **[Insert date of publication in the Federal Register.]** , a comment to OMB is best assured of having its full effect if OMB receives it by **[Insert date 30 days after publication**  **in the Federal Register.]**
. C. Regulatory Flexibility Act The Regulatory

Flexibility

Act (RFA) generall y requires an agency to prepare a regulatory

flexibility

analy sis of any

rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or an y other statute unless the agency c ertifies that the rule will not have a significant economic impact on a substantial***E.O. 12866 Review

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Page **39** of **43** number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions. For purposes of assessing the impacts of toda y’s rule on small entities, small entity is defined as: (1) A small business as defined by the Small Business Administration’s (SBA) regulations at 13 CFR § 121.201; (2) a small governmental jurisdiction that is a government of a cit y, count y, town, school district or special district with a population of less than 50,000; and (3) a small organization that is any not
- for
profit enterprise which is independentl y owned and operated and is not dominant in its field. After considering the economic impacts of th is action on small entities, I certify that this proposed rule will not have a significant economic impact on a substantial number of small entities. This proposed rule will not impose any new requirements on small entities. The relatively minor correctio ns and modifications this proposed rule makes to the final RFS2 regulations do not impact small entities. The proposed amendments to the diesel transmix provisions would lessen the regulatory burden on all affected tran s mix processors and provide a source of lower cost locomotive and marine diesel fuel to consumers. We continue to be interested in the potential impacts of the rule on small entities and welcome comments on issues related to such impacts. D. Unfunded Mandates Reform Act This proposed rule does not contain a Federal mandate that may result in expenditures of $100 million or more for State, local, and tribal governments, in the aggregate, or the private sector in an y one ye ar. We have determined that this action will***E.O. 12866 Review

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Page **40** of **43** not result in expenditur es of $100 million or more for the above parties and thus, this rule is not subject to the requirements of sections 202 or 205 of UMRA. This proposed rule is also not subject to the requirements of section 203 of UMRA because it contains no regulatory requ irements that might significantly or uniquely affect small governments. It only applies to gasoline, diesel, and renewable fuel producers, importers, distributors and marketers and makes relativel y minor corrections and modifications to the RFS2 and diesel sulfur regulations. E. Executive Order 13132 (Federalism) This action does not have federalism implications. It will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. This action only applies to gasoline, diesel, and renewable fuel producers, importers, distributors and marketers and makes relativel y minor c orrections and modifications to the RFS2 and diesel sulfur regulations. Thus, Executive Order 13132 does not apply to this action. In the spirit of Executive Order 13132, and consistent with EPA policy to promote communications between EPA and State and lo cal governments, EPA specifically solicits comment on this proposed action from State and local officials. F. Executive Order 13175 (Consultation and Coordination W ith Indian Tribal Governments) This proposed rule does not have tribal implications, as specified in Executive Order 13175 (65 FR 67249 (November 9, 2000) )
. Itapplies to gasoline, diesel, and renewable fuel producers, importers, distributors and marketers. This action makes***E.O. 12866 Review

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Page **41** of **43** relativel y minor corrections and modifications to the RFS and diese l sulfur regulations, and does not impose an y enforceable duties on communities of Indian tribal governments. Thus, Executive Order 13175 does not apply to this action. Nonetheless, EPA specificall y solicits additional comment on this proposed action from tribal officials. G. Executive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks EPA interprets EO 13045 (62 FR 19885 (April 23, 1997) ) as appl yi ng only to those regulatory

actions that concern health or safety risks, suc h that the analy sis required under section 5

– 501 of the EO has the potential to influence the regulation. This action is not subject to EO 13045 because it does not establish an environmental standard intended to mitigate health or safety risks. H. Execut ive Order 13211: Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use This action is not a “significant energy action” as defined in Executive Order 13211 (66 FR 28355 (May 22, 2001)), because it is not likely to h ave a significant adverse effect on the supply , distribution, or use of energy . We have concluded that this rule is not likely

to have adverse energy

effects because we do not anticipate adverse energy effects related to the additional generation of RINs for home heating oil or the reduced regulatory

burden for transmix processors. I. National Technology Transfer and Advancement Act Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (‘‘NTTAA’’), Public Law 104

– 113, 12(d) (15 U.S.C. 272 note) directs EPA to use voluntary consensus standards in its regulatory activities unless to do so would be***E.O. 12866 Review

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Page **42** of **43** inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards ( e.g. , materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary

consensus standards bodies. NTTAA directs EPA to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards. This action does not involve technical standards. Therefore, EPA did not consider the use of an y voluntary consensus standards. J. Executive Order 12898: Federal Actions To Address Environmental Jus tice in Minority Populations and Low
-Income Populations Executive Order (EO) 12898 (59 FR 7629 (Feb ruary 16, 1994)) establishes Federal executive policy

on environmental justice. It s main provision directs Federal agencies, to the greatest extent practic able and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately

high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low
- income populations in the United States. EPA has determined that this proposed rule will not have disproportionatel y high and adverse human health or environmental effects on minority or low
- income populations because it does not affect the level of protection provided to human health or the environment. These amendments would not relax the control measures on sources regulated b y the RFS regulations and therefore would not cause emissions increases from these sources. We have determin ed that proposed amendments to the diesel transmix***E.O. 12866 Review

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Page **43** of **43 Regulation of Fuels and Fuel Additives: Modifications to Renewable Fuel Standard** 

**and Diesel Sulfur Program**  **s -**  **Proposal**
provisions under the diesel sulfur program would have a neutral or positive impact on diesel vehicle emissions. 23 **I X**  **. Statutory Provisions and Legal Authority** Statutory authorit y for the rule finalized today can be found in section 211 of the Clean Air Act, 42 U. S.C. 7545. Additional support for the procedural and compliance related aspects of today 's rule, including the recordkeeping requirements, come from Sections 114, 208, and 301(a) of the Clean Air Act, 42 U.S.C. 7414, 7542, and 7601(a). List of Subjects i n 40 CFR Part 80 Environmental protection, Administrative practice and procedure, Agriculture, Air pollution control, Confidential business information, Diesel Fuel, Transmix, Energy, Forest and Forest Products, Fuel additives, Gasoline, Imports, Labeling , Motor vehicle pollution, Penalties, Petroleum, Reporting and recordkeeping requirements.
Dated: ____________________________

_____________________________________ Lisa P. Jackson, Administrator

23 See section VI.A. of today’s notice for details of this analysis.