[Federal Register Volume 62, Number 48 (Wednesday, March 12, 1997)]
[Rules and Regulations]
[Pages 11346-11360]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-6217]


-----------------------------------------------------------------------


ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 80

[FRL-57-02-2]
RIN 2060-AD27


Regulation of Fuels and Fuel Additives; Standards for 
Reformulated Gasoline

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice of denial of petition for reconsideration.

-----------------------------------------------------------------------

SUMMARY: Pursuant to section 553(e) of the Administrative Procedure 
Act, the American Petroleum Institute requested that EPA reconsider and 
repeal the Phase II reformulated gasoline emission reduction standard 
for oxides of nitrogen. For the reasons provided below, EPA is denying 
this petition. EPA's review of new data concerning the air quality 
benefits and cost-effectiveness of the reformulated gasoline emission 
reduction standard for oxides of nitrogen demonstrates the continued 
appropriateness of the standard.

EFFECTIVE DATE: March 12, 1997.

ADDRESSES: Information relevant to this action is contained in Docket 
No. A-96-27 at the EPA Air and Radiation Docket, room M-1500 (mail code 
6102), 401 M St., SW., Washington, DC 20460. The docket may be 
inspected at this location from 8:30 a.m. until 5:30 p.m. weekdays. The 
docket may also be reached by telephone at (202) 260-7548. As provided 
in 40 CFR part 2, a reasonable fee may be charged by EPA for 
photocopying.

FOR FURTHER INFORMATION CONTACT: Debbie Wood, Office of Mobile Sources, 
Fuels and Energy Division, (202) 233-9000.

SUPPLEMENTARY INFORMATION

I. Introduction and Background

    On February 16, 1994, EPA published a final rule establishing 
various content and emission reduction standards for reformulated 
gasoline (RFG), including provisions for the certification of RFG and 
enforcement of RFG standards, and establishing certain requirements 
regarding unreformulated or conventional gasoline (59 FR 7716). The 
purpose of the RFG program is to improve air quality by requiring that 
gasoline sold in certain areas of the U.S. be reformulated to reduce 
emissions from motor vehicles of toxics and tropospheric ozone-forming 
compounds, as specified by section 211(k) of the Clean Air Act (CAA or 
the Act). Section 211(k) mandates that RFG be sold in nine specific 
metropolitan areas with the most severe summertime ozone levels; RFG 
must also be sold in any ozone nonattainment area reclassified as a 
severe area, and in other ozone nonattainment areas that choose to 
participate or ``opt in'' to the program. The Act further requires that 
conventional gasoline sold in the rest of the country not become any 
more polluting than it was in 1990 by requiring that each refiner's and 
importer's gasoline be as clean, on average, as it was in 1990. This 
has resulted in regulatory requirements referred to as the ``anti-
dumping'' program.
    The Act mandates certain requirements for the RFG program. Section 
211(k)(1) directs EPA to issue regulations that:

    Require the greatest reduction in emissions of ozone forming 
volatile organic compounds (during the high ozone season) and 
emissions of toxic air pollutants (during the entire year) 
achievable through the reformulation of conventional gasoline, 
taking into consideration the cost of achieving such emission 
reductions, any nonair-quality and other air-quality related health 
and environmental impacts and energy requirements.

    Section 211(k) specifies the minimum requirement for reduction of 
volatile organic compounds (VOCs) and toxics for 1995 through 1999, or 
Phase I of the RFG program; the section specifies that EPA must require 
the more stringent of a formula fuel or an emission reduction 
performance standard, measured on a mass basis, equal to 15 percent of 
baseline emissions. Baseline emissions are the emissions of 1990 model 
year technology vehicles operated on a specified baseline gasoline. 
Section 211(k)(2) compositional specifications for RFG include a 2.0 
weight percent oxygen standard and a 1.0 volume percent benzene 
standard. Section 211(k)(2) also specifies that emissions of oxides of 
nitrogen (NO<INF>X) may not increase in RFG over baseline emissions.
    For the year 2000 and beyond, or Phase II of the RFG program, the 
Act specifies that the VOC and toxic performance standards must be no 
less than either a formula fuel or a 25 percent reduction from baseline 
emissions, whichever is more stringent. EPA can adjust these standards 
upward or downward taking into account such factors as technological 
feasibility and cost, but in no case can the standards be less than 20 
percent.
    Shortly after passage of the CAA Amendments in 1990, EPA entered 
into a regulatory negotiation with interested parties to develop 
specific proposals for implementing both the RFG and anti-dumping 
programs. In August 1991, the negotiating committee reached

[[Page 11347]]

consensus on a program outline that would form the basis for a notice 
of proposed rulemaking, addressing emission content standards for Phase 
I (1995-1999), emission models, certification, use of averaging and 
credits, and other important program elements.
    The regulatory negotiation conducted by EPA did not address the 
Phase II VOC and toxic standards for RFG, nor did it address a 
reduction in NO<INF>X emissions beyond the statutory cap imposed under 
section 211(k)(2)(A). The final rule promulgated by EPA closely 
followed the consensus outline agreed to by various parties in the 
negotiated rulemaking process. The final rule also adopted a NO<INF>X 
emission reduction performance standard for Phase II RFG, relying on 
authority under section 211(c)(1)(A).
    In December 1995, the American Petroleum Institute (API) submitted 
a petition to EPA requesting reconsideration and repeal of the Phase II 
RFG NO<INF>X standard. API also requested suspension of the effective 
date of the standard, pending deliberations on the cost-effectiveness 
of NO<INF>X control. EPA's initial review of the API petition indicated 
that it presented no compelling new evidence or argument that would 
warrant revisiting the decision made in promulgating the Phase II RFG 
NO<INF>X reduction standard. EPA also conducted a review of relevant 
and available new information on costs and benefits developed since 
promulgation of the final rule to ensure that EPA's conclusions on the 
appropriateness of the Phase II RFG NO<INF>X reduction standard remain 
well-founded. EPA published a Federal Register notice requesting 
comment on the issues raised in the API petition.<SUP>1 In December 
1996, EPA reopened the comment period, to allow public comment on a 
draft Department of Energy report on RFG costs, and held a meeting with 
interested parties to discuss the draft report.
---------------------------------------------------------------------------

    \1\ 61 FR 35960 (July 9, 1996).
---------------------------------------------------------------------------

    The arguments presented in the API petition are summarized below, 
followed by a summary of the public comments received, and EPA's 
response to the petition and comments. A complete copy of the API 
petition, public comments, and new information generated by EPA may be 
found in the docket for this action.

II. Summary of API Petition

A. Consistency With CAA and Negotiated Rulemaking

    In its petition, API argues that the Phase II RFG NO<INF>X emission 
reduction standard is inconsistent with the 1990 Clean Air Act 
Amendments and the 1991 regulatory negotiation.<SUP>2 API cites 
provisions of the statute that specifically require reductions in 
various pollutants, and contrasts those explicit NO<INF>X reduction 
mandates with the ``no NO<INF>X increase'' approach toward RFG in 
section 211(k).<SUP>3 API also argues that the 1991 agreement reached 
in the regulatory negotiation does not address a Phase II NO<INF>X 
reduction, and that the focus of debate during the regulatory 
negotiation was whether de minimis increases in NO<INF>X would satisfy 
the no NO<INF>X increase standard.<SUP>4
---------------------------------------------------------------------------

    \2\ API Petition for Reconsideration and Rulemaking on NO<INF>X 
Reduction Portion of the Reformulated Gasoline Rule (hereinafter 
``Pet.'') at p. 1.
    \3\ Pet. at p. 2.
    \4\ Pet. at p. 3.
---------------------------------------------------------------------------

B. Air Quality Benefits

    In its petition, API argues that ozone benefits for the Phase II 
NO<INF>X standard are overstated. <SUP>5 API states that the primary 
basis for the NO<INF>X standard is ozone attainment, because of the 
role NO<INF>X emissions play with VOC emissions in the formation of 
ozone. <SUP>6 API cites EPA's 1994 Trends Report <SUP>7 to support its 
statement that substantial progress toward ozone attainment has been 
made. <SUP>8 API argues that progress toward attainment of the National 
Ambient Air Quality Standard (NAAQS) for ozone can be expected to 
continue because of new federal programs and state obligations 
established under the Clean Air Act Amendments of 1990. <SUP>9
---------------------------------------------------------------------------

    \5\  Pet. at p. 5.
    \6\  Ibid.
    \7\ U.S. EPA, National Air Quality and Emissions Trends Report 
1993, EPA 454/R-94-026, October 1994, p. 6.
    \8\  Pet. at p. 6.
    \9\  Ibid.
---------------------------------------------------------------------------

    API further argues that EPA's section 182(f) waiver decisions show 
that NO<INF>X reductions are not always warranted for ozone 
attainment.<SUP>10 API states that, in establishing section 182(f) 
waivers, Congress recognized that NO<INF>X reductions do not always 
contribute to ozone attainment, because of atmospheric meteorology and 
the complex relationship of NO<INF>X and VOC emissions. <SUP>11 API 
characterizes section 182(f) as stating that major stationary source 
requirements for NO<INF>X do not apply where NO<INF>X reductions do not 
contribute to ozone NAAQS attainment or do not yield net air quality 
benefits in the affected nonattainment area. <SUP>12 API argues that 
the Phase II RFG NO<INF>X standard emphasizes those portions of a 1991 
National Research Council study <SUP>13 and other studies that show 
NO<INF>X control to be an effective ozone control strategy, while 
discounting those parts of the same studies showing that NO<INF>X 
control may be counterproductive in a particular area. <SUP>14 API 
cites studies to contradict EPA's discounting of the adverse effects of 
NO<INF>X reductions on ozone. <SUP>15 API points to parts of EPA's 1993 
report to Congress (pursuant to section 185B of the CAA) to support its 
contention that NO<INF>X control may not always be appropriate to 
reduce ozone.<SUP>16
---------------------------------------------------------------------------

    \10\ Pet. at p. 7.
    \11\ Pet. at p. 8.
    \12\ Ibid.
    \13\ National Research Council, Rethinking the Ozone Problem in 
Urban and Regional Air Pollution, National Academy Press, 
Washington, DC., 1991.
    \14\ Pet. at p. 9.
    \15\ Pet. at p. 10.
    \16\ Pet. at p. 11.
---------------------------------------------------------------------------

    API argues that in granting section 182(f) waivers, EPA has 
concluded in most cases that additional NO<INF>X reductions are not 
needed for ozone attainment; however, in a few cases, EPA has found 
that NO<INF>X reductions would be detrimental to ozone 
attainment.<SUP>17 Moreover, three waivers would suspend major 
stationary source NO<INF>X control in cities required to use RFG: 
Chicago, Milwaukee, and Houston.<SUP>18 API states that the waivers 
have no set period of duration and stay in place so long as the 
conditions in section 182(f) are met.<SUP>19 API concludes that the 
Phase II NO<INF>X standard is incongruous with the granting of section 
182(f) waivers in RFG areas.<SUP>20 API also argues that the Phase II 
RFG NO<INF>X standard is incongruous with the two-phased approach EPA 
adopted for submittal of ozone SIP attainment demonstrations.<SUP>21 
API concludes that given the substantial progress toward ozone NAAQS 
attainment, and the CAA requirement of continued steady progress, EPA's 
Phase II RFG NO<INF>X standard applicable in all RFG areas is 
incongruous with the granting of state

[[Page 11348]]

petitions for waiver from section 182 NO<INF>X reduction 
requirements.<SUP>22
---------------------------------------------------------------------------

    \17\ Pet. at p. 12.
    \18\ Pet. at p. 13. API also points out that Dallas, which chose 
to implement the RFG program, has been granted a section 182(f) 
waiver. The Dallas waiver is based on a showing that Dallas would 
attain the ozone NAAQS without implementation of the additional 
NO<INF>X controls required under section 182. 59 FR 44386 (August 
29, 1994).
    \19\ Ibid.
    \20\ Pet. at p. 14.
    \21\ Ibid.
    \22\ Id.
---------------------------------------------------------------------------

    API also argues that non-ozone benefits claimed for the Phase II 
RFG NO<INF>X standard are wholly speculative; no evidence is offered by 
EPA to show that the assumed effects are measurable, let alone 
significant.<SUP>23 Non-ozone benefits claimed include less acid rain, 
reduced toxic nitrated compounds, reduced nitrate deposition, improved 
visibility, lower levels of nitrogen dioxide, lower levels of PM-10, 
and protection against increases in fuel olefin content which could 
increase the reactivity of vehicle emissions. <SUP>24
---------------------------------------------------------------------------

    \23\ Pet. at p. 15.
    \24\ Ibid.
---------------------------------------------------------------------------

C. Cost-Effectiveness

    API argues that the impact of the NO<INF>X reduction standard on 
gasoline refining costs and on refinery flexibility is 
understated.<SUP>25 API cites statements by EPA acknowledging that a 
NO<INF>X performance standard restricts the flexibility of refiners in 
producing qualifying RFG.<SUP>26 API discounts EPA's assertion that the 
performance standard is not a fuel recipe and refiners may produce 
gasoline in any way that achieves the desired result.<SUP>27 According 
to API, any NO<INF>X reduction ``interferes with refining flexibility 
and leaves refiners with unduly costly and narrow choices for producing 
RFG.'' <SUP>28
---------------------------------------------------------------------------

    \25\ Pet. at p. 16.
    \26\ Ibid.
    \27\ Id.
    \28\ Pet. at pp. 17-18.
---------------------------------------------------------------------------

    API argues that the cost-effectiveness of NO<INF>X reduction is 
overstated because sulfur removal costs are understated and ozone 
benefits are overstated. <SUP>29 API references detailed information 
submitted during the RFG rulemaking that criticizes inadequacies in the 
Bonner & Moore refinery model used by EPA.<SUP>30 API also cites a 1994 
DOE study <SUP>31 that API characterizes as suggesting that EPA's 
desulfurization costs are too low.<SUP>32 API cites cost estimates 
recently prepared by EPA for the Ozone Transport Assessment Group 
(OTAG) to illustrate its point that EPA and API are far apart on cost 
estimates.<SUP>33 API states that if EPA used more accurate 
desulfurization costs, the cost of Phase II NO<INF>X reductions would 
increase above the $10,000 per ton benchmark EPA rejected as too high 
during the RFG rulemaking.<SUP>34
---------------------------------------------------------------------------

    \29\ Pet. at pp. 18-19.
    \30\ Pet. at p. 19.
    \31\ U.S. DOE, Estimating the Costs and Effects of Reformulated 
Gasolines, DOE/PO-0030, December 1994 (hereinafter ``1994 DOE 
study'').
    \32\ Pet. at p. 20.
    \33\ Pet. at pp. 20-21.
    \34\ Pet. at p. 21.
---------------------------------------------------------------------------

    API also argues that EPA's analysis of cost-effectiveness does not 
take into account that NO<INF>X reductions do not contribute to ozone 
attainment in certain areas.<SUP>35 API states that the Chicago, 
Milwaukee, Houston and Dallas areas each have section 182(f) waivers 
and comprise 33 percent of the non-California RFG market. <SUP>36 API 
argues that the benefit of NO<INF>X reductions in these areas is at 
least zero, if not less than zero, thereby driving EPA's cost-
effectiveness up to about $7,500 per ton, based on this factor 
alone.<SUP>37
---------------------------------------------------------------------------

    \35\ Pet. at p. 22.
    \36\ Pet. at p. 22.
    \37\ Pet. at p. 22.
---------------------------------------------------------------------------

    API further argues that EPA understated the relative cost-
effectiveness of major stationary source NO<INF>X control strategies, 
by dwelling on motor vehicle and engine controls.<SUP>38 API argues 
that stationary source controls can discriminate between areas where 
NO<INF>X reductions contribute to ozone attainment and areas where they 
do not, unlike motor vehicle, engine, and fuel controls.<SUP>39 API 
cites several studies conducted by or for EPA between July 1991 and 
July 1994 that contain more comprehensive information about stationary 
source controls, including cost-effectiveness.<SUP>40 API provides a 
table citing data from those studies, and includes its estimate of 
incremental cost-effectiveness for several technologies.<SUP>41 API 
concludes that its incremental cost-effectiveness values compare 
favorably even to EPA's incremental cost-effectiveness estimate of 
$5,000 per ton of NO<INF>X removed for a 6.8 percent NO<INF>X emission 
reduction.<SUP>42
---------------------------------------------------------------------------

    \38\ Pet. at p. 23.
    \39\ Pet. at p. 23.
    \40\ Pet. at pp. 23-24.
    \41\ Pet. at p. 25.
    \42\ Pet. at p. 26.
---------------------------------------------------------------------------

    API argues that control of major stationary sources for NO<INF>X 
offers a far larger potential for overall reduction in air 
pollution.<SUP>43 API cites EPA's 1994 Trends Report that combustion 
stationary sources account for about 50 percent of national NO<INF>X 
emissions with a NO<INF>X reduction potential of 75 to 95 
percent.<SUP>44 API further argues that major stationary source 
controls can be targeted to avoid the economic waste of NO<INF>X 
controls where they are not needed and the adverse effect on ozone 
because of atmospheric chemistry.<SUP>45
---------------------------------------------------------------------------

    \43\ Pet. at p. 27.
    \44\ Pet. at p. 27.
    \45\ Pet. at p. 29.
---------------------------------------------------------------------------

    API concludes that EPA should repeal the Phase II RFG NO<INF>X 
emission reduction standard or, at least, suspend the effective date 
until a comprehensive consideration of NO<INF>X control cost-
effectiveness is performed.<SUP>46 API claims EPA should sequence 
NO<INF>X controls where NO<INF>X reductions are appropriate, targeting 
major stationary source NO<INF>X controls first as they are claimed to 
be more cost-effective and can be targeted where needed geographically. 
Other controls should not be considered until major stationary source 
controls are employed and evaluated, according to API.<SUP>47 Finally, 
API concludes that Phase II RFG NO<INF>X emission reductions are not 
compelled by the statute, are not necessary, and are not the most cost-
effective controls for NO<INF>X reduction and, thus, satisfy none of 
the criteria for regulatory action set out in Executive Order 
12866.<SUP>48
---------------------------------------------------------------------------

    \46\ Pet. at p. 31.
    \47\ Pet. at p. 30.
    \48\ Pet. at pp. 30-31.
---------------------------------------------------------------------------

III. Summary of Public Comment

    EPA received public comment on the API petition from 26 commenters, 
including the oil, automotive, and utility industries, and from states 
and state organizations. This section summarizes those comments.

A. Consistency With CAA and Regulatory Negotiation Agreement in 
Principle

    Whether the Phase II RFG NO<INF>X reduction standard is consistent 
with the CAA and the regulatory negotiation is addressed in comments by 
several oil companies, and by oil, automotive, utility, and state 
associations. Most comments from the oil industry restate the points 
made by API in its petition to EPA, described in the previous section. 
One oil company also argued that EPA did not give proper consideration 
to the statutory factors required under section 211(c)(1)(A) of the 
Act, given that EPA is still trying to define the complex relationships 
involving NO<INF>X, atmospheric chemistry, and ozone formation.
    The automotive, utility, and state association comments argue that 
although the Phase II RFG NO<INF>X reduction standard is not mandated 
by section 211(k) of the CAA, it is not inconsistent with the CAA, and 
that the Phase II program was not addressed by the regulatory 
negotiation's Agreement in Principle, so the NO<INF>X reduction 
standard does not contradict or supersede any specific term of the 
agreement.

[[Page 11349]]

B. Air Quality Benefits

    Most comments address the issue of whether EPA overstated the air 
quality benefits of the Phase II RFG NO<INF>X emission reduction 
standard. Several oil industry comments cite air quality modeling data 
generated by OTAG to support the API argument that NO<INF>X reductions 
may cause urban ozone increases, also referred to as NO<INF>X 
disbenefits. One oil company argues that the OTAG modeling results 
present compelling new evidence against the Phase II RFG NO<INF>X 
emission reduction standard, citing one day each of two modeling runs 
as evidence that aggressive NO<INF>X controls significantly increase 
ozone concentrations in the urban areas where ozone levels are highest. 
Those runs include a 60 percent reduction in elevated NO<INF>X 
emissions, and a 60 percent reduction in elevated NO<INF>X emissions 
plus a 30 percent reduction in low-level NO<INF>X emissions.
    Another oil company argues that the OTAG modeling results are 
significant new evidence to support the API petition, and show that the 
NO<INF>X disbenefit phenomenon is consistently present and most 
pronounced in the Chicago metropolitan area. That company further 
argues that OTAG modeling results show that urban VOC reductions do not 
eliminate the disbenefit from NO<INF>X reductions, although the company 
notes that VOC reductions do mitigate the disbenefit. That company 
argues that the scale of significant ozone transport tends to be 
substantially localized rather than OTAG domain-wide, undercutting the 
transport rationale for widespread imposition of NO<INF>X controls. The 
commenter bases its arguments on modeling results for three days for 
each of three ozone episodes; one with 60 percent elevated point source 
NO<INF>X reductions, the second with 60 percent elevated point source 
NO<INF>X reductions plus 30 percent low-level NO<INF>X reductions, and 
the third with 30 percent VOC reductions plus 60 percent elevated 
NO<INF>X reductions and 30 percent low-level NO<INF>X reductions. Also 
included was one day of a run of 30 percent low-level NO<INF>X 
reductions only.
    In its comments on the petition, API argues that OTAG air quality 
modeling sensitivity runs as of August 1996 show that downwind air 
quality benefits of NO<INF>X control are far less than expected, 
undercutting the core transport rationale for widespread imposition of 
RFG NO<INF>X controls. API argues that OTAG modeling confirms its 
central thesis that NO<INF>X emissions reductions increase ozone levels 
immediately downwind of several urban nonattainment areas, notably 
Chicago and New York. Finally, API argues that the OTAG modeling shows 
that the ozone increases were not fully ameliorated by larger NO<INF>X 
reductions or VOC reductions; even if VOC controls were effective, this 
would put affected states in the position of imposing extra VOC 
controls to offset the adverse air quality impact of RFG NO<INF>X 
controls.
    Several states, and state and utility associations also addressed 
the air quality benefits issue. States and state associations stress 
the importance of the Phase II RFG NO<INF>X standard in state ozone 
attainment and maintenance planning. State associations argue that OTAG 
has projected that, in 2007, mobile sources will still contribute 43 
percent of all NO<INF>X after implementation of CAA controls; given the 
challenges facing so many areas in identifying and implementing 
programs that will lead to attainment of the ozone standard, the air 
quality benefits associated with the NO<INF>X reduction potential of 
Phase II RFG cannot be overstated. One state points out that with the 
anticipated lowering of the federal ozone standard, the Phase II RFG 
NO<INF>X emission reduction standard will become even more critical for 
states. A state association argues that although there has been 
progress toward attainment, loss of a tool as significant as Phase II 
RFG in reducing VOC and NO<INF>X would only exacerbate state emission 
reduction shortfalls.
    While state and state association comments acknowledge that in 
certain urban areas, NO<INF>X reductions can increase ozone, state 
associations argue that API's advocacy of repeal of the NO<INF>X 
standard is both premature and shortsighted; premature because OTAG is 
still seeking to define the extent and impact of NO<INF>X disbenefits 
and how disbenefits should be accommodated, and shortsighted because 
for many areas of the country it has been conclusively ascertained that 
NO<INF>X reductions will be imperative if the ozone standard is to be 
attained and maintained.
    Several states and state associations argue that modeling 
demonstrates that NO<INF>X reductions are beneficial, and for many 
areas imperative, notwithstanding potential disbenefits in some limited 
geographic areas. One state and a state association argue that all 
major regional modeling efforts performed or underway through such 
organizations as OTAG and the Ozone Transport Commission have 
demonstrated that NO<INF>X reductions are beneficial in reducing ozone 
levels and will be needed to achieve attainment of the ozone standard 
in many areas, and particularly in the eastern U.S. They argue that the 
importance of NO<INF>X reductions in reducing ozone levels is becoming 
even more pronounced as modeling efforts utilize the newer and more 
accurate methodology for estimating biogenic VOC emissions.
    A state association argues that the regional photochemical modeling 
results prepared for OTAG are confirmatory of previous modeling that 
both elevated and low-level control of NO<INF>X are beneficial at 
reducing the regional extent of ozone, and that the combination of 
NO<INF>X and VOC control, especially in urban areas, can be very 
effective in reducing regional ozone levels. Another state association 
also argues that modeling studies have shown that urban VOC reductions, 
such as those provided by RFG, are effective at addressing any limited 
NO<INF>X disbenefits, while leaving in place the very extensive 
regional benefits of NO<INF>X emission reductions. One state argues 
that there is no definitive data that Phase II RFG could be a 
significant disbenefit to ground level ozone attainment and, in the 
absence of evidence to the contrary, the state will operate under the 
assumption that all reductions of ground level ozone precursors are 
both important and beneficial.
    A state association argues that granting contingent waivers on a 
local nonattainment area basis does not negate EPA recognition and 
support for regional efforts to use NO<INF>X reductions to address 
ozone transport and attainment issues. It argues that NO<INF>X waivers 
do not take into account that when controls are removed or absent in 
one area, particularly a control of regional significance, this would 
generally cause or exacerbate problems for any area downwind of that 
area. It argues that while the understanding and development of 
mechanisms for regional ozone reductions over large areas is still 
evolving, mechanisms that have the greatest potential continue to rely 
on a balance of both VOC and NO<INF>X control.
    A utility industry group argues that the API petition fails to 
buttress its argument that EPA overstated the air quality benefits of 
the Phase II RFG NO<INF>X standard with new evidence; instead, API 
relies upon arguments already rejected by EPA. API's section 182(f) 
waiver argument fails because the grant of a waiver says nothing about 
the value of the Phase II RFG NO<INF>X standard; the utility group 
argues that the section 182(f) waiver provisions do not apply to the 
RFG program and that, although temporary waivers have been granted in 
some places based on highly specific localized facts, the Agency has 
made it clear waivers would be reevaluated in

[[Page 11350]]

light of additional data. The utility group also argues that progress 
by the states toward attainment as indicated in the 1994 Trends Report 
does not establish that the Phase II RFG NO<INF>X standard is 
unnecessary or unwise; although progress has been made toward 
attainment, more still needs to be done.

C. Cost-Effectiveness

    Most commenters addressed whether EPA understated the cost-
effectiveness of the Phase II RFG NO<INF>X standard. Several oil 
companies cite data from OTAG both on the comparative cost of 
stationary source reduction measures and the cost of implementing Phase 
II RFG throughout the OTAG region. Several companies submitted or cite 
a ranking developed by the New Hampshire Department of Environmental 
Services for OTAG of cost per ton ranges for NO<INF>X reduction 
measures. The ranking places Phase II RFG as the second most expensive 
NO<INF>X control measure at $25,000 to $45,000 per ton. The cost ranges 
are comprised of the lowest and highest marginal cost estimates 
provided by EPA, the states, industry, and other OTAG participants, and 
represents the extent of disagreement over the ``true'' costs of each 
measure, according to one oil company comment. One company argues that 
these data may be interpreted to show that a NO<INF>X reduction 
strategy that includes the Phase II RFG NO<INF>X reduction standard is 
purchasing a much smaller reduction at a much higher price than is 
available from alternative measures. That commenter also claims that 
DOE's analysis indicates a significantly higher cost per ton of 
NO<INF>X removed than estimated by EPA in its Regulatory Impact 
Analysis (RIA) for the final RFG rule.
    In its comments, API also cites the OTAG region-wide cost-
effectiveness estimate for the Phase II RFG NO<INF>X standard. API 
argues that even if that figure is adjusted for comparison with only 
those areas that will use Phase II RFG, the adjusted figure would still 
``dwarf'' EPA's $5,000 per ton estimate; however, API did not include 
such an adjusted figure in its comments. API also cites the New 
Hampshire list as evidence that the NO<INF>X standard is not cost-
effective.
    Two state associations argue that it would be more accurate to 
characterize the cost of Phase II RFG from combined VOC and NO<INF>X 
reductions; the combined OTAG range for the OTAG region is $3,500 to 
$6,200. One state argues that the cost of the NO<INF>X standard is 
within a reasonable range of cost-effectiveness. That state also argues 
that the cost of the NO<INF>X standard is highly favorable compared to 
the cost of typical transportation control measures.
    An automobile industry association argues that the API focus on 
sulfur reduction overlooks the fact that sulfur reductions also 
decrease hydrocarbon (HC) and carbon monoxide (CO) emissions. That 
association argues that recent industry data show that when advanced 
technology vehicles are operated on high sulfur fuels, their emissions 
will be no better than Tier 0 level vehicles; comparing those new data 
with expected costs of compliance compiled by Turner, Mason & Company 
in April 1992 yields a cost-effectiveness estimate of about $200 per 
ton of pollutant removed when the benefits of sulfur removal on HC, CO, 
and NO<INF>X are considered.
    A clean fuel industry association evaluated capital investment 
options for reducing the sulfur level in gasoline to meet the Phase II 
RFG NO<INF>X emission reduction standard. That association argues that 
average costs from the investment options evaluated were generally 
equal to or less than EPA's original cost estimates for reducing sulfur 
levels in RFG; therefore, that association argues, the cost of the 
Phase II RFG NO<INF>X emission reduction standard has not fundamentally 
changed and it is still a cost-effective standard.
    The utility industry argues that API presented no compelling new 
evidence that desulfurization costs are understated. One utility 
industry group argues that API's claim that EPA underestimated 
desulfurization costs does not address the fact that desulfurization is 
not required; nor did API address the ability of industry to meet the 
standard without desulfurization. That group also argues that the fact 
that it might be cheaper to reduce emissions from stationary sources 
than to reduce NO<INF>X in fuels does not mean the same ozone reduction 
benefits would be produced. Another utility industry association argues 
that, even if API's claim that regulating stationary sources is more 
cost-effective is true, that does not justify forcing stationary 
sources to subsidize the petroleum industry by paying for that 
industry's share of clean air compliance costs.

IV. EPA Response

A. Consistency With CAA and Negotiated Rulemaking

    As EPA pointed out in the RFG final rule, the regulatory 
negotiation conducted by EPA did not address Phase II RFG VOC and toxic 
standards; neither did it address a reduction in NO<INF>X emissions 
beyond the statutory cap imposed under section 211(k)(2)(A).<SUP>49 
Because the regulatory negotiation did not address Phase II RFG 
standards, including the NO<INF>X reduction standard, Phase II RFG 
standards are consistent with the Agreement in Principle that resulted 
from the regulatory negotiation. A reduction in NO<INF>X emissions does 
not interfere with or reduce the benefits gained by the parties from 
the elements of the Agreement in Principle that were finally adopted in 
the RFG rule. While it adds costs and gains benefits, these are in 
addition to, and not at the expense of, the elements addressed in the 
regulatory negotiation. The costs and air quality benefits of the Phase 
II RFG NO<INF>X emission reduction standard are discussed in more 
detail in later sections of this notice.
---------------------------------------------------------------------------

    \49\ 59 FR 7744 (February 16, 1994).
---------------------------------------------------------------------------

    The Phase II RFG NO<INF>X standard is also fully consistent with 
the Act. EPA proposed and finalized the NO<INF>X emission reduction 
performance standard for Phase II RFG relying on EPA's authority under 
section 211(c)(1)(A) of the Act, based on EPA's view that NO<INF>X 
reductions from summertime RFG are important to achieve attainment of 
the ozone NAAQS in many nonattainment areas.<SUP>50 Section 
211(c)(1)(A) of the Act allows the Administrator to regulate fuels or 
fuel additives if ``any emission product of such fuel or fuel additive 
causes, or contributes to, air pollution which may reasonably be 
anticipated to endanger the public health or welfare.'' Section 
211(c)(2)(A) further provides that EPA may control those fuels and fuel 
additives ``after consideration of all relevant medical and scientific 
evidence available * * * including consideration of other 
technologically or economically feasible means of achieving emissions 
standards under [section 202 of the Act].''
---------------------------------------------------------------------------

    \50\ Ibid.
---------------------------------------------------------------------------

    EPA used this authority to require reformulated fuels to also 
achieve NO<INF>X reductions in order to reduce ozone formation, based 
on scientific evidence regarding the benefits of NO<INF>X control and 
on the cost-effectiveness of NO<INF>X reductions. A detailed discussion 
of the determination of the need for and scientific justification for 
NO<INF>X control is presented in the RIA for the final rule.<SUP>51 The 
fact that scientific understanding of atmospheric chemistry and ozone 
formation continues to evolve does not

[[Page 11351]]

negate that determination. In addition, as discussed below, EPA's 
review of the air quality benefits and cost-effectiveness of the 
NO<INF>X reduction standard does not show that the rulemaking 
determinations supporting this standard were inappropriate.
---------------------------------------------------------------------------

    \51\ U.S. EPA, Final Regulatory Impact Analysis for Reformulated 
Gasoline, December 13, 1993, pp. 313-326.
---------------------------------------------------------------------------

B. Air Quality Benefits

1. The Need for Regional NO<INF>X Reduction
    At present, there are 74 areas in the United States, with a 
population exceeding one hundred million, that do not meet the ozone 
NAAQS of 120 parts per billion (ppb) for a one-hour daily maximum. The 
following section describes ozone formation, the regional scale of the 
ozone problem, and the reductions needed to meet the ozone standard.
    Ozone Formation. Ozone is a naturally occurring trace constituent 
of the atmosphere. Background ozone concentrations vary by geographic 
location, altitude, and season. Part of this background ozone 
concentration is due to natural sources and part is due to long-range 
transport of anthropogenic or man-made precursor emissions. The natural 
component of background ozone originates from three sources: (1) 
Stratospheric ozone (which occurs at about ten to 50 kilometers 
altitude) that is transported down to the troposphere (i.e., from the 
ground level through about ten kilometers), (2) ozone formed from the 
photochemically-initiated oxidation of biogenic (i.e., produced by 
living organisms) and geogenic (i.e., produced by the earth) methane 
and carbon monoxide with nitric oxide, and (3) ozone formed from the 
photochemically-initiated oxidation of biogenic VOCs with NO<INF>X. 
NO<INF>X plays an important role in the oxidation of methane, carbon 
monoxide, and biogenic VOC, though the magnitude of this natural 
component cannot be precisely determined.<SUP>52 The background ozone 
concentration near sea level in the U.S. for a one-hour daily maximum 
during the summer is usually in the range of 30-50 ppb.<SUP>53
---------------------------------------------------------------------------

    \52\ U.S. EPA, Office of Air Quality Planning and Standards, 
``Review of National Ambient Air Quality Standards for Ozone, 
Assessment of Scientific and Technical Information,'' OAQPS Staff 
Paper, EPA-452/R-96-007, June 1996.
    \53\ Ibid.
---------------------------------------------------------------------------

    While ozone formation in the atmosphere involves complex non-linear 
processes, a simplified description is offered here. For more 
information on ozone chemistry, see, for example, the 1991 National 
Research Council study. In short, nitric oxide (NO) is formed during 
combustion or any high temperature process involving air (air being 
largely N<INF>2 and O<INF>2). NO is formed, for example, when fuel is 
burned to generate power for stationary or mobile sources. The NO is 
converted to NO<INF>2 by reacting with certain compounds formed from 
oxidized VOCs, called radicals. It is also converted to NO<INF>2 by 
reacting with ozone (O<INF>3). Sunlight then causes the NO<INF>2 to 
decompose, leading to the formation of ozone and NO. The NO that 
results is then able to start this cycle anew. A reaction path that 
converts NO to NO<INF>2 without consuming a molecule of ozone allows 
ozone to accumulate; this can occur by the presence of oxidized 
VOCs.<SUP>54 That is:
---------------------------------------------------------------------------

    \54\ Seinfeld, John H., ``Urban Air Pollution: State of the 
Science,'' February 10, 1989 vol., Science.
---------------------------------------------------------------------------

    1. NO is formed from combustion involving air:

N<INF>2+O<INF>2==>NO molecules.

    2. NO<INF>2 (nitrogen dioxide) is formed when NO reacts with 
radicals from oxidized VOCs.
    3. NO<INF>2 is also formed when NO reacts with ozone; this removes 
ozone:

NO+O<INF>3==>NO<INF>2+O<INF>2.

    4. Sunlight causes NO<INF>2 to decompose, or photolyze, into NO and 
O. Ozone is formed when an oxygen molecule (O<INF>2) reacts with the 
oxygen element (O), formed from the decomposition of NO<INF>2:

NO<INF>2==>NO+O; and
O+O<INF>2==>Ozone.

    A general explanation for the formation of ozone in or near urban 
areas follows.<SUP>55 NO<INF>X is produced when combustion temperatures 
are above 2500 deg.K, and air is used as an oxidizer in the combustion 
process. Incomplete combustion of the fuel also results in the emission 
of raw fuel components and oxygenated organic components or VOCs from 
the fuels. In sunlight, these components form free radicals (e.g., OH, 
HO<INF>2, RO, RO<INF>2) that oxidize NO to NO<INF>2 (reaction 2 above). 
The free radical is recreated in the process. Each free radical is 
cycled up to five times. The NO<INF>2 then reacts with sunlight to 
recreate NO and to produce ozone (reaction 4 above). After the first 
oxidation of NO to NO<INF>2, every subsequent operation of the cycle 
produces ozone with an efficiency greater than 90 percent. In current 
chemical reaction mechanisms, a typical nitrogen is cycled three to 
five times. Some of the ozone produced reacts with organics and with 
sunlight to produce more free radicals to maintain the cyclic oxidation 
process.
---------------------------------------------------------------------------

    \55\ Jeffries, H.E., communication to Clinton Burklin, ERG, 
October 27, 1996.
---------------------------------------------------------------------------

    Ozone itself is a major source of the free radicals that oxidize NO 
into NO<INF>2. This represents a powerful positive feedback process on 
the formation of more ozone, given available NO<INF>X. The oxidation of 
the VOCs also leads to the production of more free radicals. As the 
cycle operates, NO<INF>2 reacts with free radicals and is converted 
into nitrates. This form of nitrogen cannot cycle. This also removes 
free radicals. A system that converts all NO<INF>X to nitrogen products 
cannot create any more ozone.
    NO<INF>2 reacts rapidly with free radicals. In situations that have 
a limited supply of radicals, NO<INF>2 effectively competes with VOCs 
for the limited free radicals, and is converted into nitrates. This 
results in virtually no production of ozone. Where there are large 
amounts of NO relative to the sources of radicals (such as VOCs), then 
the reaction between NO and existing ozone removes ozone (a radical 
source), and the large amount of NO<INF>2 formed competes effectively 
with VOCs for the other available radicals, thus leading to an overall 
suppression of ozone.
    In general, areas with high VOC to NO<INF>X concentration ratios 
(greater than eight to ten) can effectively reduce local ozone 
concentrations with local NO<INF>X emission reductions.<SUP>56 In areas 
where VOCs are abundant relative to NO<INF>X, ozone formation is 
controlled primarily by the amount of NO<INF>X available to react with 
the oxidized VOCs (reaction 2 above).<SUP>57 These ``NO<INF>X limited'' 
areas generally include rural, suburban, and downwind areas.<SUP>58 In 
contrast, in areas with low VOC to NO<INF>X ratios, ozone formation is 
controlled primarily by the amount of VOC available. Ozone scavenging 
by the NO-O<INF>3 reaction (reaction 3 above) is more effective than 
the reaction of oxidized VOC with NO producing NO<INF>2 (reaction 2 
above).<SUP>59 Such areas are ``VOC limited'' and generally include the 
central core areas of large urban areas with significant vehicle 
emissions.
---------------------------------------------------------------------------

    \56\  National Research Council, Rethinking the Ozone Problem in 
Urban and Regional Air Pollution, National Academy Press, 
Washington, D.C., 1991.
    \57\ Seinfeld, John H., ``Urban Air Pollution: State of the 
Science,'' February 10, 1989 vol., Science.
    \58\ Finlayson-Pitts, B.J. and J.N. Pitts, Jr., ``Atmospheric 
Chemistry of Tropospheric Ozone Formation: Scientific and Regulatory 
Implications,'' Air and Waste Management Association, Vol. 43, 
August 1993.
    \59\  Seinfeld, John H., ``Urban Air Pollution: State of the 
Science,'' February 10, 1989 vol., Science.
---------------------------------------------------------------------------

    The rate of ozone formation varies with the VOC to NO<INF>X ratio. 
By reducing local emissions of VOC, the formation rate generally slows 
down, leading to lower ozone levels locally, but with eventual 
production of approximately the same total amount of ozone. Reduction 
of NOx emissions can lead to

[[Page 11352]]

a more rapid formation of ozone, though with less total amount of ozone 
formed.<SUP>60
---------------------------------------------------------------------------

    \60\ Ibid.
---------------------------------------------------------------------------

    Different mixtures of VOC and NO<INF>X, therefore, can result in 
different ozone levels such that the total system is non-linear. That 
is, large amounts of VOC and small amounts of NO<INF>X make ozone 
rapidly but are quickly limited by removal of the NO<INF>X. VOC 
reductions under these circumstances show little effect on ozone. Large 
amounts of NO and small amounts of VOC (which usually implies smaller 
radical source strengths) result in the formation of inorganic 
nitrates, but little ozone. In these cases, reduction of NO<INF>X 
results in an increase in ozone.
    The preceding is a static description. In the atmosphere, physical 
processes compete with chemical processes and change the outcomes in 
complex ways. The existence of feedback and non-linearity in the 
transformation system confound the description. Competing processes 
determine the ambient concentration and there are an infinite set of 
process magnitudes that can give rise to the same ambient 
concentrations and changes in concentrations. Lack of any direct 
measurement of process magnitudes results in the need to use 
inferential methods to confirm any explanation of a particular ozone 
concentration.
    The formation of ozone is further complicated by biogenic 
emissions, meteorology, and transport of ozone and ozone precursors. 
The contribution of ozone precursor emissions from biogenic sources to 
local ambient ozone concentrations can be significant, especially 
emissions of biogenic VOCs. Important meteorological factors include 
temperature, and wind direction and speed. Long-range transport results 
in interactions between distant sources in urban or rural areas and 
local ambient ozone. Peroxyacetyl nitrate (PAN), formed from the 
reaction of radicals with NO<INF>2, can transport NO<INF>X over 
relatively large distances through the atmosphere. Its rate of 
decomposition significantly increases with temperature, so that it can 
be formed in colder regions, transported, and then decomposed to 
deliver NO<INF>2 to downwind areas.<SUP>61
---------------------------------------------------------------------------

    \61\ National Research Council, Rethinking the Ozone Problem in 
Urban and Regional Air Pollution, National Academy Press, 
Washington, D.C., 1991.
---------------------------------------------------------------------------

    Regional Scale of the Ozone Problem. Peak ozone concentrations 
typically occur during hot, dry, stagnant summertime conditions. Year-
to-year meteorological fluctuations and long-term trends in the 
frequency and magnitude of peak ozone concentrations can have a 
significant influence on an area's compliance status.
    Typically, ozone episodes last from three to four days on average, 
occur as many as seven to ten times per year, and are of large spatial 
scale. In the eastern United States, high concentrations of ozone in 
urban, suburban, and rural areas tend to occur concurrently on scales 
of over 1,000 kilometers.<SUP>62 Maximum values of non-urban ozone 
commonly exceed 90 ppb during these episodes, compared with average 
daily maximum values of 60 ppb in summer. Thus, an urban area need 
contribute an increment of only 30 ppb over the regional background 
during a high ozone episode to cause a violation of the ozone NAAQS of 
120 ppb.<SUP>63
---------------------------------------------------------------------------

    \62\ Ibid.
    \63\ Id.
---------------------------------------------------------------------------

    The precursors to ozone and ozone itself are transported long 
distances under some commonly occurring meteorological conditions. The 
transport of ozone and precursor pollutants over hundreds of kilometers 
is a significant factor in the accumulation of ozone in any given area. 
Few urban areas in the U.S. can be treated as isolated cities 
unaffected by regional sources of ozone.<SUP>64
---------------------------------------------------------------------------

    \64\ Id.
---------------------------------------------------------------------------

    NO<INF>X Reductions Needed to Meet the Ozone Standard. Over the 
past two decades, great progress has been made at the local, state and 
national levels in controlling emissions from many sources of air 
pollution. Substantial emission reductions are currently being achieved 
through implementation of the 1990 CAAA measures for mobile and 
stationary sources. These measures include the retrofit of reasonably 
available control technology on existing major stationary sources of 
NO<INF>X and implementation of enhanced vehicle inspection and 
maintenance programs under Title I; new emission standards for new 
motor vehicles and nonroad engines, and the RFG program under Title II; 
and controls on certain coal-fired electric power plants under Title 
IV. The effects of these programs on total NO<INF>X emissions over time 
indicate a decline in emissions from 1990 levels of about 12 percent 
until the year 2007. However, continued industrial growth and expansion 
of motor vehicle usage threaten to reverse these past achievements; 
NO<INF>X emissions will gradually increase for the foreseeable future, 
unless new initiatives are implemented to reduce NO<INF>X emissions.
    For many years, control of VOCs was the main strategy employed in 
efforts to reduce ground-level ozone. More recently, it has become 
clearer that additional NO<INF>X controls will be needed in many areas, 
especially areas where ozone concentrations are high over a large 
region (as in the Midwest and Northeast, where RFG is mandated in 
several nonattainment areas). The extent of local controls that will be 
needed to attain and maintain the ozone NAAQS in and near seriously 
polluted cities is sensitive both to the amount of ozone and precursors 
transported into the local area and to the specific photochemistry of 
the area.
    In some cases, preliminary local modeling performed by the states 
indicates that it may not be feasible to find sufficient local control 
measures for individual nonattainment areas unless transport into the 
areas is significantly reduced; this may include transport from 
attainment areas and from other nonattainment areas. These modeling 
studies suggest that reducing NO<INF>X emissions on a regional basis is 
the most effective approach for reducing ozone over large geographic 
areas, even though local NO<INF>X controls may not be effective by 
themselves in the urban centers of selected nonattainment areas. Thus, 
large reductions in NO<INF>X emissions may be needed over much of the 
nation if all areas are to attain the ozone standard.
    The following discussion examines the need for NO<INF>X reductions 
in those regions of the country where RFG is required.
    California. The State of California adopted its ozone SIP on 
November 15, 1994. The SIP covers most of the populated portion of the 
state and relies on both NO<INF>X and VOC reductions for most 
California nonattainment areas to demonstrate compliance with the ozone 
NAAQS. Specifically, the revised SIP projects that the following 
NO<INF>X reductions are needed (from a 1990 baseline): South Coast, 59 
percent; Sacramento, 40 percent; Ventura, 51 percent; San Diego, 26 
percent; and San Joaquin Valley, 49 percent.
    The South Coast's control strategy for attainment of the ozone 
standard specifies a 59 percent reduction in NO<INF>X emissions. The 
design of this strategy took into account the need to reduce NO<INF>X 
as a precursor of particulate matter, as described in the SIP 
submittal. This represents a reduction of over 800 tons of NO<INF>X per 
day. The reductions are to be achieved from a combination of national, 
state, and local control measures.
    The Sacramento metropolitan area's control strategy for attainment 
of the ozone standard specifies a 40 percent reduction in NO<INF>X 
emissions. Modeling results indicate that NO<INF>X reductions are

[[Page 11353]]

more effective than VOC reductions on a tonnage basis in reducing 
ambient ozone concentrations. The reductions are to be achieved from a 
combination of national, state, and local control measures, especially 
mobile source measures such as standards for heavy duty vehicles and 
nonroad engines.
    Lake Michigan Region. Modeling and monitoring studies performed to 
date for the states surrounding Lake Michigan (Illinois, Indiana, 
Michigan, and Wisconsin) indicate that reducing ozone and ozone 
precursors transported into the region's nonattainment areas would have 
a significant effect on the number and stringency of local control 
measures necessary to meet the ozone NAAQS. In many cases, boundary 
conditions appear to contribute significantly to peak ozone 
concentrations; ozone and ozone precursors flowing into a metropolitan 
area can greatly influence the peak ozone concentration experienced in 
the metropolitan area. For example, the 1991 Lake Michigan Ozone Study 
found that transported ozone concentrations entering the region were 40 
to 60 percent of the peak ozone concentrations in some of the region's 
metropolitan areas. That is, the air mass entering the study area was 
measured by aircraft at 70 to 110 ppb (compared to the ozone NAAQS of 
120 ppb) on episode days.<SUP>65
---------------------------------------------------------------------------

    \65\ Roberts, P.T., T.S. Dye, M.E. Korc, H.H. Main, ``Air 
Quality Data Analysis for the 1991 Lake Michigan Ozone Study,'' 
final report, STI-92022-1410-FR, Sonoma Technology, 1994.
---------------------------------------------------------------------------

    Separate modeling analyses in the Lake Michigan region indicate 
that reduction in ozone and ozone precursor emissions would be 
effective at reducing peak ozone concentrations. In the Lake Michigan 
case, a modeled 30 percent reduction in boundary conditions was found 
to reduce peak ozone concentrations as much as a 60 percent decrease in 
local VOC emissions.<SUP>66
---------------------------------------------------------------------------

    \66\ Lake Michigan Air Directors Consortium, ``Lake Michigan 
Ozone Study--Evaluation of the UAM-V Photochemical Grid Model in the 
Lake Michigan Region,'' 1994.
---------------------------------------------------------------------------

    These studies suggest that without reductions in transport and 
boundary conditions, the necessary degree of local control will be 
difficult to achieve, even with very stringent local controls. The EPA 
Matrix Study <SUP>67 looked at region-wide NO<INF>X control, and the 
results indicate it would be effective in reducing ozone across the 
Midwest. The objective of the EPA Matrix Study was to obtain a 
preliminary estimate of the sensitivity of ozone in the eastern U.S., 
from Texas to Maine, to changes in VOC and NO<INF>X emissions applied 
region-wide. The modeled control strategy of region-wide 75 percent 
NO<INF>X reduction with 50 percent VOC reduction produced substantial 
ozone reductions throughout the eastern U.S., with ozone standard 
exceedances limited to several grid cells in the southeast corner of 
Lake Michigan, over Toronto, and immediately downwind of New York City.
---------------------------------------------------------------------------

    \67\ Chu, Shao-Hung and W.M. Cox, ``Effects of Emissions 
Reductions on Ozone Predictions by the Regional Oxidant Model during 
the July 1988 Episode,'' Journal of Applied Meteorology, Vol. 34, 
No. 3, March 1995.
---------------------------------------------------------------------------

    Taken together, the information available to date suggests that 
additional reductions in regional NO<INF>X emissions will be necessary 
to attain the ozone NAAQS in the Chicago/Gary/Milwaukee area and 
downwind (including western Michigan). NO<INF>X control in 
nonattainment areas, such as RFG provides, contributes to regional 
NO<INF>X emission reductions. The information available to date has not 
shown that upwind controls are all that is needed. Emerging data 
indicates that NO<INF>X controls in Lake Michigan nonattainment areas 
can contribute to the ozone reduction benefits derived from regional 
NO<INF>X reductions. See discussion infra.
    New York Study. New York State's recent urban airshed modeling 
(UAM) studies show that substantial reductions in the ozone transported 
from other regions would be necessary for several areas within the UAM 
domain to achieve ozone attainment.<SUP>68 The UAM domain includes 
areas in New York and Connecticut within and surrounding the New York 
Consolidated Metropolitan Statistical Area (CMSA). This UAM study 
demonstrates the potential effectiveness of a regional NO<INF>X 
reduction strategy in combination with a local VOC reduction strategy. 
The New York study showed that the combination of a regional strategy 
reflecting a 25 percent reduction in VOCs and a 75 percent reduction in 
NO<INF>X outside the New York urban airshed, with a local strategy 
reflecting a 75 percent reduction in VOCs and a 25 percent reduction in 
NO<INF>X inside the New York urban airshed, would be necessary for all 
areas throughout the New York UAM domain to reduce predicted ozone 
levels to 120 ppb or less during adverse meteorological conditions.
---------------------------------------------------------------------------

    \68\ John, K., S.T. Rao, G. Sistla, W. Hao, and N. Zhou, 
``Modeling Analyses of the Ozone Problem in the Northeast,'' EPA-
230-R-94-018, 1994. John, K., S.T. Rao, G. Sistla, N. Zhou, W. Hao, 
K. Schere, S. Roselle, N. Possiel, R. Scheffe, ``Examination of the 
Efficacy of VOC and NO<INF>X Emissions Reductions on Ozone 
Improvement in the New York Metropolitan Area,'' printed in Air 
Pollution Modeling and Its Application, Plenum Press, NY, 1994.
---------------------------------------------------------------------------

    Northeast Ozone Transport Region. The Northeast Ozone Transport 
Region (OTR) includes the states of Maine, New Hampshire, Vermont, 
Massachusetts, Rhode Island, Connecticut, New York, New Jersey, 
Pennsylvania, Delaware, Maryland, and the CMSA that includes the 
District of Columbia and northern Virginia. In its analysis supporting 
the approval of a Low Emission Vehicle program in the mid-Atlantic and 
Northeast states comprising the OTR, EPA reviewed existing work and 
performed analyses to evaluate in detail the degree to which NO<INF>X 
controls are needed.<SUP>69 These studies showed that NO<INF>X 
emissions throughout the OTR must be reduced by 50 to 75 percent from 
1990 levels to obtain predicted ozone levels of 120 ppb or less 
throughout the OTR.
---------------------------------------------------------------------------

    \69\  60 FR 48673 (January 24, 1995).
---------------------------------------------------------------------------

    Other recent studies have confirmed these conclusions.<SUP>70 
Additional modeling simulations suggest that region-wide NO<INF>X 
controls coupled with urban-specific VOC controls would be needed for 
ozone attainment in the northeastern United States.<SUP>71 Taken 
together, these studies point to the need to reduce NO<INF>X emissions 
in the range of 50 to 75 percent throughout the OTR, and VOC emissions 
by the same amount in and near the Northeast urban corridor, to reach 
and maintain predicted hourly maximum ozone levels of 120 ppb or less.
---------------------------------------------------------------------------

    \70\ Kuruville, John et al., ``Modeling Analyses of Ozone 
Problem in the Northeast,'' prepared for EPA, EPA Document No. EPA-
230-R-94-108, 1994. Cox, William M. and Chu, Shao-Hung, 
``Meteorologically Adjusted Ozone Trends in Urban Areas: A 
Probabilistic Approach,'' Atmospheric Environment, Vol. 27B, No. 4, 
pp 425-434, 1993.
    \71\ Rao, S.T., G. Sistla, W. Hao, K. John and J. Biswas, ``On 
the Assessment of Ozone Control Policies for the Northeastern United 
States,'' presented at the 21st NATO/CCMS International Technical 
Meeting on Air Pollution Modeling and Its Application, Nov. 6-10, 
1995.
---------------------------------------------------------------------------

    Eastern Texas. There has been limited modeling work to date that 
focuses on the air quality characteristics of the eastern Texas region. 
The State of Texas has been granted section 182(f) waivers for the 
Houston/Galveston and Beaumont/Port Arthur nonattainment areas based on 
preliminary UAM modeling which predicted that local NO<INF>X reductions 
would not contribute to ozone attainment because predicted area ozone 
concentrations are lowest when only VOC reductions are modeled.<SUP>72 
Additional modeling is underway by the State, including UAM modeling 
using data from the Coastal Oxidant Assessment for Southeast Texas

[[Page 11354]]

(COAST) study, but there is not yet enough data to draw conclusions 
about the potential effect of transport of ozone and its precursors on 
these areas. This uncertainty has led the State to request that the 
waivers from local NO<INF>X controls in these areas be granted on a 
temporary basis while more sophisticated modeling is conducted. Texas 
has requested a one-year extension of its temporary waivers for 
Houston/Galveston and Beaumont/Port Arthur, citing the need for 
additional time to complete its UAM modeling.<SUP>73
---------------------------------------------------------------------------

    \72\ 60 FR 19515 (April 19, 1995).
    \73\ 61 FR 65505 (December 13, 1996).
---------------------------------------------------------------------------

    Ozone Transport Assessment Group. EPA is supporting a consultative 
process involving 37 eastern states that includes examination of the 
extent to which NO<INF>X emissions from as far as hundreds of 
kilometers away are contributing to smog problems in downwind cities in 
the eastern U.S. Known as the Ozone Transport Assessment Group (OTAG) 
and chaired by the State of Illinois, this group is looking into ways 
of achieving additional cost-effective reductions in ground-level ozone 
throughout a region consisting of the eastern half of the U.S. 
Preliminary findings from the first and second of three rounds of 
control strategy modeling indicate that regional reductions in NO<INF>X 
emissions would be effective in lowering ozone on a regional scale. The 
relative effectiveness varies by subregion and episode modeled.<SUP>74 
Preliminary OTAG modeling results are described in more detail later in 
this section.
---------------------------------------------------------------------------

    \74\  Ozone Transport Assessment Group, joint meetings of RUSM 
and ISI workgroups, ``First Round Strategy Modeling,'' October 25, 
1996, and ``Round 2 Strategy Modeling,'' December 17, 1996.
---------------------------------------------------------------------------

    Summary. The preceding discussion demonstrates that substantial 
region-wide NO<INF>X reductions will be needed in regions of the 
country where RFG is required for those regions to reach attainment of 
the ozone standard. Reduction in NO<INF>X emissions is needed locally 
in some areas in order to attain the ozone NAAQS while, in some of 
these or other areas, NO<INF>X emission reductions may be needed to 
help attain the ozone NAAQS in downwind areas or to help maintain ozone 
levels below the standard in attainment areas. As a local control 
(except along the Northeast corridor where its use is so widespread as 
to constitute a regional control), the RFG program will reduce NO<INF>X 
emissions in nonattainment areas and contribute to needed regional 
NO<INF>X reductions.
    Control strategies must consider efforts to reduce regional scale 
NO<INF>X emissions as well as local emissions. In general, NO<INF>X 
emissions reductions in upwind, rural areas coupled with VOC reductions 
in urban nonattainment areas appears to be an effective strategy in 
some cases. In some cases however, the urban nonattainment area is also 
upwind of another urban nonattainment area or contains so much biogenic 
VOC emissions that reducing only anthropogenic VOC emissions has too 
little ozone benefit. For example, the Atlanta nonattainment area has 
very high biogenic VOC, while in the Northeast, many urban 
nonattainment areas are upwind of other urban nonattainment areas. In 
cases like these, local NO<INF>X reductions may be needed in urban 
nonattainment areas in addition to, or instead of, VOC reductions for 
purposes of ozone attainment. Thus, effective ozone control will 
require an integrated strategy that combines cost-effective reductions 
in emissions at the local, state, regional, and national levels.
2. Section 182(f) Waivers and State Implementation Plans for Ozone 
Attainment
    Because Title I focuses on measures needed to bring nonattainment 
areas into attainment, the CAA requires EPA to view section 182(f) 
NO<INF>X waivers in a narrow manner. In part, section 182(f) provides 
that waivers must be granted if states outside an ozone transport 
region (OTR) show that reducing NO<INF>X within a nonattainment area 
would not contribute to attainment of the ozone NAAQS in that 
nonattainment area.<SUP>75 Only the role of local NO<INF>X emissions on 
local attainment of the ozone standard is considered in nonattainment 
areas outside an OTR. Any exemption may be withdrawn if the basis for 
granting it no longer applies. For modeling-based exemptions, this will 
occur if updated modeling analyses reach a different conclusion than 
the modeling on which the exemption was based.<SUP>76 Thus all local 
NO<INF>X waivers should be considered temporary and do not shield an 
area from NO<INF>X requirements demonstrated to be needed for ozone 
attainment in that area or in downwind areas.
---------------------------------------------------------------------------

    \75\ 42 U.S.C. Sec. 7511a(f)(1)(A).
    \76\  Seitz, John S., Director, OAQPS, EPA, ``Section 182(f) 
Nitrogen Oxides (NO<INF>X) Exemptions--Revised Process and 
Criteria,'' EPA memoranda to Regional Air Directors, dated May 27, 
1994, and revised February 8, 1995.
---------------------------------------------------------------------------

    EPA has independent statutory authority under CAA section 
110(a)(2)(D) to require a state to reduce emissions from sources where 
there is evidence that transport of such emissions contributes 
significantly to nonattainment or interferes with maintenance of 
attainment in other states. That is, the CAA requires a SIP to conform 
provisions addressing emissions from one state that significantly 
pollute another downwind state. EPA has stated, in all Federal Register 
notices approving section 182(f) NO<INF>X petitions, that it will use 
its section 110(a)(2)(D) authority where evidence of significant 
contribution is found to require needed NO<INF>X (and/or VOC) 
reductions. EPA recently published a notice of intent that it plans to 
call for SIP revisions in the eastern half of the U.S. to reduce 
regional ozone transport across state boundaries, in accordance with 
section 110(a)(2)(D) and (k)(5).<SUP>77
---------------------------------------------------------------------------

    \77\  62 FR 1420 (January 10, 1997).
---------------------------------------------------------------------------

    EPA's granting of exemptions from local NO<INF>X controls should be 
seen in the broader context of SIP attainment plans. For ozone 
nonattainment areas designated as serious, severe, or extreme, state 
attainment demonstrations involve the use of dispersion modeling for 
each nonattainment area. Although these attainment demonstrations were 
due November 15, 1994, the magnitude of this modeling task, especially 
for areas that are significantly affected by transport of ozone and 
ozone precursors generated outside of the nonattainment area, has 
delayed many states in submitting complete modeling results. 
Recognizing these challenges, EPA issued guidance on ozone 
demonstrations <SUP>78 that includes an intensive modeling effort to 
address the problem of long distance transport of ozone, NO<INF>X, and 
VOCs, and submittal of attainment plans in 1997. Considering its 
modeling results, a state must select and adopt a control strategy that 
provides for attainment as expeditiously as practicable.
---------------------------------------------------------------------------

    \78\ Nichols, Mary D., Assistant Administrator for Air and 
Radiation, ``Ozone Attainment Demonstrations,'' memorandum to EPA 
Regional Administrators, March 2, 1995.
---------------------------------------------------------------------------

    When the attainment plans are adopted by the states, these new 
control strategies will, in effect, replace any NO<INF>X waivers 
previously granted. To the extent the attainment plans include NO<INF>X 
controls on certain major stationary sources in the nonattainment 
areas, EPA will remove the NO<INF>X waiver for those sources. To the 
extent the plans achieve attainment without additional NO<INF>X 
reductions from certain sources, the waived NO<INF>X reductions would 
be considered excess reductions and, thus, the exemption would 
continue. EPA's rulemaking action to reconsider the initial NO<INF>X 
waiver may occur simultaneously with rulemaking action on the 
attainment plans. Thus,

[[Page 11355]]

many or all areas, including NO<INF>X waiver areas, are potentially 
subject to NO<INF>X controls as needed to attain the ozone standard 
throughout the nation and/or meet other NAAQSs.
    API selectively cites to those portions of EPA's 1993 section 185B 
report to Congress that support its contention that NO<INF>X control 
may not always be appropriate to reduce ozone, but ignores the report's 
overall conclusions regarding the need for many areas across the nation 
to reduce NO<INF>X emissions if ozone attainment is to be achieved. API 
in particular overlooks the report's finding that, in some cases, even 
if ozone initially increases in response to small NO<INF>X reductions, 
ozone levels in many areas will decline if NO<INF>X levels are more 
significantly reduced. See section 2.2.2. Thus, in some cases, state 
and local agencies may need to reduce NO<INF>X emissions even though 
doing so may cause a potential increase in ozone concentrations in 
central urban areas, as part of a larger plan to enable many 
nonattainment areas to meet the ozone NAAQS. For example, NO<INF>X 
reductions in the New York metropolitan area are needed for downwind 
areas within the state and in other states to attain the ozone 
standard; yet additional VOC controls may be needed in the metropolitan 
area to offset the local impact of NO<INF>X reductions. Similarly, 
NO<INF>X reductions in areas upwind of the Northeast Ozone Transport 
Region may be needed to help downwind areas attain and maintain the 
ozone standard, even though those NO<INF>X reductions may not in some 
cases help the upwind areas reduce local peak ozone concentrations. In 
such cases, a previously granted NO<INF>X waiver will not allow an area 
to avoid implementing NO<INF>X control requirements deemed necessary 
for itself or another area's attainment.
    The progress toward ozone attainment that has been achieved by 
states to date and the continued progress by states toward ozone 
attainment, required by the CAA, are not convincing rationales to EPA 
for dropping the Phase II RFG NO<INF>X standard, as suggested in the 
API petition. The previous discussion demonstrates that substantial 
region-wide reductions in NO<INF>X will be needed in areas of the 
country where RFG is required for those areas to reach attainment of 
the ozone standard. Progress toward attainment achieved by states to 
date and the continued progress toward attainment required under the 
CAA will not be sufficient without additional combined NO<INF>X and VOC 
emission reductions for some RFG areas, including the Northeast 
corridor and the Lake Michigan region, as discussed above, to achieve 
attainment. Moreover, a NO<INF>X waiver does not excuse an area from 
reasonable further progress (RFP) requirements. Thus, progress toward 
attainment is not a convincing rationale for dropping the Phase II RFG 
NO<INF>X standard, because progress toward attainment is not the same 
as attainment and, thus, doesn't demonstrate that the Phase II RFG 
NO<INF>X standard is unnecessary or inappropriate. Because the need for 
extensive NO<INF>X control is clear, it is not necessary or appropriate 
for EPA to delay establishing federal NO<INF>X control programs until 
individual state ozone attainment demonstrations have been developed 
and presented. EPA agrees with comments that loss of the Phase II RFG 
NO<INF>X standard would only exacerbate state emission reduction 
shortfalls.
    Moreover, for the reasons discussed above, EPA does not agree that 
the Phase II RFG NO<INF>X standard is incongruous or at odds with the 
granting of section 182(f) waivers in RFG areas, as suggested in the 
API petition. EPA does agree with API's comments that point out that 
the section 182(f) waiver process alone does not take into account the 
downwind impact of NO<INF>X controls, but notes that API, in doing so, 
has ignored EPA's stated intent to require NO<INF>X reductions from 
states with areas that received NO<INF>X exemptions, pursuant to its 
section 110(a)(2)(D) authority if such areas are shown to contribute 
significantly to downwind states' ozone problems.
3. Comparison of Benefits and Disbenefits From NO<INF>X Reductions
    The following discussion focuses on another aspect of API's section 
182(f) argument: the potential for disbenefits, or increases in urban 
ozone, that occur as a result of reductions in NO<INF>X. The best data 
currently available to examine this air quality and ozone attainment 
issue are the photochemical grid modeling results being generated by 
OTAG. The OTAG model (UAM-V) includes the best emission inventory 
information available, provided by the states and reviewed by 
stakeholders and experts, an improved biogenic inventory (BEIS2), and 
updated chemistry (CB-IV). Data are available from four ozone episodes. 
<SUP>79 All stakeholders, including states and the oil, automotive, and 
utility industries, have been involved in OTAG modeling inputs and 
modeling runs. Further information describing OTAG is available 
electronically on the OTAG Home Page at <a href="http://www.epa.gov/oar/OTAG/
otag.html">http://www.epa.gov/oar/OTAG/
otag.html</a>. All OTAG data discussed here are available electronically on 
the TTN2000 Web Site at http://ttnwww.rtpnc.epa.gov.
---------------------------------------------------------------------------

    \79\ July 1-11, 1988; July 13-21, 1991; July 20-30, 1993; and 
July 7-18, 1995.
---------------------------------------------------------------------------

    OTAG modeling conducted to date consistently demonstrates that 
NO<INF>X reductions applied equally by source type throughout the 37 
state OTAG region result in widespread ozone reductions across most of 
that region, and in geographically and temporally limited increases in 
urban ozone. <SUP>80 The OTAG sensitivity modeling cited in oil 
industry comments included large NO<INF>X reductions (i.e., a 60 
percent reduction in elevated utility system point source NO<INF>X 
emissions plus a 30 percent reduction in low-level, or non-utility 
point and area source and mobile source, including nonroad and on-
highway, NO<INF>X emissions), or large NO<INF>X reductions combined 
with VOC reductions (i.e., a 60 percent reduction in elevated NO<INF>X 
emissions with a 30 percent reduction in low-level NO<INF>X emissions 
plus a 30 percent reduction in VOC emissions) over the 37 state OTAG 
region. That modeling indicates that such emission reductions would 
result in widespread ozone decreases in high ozone areas. That modeling 
also indicates ozone increases, or disbenefits, particularly within the 
Northeast corridor and southwestern Lake Michigan area but only in some 
grid cells on some days of some episodes.
---------------------------------------------------------------------------

    \80\  Ozone Transport Assessment Group, joint meeting of the 
RUSM and ISI workgroups, ``Sensitivity Modeling'' and 5g scatter 
plots, August 22, 1996, ``First Round Strategy Modeling,'' October 
25, 1996, and ``Round 2 Strategy Modeling,'' December 17, 1996.
---------------------------------------------------------------------------

    For example, for July 8, 1988, the OTAG modeling run of a 60 
percent reduction in elevated NO<INF>X emissions plus a 30 percent 
reduction in low-level NO<INF>X emissions, throughout the 37 state 
region (OTAG run 5e), shows decreases in ozone throughout most of the 
37 state region ranging from four to at least 36 ppb. <SUP>81 That 
modeling run also shows increases in ozone of four to 12 ppb in Boston, 
Savannah, Wheeling, and Houston, and increases of four to 28 ppb in the 
Norfolk/Virginia Beach area and along the coasts of Connecticut, New 
York, and New Jersey.
---------------------------------------------------------------------------

    \81\  The upper end of the scale of changes in ozone 
concentrations modeled by OTAG was 36 ppb.
---------------------------------------------------------------------------

    For July 18, 1991, the same modeling run shows decreases in ozone 
ranging from four to at least 36 ppb throughout most of the 37-state 
region. Ozone increases of four to 12 ppb appear in Nashville, Paducah, 
Detroit, Bay City, and Philadelphia, and increases of four to at least 
36 ppb in the Lake Michigan area and in Memphis, Louisville, 
Indianapolis, and Cincinnati. For July

[[Page 11356]]

15, 1995, modeling shows ozone decreases ranging from four to at least 
36 ppb throughout most of the OTAG region, and ozone increases of four 
to 12 ppb in Milwaukee, Chicago, Youngstown, and Philadelphia, and 
increases of four to 28 ppb on Long Island and in Memphis.
    OTAG modeling indicates that urban ozone increases from region-wide 
NO<INF>X control are smaller in magnitude and area when NO<INF>X 
reductions are combined with VOC reductions. In a modeling run with a 
60 percent elevated source NO<INF>X reduction, a 30 percent low-level 
NO<INF>X reduction and a 30 percent VOC reduction (OTAG run 5c), for 
July 8, 1988, ozone increases of four to 12 ppb were confined to 
Memphis and Norfolk/Virginia Beach, with increases of four to 28 ppb 
along the coast of Connecticut, New York, and New Jersey. For July 18, 
1991, ozone increases of four to 12 ppb appear in Paducah and 
Philadelphia, with increases of four to 20 ppb in Chicago, Milwaukee, 
Cincinnati, and Louisville. For July 15, 1995, increases of four to 12 
ppb appear in Memphis, Youngstown, Philadelphia, and Long Island.
    The above OTAG results for ozone changes were cited without regard 
to the actual ozone levels. A closer look at OTAG modeling indicates 
that urban NO<INF>X reductions, as part of region-wide reductions, 
produce widespread decreases in ozone concentrations on high ozone 
days. Urban NO<INF>X reductions also produce limited increases in ozone 
concentrations, but the magnitude, time, and location of these 
increases generally do not cause or contribute to high ozone 
concentrations; most urban ozone increases occur in areas already below 
the ozone standard and, thus, in most cases, urban ozone increases 
resulting from NO<INF>X reductions do not cause exceedance of the ozone 
standard. There are a few days in a few urban areas where NO<INF>X 
reductions produce ozone increases in portions of an urban area that 
are detrimental. OTAG defined detrimental as an increase exceeding four 
ppb in a grid cell on a day with ozone exceeding 100 ppb. However, 
those portions of an urban area with disbenefits on one day of an ozone 
episode get benefits on later days of the same episode, and later days 
generally are higher ozone days. <SUP>82
---------------------------------------------------------------------------

    \82\  Lopez, Bob, ``Localized Ozone Increases Due to NO<INF>X 
Control--Transmittal of Technical Evaluation Summary and Draft 
Policy Options Paper,'' memorandum and attachments from OTAG Task 
Group on Criteria for Modeling and Strategy Refinement Regarding 
NO<INF>X Disbenefits to OTAG Implementation and Strategies Workgroup 
and Criteria Evaluation Miniworkgroup, second draft, December 12, 
1996, and Koerber, Mike, OTAG Policy Group Meeting, December 18, 
1996.
---------------------------------------------------------------------------

    In other words, OTAG has found that, in general, NO<INF>X reduction 
disbenefits are inversely related to ozone concentration. On the low 
ozone days leading up to an ozone episode (and sometimes the last day 
or so) the increases are greatest, and on the high ozone days, the 
increases are least (or nonexistent); the ozone increases generally 
occur on days when ozone is low and the ozone decreases generally occur 
on days when ozone is high. This indicates that, in most cases, urban 
ozone increases may not produce detrimental effects when viewed alone, 
and the overall effects over the episode are positive. However, OTAG 
modeling (run 5e) indicates that at least one area for one day of one 
episode experienced an increase in ozone on a high ozone day. 
Concentration difference plots show ozone increases over Lake Michigan 
and the adjacent shoreline at least as high as 36 ppb on July 18, 1991, 
when the highest modeled ozone concentration was about 110 ppb. 
However, concentration difference plots also show ozone decreases in 
downwind states. Decreases in ozone of five ppb extend into Michigan, 
and decreases of one ppb extend as far as New York, New Hampshire, 
Vermont, and Maine. The magnitude of the ozone decrease is as high as 
ten ppb. <SUP>83
---------------------------------------------------------------------------

    \83\  Ibid.
---------------------------------------------------------------------------

    For July 19, 1991, with peak ozone levels of 130 ppb and, therefore 
higher than for July 18, OTAG modeling (run 4b) <SUP>84 showed ozone 
increases for only two of the 20 highest grid cells in the Lake 
Michigan region. On July 20, ozone increases are only apparent for 
ozone levels less than 100 ppb. OTAG modeling thus demonstrates that 
the ozone reduction benefits of urban NO<INF>X control far outweigh the 
disbenefits of urban ozone increases in both magnitude of ozone 
reduction and geographic scope.
---------------------------------------------------------------------------

    \84\  OTAG run 4b represents the deepest level of controls that 
has been modeled by OTAG for nonutility point source NO<INF>X 
emissions, and for NO<INF>X and VOC emissions from area and mobile 
sources. If the deepest level of NO<INF>X controls being modeled by 
OTAG for utility NO<INF>X and for utility and nonutility point 
source VOC is then added (OTAG run 2), ozone increases are not as 
large on July 19, 1991 and some become ozone reductions.
---------------------------------------------------------------------------

    Ozone benefits and disbenefits occur from both elevated and low-
level NO<INF>X reductions; the relative effectiveness of elevated and 
low-level NO<INF>X reductions varies by region and ozone episode, 
according to OTAG modeling.<SUP>85 Elevated and low-level NO<INF>X 
reductions appear to act independently, with little synergistic effect. 
The pattern of ozone benefits and disbenefits is similar whether the 
one-hour or the proposed eight-hour ozone standard is modeled.
---------------------------------------------------------------------------

    \85\ Koerber, Mike, OTAG Policy Group Meeting, December 18, 
1996.
---------------------------------------------------------------------------

    The NO<INF>X reduction scenarios modeled by OTAG are for large 
NO<INF>X reductions, greater than the Phase II RFG NO<INF>X emission 
reduction standard of 6.8 percent of gasoline-fueled vehicle emissions 
on average. Although EPA believes the direction of the effect is 
reliable, disbenefits from the Phase II RFG NO<INF>X emission reduction 
standard would be smaller than the urban disbenefits modeled by OTAG 
for larger NO<INF>X reductions. EPA recognizes that the OTAG model's 
coarse grid size (even in fine part of the domain) may cause the 
modeling to show fewer disbenefit areas than actually exist and would 
be revealed by finer grid modeling, such as urban-scale modeling. As 
API points out, urban-scale modeling demonstrations of NO<INF>X 
disbenefits supported the section 182(f) waivers approved by EPA for 
three mandated RFG areas (Chicago, Milwaukee, and Houston). The OTAG 
model's grid size and wide field treatments are not precise enough to 
be used to balance population exposures to ozone benefits and 
disbenefits from NO<INF>X control. However, these facts do not change 
EPA's conclusion that OTAG modeling demonstrates that the ozone 
reduction benefits of NO<INF>X control far outweigh the disbenefits of 
urban ozone increases in both magnitude of ozone reduction and 
geographic scope.
    It should be noted that no scenario modeled by OTAG to date 
completely mitigates the ozone problem throughout the 37 state domain, 
so some areas, including the Northeast and the Lake Michigan region, 
will have to go beyond OTAG scenarios to reach attainment. Since OTAG 
modeling shows that more NO<INF>X emission reductions produce more 
ozone reductions, the ultimate ozone mitigation level of emissions may 
not produce urban disbenefits.
    OTAG modeling of the transport of ozone and ozone precursors among 
subregions is less complete than its modeling of various region-wide 
emission reduction scenarios. Preliminary OTAG sensitivity tests did 
include a set of four regional impact runs to examine the effect of 
controls applied differently within the OTAG domain. For this purpose, 
OTAG was divided into four subregions: Northeast, Midwest, Southeast, 
and Southwest.<SUP>86 The regional impact runs provide

[[Page 11357]]

preliminary information on the spatial and temporal scales of ozone 
transport. NO<INF>X reductions of 60 percent from elevated sources and 
30 percent from low level sources plus a VOC reduction of 30 percent 
(OTAG run 5c) were applied to one region at a time for each of the four 
OTAG ozone episodes. In general, surface plots show that emission 
reductions in a given region have the most ozone reduction benefit in 
that same region, although downwind benefits outside the region were 
also apparent. Northeast reductions benefited the Southeast in one 
episode. Midwest reductions benefited the Northeast in four episodes 
and the Southeast in one episode. Southeast reductions benefited the 
Midwest during two episodes and the Southwest during two episodes. 
Southwest reductions benefited the Midwest during two episodes.<SUP>87
---------------------------------------------------------------------------

    \86\ Subsequent to the subregional modeling described here, OTAG 
has further divided its modeling domain into 13 smaller subregions 
for purposes of assessing transport between these subregions. This 
modeling was not complete enough to have been considered in the 
decision announced today.
    \87\ Ozone Transport Assessment Group, joint meeting of the RUSM 
and ISI workgroups, ``Sensitivity Modeling,'' August 22, 1996.
---------------------------------------------------------------------------

    Although OTAG modeling of ozone transport is incomplete, it 
indicates that NO<INF>X reductions have downwind ozone reduction 
benefits, although those benefits attenuate with distance. NO<INF>X 
reductions in Chicago and Milwaukee may help nearby states such as 
Michigan and perhaps, to some extent, the Northeast as well. NO<INF>X 
reductions in the southern end of the Northeast corridor will help the 
northern end.
    The API petition requests that EPA eliminate or delay the Phase II 
RFG NO<INF>X emission reduction standard.<SUP>88 EPA disagrees, as the 
evidence does not support eliminating or delaying the Phase II RFG 
NO<INF>X standard. The NO<INF>X reductions obtained from RFG in the 
metropolitan nonattainment areas are an important component of a 
regional NO<INF>X reduction strategy, and modeling and analysis to date 
strongly supports the need for such regional NO<INF>X reductions. Such 
reductions, especially when combined with urban VOC reductions, lead to 
ozone reductions on high ozone days across large areas of the country, 
including all of the major ozone nonattainment areas covered by the RFG 
program. While the potential for disbenefits is clear, with few 
exceptions, disbenefits appear on low ozone days and do not cause 
exceedance of the ozone standard, while benefits appear on high ozone 
days when they are most needed. As described above, OTAG found only one 
day of one episode in one area where an urban ozone increase could be 
classified as detrimental, with detrimental being defined as an 
increase in ozone of four ppb in a grid cell on a day with ozone 
exceeding 100 ppb.<SUP>89 NO<INF>X control resulted in ozone decreases 
for the following days of that episode . EPA does not believe the 
evidence when viewed overall supports forgoing the ozone reduction 
benefits of NO<INF>X reduction from RFG.
---------------------------------------------------------------------------

    \88\ One commenter suggested that an ``opt out'' provision from 
the NO<INF>X reduction standard be provided for areas that can 
document a disbenefit from NO<INF>X reductions. For the reasons 
discussed above, the evidence does not support such a waiver for RFG 
standards at this time.
    \89\ Lopez, Bob, ``Localized Ozone Increases Due to NO<INF>X 
Control--Transmittal of Technical Evaluation Summary and Draft 
Policy Options Paper,'' memorandum and attachments from OTAG Task 
Group on Criteria for Modeling and Strategy Refinement Regarding 
NO<INF>X Disbenefits to OTAG Implementation and Strategies Workgroup 
and Criteria Evaluation Miniworkgroup, second draft, December 12, 
1996, and Koerber, Mike, OTAG Policy Group Meeting, December 18, 
1996.
---------------------------------------------------------------------------

    In conclusion, API's arguments that the Phase II RFG NO<INF>X 
standard may cause limited urban disbenefits, and that additional VOC 
reductions may be necessary to ameliorate such disbenefits, are not 
compelling new evidence or arguments that support elimination or delay 
of the Phase II RFG NO<INF>X emission reduction standard. <SUP>90 EPA 
has concluded that reducing NO<INF>X emissions in required RFG areas as 
part of a region-wide strategy will contribute to attainment of the 
ozone standard, even if those NO<INF>X emission reductions do not 
improve air quality in some portions of some RFG areas on some low 
ozone days. Additional VOC reductions are an option states may choose 
to avoid or reduce urban ozone increases from NO<INF>X control.
---------------------------------------------------------------------------

    \90\  See discussion in the RFG final rule at 59 FR 7751.
---------------------------------------------------------------------------

    API recently submitted the results of air quality modeling 
undertaken by Systems Applications International on API's behalf. API's 
modeling used the same photochemical grid model, inventory, and episode 
data as OTAG. API examined the effect in 2007 of a 6.8 percent 
reduction in mobile source NO<INF>X emissions in RFG areas during the 
1991 episode. API's modeling shows benefits and disbenefits in RFG 
areas, and no change in most non-RFG areas throughout the OTAG domain. 
<SUP>91 On the basis of this modeling, API argues that the Phase II RFG 
NO<INF>X standard will be ineffective in reducing ozone, underscoring 
the cost-ineffectiveness of the Phase II RFG NO<INF>X standard, 
according to API.
---------------------------------------------------------------------------

    \91\  EPA was puzzled by effects that appear in Georgia and 
Alabama, which are not RFG areas, and contacted API for an 
explanation. API's contractor, SAI, explained in a February 14, 1997 
telephone call that some anomalies of the modeled results can be 
explained by the differences in the results when directly comparing 
modeling runs made on two different computers. However, the 
differences in results from directly comparing modeling runs made on 
two different computers may also confound the modeled effects of RFG 
in terms of ozone concentration differences, casting doubt on the 
credibility of the results, since the modeled effects of RFG are in 
the same range as the anomalies claimed by SAI.
---------------------------------------------------------------------------

    However, API's modeling does not indicate whether disbenefits 
occurred in grid cells with high or low ozone, so EPA cannot determine 
if the projected disbenefit would actually be detrimental. As discussed 
previously, OTAG modeling demonstrates that most urban ozone increases 
from NO<INF>X control occur on low ozone days and do not cause 
exceedance of the ozone standard, while ozone reductions occur on high 
ozone days when reductions are most needed. Moreover, API's modeling 
sets the threshold level of ozone reduction at two ppb, which 
effectively eliminates benefits below two ppb. The Phase II RFG 
NO<INF>X standard is estimated to achieve a one to two percent 
reduction in the national NO<INF>X inventory, and that reduction would 
translate into a relatively small reduction in the ozone level at 
levels above 100 ppb. By setting the threshold at two percent, API's 
modeling may not capture the benefits of the standard. Thus, EPA is not 
persuaded by API's modeling that the Phase II RFG NO<INF>X standard 
will be ineffective in reducing ozone; nor does EPA agree that API's 
modeling underscores the Phase II RFG NO<INF>X standard's cost-
ineffectiveness.
4. Non-ozone Benefits
    In the RFG final rule, EPA cited non-ozone benefits of NO<INF>X 
control, such as reductions in emissions leading to acid rain 
formation, reductions in toxic nitrated polycyclic aromatic compounds, 
lower secondary airborne particulate (i.e., ammonium nitrate) 
formation, reduced nitrate deposition from rain, improved visibility, 
and lower levels of nitrogen dioxide. A complete discussion of these 
benefits can be found in the RIA accompanying the RFG final rule. 
<SUP>92 EPA did not attempt to quantify the non-ozone benefits of 
NO<INF>X control in the rulemaking, and did not include non-ozone 
benefits in its cost-effectiveness determination.
---------------------------------------------------------------------------

    \92\  See the RIA at pp. 321-322. See also 59 FR 7751.
---------------------------------------------------------------------------

    API claims that because EPA did not quantify non-ozone benefits, 
such benefits are speculative; API presented no evidence to support 
this claim. EPA does not agree. The fact that EPA did not quantify non-
ozone benefits of NO<INF>X control does not render those benefits 
speculative. In a directional sense, at least, the non-ozone benefits 
of NO<INF>X reductions, including the Phase II RFG NO<INF>X standard, 
are clear.

[[Page 11358]]

    Since publication of the RFG final rule, EPA has identified 
additional non-ozone benefits from NO<INF>X reductions. The following 
describes how NO<INF>X emissions contribute to adverse impacts on the 
environment:
    Acid Rain. NO<INF>X and sulfur dioxide are the two key air 
pollutants that cause acid rain and result in adverse effects on 
aquatic and terrestrial ecosystems, materials, visibility, and public 
health. Nitric acidic deposition plays a dominant role in the acid 
pulses associated with the fish kills observed during the springtime 
melt of the snowpack in sensitive watersheds and recently has also been 
identified as a major contributor to chronic acidification of certain 
sensitive surface waters.
    Drinking Water Nitrate. High levels of nitrate in drinking water 
are a health hazard, especially for infants. Atmospheric nitrogen 
deposition in sensitive forested watersheds can increase stream water 
nitrate concentrations; the added nitrate can remain in the water and 
be transported long distances downstream because plants in most 
freshwater systems do not take up the added nitrate.
    Eutrophication. NO<INF>X emissions contribute directly to the 
widespread accelerated eutrophication of U.S. coastal waters and 
estuaries. Atmospheric deposition direct to surface waters and 
deposition to watershed and subsequent transport into the tidal waters 
has been documented to contribute from 12 to 44 percent of the total 
nitrogen loadings to U.S. coastal water bodies. Nitrogen is the 
nutrient limiting growth of algae in most coastal waters and estuaries. 
Thus addition of nitrogen results in accelerated algal and aquatic 
plant growth in the water body causing adverse ecological effects and 
economic impacts that range from nuisance algal blooms to oxygen 
depletion and fish kills.
    Global Warming. Nitrous oxide (N2O) is a greenhouse gas. 
Anthropogenic nitrous oxide emissions in the U.S. contribute about two 
percent of the greenhouse effect, relative to total U.S. anthropogenic 
emissions of greenhouse gases. In addition, emissions of NO<INF>X lead 
to the formation of tropospheric ozone, which is another greenhouse 
gas.
    Nitrogen Dioxide (NO2). Exposure to NO2 is associated with a 
variety of acute and chronic health effects. The health effects of most 
concern at ambient or near-ambient concentrations of NO2 include mild 
changes in airway responsiveness and pulmonary function in individuals 
with preexisting respiratory illnesses, and increases in respiratory 
illnesses in children.
    Nitrogen Saturation of Forest Ecosystems. Forests accumulate 
nitrogen inputs. While nitrogen inputs in forest ecosystems have 
traditionally been considered beneficial, recent findings in North 
America and Europe suggest that, because of chronic nitrogen deposition 
from air pollution, some forests are showing signs of nitrogen 
saturation, including undesirable nitrate leaching to surface and 
ground water and decreased plant growth.
    Particulate Matter. NO<INF>X compounds react with other compounds 
to form fine nitrate particles and acid aerosols. Nitrates are 
especially damaging because of their small size, which results in 
penetration deep into the lungs. Particulate matter has a wide range of 
adverse health effects, including premature death.
    Stratospheric Ozone Depletion. A layer of ozone located in the 
upper atmosphere (stratosphere) protects the surface of the earth 
(troposphere) from excessive ultraviolet radiation. Tropospheric 
emissions of nitrous oxide (N2O) are very stable and slowly migrate to 
the stratosphere, where solar radiation breaks it into nitric oxide 
(NO) and nitrogen (N). The nitric oxide reacts with ozone to form 
nitrogen dioxide and oxygen. Thus, additional N2O emissions would 
result in a slight decrease in stratospheric ozone.
    Toxics. In the atmosphere, NO<INF>X emissions react to form 
nitrogen compounds, some of which are toxic. Compounds of concern 
include transformation products, nitrate radical, peroxyacetyl 
nitrates, nitroarenes, and nitrosamines.
    Visibility and Regional Haze. NO<INF>X emissions can interfere with 
the transmission of light, limiting visual range and color 
discrimination. Most visibility and regional haze problems can be 
traced to carbon, nitrates, nitrogen dioxide, organics, soil dust, and 
sulfates.

Cost-Effectiveness

1. Cost-Effectiveness of Phase II RFG NO<INF>X Standard
    To update its evaluation of the cost-effectiveness of the Phase II 
RFG NO<INF>X standard, EPA asked DOE to update the 1994 DOE study. EPA 
used the Bonner & Moore refinery model to estimate costs in the RFG 
rulemaking, and included the 1994 DOE study and additional industry 
cost studies in its consideration. EPA determined to update the DOE 
study for purposes of considering API's petition, rather than the 
Bonner & Moore analysis, because since the 1994 study, EPA, DOE, and 
API have worked closely to improve the refinery modeling used by DOE to 
develop cost estimates. Over 200 improvements and changes to the model 
have been made in response to suggestions from API.
    EPA notified each party that commented on the API petition when 
DOE's draft report became available and sent copies to interested 
parties for their review. EPA also reopened the comment period and held 
a meeting with interested parties to discuss the draft DOE report.
    DOE's improved model provides a range of cost-effectiveness, rather 
than a single number. DOE's regionally-weighted cost range per summer 
ton of NO<INF>X removed is $5,400 to $11,300. Based on that range, EPA 
calculated the annual incremental cost range at $2,180 to $6,000 per 
ton of NO<INF>X removed. Although the high end of EPA's cost-
effectiveness range exceeds $5,000, EPA does not consider that to be 
significant, since the midpoint of the range is $4,090. EPA views DOE's 
updated estimate as new information that confirms the information 
relied upon in the RFG rulemaking to evaluate the cost-effectiveness of 
the Phase II RFG NO<INF>x standard. The improvements to the DOE model 
and EPA's updated cost-effectiveness calculations are described in 
detail in an EPA technical memorandum available in the docket for this 
action. <SUP>93
---------------------------------------------------------------------------

    \93\ See A-96-27, Memorandum dated February 1997 from Lester 
Wyborny, Chemical Engineer, Fuels and Energy Division, ``Cost of 
Phase II RFG NO<INF>X Control,'' to Charles Freed, Director, Fuels 
and Energy Division.
---------------------------------------------------------------------------

    EPA received comments from the oil and automotive industries on 
DOE's draft report. Both the oil and automotive industries' comments 
are critical of certain technical aspects of DOE's refinery modeling. 
These comments and EPA's responses are discussed in an EPA technical 
memorandum, and in DOE's final report; both documents are available in 
the docket for this action. <SUP>94
---------------------------------------------------------------------------

    \94\ Ibid and U.S. DOE, Re-estimation of the Refining Cost of 
Reformulated Gasoline NO<INF>X Control, February 1997.
---------------------------------------------------------------------------

    Overall, oil industry comments argued that the lower end of the DOE 
cost range should be dropped because the model form that produced it is 
not representative. DOE produced a cost range by using both a ``ratio 
free'' and ``ratio constrained'' form of its refinery model. The ratio 
free form is similar to the model version used for the 1994 DOE study, 
with improvements in process descriptions. The ratio free model 
includes a modeling concept in which refinery streams with identical

[[Page 11359]]

distillation cut points are kept separate through different processes, 
and this modeling concept may produce over-optimized results. The ratio 
constrained form has the same improvements in process descriptions as 
the ratio free form, with added constraints on the proportions of 
streams entering a process, to avoid unrealistic stream separation; 
however, the ratio constrained form may under-optimize refinery 
operations. DOE has concluded that both model forms can provide 
credible estimates of the refining cost range, given the variations 
within and among refineries, uncertainties in the range of refinery 
costs, and the over-optimization and under-optimization possibilities 
of the model forms. EPA agrees with DOE that both model forms are 
useful in exploring the plausible range of refining costs.
    Oil industry comments argue that the upper end of DOE's range 
exceeds a benchmark of $5,000 per ton of NO<INF>X removed. DOE's 
regionally-weighted cost-effectiveness estimate for the ratio 
constrained model form is $11,300 per summer ton of NO<INF>X removed, 
which DOE calculates as $5,200 per annual ton, and which EPA calculates 
as $6,000 per annual ton. <SUP>95 Both EPA and DOE believe that the 
high end of the range reflected by the ratio constrained model estimate 
is not significantly different from the benchmark of $5,000 per annual 
ton.
---------------------------------------------------------------------------

    \95\ The annual per ton cost estimates of DOE and EPA differ 
because EPA uses a different method of annualizing costs than DOE. 
EPA's calculations are described in a technical memorandum to docket 
A-96-27; see the memorandum dated February 1997 from Lester Wyborny, 
Chemical Engineer, Fuels and Energy Division, ``Cost of Phase II RFG 
NO<INF>X Control,'' to Charles Freed, Director, Fuels and Energy 
Division. Although Phase II RFG NO<INF>X emission reductions are 
required only during the summer ozone season, EPA annualizes the 
cost so that it may be compared with other emission reduction 
programs.
---------------------------------------------------------------------------

    EPA believes that the updated DOE cost study is the best available 
evidence concerning the costs of the Phase II RFG NO<INF>X standard, 
including the desulfurization processes that drive those costs. This 
evidence indicates that the cost-effectiveness analysis used by EPA 
when setting the standard continues to be valid. The detailed 
information on desulfurization costs submitted by API to support its 
petition was previously submitted during the RFG rulemaking and was 
considered at that time; it is not new information and does not change 
EPA's view, based on the updated DOE cost modeling, that the Phase II 
RFG NO<INF>X standard remains cost-effective.
    API argues that the 1994 DOE study supports its argument that EPA's 
desulfurization costs are too low, citing the study's observation that: 
``The actual NO<INF>X reduction standard for Phase II RFG should 
reflect margins for enforcement tolerance, temporal production 
variations* * *, variations among refiners of differing capability, and 
potential inaccuracies and over-optimization in the refinery yield 
model* * *,<SUP>96 However, the 1994 DOE study supports EPA's view that 
the 6.8 percent average NO<INF>X emission reduction standard will cost 
approximately $5,000 per annual ton of NO<INF>X removed. The 1994 DOE 
study's reference to $10,000 per summer ton is equivalent to EPA's 
$5,000 per annual ton.<SUP>97 Furthermore, the 1994 DOE study used 
inflated year 2000 dollars, while EPA's estimates were in 1990 dollars.
---------------------------------------------------------------------------

    \96\ Pet. at p. 20, citing the 1994 DOE study at xii.
    \97\ 1994 DOE study, pp. 56-58.
---------------------------------------------------------------------------

    Oil industry comments also point out that DOE's updated report 
states that its cost estimates do not include the impact of the 
requirement that RFG achieve a three percent minimum NO<INF>X reduction 
per batch under the averaging provisions, or the impact of any 
potential enforcement tolerance associated with that three percent 
minimum NO<INF>X standard. EPA believes that any costs associated with 
the minimum NO<INF>X reduction requirement and any associated 
enforcement tolerance compliance costs are separate costs associated 
with these provisions and do not change the cost-effectiveness analysis 
of the 6.8 percent average NO<INF>X emission reduction standard. While 
EPA is denying API's petition to reconsider the 6.8 percent average 
standard, it will continue to evaluate and plans to reach a decision on 
the separate issues associated with the three percent minimum 
requirement under the averaging provisions.
    As discussed above, NO<INF>X reductions from Phase II RFG in 
several cities with NO<INF>X waivers are expected to contribute to 
ozone attainment in those areas, downwind areas, or both. As discussed 
previously, EPA believes that the benefits of NO<INF>X reduction in 
these and other RFG areas far outweigh the disbenefits. Thus, EPA does 
not believe that the benefit of the NO<INF>X reductions in Chicago, 
Milwaukee, and Houston should be calculated as zero when analyzing the 
cost-effectiveness of the Phase II RFG NO<INF>X reduction standard.
    API also argues that the Phase II RFG NO<INF>X emission reduction 
standard interferes with refining flexibility and leaves refiners with 
unduly costly and narrow choices for producing RFG. However, as the 
updated DOE study indicates, as discussed above, the Phase II RFG 
NO<INF>X standard is not unduly costly even considering the high end of 
the range reflected by the ratio constrained model estimate. In the 
final rule, EPA clarified that the Phase II RFG standards are 
performance standards and may be met by the refiner's choice of fuel 
parameter controls. In addition, EPA elected to allow both a per gallon 
and an averaging standard for NO<INF>X to provide greater flexibility 
to refiners. API has provided no compelling new evidence or argument to 
the contrary.
2. Stationary Source Cost-Effectiveness
    API argues that EPA understated the relative cost-effectiveness of 
major stationary source NO<INF>X controls. API cites incremental cost-
effectiveness estimates for coal-fired utility boilers of $1,300 to 
$2,200 per ton for selective non-catalytic reduction and $1,250 to 
$6,600 per ton for selective catalytic reduction.<SUP>98 For gas and 
oil-fired utility boilers, API cites $2,100 to $5,650 per ton for 
selective catalytic reduction, and for gas-fired industrial boilers, 
$3,300 to $5,500 per ton for selective catalytic reduction.<SUP>99 In 
its RIA, EPA cited cost-effectiveness estimates for stationary source 
NO<INF>X emission controls based on utility boilers. Low NO<INF>X 
burner technology was cited at $1,000 per ton and selective catalytic 
reduction at $3,000 to $10,000 per ton.<SUP>100
---------------------------------------------------------------------------

    \98\ Pet. at p. 26.
    \99\ Ibid.
    \100\ RIA at p. 385.
---------------------------------------------------------------------------

    In stationary source regulations promulgated since the RFG rule, 
cost-effectiveness estimates have ranged from $200 per ton for certain 
coal fired power plants <SUP>101 to about $3,000 per ton for municipal 
waste combustors.<SUP>102 Recent NO<INF>X control estimates developed 
by the Mid-Atlantic Regional Air Management Association (MARAMA) and 
Northeast States for Coordinated Air Use Management (NESCAUM) for those 
regions for retrofits range from a low of $320 to $1,800 for natural 
gas reburn for oil and gas boilers to $3,400 to $6,900 for natural gas 
conversion for coal-fired boilers.<SUP>103
---------------------------------------------------------------------------

    \101\ 60 FR 18751 (April 13, 1995).
    \102\ 54 FR 52293 (December 20, 1989); 60 FR 65387 (December 19, 
1995).
    \103\ Phase II NO<INF>X Controls for the MARAMA and NESCAUM 
Regions, EPA-453/R-96-002, November 1995, Table 1-7.
---------------------------------------------------------------------------

    API and other oil industry sources cited cost-effectiveness 
estimates and rankings that were developed in the OTAG process for 
Phase II RFG and other NO<INF>X reduction programs, as evidence that 
the Phase II RFG NO<INF>X standard is not cost-effective compared to 
other NO<INF>X reduction programs, particularly stationary source 
programs.

[[Page 11360]]

API argues these other programs offer a larger potential for overall 
reduction in NO<INF>X emissions. The figure of $25,000 to $45,000 per 
ton of NO<INF>X reduced developed in the OTAG process ascribes all the 
costs of RFG to NO<INF>X control, including costs incurred to reduce 
toxics and VOCs, and to meet the various content requirements. If VOC 
and NO<INF>X reductions are valued equally, as OTAG has done, the 
incremental cost per ton of NO<INF>X removed falls by more than a 
factor of four to under $7,000 per ton, and the average cost falls to 
$3,000 to $4,000 per ton. That incremental cost is higher than 
projected by EPA for the Phase II RFG NO<INF>X standard because it 
assumes that all the gasoline in the 37 state OTAG region, over 90 
percent of the gasoline sold in the U.S. outside of California, would 
be included in the RFG program. Costs rise rather than fall as volume 
of RFG produced increases because less efficient refineries would be 
drawn into producing RFG. Moreover, EPA's $5,000 per ton cost estimate 
for the Phase II RFG NO<INF>X standard applies to the final increment 
of emission reduction pursued under the program, while API compares 
this incremental cost to average costs of other control programs. 
Average costs are always less than incremental costs; if Phase II RFG 
costs are evaluated on an average-cost basis, the cost per ton for RFG 
areas falls to between $2,000 and $3,000.
    Based on the evidence presented, EPA concludes that some stationary 
source NO<INF>X controls are more cost-effective than the Phase II RFG 
NO<INF>X standard, and some are not. The fact that some stationary 
source NO<INF>X controls are more cost-effective does not vitiate the 
cost-effectiveness of the Phase II RFG NO<INF>X standard. EPA cited 
stationary source costs both above and below the cost of Phase II RFG 
NO<INF>X standard in the RFG rulemaking. EPA does not find that it 
understated the relative cost-effectiveness of stationary source 
NO<INF>X controls.
    API argues that stationary sources offer more potential for 
reducing air pollution. API argues that EPA should sequence NO<INF>X 
controls and target major stationary sources first, since stationary 
source NO<INF>X control is more cost-effective and can be targeted 
geographically to avoid controls where controls are not needed. Other 
NO<INF>X controls should not be considered until major stationary 
source controls are employed and evaluated, according to API.
    As discussed previously, some stationary source NO<INF>X controls 
are more cost-effective than the Phase II RFG NO<INF>X standard, and 
some are not. However, OTAG has projected that, in 2007, mobile sources 
will still contribute 42 percent of all NO<INF>X after implementation 
of 1990 CAAA controls for mobile and stationary sources. These measures 
include the retrofit of reasonably available control technology on 
existing major stationary sources of NO<INF>X and implementation of 
enhanced inspection and maintenance programs under Title I; new 
emission standards for new motor vehicles and nonroad engines, and the 
RFG program under Title II; and controls on certain coal-fired electric 
power plants under Title IV. Given the challenges facing so many areas 
in identifying and implementing programs that will lead to attainment 
of the ozone standard, and the need for additional NO<INF>X controls, 
EPA believes that NO<INF>X reductions in urban areas where mobile 
sources are concentrated, as part of a region-wide NO<INF>X reductions, 
are still essential to achieve ozone attainment. In addition, OTAG 
modeling demonstrates that even with unrealistically large NO<INF>X 
reductions, such as an 80 percent reduction in elevated NO<INF>X plus a 
60 percent reduction in low level NO<INF>X, without VOC reductions, 
attainment still would not be reached throughout the OTAG region. EPA 
believes that both stationary source and mobile source controls will be 
necessary for many areas to reach attainment.
3. Executive Order 12866
    API argues that the Phase II RFG NO<INF>X emission reduction 
standard does not satisfy the provisions of Executive Order 12866. API 
argues that the Phase II RFG NO<INF>X standard is not compelled by 
statute or necessary to interpret the statute, or made necessary by 
public need, or the most cost-effective NO<INF>X control to achieve the 
regulatory objective.
    EPA believes the Phase II RFG NO<INF>X reduction standard meets the 
substantive requirements of the Executive Order 12866. Although the 
Phase II RFG NO<INF>X standard is not required by statute, it is ``made 
necessary by compelling public need'' <SUP>104 and is a cost-effective 
standard. As discussed earlier, the authority EPA used to establish the 
standard, section 211(c)(1)(A), allows EPA to regulate fuels or fuel 
additives if their emission products cause or contribute to air 
pollution that may reasonably be anticipated to endanger public health 
or welfare. EPA used this authority based on scientific evidence 
regarding the benefits of NO<INF>X control and the cost-effectiveness 
of NO<INF>X reductions. The preceding discussion indicates that EPA's 
RFG rulemaking properly complied with Executive Order 12866.
---------------------------------------------------------------------------

    \104\ 58 FR 51735 (October 4, 1993), section 1(a) at 51735.
---------------------------------------------------------------------------

V. Conclusion

    A detailed discussion of the determination of the need for, 
scientific justification for, and cost-effectiveness of NO<INF>X 
control is presented in the RIA for the final rule.<SUP>105 EPA's 
review here of the air quality benefits and cost-effectiveness of the 
Phase II RFG NO<INF>X reduction standard does not show that the prior 
rulemaking determinations supporting this standard were inappropriate. 
After considering API's petition, public comment, and other relevant 
information available to EPA, API's petition for reconsideration of the 
Phase II RFG NO<INF>X emission reduction standard is denied.

    \105\ RIA at pp. 313-326.

    Dated: February 28, 1997.
Mary D. Nichols,
Assistant Administrator, Office of Air and Radiation.
[FR Doc. 97-6217 Filed 3-11-97; 8:45 am]
BILLING CODE 6560-50-P