[Federal Register Volume 63, Number 123 (Friday, June 26, 1998)]
[Rules and Regulations]
[Pages 34818-34825]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-16669]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[FRL-6114-4]


Fuels and Fuel Additives; Amendments to the Enforcement 
Exemptions for California Gasoline Refiners

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: In this action, EPA is amending certain requirements of the 
reformulated gasoline (RFG) regulations which are applicable to 
California gasoline refiners, importers and oxygenate blenders. These 
amendments

[[Page 34819]]

add flexibility with regard to test methods, sampling and testing 
requirements, and the use of gasoline that does not meet the oxygen 
requirement for Federal RFG in California areas that are not Federal 
RFG areas. EPA is taking this action in order to reduce the burden 
associated with overlapping California and Federal regulations. There 
is no expected adverse environmental impact from this final action.

EFFECTIVE DATE: This rule becomes effective on July 27, 1998.

FOR FURTHER INFORMATION CONTACT: Anne Pastorkovich, U.S. Environmental 
Protection Agency, Office of Air and Radiation, (202) 564-8987.

SUPPLEMENTARY INFORMATION:

I. Regulated Entities

    Regulated categories and entities potentially affected by this 
action include:

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              Category                  Examples of regulated entities  
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Industry...........................  Refiners, importers and oxygenate  
                                      blenders in California            
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    This table is not intended to be exhaustive, but rather provides a 
guide for readers regarding entities likely to be regulated by this 
action. This table lists the types of entities that EPA is now aware 
could be potentially regulated by this action. Other types of entities 
not listed in the table could also be regulated. To determine whether 
an entity is regulated by this action, one should carefully examine the 
RFG provisions at 40 CFR part 80, particularly Sec. 80.81 dealing 
specifically with California gasoline. If you have questions regarding 
the applicability of this action to a particular entity, consult the 
person listed in the preceding FOR FURTHER INFORMATION CONTACT section.

II. Background

A. RFG Standards and California Covered Areas

    Section 211(k) of the Clean Air Act (the Act) requires EPA to 
establish requirements for reformulated gasoline (RFG) to be used in 
specified ozone nonattainment areas (Federal areas), as well as ``anti-
dumping'' requirements for conventional gasoline used in the rest of 
the country, beginning in January 1995. The federal RFG covered areas 
in California are Los Angeles, San Diego, and Sacramento. The Act 
requires that RFG reduce ozone forming volatile organic compounds 
(VOCs) and toxic emissions from motor vehicles, not increase emission 
of oxides of nitrogen (NO<INF>x</INF>), and meet certain content 
standards for oxygen, benzene and heavy metals. The relevant 
regulations for RFG and conventional gasoline may be found at 40 CFR 
part 80, subparts D, E, and F.<SUP>1</SUP>
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    \1\ See 59 FR 7812 (February 16, 1994), as amended at 59 FR 
36964 (July 20, 1994); 60 FR 2699 (January 11, 1995); 60 FR 35491 
(July 10, 1995); 60 FR 65574 (December 20, 1995); and 62 FR 68196 
(December 31, 1997).
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B. Exemptions Specifically Related to California Gasoline

    On September 18, 1992, the California Air Resources Board (CARB) 
adopted regulations requiring reformulation of California ``Phase 2'' 
gasoline. The CARB regulations established a comprehensive set of 
gasoline specifications designed to achieve reductions in emissions of 
VOCs, NOx, carbon monoxide (CO), sulfur dioxide, and toxic air 
pollutants from gasoline-fueled vehicles.<SUP>2</SUP> The CARB 
regulations set standards for eight gasoline parameters--sulfur, 
benzene, olefins, aromatic hydrocarbons, oxygen, Reid vapor pressure 
(RVP), and distillation temperatures for the 50 percent and 90 percent 
evaporation points (T-50 and T-90, respectively)--applicable starting 
March 1, 1996 for all gasoline in the California distribution network 
(except for gasoline being exported from California). The CARB 
regulations also provide for the production and sale of alternative 
gasoline formulations, with certification under the CARB program based 
on a predictive model or on vehicle emission testing.<SUP>3</SUP>
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    \2\ See Title 13, California Code of Regulations sections 2250-
2272 (as amended January 26, 1996).
    \3\ Id., sections 2265 and 2266.
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    During the Federal RFG rulemaking, and in response to comments by 
California refiners, EPA concluded (1) that VOC and toxics emission 
reductions resulting from the California Phase 2 standards would be 
equal to or more stringent than the Federal Phase I RFG standards 
(applicable from January 1, 1995 through December 31, 1999), (2) that 
the content standards for oxygen and benzene under California Phase 2 
would in practice be equivalent to the Federal content 
standards,<SUP>4</SUP> and (3) that the CARB's compliance and 
enforcement program is designed to be sufficiently 
rigorous.<SUP>5</SUP> While the Federal RFG and conventional gasoline 
standards continue to apply in California, refiners, importers, and 
oxygenate blenders of gasoline sold in California (referred to 
collectively as ``California refiners'') are exempt in most cases from 
various enforcement-related provisions.<SUP>6</SUP> California refiners 
are not exempt from these Federal enforcement requirements with regard 
to gasoline that is delivered for use outside California, because the 
California Phase 2 standards and the CARB enforcement program do not 
cover gasoline exported from California.
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    \4\ As is discussed in section entitled ``Oxygen Standard,'' 
below, however, this is not now the case.
    \5\ See 59 FR 7758, 7759 (February 16, 1994) and 40 CFR 80.81.
    \6\ Specifically, the Federal RFG regulations at Sec. 80.81 
provide that, subsequent to March 1, 1996 (the start of the 
California Phase 2 program), the specified parties are exempt from 
meeting the enforcement requirements dealing with: compliance 
surveys (Sec. 80.68), independent sampling and testing 
(Sec. 80.65(f)), designation of gasoline (Sec. 80.65(d)), marking of 
conventional gasoline (Secs. 80.65(g) and 80.82), downstream 
oxygenate blending (Sec. 80.69), record keeping (Secs. 80.74 and 
80.104), reporting (Secs. 80.75 and 80.105), product transfer 
documents (Sec. 80.77), parameter value reconciliation requirements 
(Sec. 80.65(e)(2)), reformulated gasoline and Reformulated Gasoline 
Blendstock for Oxygenate Blending (RBOB) compliance requirements 
(Sec. 80.65(c)), annual compliance audit requirements 
(Sec. 80.65(h)), and compliance attest engagement requirements 
(subpart F). Various restrictions apply to the exemptions, and the 
exemptions do not apply after December 31, 1999.
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C. Issues Raised by WSPA & EPA's Response

    In letters of June 15, August 3, and November 10, 1995, the Western 
States Petroleum Association (WSPA), on behalf of California refiners, 
petitioned EPA to revise the enforcement-related exemption provisions 
at 40 CFR 80.81. The three principal areas discussed in the petition 
are the gasoline testing methods, the standard for Reid vapor pressure 
(RVP), and use of California certification methods without minimum 
oxygen content requirements. (These certification methods, the 
predictive model and the vehicle emissions testing model, are discussed 
in greater detail below.) In February 1996, EPA notified WSPA that EPA 
would initiate rulemaking to address these issues.<SUP>7</SUP> Since 
the California Phase 2 program was scheduled to begin March 1, 1996, 
EPA announced that it would grant California refiners temporary relief 
through specific exemptions from enforcement-related test methods, 
oxygen content of gasoline not used in the RFG areas, and RVP. This 
temporary relief would remain in place until the rulemakings could be 
completed.
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    \7\ See letter from Mr. Steve Herman, Assistant Administrator 
for Enforcement and Compliance Assurance, EPA, to Mr. Douglas 
Henderson, Executive Director, Western States Petroleum Association, 
dated February 29, 1996. A copy of this letter has been placed in 
the docket at the location listed in the ADDRESSES section.
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    A final rule related to the RVP standard was published as a direct 
final rule in the Federal Register on May 8,

[[Page 34820]]

1996, and became effective on July 8, 1996.<SUP>8</SUP>
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    \8\ ``Fuels and Fuel Additives--Reformulated Gasoline Sold in 
California; Reid Vapor Pressure lower limit adjustment-- Direct 
Final Rule,'' 61 FR 20736 (May 8, 1996).
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III. Description of Today's Action

    On April 16, 1997 EPA published a proposal addressing the remaining 
two issues: gasoline testing methods and the use (in conventional 
gasoline areas) of gasoline certified by California methods not meeting 
the Federal RFG standard for oxygen content.<SUP>9</SUP> Some 
additional issues were addressed in the proposal, including sampling 
and testing, and these are discussed in greater detail below. EPA 
proposed changes very similar to the temporary enforcement exemptions 
granted to the California refiners in its February 1996 letter.
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    \9\ ``Fuels and Fuel Additives--Amendments to the Enforcement 
Exemptions for California Gasoline Refiners--Proposed Rule,'' 62 FR 
18696 (April 16, 1997).
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A. Test Methods

    Both the Federal RFG and the California Phase 2 programs specify 
testing methods to demonstrate compliance with the standards applicable 
under each program. However, in the case of the tests for four 
parameters (benzene, sulfur, oxygen, and aromatics) the methods 
<SUP>10</SUP> specified under the two programs are different.
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    \10\ See 40 CFR 80.46(a), (e), (f) and (g) for Federal RFG test 
method requirements.
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    The applicable exemption in the Federal RFG regulation at 40 CFR 
80.81(h) allows California refiners to use the California test methods 
prescribed in Title 13, California Code of Regulations, sections 2260 
et seq., instead of the Federal test methods prescribed at 40 CFR 
80.46, when producing California Phase 2 gasoline that is used in 
California. However, California refiners are still required to use the 
Federal test methods prescribed at 40 CFR 80.46 for gasoline that is 
used outside California, including conventional gasoline subject to the 
anti-dumping standards specified at 40 CFR 80.101.<SUP>11</SUP>
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    \11\ EPA estimates that the portion of gasoline exported from 
California and used in neighboring states is about twelve percent of 
the total California gasoline production and imports.
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    WSPA, on behalf of California refiners, requested that EPA extend 
the test method exemption at 40 CFR 80.81(h) to cover the conventional 
gasoline produced by California refiners that is exported from 
California to other states. WSPA asked for this change because a 
refiner who is utilizing the flexibility of the CARB testing methods 
for gasoline sold within California, would have to also use the Federal 
test methods to certify the same gasoline for export to surrounding 
states.
    After considering the issues raised, EPA believed that, under 
certain conditions, it may be appropriate to allow the use of non-
Federal test methods for conventional gasoline exported from 
California. Absent relief, a California refiner that chooses to utilize 
the flexibility of the CARB testing methods would have to implement the 
Federal test methods in order to certify its conventional gasoline for 
distribution outside California.
    EPA further believes that the standards under the California Phase 
2 program are expected to result in emissions decreases at least as 
great as with Federal Phase I RFG and emissions levels of conventional 
gasoline and CARB is expected to enforce the California standards in a 
comprehensive, aggressive manner that will result in high compliance. 
The Agency does not believe that any environmental detriment would be 
likely to occur from allowing the use of the CARB test methods for 
conventional gasoline produced in California, but shipped out of state 
for use in non-RFG areas.
    In its February 29, 1996 response to WSPA, EPA indicates its 
intention to change the Federal RFG regulations to allow additional 
testing flexibility for California refiners and immediately gave 
California refiners additional flexibility for a limited time. In that 
letter, EPA states that if certain conditions are met it will not 
enforce the requirement at 40 CFR 80.65(e)(1) and 40 CFR 
80.101(i)(1)(i)(A) to test conventional gasoline using the Federal test 
methods specified under 40 CFR 80.46 for benzene, sulfur, oxygen or 
aromatics, with regard to gasoline that is produced in or imported into 
California but that is used outside California.
    In order to qualify for this enforcement relief, the refiner or 
importer was required to meet certain conditions, as described in great 
detail in the February 29, 1996 letter and in the notice of proposed 
rulemaking.<SUP>12</SUP> Furthermore, equivalency between CARB and 
Federal test method results must be established, since the methods 
themselves are not necessarily equivalent and therefore different 
methods (if not correlated) would yield different results.
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    \12\ A copy of the letter has been placed in the public docket 
at the location listed in the ADDRESSES section. See also, 62 FR 
18696 (April 16, 1997).
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    Thus, to qualify for the relief, EPA proposed that the gasoline 
must be produced at a refinery located in California at which gasoline 
meeting the California Phase 2 standards and requirements is produced, 
or the gasoline must be imported into California from outside the 
United States as California Phase 2 gasoline (i.e., gasoline that meets 
the standards and requirements of the California Phase 2 program). When 
exported from California, such gasoline may not be classified as 
Federal RFG. Furthermore, the refiner must correlate the results from 
any non-Federal test method to the method specified under 40 CFR 
Sec. 80.46 for any gasoline that is used outside California, and such 
correlation must be demonstrated to EPA upon request.
    EPA proposed to amend 40 CFR 80.81 to incorporate the flexibility 
regarding test methods that EPA temporarily granted in its February 29, 
1996 letter to WSPA. EPA proposed this action because the Agency 
believes that it may result in lower compliance costs and greater 
flexibility for California refiners and because there is no expected 
adverse environmental impact from this proposed action.

B. Oxygen Standard

    Section 211(k) of the Clean Air Act requires that the RFG standard 
of 2.0 weight percent (wt%) minimum oxygen must be met in each Federal 
RFG area. When EPA promulgated the California enforcement exemptions at 
40 CFR 80.81, it was intended that the statewide standards for 
California Phase 2 gasoline would be equal to or more stringent than 
all Federal RFG standards. With regard to oxygen content, the 
California Phase 2 standards included a statewide flat limit of 1.8 to 
2.2 wt% oxygen that EPA considered, in practice, to be equivalent to 
the Federal standard of 2.0 wt% minimum. As a result, EPA did not need 
to distinguish between California Phase 2 gasoline used in the Federal 
RFG areas within California, from the California Phase 2 gasoline used 
in the other areas of California, in order to have confidence that RFG 
standards would be met in each Federal RFG area in California.
    The final California Phase 2 requirements were changed, however, 
and now allow gasoline that does not meet the Federal RFG standard for 
oxygen. Under two alternative California certification methods, the 
California predictive model and the vehicle emissions testing method, 
there is no minimum oxygen content requirement for summertime 
California Phase 2 gasoline.<SUP>13</SUP> Under 40 CFR

[[Page 34821]]

80.81(e)(2), certain enforcement exemptions are withdrawn if a 
California refiner uses one of the alternative California certification 
methods, unless within 30 days of receiving the California 
certification it notifies EPA and demonstrates that its gasoline meets 
all Federal RFG per-gallon standards, including the 2.0 weight % oxygen 
standard.
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    \13\ See Title 13, California Code of Regulations, section 
2262.5 for the oxygen standards, section 2265 for the alternative 
predictive model method, and section 2266 for the alternative 
vehicle emission testing method.
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    Therefore, in order to retain the enforcement exemptions, 40 CFR 
80.81(e)(2) required that all California Phase 2 gasoline produced by a 
refiner, regardless of whether it is sold in a Federal RFG area, meet 
the Federal RFG standard for oxygen content. Because neither of the two 
alternative California certification methods ensure that the Federal 
oxygen content standard will be met, except during designated winter 
months, a refiner that uses an alternative California certification 
method would have to provide notification and demonstrate to EPA that 
its gasoline meets the Federal RFG standard for oxygen content or lose 
its eligibility for certain Federal exemptions under 40 CFR 80.81. This 
loss of eligibility would apply even if the gasoline not meeting the 
Federal RFG standard for oxygen content is being distributed only to 
those areas of California that are not Federal RFG areas.
    In its petition, WSPA asked EPA to amend the enforcement exemption 
provisions to allow California refiners to supply California Phase 2 
gasoline containing less than 2.0 wt% oxygen to markets within 
California that are not Federal RFG areas without having to comply with 
the notification and demonstration requirements of 40 CFR 80.81(e)(2) 
and without losing the Federal enforcement exemptions. In its February 
29, 1996 response to WSPA, EPA said it may be appropriate to amend 40 
CFR 80.81, provided that annual gasoline quality surveys for oxygen 
content are conducted in each Federal RFG area, in order to ensure the 
gasoline sold there is in compliance with the Federal oxygen content 
standard.
    Consistent with, and as described in, the February 29, 1996 letter, 
EPA proposed to amend 40 CFR 80.81 to allow refiners to produce 
California Phase 2 gasoline containing less than 2.0 wt% oxygen for use 
outside the Federal RFG areas in California, provided appropriate 
annual gasoline quality surveys for oxygen are conducted in each 
Federal RFG area in California. These surveys must show an average 
oxygen content in each covered area of at least 2.0 wt%. While EPA 
could require that all gasoline batches being produced for the Federal 
RFG areas be tested for oxygen content at the refinery, or prior to 
importation as applicable, such testing would not ensure that all 
gasoline being sold in the Federal RFG areas contains at least 2.0 wt% 
oxygen.
    As in the Federal RFG program areas outside of California, the 
compliance surveys appear to be the most practical method to assure 
that, on average, Federal RFG standards are met for each covered area. 
The Federal RFG program at 40 CFR 80.67 allows refiners, importers, and 
oxygenate blenders to meet certain Federal RFG standards on average, 
rather than on a per-gallon basis for each batch of gasoline. The 
requirement must then be met on average, over the entire production, 
without any averaging for each specific covered area to which the 
gasoline is distributed. The following paragraphs describe how the 
general RFG survey requirements (i.e. those surveys required by 
Sec. 80.68 and applicable outside California) and how the more limited 
California oxygen surveys are designed. For general RFG surveys, the 
discussion here will focus on oxygen surveys.

C. General Survey Requirements

    Refiners, importers and oxygenate blenders producing gasoline to 
meet the Federal RFG standards on average are allowed to produce some 
batches of gasoline that are less stringent than the averaging 
standards (within the limits of a per-gallon minimum or maximum 
standard, as applicable). But they must also produce some batches of 
gasoline that are more stringent than the averaging standards, such 
that on average, the applicable averaging standard is met. The 
averaging standards are somewhat more stringent than the per-gallon 
standard (e.g., the oxygen content averaging standard is 2.1 wt%, and 
the per-gallon standard is 2.0 wt%). It is expected that, if all 
refiners meet either the per-gallon standards or the averaging 
standards, the covered areas receiving their gasoline should achieve an 
average oxygen content no lower than would occur without the allowance 
for such averaging, based on the extensive fungible distribution system 
for gasoline products. Even though each refinery might meet its 
refinery gate standard for oxygen on average, there is a risk that some 
areas might actually receive RFG with relatively low oxygen content 
while others might receive RFG with relatively high oxygen content. The 
surveys are designed to lessen this risk and ensure that all Federal 
RFG program areas at any given time receive RFG that meets the required 
oxygen standard.
    More specifically, because many gasoline distribution systems are 
fungible, some uncertainty exists as to where each batch of gasoline 
from each supplier is ultimately distributed, and what batches, or 
portions of batches, from each supplier that each covered area actually 
receives. For example, under the averaging program, the possibility 
still exists that one or more covered areas may receive too many 
batches of RFG that have a relatively low oxygen content (e.g. greater 
than or equal to 1.5 wt%, but less than 2.0 wt%), so that the required 
oxygen levels will not have been achieved in that area.
    Consequently, the Federal RFG program at 40 CFR 80.67 requires 
compliance surveys under 40 CFR 80.68 for refiners that elect to meet 
the standards on average under 40 CFR 80.41(b), (d) or (f), as 
applicable, rather than to meet the per-gallon standards for each batch 
of gasoline under 40 CFR 80.41(a), (c), or (e), as applicable. In 
general, the compliance surveys are to ensure that each covered area 
receives gasoline that cumulatively (from all suppliers and across 
time) has the same oxygen content it would have if averaging was not 
allowed. However, the Federal RFG regulations at 40 CFR 80.81(b)(1) 
exempted refiners of California gasoline (with respect to California 
gasoline) from the compliance survey provisions at 40 CFR 80.68, for 
the reasons described earlier.

D. Limited Oxygen Surveys for California

    In response to the WSPA request concerning oxygen content 
requirements in California and the changes in California Phase 2 
standards regarding oxygen content, EPA considered a limited 
application of the compliance survey provisions. EPA believes that a 
yearly series of oxygen surveys, similar to 40 CFR 80.68 surveys for 
averaging under the Federal RFG program, but limited in their scope, 
provides the most flexible alternative to refiners and the most 
assurance to EPA that complying gasoline is actually being sold in the 
Federal RFG areas.
    In its February 29, 1996 response to WSPA, EPA decided to allow 
California refiners to produce gasoline that contains less than 2.0 wt% 
oxygen for use outside the Federal RFG areas, until today's amendments 
to the RFG requirements could be published in the Federal Register and 
become effective. In particular, EPA said it will not

[[Page 34822]]

enforce the requirement at 40 CFR 80.81(e)(2) that California refiners 
must demonstrate that Federal RFG per-gallon standards are met on each 
occasion California Phase 2 gasoline is certified under Title 13, 
California Code of Regulations, section 2265 (dealing with gasoline 
certification based on the California predictive model), provided that 
two conditions are met. The conditions are: first, a program of 
gasoline quality surveys must be conducted in each RFG covered area in 
California each year to monitor annual average oxygen content. Second, 
the surveys must be conducted in accordance with each requirement 
specified under 40 CFR 80.68(b) and (c), dealing with surveys for RFG 
quality, and 40 CFR 80.41(o) through (r), dealing with the effects of 
survey failures, except that the surveys need only evaluate for oxygen 
content and a minimum of four surveys (a survey series) must be 
conducted in each covered area each calendar year.
    In its April 16, 1997 proposal, EPA announced its intention to 
retain the existing 30-day notification and demonstration provisions at 
40 CFR 80.81(e)(2) as an option. EPA further proposed that the oxygen 
surveys conducted in California should not be considered for the 
purposes of determining the required number of surveys that must be 
conducted for compliance with the general survey provisions under the 
Federal RFG program at 40 CFR 80.68.<SUP>14</SUP> A fixed number of 
surveys (i.e. a minimum of four per year) was proposed for California, 
consistent with the temporary enforcement position announced in the 
February 29, 1996 letter. As with the surveys required under 40 CFR 
80.68 for Federal areas outside of California, EPA will determine when 
these optional surveys conducted in California under 40 CFR 80.81(e)(2) 
shall be conducted.
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    \14\ Under 40 CFR 80.68(b), the required number of compliance 
surveys required in a year for Federal RFG areas outside of 
California depends partly on the number of areas required to be 
surveyed in the year, the number of surveys conducted the previous 
year, and the survey results from the previous year.
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    The February 29, 1996 letter to WSPA did not address the 
consequences of passing and failing an optional survey series in a 
Federal RFG area in California under 40 CFR 80.81(e)(2). The April 16, 
1997 document proposed that, for the limited oxygen survey option 
included in today's rule, failing a survey would result in a 
``ratcheting'' of (i.e., increasing) the minimum oxygen content 
standard, for each gallon of averaged gasoline, by an additional 0.1%. 
Only one year of passing the survey series in a covered area will be 
needed to initiate relaxation of the minimum oxygen content standard 
for the following year. EPA proposed that the minimum oxygen content 
standard be relaxed by 0.1 wt% for each year following a year in which 
the survey series passes in a Federal RFG area in California. However, 
EPA will not allow the minimum oxygen content standard to be less than 
1.5 wt%, the minimum oxygen content standard for Federal RFG under 
averaging. As with failures of survey series required under 40 CFR 
80.68 in Federal RFG areas outside of California in accordance with 40 
CFR 80.41(q)(4), adjusted standards under the compliance survey option 
of 40 CFR 80.81(e)(2) apply to all averaged gasoline produced by a 
refiner for use in any Federal RFG area.
    The procedures and consequences of the oxygen surveys set forth in 
the April 16, 1997 notice or proposed rulemaking differed somewhat from 
the general survey consequences under 40 CFR 80.68, because surveys 
applicable in California are much smaller in scope. EPA proposed that 
the ultimate consequence of multiple failures of the optional 
compliance surveys be withdrawal of the survey option, rather than the 
effective withdrawal of the averaging option, as with the required 
compliance surveys conducted under 40 CFR 80.68 for Federal RFG areas 
outside of California. EPA proposed this consequence because the 
compliance survey option provides refiners of California gasoline 
additional flexibility under the Federal exemption provisions, 
conditioned on the premise that those refiners will control the oxygen 
content of the gasoline being distributed to the Federal RFG areas 
within California. If the refiners do not control the oxygen content of 
the gasoline going to those areas as determined by the results of the 
surveys, EPA believes that it may be reasonable to remove the 
flexibility provided under this option. Consequently, if EPA proposed 
that a failure of a survey series in one Federal RFG area in California 
for three consecutive years occurs, or an equivalent ``net'' failure of 
three years over any number of years (i.e., number of years the survey 
series failed subtracted from the number of years the survey series 
passed), the compliance survey option will no longer be applicable for 
any Federal RFG area in California. In practice, this situation will 
occur if a survey series fails for a covered area in a year in which 
the minimum oxygen content standard had been raised to 1.7 wt% due to a 
survey series failure in that covered area the previous year.
    It is important to realize that successive oxygen survey failures 
might be an indication of the inability or unwillingness of California 
refiners to meet RFG standards. As such, EPA noted in the April 16, 
1997 notice of proposed rulemaking that future rulemaking to remove 
some or all California enforcement exemptions might be appropriate. If 
a survey does not occur, then all refiners electing to use an 
alternative certification method must follow the notification 
requirements at Sec. 80.81(e)(2)(i), including the requirement to 
demonstrate that all their gasoline meets each of the complex model 
standards listed in Sec. 80.41(c). Furthermore, in accordance with 
Sec. 80.81(e)(2)(i), the California enforcement exemptions will not 
apply to a refiner who chooses an alternative certification method, but 
fails to meet these notification and demonstration requirements.
    Consistent with the existing compliance survey requirements for 
Federal RFG areas outside of California, EPA proposed to allow the 
optional compliance survey under 40 CFR 80.81(e)(2) to be conducted 
either by individual refiners under 40 CFR 80.68(a) or as a group of 
refiners under 40 CFR 80.68(b).<SUP>15</SUP> The temporary enforcement 
position announced by the February 29, 1996 response to WSPA omitted 
the individual survey option of 40 CFR 80.68(a), because that survey 
option is not currently being used and is not expected to be used for 
practical reasons. The consequences of any survey failure will apply to 
all suppliers <SUP>16</SUP> who comply on an averaging basis and who 
serve the failed area.
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    \15\ Refiners, importers, and blenders have formed a survey 
association which funds the survey program. In accordance with 
Sec. 80.68(c)(13), the survey program is administered by an 
independent surveyor.
    \16\ There is an exception for ``low volume'' parties under 40 
CFR 80.41(q)(iii). Specifically, if a refiner or oxygenate blender 
is able to show that the volume of RFG supplied to a covered area is 
less than one percent of the RFG produced at its refinery or 
oxygenate blending facility during the failed year, or 100,000 
barrels, whichever is less, he may be exempt from the more stringent 
standards.
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    Consistent with the existing RFG regulations at 40 CFR part 80, the 
February 29, 1996 letter to WSPA, and the April 16, 1997 notice of 
proposed rulemaking, California Phase 2 gasoline that does not meet the 
Federal RFG standards, including the oxygen standard, is classified 
under the Federal regulations as conventional gasoline. In addition, 
today's amendments do not alter the prohibitions under section

[[Page 34823]]

211(k)(5) of the Clean Air Act, and 40 CFR 80.78(a)(1) against selling 
or dispensing conventional gasoline to ultimate consumers in Federal 
RFG areas, and against selling conventional gasoline for resale in 
Federal RFG areas unless the gasoline is segregated and marked as 
``conventional gasoline, not for sale to ultimate consumers in a 
covered area.'' Nothing in today's action would change the requirement 
that refiners and importers in California meet all other Federal RFG 
standards, including the oxygen standard, for gasoline produced or 
imported for use in Federal RFG covered areas in California. These 
standards must be met separately for each refinery and by each 
importer.
    The amendments to 40 CFR 80.81 as set forth in today's notice are 
consistent with the February 29, 1996 letter to WSPA and the April 16, 
1997 notice of proposed rulemaking. Comments related to this provision 
are summarized in section IV, ``Response to Comments,'' below.

E. Correction to Sec. 80.81(e)(1)

    EPA proposed to correct 40 CFR 80.81(e)(1), which erroneously omits 
one provision, paragraph (f), from the list of enforcement exemption 
provisions that would not apply under the conditions of paragraphs 
(e)(2) or (e)(3). Paragraph (e)(2) specifies that the exemption 
provisions listed in paragraph (e)(1) do not apply if a refiner 
certifies California gasoline under one of the alternative California 
certification procedures, unless the refiner notifies EPA of that 
alternative certification and demonstrates to EPA that its gasoline 
meets all Federal per-gallon standards. (Today's rule adds a compliance 
survey option to paragraph (e)(2)(ii).) Paragraph (e)(3) specifies that 
the exemption provisions listed in paragraph (e)(1) do not apply in the 
case of a refiner of California gasoline that has been assessed a 
civil, criminal or administrative penalty for certain violations of 
Federal or California regulations, except upon a showing of good cause.
    Paragraph (f) specifies that for California phase 2 gasoline 
(California gasoline that is sold or made available for sale after 
March 1, 1996) the following Federal RFG enforcement requirements are 
waived: the oxygenated fuels provisions of Sec. 80.78(a)(1)(iii), the 
product transfer provisions of Sec. 80.78(a)(1)(iv), the oxygenate 
blending provisions contained in Sec. 80.78(a)(7), and the segregation 
of simple and complex model certified gasoline provision of 
Sec. 80.78(a)(9). Under the conditions of either paragraph (e)(2) or 
(e)(3), EPA would need those enforcement provisions to ensure that 
gasoline being used in Federal RFG areas in California complies with 
the Federal standards. Therefore, EPA proposed to amend paragraph 40 
CFR 80.81(e)(1) to include paragraph (f) in the list of enforcement 
exemptions that would become inapplicable under the conditions of 
paragraphs (e)(2) or (e)(3). No comments were received on this aspect 
of the April 16, 1997 proposal and the proposed corrections are 
finalized in today's rule.

F. Sampling and Testing Requirements for California Refiners

    Under 40 CFR 80.65(e)(1), a refiner must determine the properties 
of each batch of RFG it produces prior to the gasoline leaving the 
refinery.<SUP>17</SUP> Under the California RFG program, refiners may 
obtain approval to sample and test gasoline for compliance with 
California RFG standards at off-site ``production'' tankage. This 
approval would have to be obtained under Title 13, section 2260(a)(28) 
of the California Code of Regulations, which states:
---------------------------------------------------------------------------

    \17\ Under 40 CFR 80.2 (h), a ``refinery'' is ``a plant where 
gasoline or diesel fuel is produced.''

    (28) ``Production facility'' means a facility in California at 
which gasoline or CARBOB is produced. Upon request of a producer, 
the executive officer [of CARB] may designate, as part of the 
producer's production facility, a physically separate bulk storage 
facility which (A) is owned or leased by the producer, and (B) is 
operated by or at the direction of the producer, and (C)is not used 
to store or distribute gasoline or CARBOB that is not supplied from 
the production facility.''
    It is EPA's understanding that the third requirement, (C), is 
interpreted by CARB to require that the gasoline must be transported to 
the off-site tankage via a dedicated pipeline.

    On April 16, 1997, EPA proposed amendments to 40 CFR 80.81(h), 
which would allow California refiners who have obtained approval from 
the State of California to conduct sampling and testing at off-site 
tankage served by a dedicated pipeline to use this approach under the 
Federal RFG program as well. Specifically, EPA proposed to allow a 
California refiner who has obtained approval from the State of 
California to conduct sampling and testing at off-site tankage under 
California Code of Regulations Title 13, section 2260(a)(28), to 
conduct sampling and testing at such approved off-site tankage for 
purposes of the Federal RFG program. The gasoline must be sampled and 
tested under the terms of a current, valid protocol agreement between 
the refiner and CARB. The refiner must provide a copy of the current, 
valid protocol agreement specifying the off-site tankage as part of the 
production facility, to the EPA Administrator or the Administrator's 
designated agent, upon request. No comments were received on this issue 
and the sampling and testing provisions are finalized in today's rule 
as proposed.

IV. Response to Comments

A. Consequences of Successive Survey Failures

    As discussed above, EPA proposed that successive survey failures 
for three years, or an equivalent ``net'' failures of three years over 
any number of years (i.e. number of years the survey series failed 
subtracted from the number of years the survey series passed), would 
result in the elimination of the survey option. Elimination of the 
survey option would mean that all California gasoline of each refiner, 
including gasoline certified under an alternative certification method 
and sold in non-RFG cities, would have to meet Federal oxygen 
standards. Each refiner certifying under an alternative certification 
would have no option but compliance with the notification and 
demonstration requirements at 40 CFR 80.81(e)(1).
    If successive oxygen survey failures were to occur, EPA would be 
forced to consider whether some or all of the California enforcement 
exemptions in 40 CFR 80.81 should be revoked via rulemaking. Successive 
survey failures might well indicate a widespread problem with the 
quality of California gasoline and may call into question the 
equivalency of such gasoline with respect to Federal Phase I RFG. Such 
a revocation would apply to all California refiners, importers, and 
blenders.
    One commenter disagreed and stated that the result of successive 
survey failures should not be removal of the survey option and the 
possible revocation of some or all of the California enforcement 
exemptions. Rather, the commenter believes that the result of 
successive survey failures should be the requirement that all gasoline 
in Federal RFG areas meet the per-gallon 2.0 weight % minimum.
    EPA disagrees with the commenter. Today's rule, which matches the 
proposal, is designed to add a flexibility--i.e., the flexibility to 
utilize a survey option and produce gasoline not meeting Federal oxygen 
standards in non-Federally covered areas--where such flexibility did 
not exist before. Nothing in today's action alters the

[[Page 34824]]

applicability of Federal standards in RFG areas in California. 
Specifically, each gallon of gasoline in RFG areas was, and is, 
required to meet a 2.0 weight % minimum for parties complying on a per 
gallon basis. Each gallon of gasoline for an averaging party is 
required to meet a minimum of 1.5 weight %. All gallons produced by an 
averaging refiner during a given compliance period must average to 2.1 
weight%. Since Federal oxygen standards continue to apply in RFG areas, 
the consequence for survey failure suggested by the commenter, in fact, 
amounts to no consequence at all.
    As discussed above and in the April 16, 1997 proposal, successive 
or excessive survey failures would raise serious concerns about the 
expected equivalency between Federal Phase I RFG and California Phase 2 
gasoline sold in Federally covered areas. EPA would need to assess the 
impact of these failures, should they occur, on the program, and would 
initiate a notice-and-comment rulemaking procedure, if such action is 
in the public interest.

B. Use of GC/FTIR Method (ASTM 5986)

    EPA proposed that California gasoline refiners, importers, and 
blenders be permitted to substitute California-approved analytical 
techniques or test methods for Federal test methods when producing 
gasoline used in California and for conventional gasoline used outside 
of California. California test methods could not be utilized for 
gasoline intended for ``export'' to markets in states outside 
California as Federal RFG.
    One commenter stated that EPA should allow all refiners the option 
of using the GC/FTIR method (ASTM 5986) for aromatics, benzene, and 
oxygen content, independent of this rulemaking. Further, the commenter 
urges EPA to allow the use of California test methods for not just 
California gasoline sold within the state or exported as conventional, 
but for all RFG that is produced by California refiners for the purpose 
of exportation to other states as Federal Phase I RFG. At this time, 
EPA does not believe that adoption of California test methods for 
Federal RFG destined to be sold outside California is appropriate 
without further study. Therefore, gasoline produced by California 
refiners for the purpose of exportation to other states as Federal RFG 
remains subject to the Federal test methods. However, EPA intends to 
fully consider the larger issue of RFG test methods as part of a 
separate action related to performance-based test methods.

V. Statutory Authority

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

VI. Environmental Impact

    This rule is expected to have no negative environmental impact. 
These amendments are intended to eliminate duplicative enforcement 
requirements, and do not relax the Federal standards. The additional 
testing flexibility allowed certain refiners of California gasoline 
under today's regulation may, in fact, result in an environmental 
benefit because it would give California refiners flexibility to sell 
gasoline meeting California Phase 2 standards as Federal conventional 
gasoline in other areas. It is reasonable to expect that such gasoline 
would be ``cleaner'' than other conventional gasoline and could result 
in an environmental benefit to the areas receiving it.

VII. Economic Impact and Impact on Small Entities

    EPA has determined that this final rule will not have a significant 
impact on a substantial number of small entities. Small entities 
include small businesses, small not-for-profit enterprises, and small 
governmental jurisdictions. Today's regulation would have a positive 
economic impact on the great majority of entities regulated by the RFG 
regulation, including small businesses. Specifically, it give refiners 
of California gasoline additional operational flexibility and is not 
expected to result in any additional compliance costs for regulated 
parties, including small entities. A regulatory flexibility analysis 
has therefore not been prepared.

VIII. Executive Order 12866

    Under Executive Order 12866,<SUP>18</SUP> the Agency must determine 
whether a regulation is ``significant'' and therefore subject to OMB 
review and the requirements of the Executive Order. The Order defines 
``significant regulatory action'' as one that is likely to result in a 
rule that may:
---------------------------------------------------------------------------

    \18\  58 FR 51736 (October 4, 1993).
---------------------------------------------------------------------------

    (1) Have an annual effect on the economy of $100 million or more, 
or adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local or tribal governments of communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof, or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
this Executive Order.<SUP>19</SUP>
---------------------------------------------------------------------------

    \19\ Id. at section 3(f)(1)-(4).
---------------------------------------------------------------------------

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

IX. Unfunded Mandates

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

X. Submission to Congress and the General Accounting Office

    The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the 
Small Business Regulatory Enforcement Act of 1996, generally provides 
that before a rule may take effect, the agency promulgating the rule 
must submit a rule report, which includes a copy of the rule, to each 
House of the Congress and to the Comptroller General of the United 
States. EPA will submit a report containing this rule and other 
required information to the U.S. Senate, the U.S. House of 
Representatives, and the Comptroller General of the United States prior 
to publication of the rule in

[[Page 34825]]

the Federal Register. This rule is not a ``major rule'' as defined by 5 
U.S.C. 804(2).

XI. Children's Health Protection

    This final rule is not subject to E.O. 13045, entitled ``Protection 
of Children from Environmental Health Risks and Safety Risks'' (62 FR 
19885, April 23, 1997), because it does not involve decisions on 
environmental health risks or safety risks that may disproportionately 
affect children.

List of Subjects in 40 CFR Part 80

    Environmental protection, California exemptions, Fuel additives, 
Gasoline, Reformulated gasoline, Imports, Labeling, Motor vehicle 
pollution, Penalties, Reporting and recordkeeping requirements.

    Dated: June 17, 1998.
Carol M. Browner,
Administrator.

    For the reasons set forth in the preamble, 40 CFR Part 80 is 
amended as follows:

PART 80--[AMENDED]

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

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

    2. Section 80.81 is amended by revising paragraphs (e)(1), (e)(2) 
and (h) to read as follows:


Sec. 80.81  Enforcement exemptions for California gasoline.

* * * * *
    (e)(1) The exemption provisions contained in paragraphs (b)(2), 
(b)(3), (c), and (f) of this section shall not apply under the 
circumstances set forth in paragraphs (e)(2) and (e)(3) of this 
section.
    (2) Such exemption provisions shall not apply to any refiner, 
importer, or oxygenate blender of California gasoline with regards to 
any gasoline formulation that it produces or imports is certified under 
Title 13, California Code of Regulations, section 2265 or section 2266 
(as amended July 2, 1996), unless:
    (i) Written notification option. (A) The refiner, importer, or 
oxygenate blender, within 30 days of the issuance of such 
certification:
    (1) Notifies the Administrator of such certification;
    (2) Submits to the Administrator copies of the applicable 
certification order issued by the State of California and the 
application for certification submitted by the regulated party to the 
State of California; and
    (3) Submits to the Administrator a written demonstration that all 
gasoline formulations produced, imported or blended by the refiner, 
importer or oxygenate blender for use in California meets each of the 
complex model per-gallon standards specified in Sec. 80.41(c).
    (B) If the Administrator determines that the written demonstration 
submitted under paragraph (e)(2)(i)(A) of this section does not 
demonstrate that all certified gasoline formulations meet each of the 
complex model per-gallon standards specified in Sec. 80.41(c), the 
Administrator shall provide notice to the party (by first class mail) 
of such determination and of the date on which the exemption provisions 
specified in paragraph (e)(1) of this section shall no longer be 
applicable, which date shall be no earlier than 90 days after the date 
of the Administrator's notification.
    (ii) Compliance survey option. The compliance survey requirements 
of Sec. 80.68 are met for each covered area in California for which the 
refiner, importer or oxygenate blender supplies gasoline for use in the 
covered area, except that:
    (A) The survey series must determine compliance only with the 
oxygen content standard of 2.0 weight-percent;
    (B) The survey series must consist of at least four surveys a year 
for each covered area;
    (C) The surveys shall not be included in determining the number of 
surveys under Sec. 80.68(b)(2);
    (D) In the event a survey series conducted under this paragraph 
(e)(2)(ii) fails in accordance with Sec. 80.68(c)(12), the provisions 
of Secs. 80.41(o), (p) and (q) are applicable, except that if the 
survey series failure occurs in a year in which the applicable minimum 
oxygen content is 1.7 weight percent, the compliance survey option of 
this section shall not be applicable for any future year; and
    (E) Not withstanding Sec. 80.41(o), in the event a covered area 
passes the oxygen content series in a year, the minimum oxygen content 
standard for that covered area beginning in the year following the 
passed survey series shall be made less stringent by decreasing the 
minimum oxygen content standard by 0.1%, except that in no case shall 
the minimum oxygen content standard be less than that specified in 
Sec. 80.41(d).
* * * * *
    (h)(1) For the purposes of the batch sampling and analysis 
requirements contained in Sec. 80.65(e)(1)and Sec. 80.101(i)(1)(i)(A), 
any refiner, importer or oxygenate blender of California gasoline may 
use a sampling and/or analysis methodology prescribed in Title 13, 
California Code of Regulations, sections 2260 et seq. (as amended July 
2, 1996), in lieu of any applicable methodology specified in 
Sec. 80.46, with regards to
    (i) Such gasoline; or
    (ii) That portion of its gasoline produced or imported for use in 
other areas of the United States, provided that:
    (A) The gasoline must be produced by a refinery that is located in 
the state of California that produces California gasoline, or imported 
into California from outside the United States as California Phase 2 
gasoline;
    (B) The gasoline must be classified as conventional gasoline upon 
exportation from the California; and
    (C) The refiner or importer must correlate the results from the 
applicable sampling and /or analysis methodology prescribed in Title 
13, California Code of Regulations, sections 2260 et seq. (as amended 
July 2, 1996), with the method specified at Sec. 80.46, and such 
correlation must be adequately demonstrated to EPA upon request.
    (2) Nothwithstanding the requirements of Sec. 80.65(e)(1) regarding 
when the properties of a batch of reformulated gasoline must be 
determined, a refiner of California gasoline may determine the 
properties of gasoline as specified under Sec. 80.65(e)(1) at off site 
tankage provided that:
    (i) The samples are properly collected under the terms of a current 
and valid protocol agreement between the refiner and the California Air 
Resources Board with regard to sampling at the off site tankage and 
consistent with requirements prescribed in Title 13, California Code of 
Regulations, sections 2260 et seq.(as amended July 2, 1996); and
    (ii) The refiner provides a copy of the protocol agreement to EPA 
upon request.
* * * * *
[FR Doc. 98-16669 Filed 6-25-98; 8:45 am]
BILLING CODE 6560-50-P