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Citation: 58 Fed. Reg. 11722 1993

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-- The search text of this PDF is generated from uncorrected OCR text.Federal Register / Vol. 58, No. 37 / Friday, February 26, 1993 / Proposed Rules

ENVIRONMENTAL PROTECTION

AGENCY

40 CFR Part 80
[AMS-FRL-4556-71

RIN 2060-AD27

Regulation of Fuels and Fuel Additives: Standards for Reformulated Gasoline; Proposed Rule

AGENCY: Environmental Protection Agency. ACTION: Notice ofproposed rulemaking.

SUMMARY: This document proposes revisions to the simple model and the
contents ofa complex model to be used in the certification of reformulated gasoline, and associated procedures to

assure compliance with the reformulated gasoline and antidumping
programs. This notice additionally
proposes "Phase II" reformulated gasoline emission performance standards which will take effect in the year 2000, as prescribed by section 211(k)(3) and authorized by section 211(c) oftheClean Air Act (CAA). The detailed proposed regulations described herein may be obtained from Public Docket No. A-92-12 or from the contacts listed in the ADDRESSES section. DATES: The comment period will close April 27, 1993. EPA will issue a subsequent notice indicating when and where the public hearing will be held. ADDRESSES: Comments may be submitted to U.S. EPA (RDSD-12) 2565 Plymouth Road, Ann Arbor, MI 48105. Materials relevant to this NPRM are' contained in Public Docket No. A-92- 12, located at room M-1500, Waterside Mall (ground floor), U.S. Environmental Protection Agency, 401 M Street SW., Washington, DC, 20460. Additional materials relevant to earlier related proposals are contained in Public Docket No. A-91-02 at the same location. The docket may be inspected from 8 a.m. until 12 noon and from 1:30
p.m. until 3p.m. Monday through Friday. A reasonable fee may be charged by EPA for copying docket materials. EPA will provide a copy ofthe proposed regulations for this NPRM upon request. FOR FURTHER INFORMATION CONTACT:
Michael Sklar (complex model), U.S.

EPA (RDSD-12), 2565 Plymouth Road, Ann Arbor, M! 48105, Fuel Studies and Standards Branch, Telephone: (313) 741-7817. Christine Brunner (PhaseII performance

standards), U.S. EPA (RDSD-12), 2565 Plymouth Road, Ann Arbor, Mi 48105, Fuel Studies and Standards Branch, Telephone: (313) 668-4287. George Lawrence (enforcement'and certification), U.S. EPA (6406J), 401 M Street, Washington, DC 20460,Eastern Field Office I,Telephone: (202) 233- 9307. To Request Copies ofThis Notice or theProposed Regulations Contact: Marie Tolonen, U.S. EPA (RDSD-12). 2565 Plymouth Road, Ann Arbor, M 48105, Fuel Studies and Standards Branch, Telephone: (313) 668-4295.

SUPPLEMENTARY INFORMATION:
I. Background

The purpose of these proposed regulations is to improve air quality by requiring that gasoline be reformulated
to reduce motor vehicle emissions of toxic and tropospheric ozone-forming compounds, as prescribed by section 211(k) ofthe Clean AirAct (CAA orthe Act). This section ofthe Act mandates that reformulated gasoline be sold in the nine largest metropolitan areas with the
most severe summertime ozone levels and other ozone nonattainment areas that opt into the program. It also prohibits conventional gasoline sold in the rest ofthe country from becoming
any morepolluting than it was in 1990,
to ensure that refiners do not "dump" into conventional gasoline what they

can no longeruse in reformulated gasoline. Shortly after passage ofthe Clean Air Act Amendments of 1990, EPAentered into a regulatory negotiation with interested parties to develop specific proposals for implementing both the reformulated gasoline and related antidumping programs. These parties included representatives ofthe oil and automobile industries, vehicle owners, state air pollution control officials, oxygenate suppliers, gasoline retailers, environmental organizations, and citizens' groups. During the regulatory negotiation, EPA agreed to propose a two-step approach to reformulated gasoline. The first step would take effect in 1995 and utilize a "simple model" to certify that a gasoline meets applicable emission reduction standards.

Under the second step, EPA would
propose a "complex model" to supplant the simple model for certifying compliance with these standards, which would takeeffect on March 1,1997 or 4 years after itis promulgated, whichever is later. EPA also agreed to propose the more stringent emission performance standards thatthe Act provides to take effect in the year 2000.

Regulations to implement this first step were initially proposed on July 9, 1991 in a notice ofproposed rulemaking (NPRM) (56FR 13416). Today's notice includes approaches different fromthe previously proposed regulations related
to the simple model aswell asto the anti-dumping provisions. Thisproposal is supplemental to the previous proposals and is not intended to withdraw from consideration the various elements previously proposed, but provides additional proposals for public review and comment. (The reader may refer to the NPRM and SNPRM mentioned above, the Draft Regulatory Impact Analysis (DRIA), and Public Docket Numbers A-91-02 and A-92-12 for athorough description of thegoals and regulatory development of the reformulated and anti-dumping
programs and discussions of anumber ofassociated technical issues.) In this notice, the Agency Is also proposing the complex model and associated revised enforcement provisions, aswell as the

year 2000 performance standards.

In addition, EPA is proposing a range ofNOx performance standards under section 211(c) ofthe Act as a complement to the VOC and toxics performance standards proposed under section 211(k). In a recent report on the chemistry oftropospheric ozone formation, the National Academy of Sciences emphasized the Importance of NOx reductions in addressing this problem.

The remainder ofthis preamble is organized into the following sections:

1I.

Proposed Revisions to the Simple Model

Proposal Ill.Complex Model IV. Vehicle Testing V.Phase IPerformance Standards Usingthe Complex Model VI. Phase IIReformulated Gasoline Performance Standards VII. Enforcement Provisions VIII. Anti-Dumping Compliance and Enforcement Requirements for Conventional Gasoline IX. Anti-Dumping Requirements for Conventional Gasoline X. Environmental and Economic Impacts XI. Public Participation XI1. Compliance With the Regulatory Flexibility Act XIII. Statutory Authority XIV. Administrative Designation and Regulatory Analysis XV. Reporting and Recordkeeping Requirements

H. Proposed Revisions to the Simple Model Proposal

A. Background

1. SNPRM

As noted above, The Agency's SNPRM reflected the agreement reached in the regulatory negotiation that had been conducted to develop reformulated gasoline regulations under section 211(k) (aswell as oxygenated fuels guidelines under section 211(m)). 11722

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### Federal Register / Vol. 58, No. 37 / Friday, February 26, 1993 / Proposed Rules

Added by the 1990 Clean Air Act Amendments, section 211(k)(1) directs EPA to Issueregulations that,beginning in 1995, require the greatest reduction in emissions ofozone-forming [VOCs] and toxic pollutants achievable through the reformulation ofconventional gasoline, taking into consideration the
cost ofachieving such emission reductions, any non air-quality and other air-quality related health and environmental impacts and energy requirements. Section 211(k)(3) specifies that the performance standards for 1995 to 2000 mustrequire emission reductions, measured on a mass basis, equal to that achieved by a specified formula fuelor 15percent ofbaseline emissions (the emissions of 1990 model

earvehicles operated on a specified aseline gasoline), whichever ismore stringent. For 2000 and beyond, the standard must be no lessthan the formula fuel or a 25 percent reduction from baseline emissions, whichever is

more stringent. EPA can adjustthis standard taking into account feasibility and cost, but in nocase can it be less than 20 percent. Taken together, sections 211(k)(1) and 211(k)(3) call for the Agency to set standards that achieve the most stringent level ofcontrol, taking into account the specified factors, but no less stringentthan those described by section 211(k)(3).

For purposes oftoday's notice, it Is useful toreview the background ofthe SNPRM's proposed VOC and toxic standards. Given the short amount of time provided by the statute for promulgation ofthe reformulated gasoline standards, the regulatory negotiation committee agreed on the twostep approach noted above.The first step would utilize then-available information toconstruct amodel that would determine a fuel's VOC and toxic emissions. Because the available information for quantifying the effects of fuel parameters onVOC emissions was limited in large part to the effects of Reid VaporPressure (RVP)and oxygen content, the so-called "simple model" took those fuel parameters into account in predicting a fuel's VOC emissions for purposes ofcompliance under the VOC performance-standard. At the sametime, it was understood that certain other fuel parameters affected a fuel's emissions, and that directionally higher levels of these otherparameters were likely to increase VOC emissions. Until the effects ofthese parameters could be accurately quantified, the committee agreed that the average level ofthese parameters in each refiner's fuel should remain capped at 1990 levels.

The second step was intended to take advantage ofdata then being developed to characterize the emissions effects of other fuel parameters. That data would be used to construct a "complex model" that would betterpredict a specific fuel's emissions based on these parameters. The complex model would thus also provide refiners with more options for reducing those emissions by

hangingthe levels ofthese parameters in their gasoline formulations.

The simple model would be available for at least the first two years ofthe program and wouldbe replaced by the complex model four years afterthe complex model's promulgation. The Agency agreed to propose the four-year period to allow refiners lead-time in order to recoup investments made to comply with the 

### simplemodel and to make any refinery changes necessary to comply with the standards under the complexmodel. However, under the agreement, thecomplex model could be used on a voluntary basis assoon asit

waspromulgated, so long as any fuel certifled using thecomplex model achieved emission reductions as great as those itwould have to achieve to be certified using the simple model.

In developing the proposed VOC standards, it became clear that the formula fuel specified by section 211(k)(3) did not yield emissions reductions greater than the statutory minimum of 15percent. To achieve the statutory minimum under the simple model, the regulatory negotiation committee members agreed that a fuel's RVP (measure ofvolatility) could not be greater than 8.1 pounds per square inch (psi) and its oxygen content had to comply with the 2.0 weight percent requirement prescribed by section 211(k)(2)(B). The more volatile a fuel, the more VOCs it emits, mostly through evaporation. The more oxygen in the fuel the lower the exhaust VOC emissions (up to a maximum of 2.7 weiht percent oxygen perthe simple model).

Committee members considered the need for further emission reductions and thecost ofobtaining them in deciding whether and to what extent VOC performance standards more stringent than the statutory minimum

were achievable. For the reasons laid
out in the SNPRM, EPA and the other committee members concluded that reformulated gasoline with 2.0 weight percent oxygen, 8.1 psi RVP in northern cities, and 7.2 psi RVPin southern cities represented the greatest emission reductions that could be achieved by reformulating gasoline, taking into
account the specified factors.

The committee sought the more stringent VOC reduction requirement for the South in order to assure that southern nonattainment areas obtained emission reductions beyond what those cities would obtain from the volatility reduction requirements separately required by section 211(h). (Due to higher ternperatures in the South, emissions from a gasoline with a specified RVP aregreater in the South than in the North. Under section 211(h), the volatility limits for southern areas
were set lower than those applicable in northern areas in order to achieve comparable per vehicle emissions levels in the two regions). As explained in the SNPRM, however, the additional cost of achieving the more stringent standard in the South would be significant and made it difficult to Impose a more stringent standard in the North, as well. In effect, the committee decided to allocate the greatest reductions from the 8.7 RVP baseline gasoline that reformulating gasoline could reasonably achieve in such a way as to roughly equalize the actual emission benefits of the program between northern and southern nonattainment areas.
2. Ethanol Issues

Following the release ofthe SNPRM, supporters ofethanol, an agriculturally derived oxygenate added to gasoline in

some parts ofthecountry. again raised the concern that the simple model's RVP requirement would effectively preclude ethanol from the RFG market during the summer months (VOC control season). Ethanol, when added to gasoline in the amount needed to satisfy the oxygen content requirement ofthe Actraises thevolatility ofthe resulting blend by about I psi. Consequently, for the ethanol tobe blended with the RFG under the simple model, ablendstock gasoline with an RVP low enough to offset the increase resulting from adding ethanol would have to be obtained.

Ethanol representatives commented that obtaining such blendstocks would be both difficult and expensive, because "sub-RVP" blendstocks would be more costly to refine and because blendstock production would be controlled by petroleum refiners. Methyl tertiary butyl ether (MTBE). an oxygenate which does
notboost a fuel's RVP, which is derived from natural gas and the petroleum product isobutylene and can readilybe put through petroleum pipelines, was thought to bethe oxygenate ofchoice for
most refiners. Ethanol's representatives theorized that the oilindustry would have a desire touse MTBE overethanol and thus little incentive to make the sub-RVP blendstock necessary for ethanol blending. The ethanol industry' contended that areformulated gasoline
program which they argued would effectively preclude ethanol was 11723

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contrary to Congress' intent that ethanol have a role in the program. They argued that the oxygen content requirement of section 211(k)(2) was motivated in large part by a desire to expand maikets for ethanol. They noted the strong support afforded the RFG legislative initiative by Members ofCongress from agricultural
states. They also cited statements in the legislative history indicating some members' expectation that the RFG program would provide an increasing market for ethanol.

Ethanol representatives contended that the benefits of ethanol usejustify its inclusion in the RFG program. Specifically, theyexplained that ethanol Is currently made in the United States from domestically-grown grains, primarily corn, and thus represents an important domestic and renewable

source ofenergy. They further explained that to the extent ethanol is used in place ofimported petroleum products, it promotes the nation's energy independence and improves its balance oftrade, and that ethanol use also strengthens the market for corn, consequently reducing the need for price supports. Moreover, as a biomassbased product, ethanol is potentially a renewable fuelto the extentthe energy derived exceeds any fossil fuel energy consumed in producing the ethanol.

In view ofethanol's importance to the nation's energy security and agricultural economy, ethanol representatives urged that the simple model proposal be revised to allow ethanol to effectively participate in the RFG market. They suggested several possible revisions. For example, they argued that the 1psi waiver granted to certain ethanol blends by section 211(h) ofthe CAA be applied
to ethanol-blended RFG under section 211(k). They reasoned that since Congress recognized in the provision requiring nationwide reductions in fuel RVP thatethanol required such a waiver, ethanol should receive a similar waiver ifthe VOC performance standard for RFG sold in the smoggiest cities

were defined in terms ofa required reduction in RVP.

If the section 211(h) waiver were not available to RFG ethanol blends,the ethanol industry suggested that the VOC reduction requirement take into account thatthe variety ofVOCs from gasoline differ in their ozone formation potential. While ethanol raises a fuel'svolatility and thus its VOC emissions, theyargued that the resulting VOCs are less ozoneforming than those that would otherwise occur. They urged that the 15 percent reduction requirement should thus beinterpreted to require a 15 percent reduction in ozone-forming potential, not simply ozone-forming VOCs. Ethanol supporters suggested additional ways ofencouraging or even requiring ethanol use in RFG. The Governors Ethanol Coalition, for instance, suggested thatEPA require the RFG market to satisfy its oxygenate requirements through a minimum percentage ofdomestically produced renewable fuel.

3.October 1stAnnouncement

EPA, the Department ofAgriculture, the Department ofEnergy and other parts offederal government engaged in

an extensive dialogue with all interested groups to address the ethanol industry's

concerns with the RFG program. In response to the ethanol industry's suggestion, the applicability ofthe section 211(h)waiver to the RFG program under 211(k) was closely considered. For the reasons set forth in

amemorandum available in the docket, theActing General Counsel ofEPA determined that it did notapply.

Also explored was the ability to take reactivity into account in determining compliance with the requirement that "ozone-forming VOCs" bereduced by 15 percent. Section 211(k)(3), however, explicitly requires that reductions in ozone-forming VOCs be measured on a "mass basis." Although any reactivity benefits ofemissions from ethanol blends, should they exist, could be taken into account in defining which VOCs are "ozone-forming," the statute does not appear topermit ozoneforming VOCs tobe weighted on the basis oftheir ozone formation potential forpurposes ofdetermining compliance with the 15 percent reduction requirement.

Based on ethanol's importance to the nation's energy and agricultural policy, President Bush on October 1,1992 announced a plan to allow ethanol to effectively compete in the RFG program, with the expectation that, with barriers removed, ethanol use would grow. This plan is based upon provisions of section 211(k)(1) allowing the Administrator to take Into consideration cost, energy requirements, and other specified factors in setting RFG performance standards. The most significant part of this plan called forEPA to "establish rules forreformulated gasoline in all northern cities that will have the effect ofgranting a one-pound waiver forthe first 30 percent market share ofethanol blends, while achieving environmental benefits comparable to those provided for in EPA's proposed rule and regulatory negotiation." The environmental benefits ofthe proposed RFG program would be maintained by offsetting any increase in volatility of RFGcontaining ethanol with reductions inthe volatility ofthe rest ofthe reformulated gasoline pool.

-

Alsopursuant ofthe plan,EPA is proposing topropose to establish rules allowing governors ofsouthern states to extend the provisions made for ethanol innorthern RFG-covered citiesto covered southern cities as well. Other aspects ofthe plan include the establishment ofan RVP trading
program, the unrestricted optional early

use ofthe complex model and oxygenate neutral NOx and toxics performance standards. Through today's notice the Administrator proposes these

aswell asa variety ofother provisions relevant tohis determination ofsection 211(k) factors.

B. Reid VaporPressure Allowance

1. Overview

EPA proposes that the RVP performance standard under the simple model provisions ofthe SNPRM and VOC performance requirements under the complex modelbe based upon the
extent ofuse ofrenewable oxygenates such asethanol. For northern areas under the simple model, EPA proposes that the RVP performance standard as proposed in the SNPRM of8.1 psi (8.0 psi under the averaging provisions of the SNPRM) be reduced to 7.8 psi (7.7 psi under averaging) when no renewable oxygenates are used in reformulated gasoline, but be permitted to increase to 8.1 psi (8.0psi under averaging) through the use ofrenewable oxygenates in 30% ofthe reformulated gasoline produced. For example, taking advantage ofthe proposal's averaging provisions, this would allow ethanol to be splash blended into 30% ofreformulated gasoline and have a 1.0 psi greater RVP than other reformulated gasoline blends while still maintaining the in-use volatility and, thus,comparable environmental benefits proposed inthe SNPRM. EPA is also proposing to permit a governor ofa southern state to have applied Inthat state's ozone nonattainment areas provisions similar
to those described above fornorthern

areas. Specifically, under the simple model, EPA proposes that the 7.2 psi RVP standard proposed in the SNPRM for southern areas bereduced to 7.0 psi, butthat refiners may meet an RVP standard ofup to 7.2 psi ifthey use ethanol or other renewable oxygenates in up to 20 percent ofthe market covered in those areas. In addition, the Agency proposes a similar approach to standard setting under the complex model.

It should be noted that this program in no way limits the ability of arefiner
to use ethanol or any other renewable 11724

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oxygenate in its gasoline to only 30 percent ofits production (20 percent in the South). A refiner may blend as much ethanol into its gasoline as itdesires, provided Itmeets its RVP (VOC) performance standards. It should also be noted that the ability ofrefiners to average RVP performance under the provisions ofthe SNPRM is not changed

as a result of this program. RVP averaging can still be used to meet a refiner's RVP (VOC) performance requirements. In fact, asdiscussed below. EPA is proposing to expand the RVP averaging provisions oftheSNPRM
to include RVPtrading aswell.

In order toprovide greater flexibility for the use ofrenewable oxygenates. EPA proposes that refiners be permitted
to either blend the renewable oxygenate themselves to raise theirperformance standard, or obtain commitments from other refiners to do so.This flexibility in connection with the RVP trading provisions will allow greater renewable oxygenate use by the refiners whocan benefit from their use, and allow its use in those areas where it is most economical to do so.

Today's action does not mandate the

use ofethanol. Taking intoaccount the statutorily specified factors, EPA is proposing these provisions forethanol

on the theory that allowing ethanol to effectively participate in the RFG market isimportant to the nation's energy security. While EPA is continuing to gather the relevant data and perform the requisite analyses, it appears that the

useofrenewable oxygenates such as ethanol as amotor vehicle fuel may reduce the nation's dependence on foreign oil. improve ourbalance oftrade with other nations, and enhance our energy security,' At2.7 wt% oxygen.

use ofethanol (orethanol in the form of ETBE) in 30 percent ofRFG) would displace 2.3 percent ofthe volume of reformulated gasoline with ethanol. This is the equivalent of360 million gallons ofethanol used (gasoline displaced) during the summer months alone in theareas currently covered by the reformulated gasoline program (including those areas that have already opted in). and could rise to as much as 510 million gallons ifall eligible areas

'The Final Report ofthe Interagency Commission

on Alternative Fuels written for DOE and published in September. 1992 estimates that the displacement .of crude oil with all oxygenate us under the reformulated gasoline and oxygenated fuels provisions ofthe CAA could reach roughly 200.000 barrels per day. In aprivate conversation on I1/a 92. Margaret Singh of Argonne National laboratory.

one ofthe authors ofthe Interagency Commission report stated that roughly 10 percent ofthe crude oil displacement in that analysis was dueto ethanol alone (this estimate does not take into account any chaoges which may result from today's proposal}. opted into the program. In addition to energy related benefits, the use of oxygenates made from renewable

sources provides the potential for reducing emissions which contribute to global warming.

As explained above, the statute prescribes for the nearterm a minimum 15 percent reduction in VOCs, and in the SNPRM EPA proposed RVP and
oxygen requirements that it believed achieved thisrequirement. Under today's proposal, the simple model RVP standards for refiners or importers that

use 30% renewable oxygenate is 8.1 psi. ifcompliance is met on a per gallon basis. Both the renewable and nonrenewable blends produced by those refiners orimporters would have to meet this per gallon standard. If compliance is met on average, however. the RVP standard would be8.0 psi. This could be met. for example, by two-thirds ofa refiner's or importer's gasoline meeting 7.7 psi (nonrenewable blends) and one-third meeting 8.7 psi (renewable blend such asethanol splash blended into a 7.7 psi blendstock).

The effect oftoday's proposal on the
cost ofreformulated gasoline is expected tobe small. The cost of reducing the RVP ofgasoline by 0.3 psi in northern (VOC control region 2 as defined in the SNPRM) areas to offset the allowance for splash blended ethanol in 30% ofthe fuel is approximately 0.3 to 0.5 cents per gallon. However, the overall costofthe
RVP performance allowance of0.3 psi forthe use ofethanol is expected to be less than 0.3 cents per gallon since ethanol is likely tobe less costly than MTBE per gallon ofreformulated gasoline produced.2

In addition, the cost ofethanol may decrease beginning in 1995 as aresult ofthe proposed provisions. Under a program like that set forth in the SNPRM, ethanol would beexpected to capture a sizeable portion ofthe RFG and oxygenated fuelsmarkets during the winter months. (The oxygenated fuels program established by section 211(m) requires that gasoline sold in many carbon monoxide ponattainment areas include 2.7 percent oxygen during the winter months,beginning in 1992.) However, since the market during the

summer waspotentially small, ethanol production facilities could not operate year-round ata steady production level without storing vast quantities of ethanol during the summer foruse during the winter. To the extent ethanol

was also used during the summer

2"Evaluation of theUse ofEthanol and M'BE in Reformulated Gasoline." by Sobotka &Co.,Inc.. for USEPA. September 30. 1992, months, more steady production could be achieved, withreduced capital expenditures for storage and peak production equipment. Thiswould ikely result in a reduction in thecost ofproducing ethanol.

Year-round and increased use of ethanol may also increase the incentives
to develop an established infrastructure forethanol distribution and use,making iteven more feasible and cost effective. In addition, expanded use ofrenewable oxygenates may encourage further research and development associated with their production anduse. which couldfurther reduce their cost and expand their market both as blends with gasoline and separately as alternative fuels. Expanded use ofrenewable oxygenates wouldfurther result in economic growth not only in the ethanol industry, but also in agriculture and related industries. Finally, since the consumption ofgrain to produce ethanol may raise the prices farmers receive for their crops additional ethanol usemay reduce the amount the government must pay in agricultural price supports.

While thecost per gallon of reformulated gasoline ofthe RVP adjustment for the use ofrenewable oxygenates is small, the incentive per gallon ofethanol is substantial. An economic incentive forrenewable oxygenate containing blends such as ethanol blends of0.3 cents per gallon adds roughly 13.7 cents per gallon to the value ofethanol (assuming a base requirement of2.7 wt% oxygen as described in section 4).3

In sum. section 211(k)(1) requires that gasoline be reformulated to achieve the greatest reductions in VOC emissions considering cost, energy, and the other specified factors, but not less than a 15% reduction during Phase I ofthe program and 25% (20%) during Phase I1 ofthe program. In determininghow these statutory requirements can be met. EPA must balance the cost ofRVP reductions in non-ethanol blended gasoline and the extent to which energy

or other considerations warrant that the volatility associated with ethanol usebe offset. Today. EPA is proposing that the volatility associated with a potential ethanol market share as high as 30 percent be offset through reductions for nonrenewable oxygenate blended gasoline such thatthe reformulated gasoline market achieve overall reductions meeting the minimum 15% reduction requirement. EPA requests comment on whether thisproposal represents the properbalance. EPA

3The derivationof thevalue ofthe incentive is shown in Section VII1 ofthe DRIA. . 11725

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### Federal Register / Vol. 58, No. 37 

### I,Friday, February 26,%.1993 

### 1. Proposed Rules

believes that, in addition tothe factors described previously concerning the
energy and other benefits ofrenewable oxygenate use,the following are relevant to the issue: The cost to reduce the RVP ofnonrenewable oxygenate blends below the previously proposed levels; the leadtime available for such reductions; and the market share ethanol and other renewable oxygenates could expect absent any such provisions. The expected market share absent these provisions ishard to predict, and atbest 30% would allow ethanol and other renewable oxygenates to effectively participate inthe reformulated gasoline program, including the opportunity to expand that participation beyond what would otherwise be possible. 2. Performance Standard Setting Process

The RVP performance standards proposed today are intended to-provide the same levelofRVP and comparable environmental control aswould be achieved by the SNPRM, while allowing ethanol and otherrenewable oxygenates to effectively participate in the reformulated gasoline program. Thiscan be accomplished by adjusting the RVP performance standard withthe use of renewable oxygenates while preventing the standard from going anyhigher than that proposed in the SNPRM. As such, EPA proposes to establish a performance standard forRFG not containing renewable oxygenates that is

more stringent than that which was proposed inthe SNPRM. EPA further
proposes that ifrefiners commit to the use ofrenewable oxygenates intheir fuel orpurchase commitments from. other refiners for the use ofrenewable oxygenates (ifthatproves mhore cost effective) their RVP performance standard wouldbe relaxed accordingly (upto 8.1 psi). Finally, a refiner's performance standard couldbe relaxed

even further through a process bywhich EPA provides RVP performance standard adjustments based onthe refiner's commitment touse renewable oxygenate that otherrefiners might have used totake advantage ofa less stringent RVP (VOC) performance standard, but chose notto. This RVP (andVOC) performance standard setting process is described in the following sections and shown in figure 1I.1.

ott CODE "46--M 11726

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### IVol. 58, No. 37 1 Friday, February 26, 1993 

### I Proposed ules 1 

# Figure 11.1
RVP PERFORMANCE STANDARD SETTING PROCESS

Start: 7.8 RVP

Refiners committo the use of renewable oxygenate units (ROUs)
and onthat basis are given the right to raise their performance
standards as high,as 8.1 RVR unless capped.
RVP =BASE + ROUs* 0.01

Refiners unwilling to commit to using ROUs forfeit the rightto raise their
RVP performance standard through ROU usage to area-specific EPA alloaction pools to theextent ROUs were notused for one year,



## Were

hNO

f r i



### EPA allocates renewable oxygenate volume for one year to other
refiners willing to commit to additional ROU use andraises their
RVP performance standard. RVP =BASE + ROUs *0.01

NO 

### Did anyone

. use les s RO Us tha n



### EommiSted 

### YES

lUJIG cOE 90,-40-C 

### Forfeit all unused ROUs to EPA allocation pool. Recalculate
RVP Cap ROU usage at level of resultant ROU usage level until the equivalent renewable oxygenate from the
forfeited ROUs is used without the RVP incentive. 11727

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### Federal Register / Vol. 58, No. 37 / Friday, February 26, 1993 / Proposed Rules

a.SouthernPerformance Standards. The proposed approach taken in the North would notbe required for southern areas covered by the RFG
program. There are several reasons for this distinction. First, most ofthe RFG

areas are in the North. sothat removing barriers to ethanol use in the North will have a larger impact than removing these barriers inthe South on the policies associated with ethanol use. Second, production ofgrain feedstocks and ethanol production are concentrated inthe North. Thehigher
tax benefits these northern areas offer ethanol together with lower transportation costs account for ethanol's greateruse in the North.For these same reasons, EPA expects that the potential for growth inethanol use is expected to be greater in the North. Third, the lower RVP standards applicable under the simplemodel in the South are likely to make additional RVP reductions to offset volatility increases associated with ethanol use

more expensive for southern RFGareas. In sum, in strikingthe balance between achievable RVPreductions and the policybenefits associated with ethanol, EPA has reason to believe that forthe South generally, the RVP costs may be higher andthe resulting ethanol policy benefits may be lower. Thus, striking thebalance somewhat differently for southern areas, President Bush's announcement did provide, nonetheless, that a modified version of the northern approach be available to governors ofsouthern states tohave applied at theirdiscretion. A governor who believes that ethanol has a potentially strong market in hisor her

state could request that this modified approach, explained In more detail below, be applied in the state's RFGcovered areas. As summarized above while EPAbelieves that ethanol participation in southern RFG areas would advance the samepolicy

concerns as ethanol participation in northern areas, EPA is notcertain that ethanol would participate sufficiently

even ifthe barriers are removed to

. justify the higher costs of offsetting the volatility increase in southern areas. However, southern governors may be in

a good position tojudge on a case-bycase basis the likely participation of ethanol in the market and thecost of removing thebarriers.

The modification ofthe northern approach for optional application in the South is as follows. EPA isproposing that theRVP standard forRFG not containing renewable oxygenates be reduced from 7.2 psi to 7.0 psi (6.9psi under the averaging provisions ofthe SNPRM). The 0.2 psireduction would permit 20 percent ofthe RFG market in

an areato be splash-blended with ethanol without raisingthe average RVP ofthe RFGin the area.

EPA further proposes as one option that the effective date for inclusion ofa southern covered area be thebeginning ofthe first VOC control season three
years following receipt ofthe governor's
etter requesting applcation ofthis approach inhis orher state. EPA believes threeyears Isthe appropriate
amount oftime to provide adequate lead-time for refiners toprepare to make the necessary additional RVP reductions, and requests comment on the validity ofthisbelief.

While havingthe program automatically take effect threeyears after the request from the governor Is a relatively straightforward approach, it does raise seriousquestions about whether section 211(k) authorizes a stateto determine which federal standard applies in its area. At the same time,EPA is concerned whether receipt

ornon-receipt ofa request from a governor is an adequate basisto support

a different performance standard in that

area.

In lightofthese concerns, EPA is proposing a second option whereby the ethanol provisions described above would be implemented in a southern

area through a rulemaking conducted subsequent toreceipt ofa request from the Governor. Upon receipt ofany such request from a governor, EPA would promptly prepare a notice proposing extension ofthe ethanol-related provisions to the area or areas covered by the request. This would allow for full exploration ofall the relevant issues, and would avoid the legal concerns mentioned above.This option is similar

to the approach taken in the federal RVP regulations under section 211 (c) and (h),where RVP standards were set on a national basis with allowance for subsequent rulemaking to fine tune the regulations for specific localities. EPA requests comment on the relative merits ofthese two options.

The energy related benefits of renewable oxygenates are not unique to the use ofthe simple model. Under the SNPRM, refiners will have the option of using the complex model in the first
years ofthe program when the simple model is also available. After a specified period of time following the complex model's promulgation, only the complex model will beavailable for certification. Inkeeping withthe proposal under the simple model,EPA proposes that the VOC performance standard stringency under thecomplex model be increased by the equivalent of0.3 psi RVP. For Phase Iofthe reformulated gasoline program EPA proposes todetermine the VOC equivalent of0.3 psi RVP using as

a baseline a fuel meeting the performance standards ofthe simple model (8.0 RVP, 2.1 wt% oxygen, 0.95 volume percent benzene, 26.3 percent aromatics, and CAA baseline values for all other fuel parameters), and under Phase II ofthe reformulated gasoline
program one baseline fuel consistent with the VOCperformance standard described in section VI ofthis notice (forpurposes here, 2.0% oxygen, 105
ppm sulfur, 6.9 RVP, 202OF T50, 3160 F TO0, 23.0% aromatics, 6.5% olefins, and 1.0%benzene). As calculated from the complex model, EPA thus proposes that the Phase Iand Phase IIVOC performance standards be increased by' 7.1 and 2.8percentage points, respectively, in northern areas. Ifany southern areas are included in the
program, the Phase Iand Phase HVOC performance standards would be increased by 5.9, and 2.0 percentage points, respectively (forPhase I.the equivalent of0.2 RVP determined using

a baseline fuel of7.1 RVP, 2.1 wt% oxygen, 0.95 volume percent benzene, 26.2 percent aromatics, and CAA baseline values forall other fuel parameters and, for Phase II, the equivalent of0.2 RVP using asa baseline fuel a fuel with 2.0 wt%
oxygen, 143 ppm sulfur, 6.5 RVP, 202*F T50, 316OF T9o, 23.0% aromatics, 6.5% olefins, and 1.0%benzene). EPA requests comment on this methodology for setting the performance standards under the complex model, on the fuel assumptions used, on whether and to what extent the methodology unfairly disadvantages any refiner relative to another, and on whether there are any other methodologies or fuel assumptions which might be more appropriate.

b. Performance Standard Adjustment Through Commitments forRenewable Oxygenate Use.EPA's proposed RVP and VOC standards are based on its estimate ofthe greatest reductions the market as awhole can achieve, taking into account the statutory factors. However, the ability and desire of refiners to take full advantage oftoday's proposed standards varies from refiner
torefiner. To ensure that the policy objectives related to this proposal are fully served, it is important that the market be permitted to work as efficiently aspossible. EPA istherefore proposing that a system ofcommitments be created to allow the greatest flexibility forthe use ofethanol and other renewable oxygenates consistent with the.applicable performance standards. 11728

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Infulfilling theircommitments, refiners could eitherblend renewable oxygenate themselves during the forthcoming VOC control season or,if meeting the VOC standards on average, also purchase commitments from other refiners. As long as refiners meet their RVP (VOC) performance standards in each area covered by the RFG program, the useofrenewable oxygenate could easily be shifted from arefiner serving

one area toa refiner serving another area where it ismore economically advantageous to do so (based on state tax subsidies, distribution costs,etc.). Whether ornot a refiner chose to fulfill its commitment through its own use of renewable oxygenate or through contracting forits usewith another refiner,however, the refiner would nevertheless be liable for its commitment. Since various refiners produce vastly different amounts of gasoline, in orderto maintain the same level ofrenewable oxygenate use under this program, trading ofrenewable oxygenates from onerefiner to another
mustbe performed on a volume basis.

Under the simple model, refiners could elect tomeet an RVP performance standard ashigh as 8.1 psi (8.0 under averaging) in the North and 7.2 psi (7.0 under averaging) inthe South in proportion to their commitment to use renewable oxygenate in 30 percent and 20 percent oftheir fuel, respectively. Under the complex model refiners could lower the otherwise applicable VOC performance standard by as much as 7.1 percentage points in the N6rth and 5.9 in the South under Phase Iofthe reformulated gasoline program, and 2.8 percentage pointsin the North and 2.0 percentage pointsin the South under Phase II, through the use ofrenewable oxygenates in 30 and 20 percent oftheir fuel, respectively. It is entirely up to each refiner to decide what amount of renewable oxygenate to use and, thus, which performance standard would be applicable to it.Refiners could utilize as much renewable oxygenates in producing theirreformulated gasoline as they desire, butthe ability to adjust the applicable performance standard in proportion to the amount used would be limited to 30 percent oftheirproduction in the North and 20 percent in the South.

In orderto providerefiners withthe
necessary flexibilityto blendrenewable oxygenates, EPA proposes toraise the maximum RVP allowed underthe averaging provisions ofthe SNPRM to 8.7 psi forrenewable oxygenate blends in the North and 7.9 in the South. Similarly, the minimum VOC performance standard under the complex model is proposed tobe relaxed by 21.2 percentage pointsin the North and 24.6 percentage pointsin the South below theaveraging standard under PhaseI ofthe reformulated gasoline program. Under Phase H, EPA
proposes that the minimum performance levelbe set at8.5 and 8.3 percentage points in theNorth and South, respectively, below the performance standard described in section VI (takinginto account a 1.5% increase in the standard under averaging). These levels are sufficient to provide a 1.0 psi margin for splash blending ethanol into 30 percent of reformulated gasoline downstream of the refiner. EPA proposes,however, that forreformulated gasoline not containing renewable oxygenates the maximum RVP remain atthe already proposed level for thesimple model of8.3 RVP in the North and 7.4 in the South, and that the minimum VOC performance underthe complex modelremain atthe levelsproposed later in today'snotice.

The performance standard adjustment forblending renewable oxygenates has value only ifthe RVP or other parameters ofgasoline are adjusted. Since these are determined by the refiner, EPA proposes that the refiners continue tobe the party responsible for meeting the RVP performance standard, which is now a function ofthe amount ofrenewable oxygenate used. Since this is fully consistent with the provisions of the SNPRM, changes to the enforcement provisions proposed in the SNPRM are minimized. EPA considered various other options which wouldalso place requirements on terminal operators (ethanol blenders), butconsidered such options asbeing too restrictive and burdensome.

At the same time, unless refiners chose to comply with the per gallon performance standards, some blends (e.g., those splashblended with ethanol) would be likely to have an RVP that is higher than that ofother blends by as much as 1.0 psi. (Underthe per gallon standards, all ofa refiner's fuel must meet itsper gallon standard (e.g., 8.1 RVP ifrenewable oxygenate is used in 30 percent ofits fuel) including any ethanol splash blends.) Therefore, in orderto ensure thatthe RVP (andVOC) standard is met ineach area covered by the reformulated gasoline program, it would be essential for the refinerto track and control the fraction offuel with a higher RVP which is distributed
to each area. Similarly, itwould be essential forrefiners to maintain a constant fraction offuel with a higher RVP (lowerVOC performance) over the

course ofthe VOC control season. Otherwise, there could be temporal increases and decreases inthe average emission performance ofin-use fuels. As under the averaging provisions ofthe SNPRM, should temporal increases
occur,the refiners run the risk ofin-use compliance survey violations andthus,

amore stringent performance standard the followingyear.

c.Performance Standard Adjustment ThroughEPA Allocationof Uncommitted Renewable Oxygenate Use.Some refiners may decide notto

use renewable oxygenates and forego the opportunity to meet a less stringent RVP (VOC) performance standard. So that other refiners might take advantage ofthat opportunity andthereby further advance the policygoals oftoday's notice,EPA proposes that a refiner's opportunity to elect a less stringent RVP (VOC) performance standardbe forfeited for the following ozone control season if it does not commit to the use of renewable oxygenates (by themselves or through the purchase ofcommitments from otherrefiners). EPA would then adjust the RVP performance standard of other refiners in exchange fortheir commitment to use the amount of renewable oxygenate which hadbeen left uncommitted. For example, a refiner which commits touse renewable oxygenate in 60 percent ofits fuel and receives the associated RVP performance standard adjustment could raise its average RVP performance standard in the North under the simple model from 8.0 to 8.3 psi.

This allocation system would also provide the means ofeffectively combining offsetting fuels in slates for the purpose ofcertifying them asRFG. Section 211(k)(4) permits gasoline tobe certified as RFG aspart ofa "slate" of fuels that on average meet RFG requirements. While the proposed system ofallocating RVP performance standard incentives would result in one refiner's fuel having an average RNV above the minimum 8.1 psi standard, by effectively combining in a slate that refiner's fuel with another refiner's fuel having an average RVP sufficiently below the standard, bothrefiner's fuels could stillbe certified asreformulated gasoline.

In order topermit EPA to adjustthe RVP (VOC) performance standards, information on reformulated gasoline andrenewable oxygenate use must be made available on an area-specific basis. IfRVP performance standard adjustments forrenewable oxygenate

use were forfeited by a refiner in one covered area and subsequently allocated
to refiners serving another covered area, greater environmental control would be achieved in one area and lessin another. To avoid such an outcome, EPA proposes that by November Iprior . 11729.

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to each ozone control season each refiner (and importer) report to EPA its commitment to use renewable oxygenates (and in what form), the
amount ofrenewable oxygenate other refiners have committed to use forit, the
amount ofrenewable oxygenate it has committed to use for otherrefiners, the
amount ofrenewable oxygenate use eligible for making performance standard adjustments which isnot committed tobe used in each area covered by the reformulated gasoline program, its totalreformulated gasoline production which was distributed for

use in eachcovered area forthe previous year, and the VOC performance characteristics (RVP under the simple model, all fuel parameters that affects VOCunder the complex model) ofthe fuel which it distributes for use in each covered area. Ifand only ifa refiner chooses to meet the VOC performance standards on a per gallon basis, commits to the use ofa minimum of30 percent ofrenewable oxygenate in the North and 20 percent in the South (ifapplicable), and is notcommitting to

use renewable oxygenates for any other refiner, would its reporting requirements be simplified. In such a

case the refiner would be required to report only its commitment touse at minimum 30 percent, and the volume of reformulated gasoline produced and renewable oxygenate used each year nationwide. By January I priorto each

ozone control season, any uncommitted RVP (VOC)performance standard adjustments would be provided at no cost to other refiners foruse in the same covered area for theircommitment to

use additional renewable oxygenate, and theirperformance standard would be adjusted accordingly. EPA proposes to allocate these adjustments among the refiners wishing touse them in the covered area where the adjustments are forfeited prorated based on the volume ofreformulated gasoline produced by the various refiners requesting additional adjustments, andbeginning with the category ofrefiners who fulfilled their commitment to use renewable oxygenates in previous years. The final RVP performance standard applicable forthese refiners for the coming season would then be recalculated based upon the total
amount ofrenewable oxygenate committed tobe used.

EPA's adjustment ofRVP (VOC) performance standards, as proposed, wouldbe specific to each area covered by the reformulated gasoline program in orderto maintain each area's environmental benefits from the reformulated gasoline program. As such it would require that refiners track their fuel from the point ofproduction to the point of its ultimate useand report to EPA the amount ofreformulated gasoline and renewable oxygenates distributed forconsumption in each

area (except as described above under certain conditions for per gallon compliance). EPA recognizes that such

arequirement changes current industry operating practices and as such may impose additional costs. However, EPA is unaware ofany alternatives which would provide comparable environmental neutrality. EPA requests comment on any alternative means by whichthe environmental neutralityof the program can be maintained while minimizing the cost and burden on refiners. EPA also requests comment on the ability ofthe in-use compliance
surveys to be revised to provide adequate certainty that the full environmental control is achieved in each area without requiring refiners to track their fuel.

Despitethe precautions described above, EPA is still seeking design improvements to fully assurethat the program proposed today preserves the environmental control that would be achieved under the program proposed in the SNPRM. The program described above does not fully protect environmental neutrality ifchanges

occur inthe amount offuel distributed
to a given city by various refiners over time. Since the standards adjustment process is based on fuel volumes for the previous year,increases in the performance standard granted to some refiners following EPA adjustments would onlybe only offset ifthe refiners forfeiting RVPperformance standard adjustments distribute the same or greater volume ofreformulated gasoline to a given area as the yearbefore. Itis
not untilthe following year that the adjustment would be made to offset this disparity. Despitethis concern, EPA does not expectthat there will be significant increases in RVP (decreases in VOC performance) in-use since decreases are just aslikely as increases and not all refiners that opted to forfeit the performance standard adjustments would be expected to dramatically reduce the amount offuel they distributed to a given area in the same year. Nevertheless, EPA requests comment on the thisissue and on any
means by whichthe environmental neutrality ofthe program can be more futl ensured.

I duringthe course ofthe ensuing VOC control season a refiner uses less renewable oxygenates than ithad committed to EPA, no enforcement action wouldbe taken aslong as that refiner achieves an RVP orVOC performance standard commensurate with its actual renewable oxygenate use. However, ifa refiner uses less renewable oxygenates than ithas committed touse, EPA requests comment on what remedy wouldbe appropriate. One possible remedy would be that the refiner forfeit the ability toraise its performance standard through renewable oxygenate use in the future (tothe extent the commitment

was not reached). EPA would make these RVP (VOC) performance standard adjustments available to other refiners willingto commit touse the corresponding amount ofrenewable oxygenate as described above. Ifsuch a forfeiting refiner wanted toraise its performance standard through renewable oxygenate use in the future, it could do so only ifunallocated RVP VOC) performance standard adjustments were still available for the covered area(s) in question. Such refiners would have their RVP (VOC) performance standard adjusted only after allrefiners who fulfilled their commitments the previous year have received any desired adjustments.

EPA is concerned that the performance standard adjustment
process described above does notgrant refiners desiring to use additional renewable oxygenate adequate certainty ofthe availability ofadditional RVP (VOC) performance standard adjustments to fully take advantage of them. Furthermore, EPA is concerned that the refiners described in the previous paragraph who forfeited their opportunity to take advantage ofRVP (VOC) performance standard adjustments for future years would be limitedto receiving year to year adjustments from EPA ifany are available and would never have any certainty ofusing any performance standard adjustments. As a result, EPA is alsoconsidering an approach whereby performance standard adjustments which are either given to EPA for subsequent distribution be permanent (instead ofyearto year) and whereby adjustments distributed by EPA would be permanent. Under such

an approach, refiners would have the
necessary certainty ofbeing able to utilize the performance standard adjustments and be permitted to make refinery changes in accordance with such performance standard adjustments. Such an approach, however,prevents the year-to-year adjustments in reformulated gasoline volume necessary to ensure that any loss in environmental neutrality described above islimited to only oneyear. Another approach might 11730

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beto maintain the yearto year allocation but allowrefiners who fell short oftheir commitments inprevious years toregain their original opportunity touse renewable oxygenates for RVP (VOC) performance standard adjustments bymaking up their earlier shortfall without any RVP (VOC) adjustment. EPA requests comments on the above approaches, on the need foran allocation program given its potential limitations, and on any other approaches that would provide refiners with the necessary certainty while still preserving the environmental neutrality ofthe program.
3. RVPTrading Program

Based on the performance standard adjustment process described above, if a refiner wishes toblend more than 30% ofits production with renewable oxygenate, it would still berequired to meet an 8.1 RVP standard. With regard
to ethanol, this would require producing

an ever lower RVP gasoline blendstock. In order to provide greater flexibility to refiners desiring toblend additional renewable oxygenates, EPA proposes to establish an RVP credit trading program (in addition to the averaging program proposed in the SNPRM) whereby refiners could obtain RVP credits from other refiners in lieu ofreducing the RVP oftheir fuel. Under this program a refiner in Chicago could commit to use renewable oxygenate on behalfofa refiner in New York and then obtain RVP credits (from other refiners distributing fuel in Chicago) sufficient
to compensate forany increase in RVP caused by increasing its use of renewable oxygenates. For the program to remain environmentally neutral the RVP credits could only be traded within

agiven area covered by the reformulated gasoline program. Otherwise, one area would have an average in-use RVP of less than 8.1 RVP, while the other area would have an average RVP ofgreater than 8.1 RVP. Such an RVP trading
program could be conducted totally separate from any exchange in commitments for renewable oxygenate

use or in conjunction with it.An example ofthe latter would be the sale ofrenewable oxygenate usage commitments and the purchase ofRVP creditsby a refiner wishingto use more than 30%renewable oxygenates and vice versa by arefiner wishing touse less than 30%renewable oxygenates. The former could potentially adjust its average RVP standard to as high as 8.7, while the average RVP standard ofthe latter refiner would be lower than 8.0. The fuels being marketed by both refiners would have tobe In the same area, as mentioned above. Furthermore, ifthe program isto be environmentally neutral, RVP credits
must be tradedbased on the relative volume ofreformulated gasoline produced atany given RVP. Since RVP trading is a means by whichrefiners can choose to meet theirRVP performance standard and is notused todetermine the performance standard, EPA proposes that RVP tradingbe permitted to take place throughout the course of the control period and as such bebased

on the actual gallons ofreformulated gasoline produced.EPA proposes that to the extent refiners take advantage of RVP trading, theybe required to report to EPA at the end ofthe ozone control

season theaverage RVP ofthe reformulated gasoline they produced and the number ofRVPcredits traded to and received from other refiners for each ofthe reformulated gasoline areas. EPA does notbelieve thatthe added flexibility resulting from a trading program allows for amore stringent performance standard, but requests comment on the Agency's legal authority it implement RVP trading absent a tighterperformance standard for those refiners who trade. A more stringent performance standard was proposed in the SNPRM inconnection with averaging, and this ismerely an extension ofthat program. Furthermore, thistrading program is intended to provide greater flexibility to refiners for the purpose ofmaking it easier toblend renewable oxygenates. Ifthe performance standard were made more stringent, it could eliminate any incentive forblending renewable oxygenates provided by a trading program.

Since there isno RVP performance standard under the complex model, the RVP trading program described above cannot be used directly. However, the

same motivation exists under the complex model asunder the simple model to provide a trading program. Thus, under the complex model EPA proposes thatrefiners be permitted to trade VOC performance. EPA requests comment on thisprovision.

As discussed above in regard to EPA's allocation process forperformance standard adjustments with renewable oxygenate use,EPA is concerned that the requirement that refinerstrack and report to EPA the volume of reformulated gasoline and its RVP (VOC performance) on a covered areaspecific

asis may represent a significant additional burden. In the interest of minimizing the cost and burden on refiners ofthe reformulated gasoline
program, EPA would prefer to avoid, if possible,requiring refiners to track their fuel from the refinery to its ultimate use. However, toensure theenvironmental neutrality ofthe RVP (VOC)trading program knowledge ofthe actual distributionto each area is needed. EPA requests comment onany methods other than tracking offuel by which the environmental neutrality ofthe program

can be ensured in all covered areas and

on whether the costoftrackingwould begreater than any economic incentive created by the flexibility ofthe trading program.

4. Definition ofRenewable Oxygenate Use

Whilethe performance standards described above are adjustable based
upon the amount ofrenewable oxygenates used in the reformulated gasoline produced, some constraints need tobe placed on what constitutes the use ofrenewable oxygenates ifboth the environmental and other policy benefits oftoday's proposal areto be achieved. EPA proposes that renewable oxygenate be defined forthe purposes of this program asthose oxygenates that

are derived from renewable resources such as agricultural products and waste products such as sewage sludge orwaste cellulose and does not include oxygenates produced from nonrenewable resources such as petroleum, natural gas, coal, orpeat. Furthermore, since some oxygenates such as ethers

are currently made from both renewable and non-renewable resources, EPA
proposes that only the portion of oxygenates derived from renewable

resources be considered as renewable oxygenate. Atthe present time, the only oxygenate EPA is aware ofthat is produced in significant quantities that
meetsthe-definition ofrenewable oxygenate is ethanol. However,the definition is not meant tobe restricted
to ethanol, and is intended to encompass numerous other oxygenates, particularly the ethanol portion of ethers such asETBE and ETAEwhich in the future may be produced in significant quantities. EPA further proposes that the use ofrenewable oxygenates to meet the 30 percent market share described above for northern areas and 20 percent for southern areas bebased upon an assumed base oxygen content in the reformulated gasoline of2.7 wt%. A 30 percent market share would,thus, represent 0.81 wt% oxygen inthe form ofrenewable oxygenates in arefiner's reformulated gasoline production in the North, and 0.54 wt% oxygen inthe South. In orderto allow the greatest degree offlexibility forrefiners, EPA
proposes that the use ofany renewable oxygenate in any concentration be prorated onthe basis ofweight percent I I III 117.31

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oxygen forcredit toward the 0.81 wt% oxygen base.

The reformulated gasoline provisions require only 2.0 wt% oxygen in reformulated gasoline, but abase oxygen content of 2.7 wt% wouldbetter * advance the energy related policies of today's proposal, and is still consistent with the maximum oxygen content for which noNOx emission increase is assumed under the simple model in section Dbelow (aswelN asunder both thenegotiated agreement and SNPRM). Going beyond 2.7 wt% to as high as 3.5 wt% would provide a disincentive for theuse ofrenewable oxygenates other than ethanol since they are currently limited to a maximum of 2.7 wt% and, thus, would berequired to be used in

more than 30 percent ofthe market to achieve the same level ofrenewable oxygenate use. Furthermore, setting a base oxygen content greater than 2.7 wt% oxygen would require the use of the complex model pursuant to the provisions ofsection D. This would represent a disincentive for certain refiners touse renewable oxygenates and, thus could potentially result in less renewable oxygenate use than setting the baseline at 2.7 wt%. EPA invites comment on setting the baseline oxygenate content at 2.7 wt% and on what level would best ensure that the
energy related goals oftoday's proposal

are achieved in a manner consistent with section 211(k) ofthe CAA.

Ifoxygenates areused that are derived from both renewable and nonrenewable
resources, EPA proposes as one option that such oxygenates be prorated in direct proportion to the amount oftheir oxygen content derived from renewable

resources (e.g., ETBE derived from ethanol which isproduced from biomass would achieve the same credit

as the amount ofethanol used to make it). Not all renewable oxygenates, however, are identical with respect to their environmental benefits. One significant difference between oxygenates is theirpotential to cause vapor pressure increases when mixed with other fuels in the distribution system and vehicle fuel tanks, a phenomenon referred to as commingling. ETBE does not exhibit a commingling effect, nor does it produce the dramatic rise inblend vapor pressure above 100°Fthat ethanol does. As aresult, from an environmental standpoint,the use ofethanol in the form ofETBE is preferable to direct ethanol blending. The value added per gallon ofethanol from the RVP incentive proposed in this section would be roughly 13.7 cents, assuming

an RVP control cost ofone cent per RVP-gallon. This economic incentive would be constant regardless ofthe concentration ofethanol added orthe form (splashblended ethanol or ETBE) since it isbased onRVP. However, independent from today's proposal there is an inherent added incentive for blending ethanol at 3.5 wt% instead of 2.7 wt% oxygen since the former causes less ofan RVP increase per gallon of ethanol used (ethanol blended toboth 2.7 wt% and 3.5 wt% oxygen cause roughly a 1.0 psi RVP increase). Because ofthis inherent incentive EPA expects most ethanol blends would be at 3.5 wt% oxygen through'the use ofthe complex model and oxygen credit trading.As a result, ETBEwould always be forced to compete withethanol at 3.5 wt% oxygen instead ofethanol at 2.7 wt% oxygen where ETBE would be at less ofa disadvantage. In order to offset this disadvantage, EPA is also requesting comment on an option that renewable oxygenates such as ETBE that do not exhibit commingling effectsbe given the same credit at 2.0 wt% oxygen that is given to ethanol (orother renewable oxygenates which exhibit commingling effects) at 2.7 wt% oxygen. ETBE usein 30 percent ofthe market would, under thisoption, represent 0.60 wt% oxygen in the form ofrenewable oxygenates in arefiner's reformulated gasoline production. This approach would provide ETBE blends with an additional incentive ofroughly the same magnitude asexists forblending ethanol
at 3.5 wt% oxygen relative to 2.7 wt% oxygen.

Commingling itselfis an issue which is not unique to thisproposal. It was not addressed in the context ofthe SNPRM but, nevertheless, represents an environmental impact whenever oxygenates such as ethanol which exhibit commingling effects are blended into gasoline. Today's proposal is not expected to dramatically change the magnitude ofany commingling effects inherent under the SNPRM. While today's proposal may increase the market share ofethanol, it also contains incentives for ETBE and other ethers .which do not exhibit commingling effects. As such there could be no increase oreven a decrease in the amount ofethanol used to meet the reformulated gasoline program requirements resulting from today's proposal. Furthermore, even ifthere

were an increase In the use ofethanol blends, today's proposal allows for its

use to be shifted to those areas where it is most economical. As a result,it is possible that some areas would have virtually 100 percent ethanol blended reformulated gasoline while others may have virtually noethanol blended reformulated gasoline. Such a scenario would reduce concerns over commingling. Finally,even ifboth ethanol use and commingling do rise, the increase may be small. Atpresent EPA has not been able to adequately quantify the commingling effects resulting from the use ofethanol blends, but requests comment onhow significant such effects may be both under the provisions ofthe SNPRM and under theprovisions oftoday's proposal.

C. NOxNeutrality

A second element ofPresident Bush's
announcement was for EPA to establish

aNOx performance standard which was neutral with respect to the type of oxygenate being used. Under the simple model proposed inthe SNPRM, and in keeping with the agreement reached through regulatory negotiation, EPA proposed that "MTBE inconcentrations up to 2.7 weight percent oxygen and other oxygenates in concentrations up to 2.1 weight percent oxygen be assumed
notto increase NOx emissions." While "based on data available during the regulatory negotiations, It appeared that fuel oxygen content and the type of oxygenate used may have an impact on NOx emissions," the data did "not allow forquantifying relationships between oxygenate type and concentration andNOx emissions." Thus, based on the available information, caps were placed on oxygen content in orderto permit the sale ofreformulated gasoline and limit any potential NOx emission increase until the complex model could be developed and implemented. Since the time the SNPRM was developed agreat deal ofadditional data has become available which has gone into the development ofthe complex model (to be discussed later).

Under the complex model, all oxygenates are treated the same, i.e., based on oxygen content. There does
not appear to be asignificant difference between various oxygenates in their NOx formingtendency. Also, under the complex model, other fuel changes that accompany the blending ofoxygenates into the fuel (reductions in the concentrations ofaromatics, olefins, sulfur, etc.) have been found to offset the NOx increases caused by increasing the oxygen concentration. The results, which are described in the DRIA, show that on average 4-5 percent reductions in NOx emissions are expected. Thus, the complex model is directionally consistent with the data used for the simple model. However, refiners would
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so that a NOx increase could occur. EPA does not anticipate that refiners will have an economic incentive to do this. At most, as described in section V.C. below, a one percent increase in NOx emissions from certain fuels might

occur. Given the much larger reductions projected on average, it ishighly unlikely that a netNOx increase could result under the simple model with oxygenate up to 2.7 wt% oxygen. As a result, EPA proposes that in keeping with the provisions ofthe SNPRM and the more recent data, all oxygenates be assumed to yield ano NOx emission increase up to 2.7 wt% oxygen under the simple model. EPA requests comment on thisview and the resulting proposal, and on the legal adequacy of relying on thisexpectation that no NOx increase will occur. EPA also requests comment on.whether any NOx increase associated with oxygenates at orbelow 2.7 weight percent oxygen (should one be found to occur) may be considered de minimisand on whether EPA has legal authority to disregard such aNOx increase as deminimis.

The one option available toprevent a NOx increase from every batch offuel would be torequire refiners touse the complex model in 1995 (underthe early

use provisions described in section E. below) solely to certify that their fuels did notincrease NOx emissions. Given the effect ofoxygenate on the other parameters ofgasoline and the lack of economic incentive to worsen fuel Suality via other means, this option sould notpose aleadtime concern. EPA requests comment on this additional option aswell.

D. ToxicsNeutrality

In addition to NOx neutrality, President Bush also requested that the toxics standards be set in such a manner

as to beneutral with respect to the type ofoxygenate used. EPA based the toxics performance standard in the SNPRM on the use ofMTBE as the oxygenate in the fuel on the assumption that this would be the predominant oxygenate used to produce reformulated gasoline. Due to a characteristic ofMTBE unique among oxygenates, evaporative benzene emissions are suppressed, and MTBE achieves a greater toxics performance on
a weight percent oxygen basisthan the other oxygenates. As a result, the toxics performance standard was proposed in the SNPRM in a manner which disadvantaged the other oxygenates by making it more costly forthem tobe utilized in reformulated gasoline. As is discussed in section VI, control oftoxics emissions in reformulated gasoline is a very costly means ofreducing cancer incidences. Forthis reason, basing the toxics standard on the sole oxygenate which achieves the greatest toxics control is not appropriate. Thus, EPA
proposes thatthe toxics emission performance standard under the simple model bebased upon the non-MTBE oxygenates. Applying this approach, the toxics performance standard required by the actis thegreater ofa 15 percent reduction orthe performance ofthe formula fuelcontaining 2.0 wt% oxygen in the form ofanon-MTBE oxygenate. Since a formula fuel containing nonMTBE oxygenates does not achieve the 15 percent minimum, EPA proposes that the air toxics performance standard under the simple model be 15 percent. In accordance with the provisions proposed in the SNPRM, EPA also proposes that the year-round averaging standard be 16.5 percent.

E. Unrestricted EarlyUseofthe ComplexModel

The CAA requires all refiners to reduce the VOC and air toxics emission forming tendency oftheir fuelsby a minimum 15percent belowthat ofthe 1990 average in-use fuel as defined in section 211(k)(10)(B) (referred tohere as the CAA baseline). Due to the limited data available at thetime ofthe regulatory negotiation (and SNPRM development), however, few ofthe effects offuel parameters on emissions could be quantified and placed in the simple model even though they were known qualitatively to exist. As a result, EPA proposed in the SNPRM that all refinershold such fuel parameters (sulfur,olefins, and T90) at orbelow their 1990 baseline levels. Because different refiners have significantly different 1990 baselines ofsulfur, olefins, and T90, this proposal required

some refiners toproduce reformulated gasoline which was significantly less polluting than that produced by other refiners.

In order to maintain the same overall level ofenvironmental control ifrefiners opted touse the complex model prior to its required use in 1997, EPA further proposed In the SNPRM that refiners who opted touse the complex model early would be required to maintain whatever emission performance they would otherwise have achieved using the simple model through the use of their own 1990 baselines.This was viewed by some refiners, however, as an impediment to early use ofthe complex model since they could be required to achieve greater environmental control in 1995-96 than in 1997. In response, EPA also proposed that since in the southern

areas covered by a reformulated gasoline
program, refiners would berequired under the proposal to achieve greater than the minimum VOC control required by the Act, they be permitted the option to use theCAA baseline instead oftheir own individual baselines. Innorthern areas covered by the reformulated gasoline program refiners would still be required touse their own 1990baselines.

InPresident Bush's announcement, he requested EPA to provide refiners with the broadest range ofoptions possible in "meeting the pollution reduction requirements ofthe Act," and called for the "unrestricted" early use ofthe complex model. EPA today proposes that all refiners bepermitted to utilize the complex model before its required

use in 1997 to certify reformulated gasoline tobe sold in allparts ofthe country with theirperformance measured against either their own 1990 baseline or the CAA baseline.Not only does thisproposal grantrefiners greater flexibility, but it alsomakes it easier for refiners touse renewable oxygenates such as ethanol ii producing their fuel.

Ill. Complex Model

A. BaselineEmissions Underthe ComplexModel

In the SNPRM, EPA proposed that the emission baseline forthe simple model would be based on light-duty vehicle emissions using aJuly 11, 1991 version ofMOBILE4.1 with an assumption for enhanced I/M that isnow more representative ofEPA's requirements for basic I/M (57 FR 52950). This proposal

was based on the best information available atthe time. Since that time, a

newversion ofthe MOBILE model, MOBILE5.0, has been developed and both thebasic and enhanced I/M requirements have been promulgated. These changes affect thebaseline calculations andraise the issue.as to whether and when to require the revised baseline.

The choice ofMOBILE model and I/M program determines the level of baseline emissions established for baseline vehicles. The primary impact ofthis choice on baseline emissions is through changes in the ratio ofbaseline exhaust to non-exhaust VOC emissions. Since various reformulations will reduce exhaust and non-exhaust VOC emissions to varying degrees, changing the ratio ofbaseline exhaust and nonexhaust VOC emissions can affect the overall VOC emission reduction expected from a specific fuel reformulation. NOx emission performance is unaffected since NOx is ,only emitted viathe exhaust. Toxics performance is only slightly affected (much less than VOC), since non11733

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exhaust toxics comprise only a small fraction oftotal toxics emissions.

As described in section V.C., the proposed complex model projects that typical simple model fuels will substantially reduce bothexhaust and nonexhaust VOC emissions.The result is that the overall effectiveness of various Phase Ireformulations is expected tobe relatively insensitive to the baselineexhaust tonon-exhaust VOC ratio. Also, given the noNOx increase requirement and the effect of oxygenate on other fuel parameters, EPA expects fuelsproduced under the complex model toproduce even greater reductions in exhaust VOCthan those shown In section V.C., making their performance even less sensitive to the choice ofMOBILE model. Thus, EPA Is confident that fuels certified using a MOBILE4.1 baseline would meet at least the minimum 15 percent VOC reduction requirement even with a MOBILES.0 baseline. Thus, there would appear to be little orno airquality orother impact ofdelaying implementation ofa revised baseline based onMOBILE5.0.

The assumptions made in the SNPRM with respect to the appropriate enhanced I/M program to assume for Phase Imay also be reasonable through the end Phase L While enhanced I/M is required in many ozone nonattainment areas starting January 1, 1995, its full implementation may be later than this in several important ways including a phase-in ofemission cut points and a phase-in ofthe percentage ofthe fleetbeingtested. It is therefore possible that areas will notrealize the full inuse benefits ofthose programs until near the end ofthe Phase Iperiod. The complex model, however, willbe available as an option as early as 1995, and asproposed would not be mandated for use In certifying VOC controlled fuel until the 1997 ozone season atthe earliest.

At the same time, changing the baselinein 1997 couldpotentially change the overall stringency of e VOC performance standard for some refiners and require them to-invest additional capital to further control RVP

or other fuel parameters. The statutory structure established by Congress creates a two-phase program (beginning in 1995 and 2000, respectively), and maintaining a consistent levelof emission performance through the first five years ofthe program is consistent with this structure.

. Therefore, EPA proposes toretain the baseline proposed inthe SNPRM for use with thecomplex model prior to 2000. Thisis based onthe lack ofadverse air quality impact, EPA'sconfidence that the required statutory minimum reductions are not at risk,and the potential disruption inthe latter years of Phase I forat least some refiners. EPA requests comment on all ofthese points, including comment on utilizing an emissions baseline based on either the official version ofMOBILE4.1 or MOBILE5.0 beginning in 1997. EPA also requests comment on the appropriateness ofthe I/M program assumptions discussed above and the appropriatenes ofother I/M program assumptions. The Agency specifically requests comment from the States on the type ofenhanced IM program they plan

on implementing (e.g.. annual, biennial, emission cut-points, etc.). their projected schedules for implementation, and the timetable for any expected phase-ins. EPA invites comment on the degree ofchange in fuel formulation which might occur and their environmental, energy, cost and leadtime consequences. Changes in the baseline modeling assumptions, if appropriate, would also lead tocorresponding changes in the Phase I complex model standards.

With the onset ofthe Phase BI performance standards in 2000, the overall stringency ofthe standards is already changing and a new baseline based on MOBILES.0 will not, by itself, be the cause ofnew investment by refiners. Also, by this time, enhanced I/M programs shouldbe fully operational in nearly all reformulated gasoline areas. Therefore, for Phase II EPA proposes that the baseline forthe complex model be based on light-duty vehicle and light-duty truck emissions using MOBILE5.0 with enhanced I/M.

B. ComplexModel forExhaust Emissions

1. Data Sources

The relationship between fuel properties and exhaust emissions is complex and the theory behind such relationships continues tobe developed. As aresult, EPA has asked industry,

state regulatory agencies, and other organizations with relevant test data to make their data available to the Agency

to ensure that this rule is based on as much relevant information as possible. The complex model described in the following section isbased on data generated from a number ofexhaust emissions testing programs. These
programs, theirdesign intent, and their limitations am discussed in the Draft RIA. Data from these programs were excluded from EPA's analysis ifthe data,

were not based on a valid FTP

measurement cycle, ifthe vehicle in question did not employ 1990- equivalent emission control technology, or ifnonmethane hydrocarbon
measurements were not taken. The Agency believes its analysis considered all available, valid, andrelevant data on the exhaust emissions effect of fuel modifications when used in 1990 model
year and equivalent vehicles. Since thesetest programs generally involved different vehicles, different fuels, and in

some cases different test procedures, the analysis required todetermine the relationship between fuel properties and emissions is complex. However, EPA believes that the modelproposed below appropriately considers and addresses these complexities.

2. Analysis Method

Exhaust emissions are affected by both vehicle and fuel characteristics, which makes identification offuel effects on emissions difficult. EPA has considered and in some cases tested a numberofanalysis methods, many of which were presented during aseries of public workshops held by EPA over the past year. Information regarding these methods can be found in Docket A-92- 12. The approach chosen by EPA to analyze the data described in section I.B.1 is summarized below and is discussed more fully in the DraftRIA. EPA utilized statistical analysis techniques to determine the effects of fuel modifications on exhaust emissions ofVOC, NOx, and toxics. At aseries of five public workshops held over the past year, the Agency has presented its data sources, proposed analysis methods, andpreliminary emissions models forpublic review and comment. The Agency has also requested other organizations to share their data, analysis expertise, and emissions models atthese workshops. The Agency believes thattoday's proposal appropriately incorporates the
comments and suggestions regarding the analysis process received at the workshops andduring the course ofthe past year from industry, state and federal government authorities, and other interested parties. Theresulting exhaust emission models havebeen validated through confirmatory testing and analysis.

EPA'sanalysis separated exhaust emissions into fuelcomponents and vehicle components. In all test programs analyzed byEPA, the single most significant determinant ofthe level of emissions froma given vehicle ona given fuel was the vehicle itself. Fuel properties exert a much smaller influence on exhaust emissions than do vehicle characteristics such asemission control system technology, vehicle mileage, catalyst efficiency, oxygen

sensor efficiency, engine size, engine 11734

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design, vehicle size, fuel efficiency, and vehicle maintenance. To identify the effects offuel property modifications on emissions, EPA found it necessary to identify the effect ofeach vehicle on emissions and separate thiseffect from the fuel effects.

The fuelcomponents ofexhaust emissions were separated into two main categories. The first category consisted ofthe effects ofindividual fuel parameters. For example, the effect of sulfur on hydrocarbon emissions was best modeled by arelationship containing a linear sulfur term and a second-order sulfur term (a term ofthe form cIS 2, where cl is a constant and S is the sulfur level). The second category offuel terms consisted ofinteractive effectsbetween two fuelparameters. EPA's analysis ofNOx emissions, for example, found that oxygen's effect on NOx is related to the aromatics level of the fuel. This effect cannot be represented as an oxygen oraromatics effect alone but must be represented as
an interactive term ofthe form c2XA, where c2 is a constant, X is the oxygen level, and A is the aromatics level.

The effect ofeach fuel term was determined separately for each technology group within each emitter class forNOx and VOC emissions. Technology groups and emitter classes, their importance indetermining the effects offuel modifications on emissions, and their definitions are discussed more fully in the Draft RIA and simple model SNPRM. The linear
terms forall fuel parameters were retained, while only those second-order and interactive terms that were statistically significant at the 85 percent level were retained. Retention of nonsignificant linearterms reflects the general consensus ofpublic workshop participants regarding appropriate analysis and modeling methods and a desire to keep thispotentially very complex model as simple, yet as accurate, as possible. EPA requests comment on the appropriateness ofthe significance level used to exclude terms from the model and the inclusion of non-significant linear terms. Because vehicles can have different emission control systems, the Agency anticipated that fuel modifications would have different emission effects on different types ofcars. EPA has found it
necessary to develop terms unique to technology groups to assure the predictive power ofthe complex model. EPA also has foundthat vehicles classified as "high emitters" respond very differently to fuel modifications than do normal emitting vehicles. Hence the terms described above were defined and determined separately foreach technology group within each emitter class forVOC and NOx emissions.

EPA chose a different approach when modeling emissions ofexhaust toxics. Many ofthe studies available to EPA did not measure exhaust toxics, so the data on exhaust toxics emissions is less complete than the data on exhaust VOC and NOx emissions. This problem is particularly acute for high emitters. In addition, baseline estimates oftoxics emissions are not available from the MOBILE models, so adifferent source of baseline toxics estimates had to be found. To overcome the limited amount ofdata on high emitters, the Agency chose to combine normal and high emitters into a single emitter class while retaining thetechnology group distinction. To overcome the absence of baseline toxics data from the MOBILE models, the resulting toxics model was then adjusted to compensate for 'differences between the average VOC exhaust emission levels forthose vehicles for which toxics data were available and the 1990 model year, inuse emission levelsprojected by the MOBILE models. This process is discussed in more detail in the DRIA.

Since the proposed models for normal and high emitter VOC emissions differ substantially, and since the compounds classified as toxic in section 211(k) are VOCs, the Agency is concerned that this approach based on absolute mass emissions may not accurately represent the effects offuel changes on toxics emissions from high emitters. The Agency has considered modeling toxics emissions asmass fractions oftotal VOC emissions (aswas proposed in the simple model NPRM and SNPRM)but has found models oftoxics in terms of absolute massto have very high predictive power. However,this conclusion could be the result oflimited high emitter toxics data. In addition, the

mass fraction approach can be more readily extrapolated to winter conditions than can the absolute mass emissions approach. EPA requests comment on the appropriateness ofthe

mass fraction and absolute mass emissions approaches.

EPA focused its modeling efforts on those fuel parameters thought to affect vehicle emissionsbased on available
testresults. Oxygen, RVP, aromatics, olefins, T90, sulfur, and benzene were identified as relevant fuel parameters in the negotiated agreement. T50 was identified as apotentially significant parameter by anumber oftesting programs and at several public workshops.

EPA anticipates that further refinements to the model will be made prior to finalization ofthis rule.First, the Agency expects to convert its fuel distillation curve data toa percent evaporated basis, thereby replacing T50 and T90 withterms such asE200 and E300 (the volume percentage ofthe fuel evaporated at 200 OF and 300 OF, respectively). The percent evaporated
terms are thought to be more directly relevant to the generation ofexhaust emissions than the distillation parameters. In addition, the percent evaporated values for a mixtureoffuels

can becalculated directly from the percent evaporated values ofeach component ofthe mixture, while the distillation values fora mixture must be measured separately. Thischaracteristic has important implications for certification and enforcement. Second, the Agency will attempt to determine the influence ofthe type ofaromatic compounds in fuels, specifically heavy aromatics, on exhaust emissions, since preliminary testdata suggests that both the level andtype ofaromatic compounds may affect emissions. Third, EPA expects to include additional emission testing data as theybecome available, and such data may affect the results ofthe modeling process discussed above. Specifictest programs expected to provide additional data include the second halfofAuto/Oil's T501T90 study and EPA's Phase U reformulated gasoline test program. EPA's Phase IItest program data is available andhas been used to confirm the validity ofthe model presented in §80.45. After using eitherthe EPA Phase Hor Auto/Oil T50/T90 studies to confirm the revised model, EPA expects to include the data used in this confirmation in its database to develop

a final model. Fourth, EPA anticipates changing the confidence level required to allow additional terms into the model
to 90 percent, in keeping with past EPA practice.

Finally, EPA expects to complete its analysis ofthe importance oftechnology
group and emitter class distinctions prior to finalization ofthisrule. Preliminary analyses confirm that the original classification scheme does capture significant differences inthe emissions performance offuels, ascan be seen by examining the differences in the exhaust emission equations for specific technology group/emitter class categories as presented in the Draft RIA. These distinctions may be changed if further analysis indicates that changes

are necessary to adequately estimate the effects offuel modifications on vehicle emissions. At the present time, EPA is considering reducingthe number of technology group categories fornormal emitters by eliminating technology 

### 11735

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groupswhich contribute a very small proportion oftotal mobile source emissions or combining such groups with other, similar technology groups. EPA is also considering subdividing high emitters by their emission characteristics, particularly their exhaust hydrocarbon to NOx ratio, rather than by vehicle technology. This modification reflects EPA'sbelief, supported by preliminary field information, that one ormore emission control components onhigh emitters tend to be malfunctioning, which renders a classification scheme based on vehicle equipment potentially suspect. EPA requests comment on these potential changes in its technology
group definitions and on the other potential changes in its analysis approach discussed above. EPA will place its revised version ofthe complex model for exhaust emissions (referred to

as "Iteration 4" ofthe model), which incorporates the changes discussed above, and its supporting materials in the docket for review and comment as

soon as it is completed. The American Petroleum Institute (API) has also developed its own version ofa complex model, which hasbeen placed in the docket for this rulemaking. EPA requests comment on the various aspects ofAPI's statistical and engineering approach and on its overall suitability for use in EPA's complex exhaust emission model.

3. Complex Exhaust Emissions Model Equations

As was discussed in the SNPRM, EPA believes that theexhaust emission effects offuel modifications aredifferent when applied to vehicles with different emission control and fuel distribution technologies. In addition, EPAbelieves that theemissions effects of fuel modifications also depends on.the level ofemissions from the vehicle. During development ofthe complex model, preliminary investigation ofthese assumptions have supported the approach described above. The'complex model incorporates these effects on an emissions-weighted basis, i.e., fuel effects on each technology group/ emitter class category were weighted according to the contribution to in-use emissions of 1990 vehicles from that category. To determine the contribution ofeach technology group to in-use emissions, EPA calculated the fraction of 1990 model year sales of light duty vehicles and trucks from each technology group. EPA used nonCalifornia sales figures for this analysis since vehicles certified as "Californiaonly" vehicles are required to meet a different set ofemission standards than other cars sold in the US., and since California willhave established Its own reformulated gasoline program by 1996 thatis expected to exceed the stringency ofthe federal program. EPA requests comment on the exclusion ofCalifornia vehicles from its calculation of1990 sales fractions. EPA then adjusted this fraction toreflect the differences in
average emissions among technology groupswhere such information was available. This adjusted fraction is represented by the "W" constants inthe model proposed in 

### §80.45.

Becausethe equations are in the form ofexponential equations, itis necessary to normalize each equation to a known emission value on a known fuel foreach technology group. The resulting proportionality constant is represented by the -k" constants in the model proposed in §80.45. In effect, the "k"
constant transforms a percentage increase ordecrease into a gram per mile figure corresponding to that percentage change frombaseline emissions. The rationale for and derivation ofthe "k" and "W" constants

are discussed in more detail in the DRIA.

Since the effects offuel modifications

on emissions differ across technology groups and emitter classes, EPA has developed separate models foreach technology group-emitter class combination forwhich sufficient data

were availahle. The emissions performance ofagiven fuel reformulation fora specific pollutant

can be determined by taking the following steps. First, each technology group-emitter class model forthe pollutant in question would be evaluated for the specific fuel formulation being evaluated. Second, the resulting predicted emissions for each technology group-emitter class combination would be weighted by the estimated contribution ofthat combination to total miles traveled and these weighted emissions would be added together. Third, the total predicted emissions would be compared
to thebaseline emissions level for the pollutant in question. The emissions performance ofthe fuel reformulation wouldbe defined as the percentage change in total emissions frombaseline emission levels, which are discussed below in section B.

The specific equations that comprise the complex model can be found in §80.45 oftheregulations proposed for thisrule. For the most part, their derivation is straightforward and can be found in the DraftRIA. In some cases, available data wereinsufficient to develop models for every technology group-emitter class category. In such cases, the weighting factors forthe categories which couldbe modeled

were renormalized to adjust for the absence ofdata. This process is discussed more fully in the Draft RIA. The Draft RIA and the proposed regulations also discusses the range of parameter values for which these equations are valid. As discussed in the SNPRM, refiners are required to submit data to augment the model ifthey wish
to certify fuels with properties that fall outside this range. EPA requests
comment on deviations between the model's predictions and the data used to develop the model, on the model equations themselves, on their derivation, andon the ranges over which these equations are considered valid.

The model presented in S80.45 is based on emissions data generated under summer conditions. While the VOC performance standard for reformulated fuels applies only in the

summer, the toxics and NOx requirements apply year-round. Hence, the complex model must cover typical winter, aswell as summer, fuels. However, the model presented in § 80.45 is based on data generated under

summer conditions and cannot beused directly for fuels with typical winter RVP levels. EPA proposes to use a modified version of the complex model

as presented in §80.45 to evaluate winter fuels. This modified version would assign an RVP value equal to that ofsummer baseline gasoline, i.e., 8.7 psi, for all non-VOC controlled fuels when evaluating the toxics and NOx emissions performance ofsuch fuels (including winter baseline fuels). RVP's impact on canister loading and subsequent purging is thought to bethe primary cause ofits effects on exhaust emissions. Since data do not exist on the effects ofwinter fuels on canister loading under winter conditions, the Agency believes it is not appropriate to attempt to model the effects of winter RVP levels on emissions. Fixing the RVP value ofwinter fuels at baseline levels formodeling purposes effectively

removes the influence ofRVP on winter exhaust toxics and NOx emissions. EPA requests comment on this approach, particularly on the ability ofthe nonRVP factors in the complex model to accurately predict winter toxic and NOx emissions.

C. ComplexModel forNonexhaust Emissions

The model for nonexhaust emissions is based on data generated by EPA to develop its MOBILE emission inventory models. The Agency believes that the relationship between fuel properties and 11736

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### Federal Register / Vol. 58, No. 37 / Friday, February 26, 1993 / Proposed Rules

nonexhaust emissions isless complex and better understood than forexhaust emissions. Datafrom EPA's ongoing evaporative emis#ions testing has been used to develop MOBILE4.1 and MOBILE5.0. EPA believes this data tobe sufficient to model the relationship between fuelproperties andnonexhaust emissions. Additional information about MOBILE4.1 and MOBILE5.0 can be found inDockets A-91-02 andA--92- 12.

Non-exhaust emissions are less affected by vehicle design and are influenced by fewer fuel characteristics than are exhaust emissions. In addition, the theoretical principles involved in evaporative emissions arebetter understood, and evaporative emission control technologies are moreconsistent

across vehicles than are exhaust emission controls. EPA is in the process of developing an evaporative emissions model based on fundamental theoretical principles and actual test data that are expected to be more accurate and more widely applicable to oxygenated fuels than MOBILE4.1. A preliminary version ofthismodel was discussed at apublic workshop held on August 25, 1992, and materials related to this model have been placed in the docket for this rulemaking. At thistime, however, the enhanced evaporative emissions model is notcomplete and isnot expected to be completed prior to publication ofthe final rule.

As aresult, the Agency is proposing correlations relating RVP to nonexhaust emissions derived from the MOBILE4.1 emissions model issued November 1991. To develop the correlations shown below,MOBILE4.1 was used with temperatures of69 to 94 degrees Fahrenheit for Class Bareas and 72 to 92 degrees Fahrenheit for Class Careas, assuming the existence of an enhanced inspection and maintenance program. In addition, the presence ofStage II evaporative emissions recovery systems with an overall vaporrecovery efficiency of86 percent was assumed (as discussed inlhe SNPRM and NPRM). Should the enhanced evaporative emissions model not be developed In time for inclusion in the final rulemaking, EPA proposes to utilize the July 11, 1991 version ofMOBILE4.1 to determine the effect ofRVP on nonexhaust VOC emissions under the Phase Iperformance standards (i.e., 1995-1999) and toutilize MOBILE5.0 to do the same under the Phase II performance standards (i.e., 2000 and beyond). Thiswould be inkeeping with the proposed baseline emissions described in section A above and, again, minimize the changes refiners have to undergo in the transition from the simple to the complex model. The Agencyrequests comment on this proposed basis fordetermining nonexhaust VOC emissions, including
comment on the appropriate MOBILE model and I/Massumption.

As discussed in the SNPRM, the Agency's correlation between fuel benzene content and non-exhaust benzene emissions isbased on General Motors' proprietary model oftank
vapors, and its independent confirmation bydata generated by EPA using a number of fuels.Both the derivation and verification of thenonexhaust benzene emissions modelis discussed more fully in the Draft RIA. EPA requests comment onthe use ofthe correlation between fuelbenzene
content and non-exhaust benzene emissions derived from the General Motors model andthe sufficiency of EPA'sindependent confirmation ofits results.

As was also discussed in the SNPRM, EPAbelieves that nonexhaust VOC and toxics emissions (includingrunning loss, hot soak, diurnal, andrefueling emissions) depend primarily onthe RVP ofthe fuel. TheAgency proposes that the nonexhaust VOC and toxics equations foundin § 80.45 ofthe proposed regulations be used to determine nonexhaust VOC andtoxics emissions, respectively. These equations relate VOC emissions to the RVP ofthe fuel. Nonexhaust benzene emissions are determined by the level ofbenzene in the fuel and the level ofnonexhaust VOC emissions. EPA requests comment

on this approach and on the equations proposed in §80.45, the derivation of which is discussed more fully in the Draft RIA.

IV. Vehicle Testing

As was discussed in the simple model SNPRM, the complex model may be augmented based on the results of vehicle testing. EPA considers the testing program discussed in the SNPRM tobe appropriate in terms ofthe fuels, number ofvehicles, and test procedures specified. However, the Agency nowbelieves the analysis
process described in the SNPRM tobe inconsistent with the process used to develop thecomplex model and may be overly complex.

As a resu t, EPA proposes that the data generated during vehicle testing be analyzed statistically as described in §80.48. This analysis would fit a stepwise regression model to the data that includes the following terms: A vehicle term, a linearterm for the parameter being tested, and squared and interactive terms involving the parameter being tested ifsignificant at the 90 percent confidence level. The analysis would treat normal emitters and high emitters as separate populations but would not subdivide the emitter categories into technology
groups foranalysis purposes, since the
test fleet compositions specified in § 80.60 assure that the normal andhigh emitter test fleets include technology
groups that reflect their contribution to in-use emissions. In addition, the statistical power ofthe test program would be compromised by subdividing each emitter class test fleet into technology groups since the number of vehicles in each technology group would be small. EPA believes that this approach is more consistent withthe process used to develop the complex model, is less susceptible to manipulation and gaming by testing organizations, and is capable of extracting the maximum amount of information from the test data.

In today's proposal, EPA has deleted 

### §80.57 and §80.58 from its proposed regulations. These sections specified procedures for determining the presence and significance ofnonlinear and interactive emission effects offuel parameters being tested. EPAbelieves the regression-based analysis approach described in §80.48 tobe more accurate and less complex than the procedures described in §80.57 and §80.58 ofthe April 16, 1992 proposal. Since the regression-based approach explicitly determines nonlinear and interactive effects, the Agency considers the deleted sections to be unnecessary and burdensome. EPA requests comment on these proposed deletions and on the proposed modification tothe testing proposal outlined in the SNPRM.

V. Phase IPerformance Standards Using the Complex Model

A. BaselineEmissionEstimates

The following table summarizes the Agency's proposed estimates ofVOC and NOx emissions from in-use, 1990 technology vehicles when fueled with Clean AirActbaseline gasoline. All VOC emission estimates are given in
terms ofnon-methane, non-ethane hydrocarbon emissions. In today's notice,EPA further proposes toredefine "ozone forming VOCs" as used in section 211(k) to exclude ethane.This redefinition is consistent with the Agency's most recent definition ofVOC

as "any compound ofcarbon * * * which participates in atmospheric photochemical reactions * * *other than the following, whichhave been determined tohave negligible photochemical reactivity: Methane, ethane, * * *." (See 40 CFR 51.100(s) 11737

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February 3, 1992), which excludes both ethane and methane from its definition ofozone forming VOCs (57 FR 3941). Ethane comprises approximately three percent oftotalhydrocarbon emissions but, like methane, isfar less reactive in the atmosphere than other hydrocarbons.

TABLE V-I.--BASEUNE VOC AND NOx Emissions (MOBILE4.1 with SNPRM I/M), g/mi

ClassB ClasaC

Summer.

ExhaustVOC emissions

..... 0.446 0.446 Hotsoak VOC emissions .265 .230 Diurnal VOC emissions

....... .125 .109 Running Ios VOC ems

sions

................................ .431 .390 Refueling VOC emissions

... .040 .040

Total summer VOC

emissions

.................. 1.307 1.215 Winter exhaust VOC emlssions

.................................... .660 .660 NOx emissions

...................... .66 .66

The following table summarizes the Agency's estimates oftoxics emissions from in-use, 1990 technology vehicles when fueled with Clean AirAct baseline gasoline. These estimates were derived from thecomplex emission models described in section IIIand were based on the July 11, 1991 pre-release version ofMOBILE4.1 emission inventory model with the I/M program assumptions described in the SNPRM. As discussed in the SNPRM, separate estimates were made fornonexhaust toxics emissions from Class B and C

areas and for summer and winter emissions.

TABLE V-2.-BASELINE Toxics EMISSIONS

(MOBILE4.1 WiTH SNPRM I/M), MG/

MI

Summer Winter Class Class Class

a IC B&C

Exhaust benzene

emissions

................ Formaldehyde emlssi

................. Acetaldehyde emisston

........................ 22.04

3.79

1.81 TABLE V-2.--BASEUNE TOXiCS EMISSIONS (MOBILE4.1 WITH SNPRM I/M), MG/ MI-Continued

Summer Wn- for 1

Class Class __ar

B C B&C

1,3-butadlene emlsslons

........................ 3.28 3.28 3.00 POM erissions

.......... A50 1.50 1.45 Diurnal benzene emlsslons

....................... 1.30 1.13

............ Hot soak benzene

emissions

.............. 3.02 2.63

............ Running loss benzene

emissions

.............. 4.92 4.46

............ Refueling benzene

emissions

............... . 0.42 0.42

............

Total baseline

toxics emissions 45.67 44.64 32.05

'Based on EPA's proposed complex model evaluated for winter baseline gasoline and assuming that wintertime evaporative emissions are negligible,

as is discussed Inthe SNPRM (57 FR 13416).

B. ComplexModel Performance ofthe "Formula Fuel"

The proposed complex model equations predict that the formula fuel would produce a reduction in exhaust VOC emissions of12.3 percent and no reduction in nonexhaust VOC emissions when measured relative to the Clean Air Actbaseline fuel. The resulting overall VOC emissions reduction ofthe formula fuel is 6.1 percent in Class B areas and 6.5 percent in Class C areas. The proposed complex model further indicates that the annual average toxics performance ofan MTBE-based formula fuel would be an 11.7 percent reduction in Class B areas and an 11.2 percent reduction in Class C areas. The annual

average toxics performance of the ethanol-based formula fuel would be an 11.5 percent reduction in Class B areas and an 11.0 percent reduction in Class C areas. These are lower reductions than those discussed in the SNPRM. The

current estimate are believed to be more
accurate given they are based on the proposed complex model rather than on the simple model. The Agency estimates that formula fuels using other oxygenates, such as ETBE or TAME, would result in VOC and toxics performance similar to that ofethanolbased formula fuels.

C. ComplexModelPerformance of SimpleModelFuels

-

The simple model specifies a number offuel parameters to assure satisfactory emissions performance under the simple model. Many ofthe complex model relationships between these fuel parameters and emissions performance

are different than the corresponding relationships in the simple model. As a result,the complex model predicts different emission performance levels than does the simple model for agiven fuel formulation. The following tables summarize the predicted simple model and complex model performance levels forfour different fuels relative to two specified baseline fuels. The first baseline fuel is the CAA baseline fuel as specified in the Act. The second baseline fuelis identical to CAA baseline fuel except forits RVP, which is set atthe level required by Phase II volatility controls in Class B areas. This second baseline fuel is referred to as "Class B baseline fuel."

The four summer fuels described in Table V-3 would meet the proposed VOC requirements for Class Cand Class B areas, respectively, under averaging standards, and assuming thatwinter fuels are reformulated to a similar extent, would meet the toxics requirements. Underthe simple model, the toxic emission effects ofdifferent oxygenates vary, so two different fuels with aromatics levels sufficient to

assure compliance with the simple model toxic emission performance. standards are shown foreach area.

Tables V-4 and V-5 summarize the

summer performance ofthe fuels described in Table V-3 relative to the CAA baseline fuel according toboth the simple and complex emission models. Table V-6 summarizes the emissions performance ofFuels 3 and4 relative the Class Bbaseline fuel using both models. Tables V-4, V-5, andV-6 use baseline emissions derived using the July 11, 1991 pre-release version of MOBILE4.1 with essentially abasic I/M program.

TABLE V-3.--SAMPLE FUEL COMPOSITIONS

Class C Class B

Fuel I Fuel 2 Fuel 3 Fuel 4

Fuel characterstics: Oxygenate

............................................................................ ............................................................ Oxygen. weight percent

....................................................................................... ................ Aromatics, volume perent

.............................................................................................................. Olefins, volume pement

................................................................................ ... ................. Benzene, volume percent

................................................................................................................ Sulfur, parts per million weight

......................................................................................................... MTBE 2.1
26.3 9.2 0.95 339 EtOH 2.1 24.3

9.2 0.95 339 MTBE 2.1
26.2 9.2 0.95 339 EtOH 2.1 23.9

9.2 0.95 339 11738

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TABLE V-3.-SAMPLE FUEL COMPOSmONS-Cotinued

ClassC Clan B

Fuel Fue2 Fue3 Fuel4

T50. degres F eit

............................................................................................... 218 218 218 218 T90, degrs Farenhell

....... ............................... ..................... 330 330 330 330 RVP. pounds per sqiare Inch

.......... . . .......................... ........................................ 8.0 8.0 7.1 7.1

TABLE V-4.---SIMPLE AND PHASE I COMPLEX MODEL SUMMER EMISSIONS REDUCTIONS OF FUELS 1AND 2 INCLASS C AREAS RELATIVE TO CAA BASELINE GASOLINE
[In

percentI

Fuel I1: Fuel 2 Fuell 1 Fue12

ExhaustVOC

...... NonexhaustVOC Total VOC

...... NOx

.................... Toxics. 9.9 23.9 18.8
.0.0 22.4 13.0 23.9

19.9 -0.8 22A 15.4 23.9 20.8

0.1 23.1

TABLE V-5.-SIMPLE AND PHASE I COMPLEX MODEL SUMMER EMISSIONS REDUCTIONS OF FUELS 3 AND 4 INCLASS B AREAS RELATIVE TO CAA BASEUNE GASOLINE [1pecMA

Simple Model reductions Complex model reductions

Fuel3 Fuel4 Fuel3 Fue4

Exhaust VOC

.............. .................. . ........ . ...... ....................................... . ................. . .. .. 9.9 9.9 14.3 17.0

Nonexhaust VOC

............ . ... .................. ....................................... ................................. 51.4 51.4 51.4 51.4 Total VOC

.................. .. ................................................................. 37.2 37.2 38.7 39.6
NO x ................................................................................................................ ............................ 0.0 0.0

- 2.5

- 2.0 Toxics

............................................................................................................................................ 25.7 27.1 26.7 27.9

TABLE V-6.--SIMPLE AND PHASE I COMPLEX MODEL SUMMER EMISSIONS REDUCTIONS OF FUELS 3 AND 4 IN CLASS B AREAS RELATIVE TO CLASS B BASELINE GASOLINE (Inpercent]

Simple model reductions Complex model redcions

Fue13 Fue14 Fue3 Fue14

ExhaustVOC

............................................................................................................... ......... 9.9 9.9 13.2 15.9 Nonexhaust VOC

.......................................................................................... ............... . ...... 29.8 29.8 29.8 29.8 Total VOC

. ................ 21.3 21.3 22.7 23.8 m,-nAAf n

_ C- 3

It should be noted that the above fuels show slightNOx emission increases when using the complex model. This

occurs because Fuels 1-4 assume no effect ofoxygenate on fuel sulfur, T50, and T90, and a minimal effect onfuel aromatics. As discussed in the Draft RIA, when oxygenatestypical effect on these fuelparameters are taken into account, which EPA expects will happen on average under the simple model, these NOx emission increases disappear andNOx emissions should actually decrease slightly at both 2.1 and 2.7 weight percent oxygen, regardless ofthe oxygenate used. The

same holds true forthe results shown in Tables V-7 through V-10 below.

For comparison, Tables V-7 through V-10 summarize the summer performance ofthe fuels described in Table V-3 relative to the CAA baseline fuel according to two alternative Phase I complex models, The complex model used to derive the results in TablesV7 and V-8 utilized baseline emissions from MOBILE5.0, while the complex model used to derive the results in Tables V-9 and V-10 utilized baseline emissions from the official version of MOBILE4.1. Both alternative Phase I complex models assumed basic I/M. A discussion ofboth ofthese alternative models can be found in the Draft RIA. TABLE V-7.--SUMMER EMISSIONS REDUCTIONS OF FUELS 1 AND 2 IN CLASS C AREAS RELATIVE TO CAA BASELINE GASOUNE USING A COMPLEX MODEL BASED ON THE OFFICIAL VERSION OF MOBILE5.0 (Inpercent]

Complex model re- ductions

Fuel I Fuel2

Exhaust VOC

.............. 13.1 1&4 Nonexhaust VOC

............ 24.8 Total VOC

........... 17.8 19.1 NOx

.......... ........... -0.8 0.1 ToxIcS

........... 23.2 23.8 11739

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### I Proposed Rules

TABLE V-8.--SUMMER EMISSIONS REDUCTIONS OF FUELS 3 AND 4 IN CLASS B AREAS RELATIVE TO CAA BASELINE GASOLINE USING A COMPLEX MODEL BASED ON THE OFFICIAL VERSION OF MOBILE5.0 [In percent)

Complex model re- ductlons

Fuel 3 Fuel 4

Exhaust VOC

.......................... 14.3 17.0 Nonexhaust VOC

.................... 49.2 49.2 Total VOC

............................... 28.9 30.5 NOx

......................................... -2.5 -2.0 Toxcs

...................................... 27.4 28.5

TABLE V-9.-SUMMER EMISSIONS REDUCTIONS OF FUELS 1 AND 2 IN CLASS C AREAS RELATIVE TO CAA BASELINE GASOLINE USING A COMPLEX MODEL BASED ON THE OFFICIAL VERSION OF MOBILE4.1 [In percent] Complex model reductIons

Fuel1 Fuel2

Exhaust VOC

.......................... 13.0 15.4 Nonexhaust VOC

.................... 25.8 25.8 Total VOC

............................... 21.3 22.1 NOx

......................................... -0.8 0.1 Toxis

...................................... 22.9 23.6

TABLE V-10.--SUMMER EMISSIONS REDUCTIONS OF FUELS 3 AND 4 IN CLASS
B AREAS RELATIVE TO CAA BASELINE GASOLINE USING A COMPLEX MODEL BASED ON THE OFFICIAL VERSION OF MOBILE4.1 [In percent]

Complex model re- ductlons

Fuel 3 Fuel 4

Exhaust VOC

.......................... 14.3 17.0 Nonexhaust VOC

.................... 51.3 51.3 Total VOC

............................... 39.1 40.0 NOx

........................................ -2.5 -2. ToxIcs

..................................... 27.0 28.3

D. PhaseIComplexModelPerformance Standards

1. Phase IComplex Model Toxics Standards

Under CAA section 211(k)(3), during 1995 through 1999, a reformulated gasoline's toxic emissions performance
must meet or exceed that ofa specified formula fuel or a 15 percent reduction from that ofbaseline gasoline, whichever is greater. As discussed in the SNPRM, the simple model predicts that the formula fuel achieves an average annual toxic emissions reduction of16.5 percent, thus setting the toxic emissions standard forrefiners certifying their reformulated gasolines under the simple model.The complex model fortoxics emissions proposed above, however, predicts a different toxics emissions performance for the formula fuel. The complex model indicates that the annual average toxics performance ofan MTBE-based formula fuel would be an 11.7 percent reduction in Class Bareas and an 11.2 percent reduction in Class Careas. The annual average toxics performance ofthe ethanol-based formula fuel would be an 11.5 percent reduction in Class Bareas and an 11.0 percent reduction in Class C areas.The Agency estimates that formula fuels using other oxygenates, such asETBE orTAME, would result in VOC and toxics performance similarto that ofethanol-based formula fuels. Since these emission reductions are smallerthan the 15 percent minimum reduction specified in the Act, EPA proposes that the toxics performance standard under the complex modelbe
set 15 percent below the toxics emission level ofbaseline gasoline.

EPA has considered basing its toxics performance standard on the performance ofsimple model fuels rather than thestatutory requirements. The Agency is not proposing such an approach in today's notice for the

reasons outlined in the SNPRM. In particular, the Agency is concerned that such standards would have an adverse impact onrefiners whose 1990 baseline levels of sulfur,aromatics, T50, and T90

are higher than CAA baseline levels of these parameters. Since the simple model does not include these parameters while thecomplex model does, such refiners may face additional expenditures in 1997 to comply with the statutory requirements. A more stringent set ofstandards in 1997 would raise the cost ofthe program substantially. As discussed in the Draft RIA, EPA does notbelieve that more stringent controls are cost effective in the case oftoxics. EPA requests comment on the proposed toxics standards.

2. Phase IComplex Model VOC Standards

Both the simple model and the complex model predict that theVOC emission performance ofthe formula fuel would be less stringent than the 15 percent standard specified in the Act. As a result,Phase IVOC performance standards will notbe determined by the performance ofthe formula fuel.

As discussed in the NPRM and SNPRM, the Agency believes that Fuels 3 and4 are producible, with Fuel 3 considered more representative of typical Class B simple model fuels. Since such fuels (which willbe required inClass Bunder the simplemodel) would achieve VOC emissions reductions of38.7 to 39.6 percent relative to the CAA baseline fuelunder the complex model, EPA proposes that the Phase Iperformance standard for VOC emissions in Class B areas be set by the performance ofFuel3, as predicted by the complex model. This performance standard amounts to a 38.7 percent reduction in VOC emissions relative to CAA baseline levels and a 22.7 percent reduction from the VOC emission level ofClass B baseline gasoline.

The above VOC reductions were based on fuelsjust complying withthe 0.95 volume percent benzene standard (with averaging) and aromatic content adjusted accordingly. Simple model fuels with lower benzene levels could have higher levels ofaromatics. Dueto beneficial effect ofreduced aromatics on VOC emissions, Fuels 3 and 4 described above produce slightly greater VOC reductions than simple model fuels with lowerbenzene and higher aromatic levels. For example, with benzene levels
at 0.80 volume percent, theVOC reduction decreases to 37.5-38.4 percent relative to CAA baseline gasoline and 21.1-22.3 percent relative
to Class Bbaseline gasoline (see DRIA). EPA requests comment on setting the Class BVOC performance standard based on the performance ofsimple model fuels.EPA also requests comment

on utilizing Fuel 3 to set this performance and, ifFuel 3was not used,which particular simple model fuel should beused to set the performance standard.

EPA is alsoconsidering setting the Class CVOC standard on the performance ofsimple model fuels. As shown above, Fuels 1and 2 achieve greaterthan the 15 percent minimum statutory requirement. However, with a lower benzene level of0.8 volume percent is considered, the VOC performance ofClass Cfuels decrease slightlyto 18.3-19.1 percent (see DRIA). EPA requests comments on setting the VOC performance standard based on the performance ofsimple model fuels and

on where in the range ofthis performance. Inboth cases,the Agency invites comment on the air quality and
cost impacts whichwould result.

E.DilutionandInteractive Effects
In the SNPRM and at a number of public workshops, EPA has indicated its

concern over the possibility that mixtures of reformulated fuelsmay not achieve the emissions reductions of either fuel in isolation. The Agency has investigated the possibility of unfavorable dilution or interactive 11740

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effects occurring between reformulated fuels. Since EPA has notbeen able to resolve these concerns, today's notice doesnot propose any measures to control such effects. EPA requests comment on whether andhow it should
account forand control such effects and refers the reader to Docket A-92-12 for additional information onthis issue.

VI. Phase U Reformulated Gasoline Performance Standards

A. LegislativeRequirements

Section 211(k)(3)(B) ofthe Clean Air Actrequires, inthe year2000 and beyond, that aggregate emissions of

ozone forming volatile organic compounds (VOCs) andtoxic air pollutants from baseline vehicles using reformulated gasoline be 25 percent below emissions from baseline vehicles using baseline gasoline during the high

ozone season. The Act also specifies that the 25 percent reduction level may be adjusted to provide for agreater or lesser reduction based on technological feasibility, including consideration of the cost of achieving the reductions. However, inno case can the required reductions be less than 20 percent. The required emission reductions are called, hereafter, the Phase I1standards.

The Phase I1 requirements would apply to gasoline which is sold in those

ozone nonattainment areas required to receive reformulated gasoline and in those areas which have already opted into the program orwhich opt in at a later date.However, EPA is considering and requesting comment on an option that would permit statesto opt-in to only PhaseI and maintain the Phase I requirements beyond the year 2000. Compliance with the Phase Hstandards (and all reformulated gasoline certification) would not change relative
to that with thePhase I standards for 1997 and beyond.

Section 211(k)(1) oftheAct specifies that the Administrator shall consider, in addition to cost, non-air quality and other air quality-related health and environmental impacts, and energy requirements associated with achieving the required emissions reductions. Summaries ofthe cost, health and environmental impacts ofachieving the proposed emissions reductions are presented below and are more thoroughly discussed in the Draft RIA associated with this proposal.

In addition to the VOC and toxic emissions reductions, section 211(k)(2)(A) ofthe Act specifies that there be nonet increase in NOx emissions (over baseline NOx levels) resulting from the use ofreformulated gasoline. The Act further specifies that ifincreases in NOx emissions are unavoidable due to the control ofother fuel components, other requirements may be waived oradjusted. As willbe shown below, NOx emission increases due to the use ofreformulated gasoline

are unlikely, and are definitely avoidable. Furthermore, the Agency believes that NOx emission control va -reformulated gasoline may be a technologically feasible and costeffective option. EPA4 has reviewed a National Research Councilstudy 5and other ambient ozone analyses and found that additional NOx reductions would significantly reduce ozone formation in

some areas. Section 211(c) ofthe Act gives the Agency broadregulatory authority toregulate fuelquality ifthe emission products ofsuch fuels contributes to airpollution.

Under section 211(c), the Agency
must consider the effects ofthe emissions on publichealth, considering scientific data and other factors, including technological feasibility. Additionally, the fuels which may be used as substitutes may notendanger the public health or welfare more than the original fuel. Because any fuel producing anet reduction in NOx emissions would also have to meet the above performance standards forVOC and toxics emissions (i.e., will qualify as

a reformulated gasoline), EPA does not expect that a reformulated fuel subject
to NOx control could endanger the public health morethan a fuel which is
not subject to NOx control. Therefore, EPA is proposing aNOx emission reduction standard of0 to 15.3 percent in connection withthe Phase H standards to furtherreduce ozone formation during the high ozone season. EPA requests comments on the need for
NOx emissions control in reformulated gasoline areas and on the use ofits authority under section 211(c) to add NOx control to the reformulated gasoline program.
B.DeterminationofProposedStandards

The proposed emission reduction standards and their development are discussed below. The proposed standards are based on EPA analyses of the costs and emission reductions, particularly thecost effectiveness, associated with changes in different fuel components.

1. Methodology

The methodology fordetermining the
cost effectiveness offuel component

4 Lindhjeam, C.TBA,1992. 5"Rethinking the Ozone Problem in Urban and Regional Air Pollution," National Research Council. December 18, 1991. changes is described in the Draft Regulatory Impact Analysis (RIA). Individual fuel component control costs and the effects ofchanges in onefuel component on the otherfuel components are integral parts in the determination ofthe cost effectiveness ofan emission control strategy. In this analysis, these two integral parts were estimated.from the results ofrefinery modeling performed by Turner, Mason and Company (forthe Auto-Oil Economics group) and Bonner & Moore Management Science (forEPA) and on survey results presented by the California AirResources Board (CARB). Comments onthe use ofthese studies forestimating individual fuel component control costs and coincident fuelcomponent effects are requested.

Individual fuel component control
costs include operating costs and annualized capital costs.EPA believes it is reasonable tobase the proposed Phase Hstandards on cost effectiveness, which EPA defines here as the ratio ofthe incremental cost ofa control measure to the incremental benefit, e.g., tons of VOC or NOx emissions reduced or numberofcancer Incidences avoided. The use ofcost effectiveness allows for the relative ranking ofvarious control strategies so that a specified environmental goal can be achieved at minimum cost. EPA also evaluated the overall cost ofthe proposed standards to

ensure they would be reasonable.

All emission reductions for Class C

area are calculated relative to the statutorybaseline per the requirements ofthe Act and all emission reductions forClass B areas are calculated relative
to a fuel with anRVP of7.8 psi and statutory baseline levels for all other parameters. As for Phase Ireformulated gasoline, all Phase Hreformulated gasoline musthave at least 2.0 weight percent oxygen and maximum 1.0 volume percent benzene. The cost of these requirements is notaccounted for in the determination ofthe incremental
cost effectiveness ofthe Phase II standards (though the Draft RIA does contain updated costs foreach ofthese
two mandated controls). The cost effectiveness of incremental changes in fuel components is,thus, determined relative to the statutory baseline andthe mandated reformulated gasoline requirements. EPA requests comments

on the methodology used in determining the cost effectiveness of fuel component changes and on the individual fuel component control
costs. Additional fuel component control cost data is also welcome. 

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### .1 Proposed Rules

2. VOC andNOx Control

a. ControlCosts.The total cost (or manufacturing cost) ofproducing a reformulated gasoline is the sum ofthe capital recovery cost andthe operating
cost.In determining thecost offuel changes for VOC andNOx control, EPA assumed that,because VOC control is mandated only during thehigh ozone season, the length ofwhich was described in the NPRM and SNPRM, operating costs ofchanges made to produce reformulated gasoline would only occur in the summer and not in the winter, ineffect, idling anyprocess unitsbuilt especially forthe purpose of meetingthe reformulated gasoline program emission requirements. However, capital costs wouldhave to be fullyrecovered regardless ofwhether the equipment was used seasonally or not.EPA adjusted the capital costs accordingly, and used the sum ofthe adjusted capital cost andthe original operating cost as the individual fuel. component control cost in the VOC and NOx cost-effective analyses. An example ofthe individual fuel component costs and the associated incremental percent reduction in VOC emissions are shown for Class Careas in Table VI-1.

Complete information on the development ofthe individual component costs forboth ClassB and C

areas is provided in the DraftRIA. As will be discussed under the section on toxics control, inits estimate ofthe cost effectiveness oftoxics control, EPA did
not adjust the capital cost portion ofthe individual fuel component control costs

asdescribed abovebecause toxics reductions are required year-round. Comments on the costs presented in Table VI-1 and ontheir derivation are requested, aswell asadditional fuel component control cost data and supporting description.

TABLE VI-1.--CASS C COMPONENT CONTROL COSTS AND VOC EMISSioN REDUCTIONS

Cumu- led"
Cornponent Central level Irc,,

- al) VOC cost (c/gal reduc-

_______(%)

oxygen

....... 2.0 wt%

.... '1.87-3.36 9.0 Benzene 1.0 vel% 0.60 9.0 RVP

............ 8.1 Pei

........ 0.57 17.6 RVP .-.... 7.4 psi

........ 1.67 .25.3 Sufur

.......... 180 ppm 0.35-0.57 26.4 Oxygen

....... 2.7,w% '... 0.10--1.18 28.5 Olefins

......... .o %

..... 1.81-2.44 '30.2 Sulfur

.......... 50 p
...... 1.45-1.88 31.2 Aromatios

.... 29 %

...... M 0.61-0.96 31.4 Based on MTBE. Etanol use b e cted to be
less expensive underthe pro0svae of ectlon I.

b. CostEffectiveness.In this analysis, the incremental cost effectiveness of an emission control obtained through fuel modifications is the ratio ofthe cost of

a fuel component change to the additional reduction in emissions that

occurs because ofthat fuel change. In determining the emission reductions and the associated cost effectiveness of VOC and NOx standards, EPA employed

a convention typically used in estimating the benefit ofboth mobile and stationary source VOC controls. This convention requires the determination ofcost effectiveness on the basis ofannual tons ofVOC reduced. Thus even though VOC emission reductions reduce ozone formation only duringthe high ozone
season, the convention is to calculate the cost ofthe fuel component control
per ton ofVOC removed as ifthe high

ozone season emissior reductions were obtained over the whole year.

EPA is proposing a range ofVOC standards and NOx standards based on particular combinations of uel comipnent tontrolswhich reduce VOC (andVOCPlus NOx emissions at acost ofless than$5,000 andless than $10,00o perten,respectively. EPA believesthe theserngesrepresert the upper limit ofcostswhich will be incurredby many ozone nonattainment

areas in achieving attainment. EPA requests comments onthe

. appropriateness ofthese limits.The combination offuel components on which the proposed standards are based
are, however,just one ofmany fuel formulations which couldbe used to achieve the standards. It mustbe stressed that the proposed standards are performance standards which maybe
met by the refiner's choice offuel component controls.

Normally, use ofthese cost perton limits would determine the depth of RVP controls projected for ClassB and Cfuels. However, limited RVP control
cost databelow 7.2 psi prevented the determination ofRVP levelswhich exceeded the cost-effectiveness limits. Instead, EPA based the proposed Phase II standards forClass B areas on arange ofRVP levels of6.5-7.2 psi. For Class Careas, the proposedstandards are basedon RVPs of6.5-7.4 psi which result in the same nonexhaust VOC emissions inClass Careas as therange ofClass B RVPs do inClass B areas.

Comments are requested on the level ofRVP control in each class which is reasonable foruse in setting the Phase 11 standards.

c. VOC and NOx Standards. Based on the complexmodel andthe refinery modelingstudies described above, EPA has found thatthe VOC performance standards listed in row A oftable VI-2 could be metunder the various RVP and
cost per ton limits.

TABLE VI-2.---PROPOSED STANDARDS FOR PHIASE IIREFORMULATED GASOLINE [Percent reduction in emissions)Cost effectiveness <$5,000 per Cow efectveness 410,000

ton 4Wlon

ClamB' ClaM C Clms CloseC

A.VOC standard

............................................................................................................................ 1 .5-26.6 25.3-25.3 22.1-30.1 28.5-,8 2
B. NOx Standar

............................................................................................................................. 6.3- 7.5 "6.3- 7.8 14.0.-15;0 14.0-16.3 C. VOC standard fWNOx std

..................................................................................................... 19.7-27.7 28.4-34.0 25.5-33.0 31.2-38. D. Toxlcs standard from VOC s
............................................................................. ... 16.9-21.5 28.4-28.4 23.9-26.3 30.4-32.7

1Class Bstswdarde mtiveto e Clean Air Act base fuel with RVP at 7.8psi.

EPA is alsoproposing aTange ofNOx standards for-comment. The lowerend ofthis rangeIs a year-round zeroNOx increase, asrequired by section 211(k)(2)(A) ofthe Act. n addition, under itsauthority provided by section 211(c) oftheAct,the Agency is proposing a7ange efNOx reduction standards to further reduce ozone formation. The range under consideration for the stringency ofthe NOx standards (i.e., NOx emission reduction requirements) iszero up to those shown injmw B oftable VI-,2. As forVOC, theNOxemission controls would apply onlyduring the highozone

season. 11742

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### I Friday, February 26, 1993 / Proposed Rules

These NOx reductions arepossible for

a cost ranging from less than $1,000 per ton ofNOx, to ashigh as $5,500 perton ofVOC plus NOx. EPA has found that the costs ofother NOx control programs range from $300 to $6,000 perton of NOx. Comments are requested onthe cost-effectiveness limit to beused in determining the appropriate level of NOx control here.

The additional fuelcomponent changes which yielded the proposed NOx standards also further decreased VOC emissions. While these fuel component changes were not cost effective when based solely on VOC control, they are cost effective using the $5,000 and $10,000 perton ofVOC plus NOx targets. The VOC standards achievable within these costeffectiveness limits when both VOC and NOx control are considered are shown in row Coftable VI-2. Comments are requested regarding whether EPA should promulgate the more stringent VOC standards ofrow C ifit also implements the NOx standards ofrow B

or whether the slightly morerelaxed standards contained in row A shouldbe required.

Regardless ofwhether the VOC standards arebased on those ofRows A

or C, the addition ofa NOx performance standard would further restrict refiners' flexibility inproducing qualifying fuels. EPA therefore requests comments on an option whereby the VOC performance standards shown inrow A oftable VI2 would be relaxed even further ifa NOx reduction standard was promulgated. This decision would be

ased on the premise that NOx emissions reductions were more important forozone control than VOC reductions and that the acceptable cost ofVOC reductions should be lower than those considered in table VI-2. Comments are also requested on granting refiners the option to trade off VOC andNOx control within fixed limits on either standard and on whether the trade-off should be one for

one (inpercentage reduction terms) or

on some otherbasis.

As an additional alternative to EPA setting a single NO. reduction standard forall reformulated gasoline, EPA requests comments on an option whereby areas covered by the reformulated gasoline program would be permitted to choose between aVOCreducing and aVOC andNO-reducing reformulated gasoline. Thisdecision could be made by each state based on detailed air quality analyses oftheir individual ozone nonattainment problems. A potential problem with this option is that it would require the production ofanother type ofgasoline in one ormore grades. Distribution problems and complications already expected with implementation ofthe reformulated gasoline requirements could increase. Comments are requested regarding benefits or drawbacks to providing optional NO. emission reduction standards.

3. Toxics Control

a. ControlCosts.As discussed above, in determining the cost offuel changes forVOC and NO. control, EPA adjusted the capital cost portion ofthe individual fuel component control costs to account for the fact that VOC and NO. control

are necessary only during the high

ozone season. Toxics emissions, however, must be controlled year-round and, thus, no adjustment is needed for capital costs already amortized on an annual basis. The individual fuel component costs shown in table VI-1 for VOC and NO, control are, thus, higher than those used in the determination ofthe cost effectiveness oftoxics emissions control.

b. ProposedToxics Standard. Fuel controls for the sole purpose of reducing toxic emissions are not very costeffective. Acceptable costs are typically between $1 and $10 million per cancer incidence reduced. However, based on the fuel component control costs used In this analysis, EPA estimates that fuel modifications for the control oftoxics emissions would cost over $100 million
per cancer incidence reduced.

At the same time,the control offuel components to reduce VOC emissions also results in average reductions of toxics emissions of17-33 percent, as shown in row D oftable VI-2. However, EPA believes that Congress intended this program to provide fuel producers flexibility to produce a variety of complying fuel reformulations. While these toxics reductions would presumably be free since they would result from VOC and NO. controls, in this case, they would also automatically

occur with orwithout a regulatory standard. Ifit were more economical for

a particular refiner to use fuel modifications to meet the VOC and NO. standards which did not produce this degree of toxics reduction, then that refiner would be faced with controlling toxics explicitly, which appears to not be cost-effective. Thus, while a toxics performance standard greater than the 25 percent level specified in section 211(k)(3)(B)(ii) ofthe CAA is feasible, it would not be cost effective and EPA
proposes setting the standard at 25 percent. Section 211(k)(3)(B)(il) ofthe CAA also permits EPA to reduce the toxics performance standard below 25 percent to as low as 20 percent considering the cost ofachieving such reductions in toxic emissions. The same arguments expressed above for not requiring greater than a 25 percent reduction are equally applicable below 25 percent. Thus, EPA also proposes as

a second option that the toxics performance standard be set at the 20 percent minimum level specified by section 211(k)(3)(B)(ii) of theCAA. Comments are requested on this standard and the decision to notrequire

a greater toxics performance standard of the magnitude shown in rowD oftable VI-2.

4. Technological Feasibility

Perthe requirements ofthe Act, the technological feasibility ofproducing fuels which would meet the proposed standards must be considered in establishing the standards. EPA believes that the refinery modeling results, from which the fuelcomponent control costs

were estimated, provide thejustification forthe feasibility ofthe proposed fuel component changes. The refinery modelsutilized only well-developed, demonstrated, commercially available technologies, and hence will only produce fuelswithin the limitsof these technologies. In all likelihood new technologies will be developed between

now andthe year 2000 which will reduce the costs for certain types offuel component changes. Thus, EPA believes that the determination offuel component control costs usingthe results ofsuch models is reasonable and that the feasibility ofproducing such emission-reducing fuelsIs justifiable.

A key exception to this is the production offuel with RVPbelow 7.2. EPA is in the process ofconducting refinery modeling to assess this. Upon completion, the results willbe placed in the docket to this rule.

Because the standards proposed today will not take effect until the year 2000, EPA does notbelieve that lead time issues should present problems to reformulated gasoline producers in achieving the proposed reductions, as allthe processes needed to produce complying fuels are already commercially available.

EPA has evaluated both driveability and safety concerns associated with the

use of low RVP fuels and found no significant negative impacts. These issues are addressed in theDraft RIA. Comments arerequested on potential technological barriers to achieving the proposed VOC, NO. and toxics emissions reductions. 11743

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VII. Enfkrcement Provisions

A. Introduction

This section oftoday's proposal addresses enforcement topics that result frominclusion ofthe complex model in the reformulated gasoline program. In addition, it addresses several enforcement topics that were the subject ofthe April 16, 1992 SNPRM (57 FR 13416), but that EPA nowbelieves merit re-proposal as a result ofcomments received on the SNPRM. EPA's approach has changed as a result of these comments and EPA believes an additional opportunity for comments on its current approach is warranted. The regulatory text beingplaced in the docket to accompany today's proposal includes new regulatory language for these re-proposed topics.

These topics include: Changes to the gasoline quality survey necessitated by thepossibility ofgasolines that were certified under the simple model and under the complex model being present in a covered area at the same time; the inclusion ofa ratchet ofthe minimum
oxygen content standard based upon gasoline quality survey results; provisions for waiving certain enforcement mechanisms for gasoline produced under the State ofCalifornia's reformulated gasoline program; and modification ofthe attest engagement requirements to allow use ofinternal auditors under certain circumstances.

EPA intends to respond in the final rule to other comments made on the SNPRM, and in many cases EPA intends
to make the change suggested by the
commentor. Where EPA intends to make such other changes, EPA does not believe the changes are so different from the SNPRM that reproposal is necessary. These changes therefore are excluded from today's proposal, including the accompanying regulatory text. As a result, commentors to the SNPRM should not view omission from today's proposal or accompanying regulatory
text ofan EPA reaction to a particular SNPRM comment to be indicative of EPA's intentions regarding that
comment.

B. VOC EmissionsPerformance and Oxygen StandardsUnderthe Simple Model

Section 211(k)(2)(B) oftheClean Air Act requires that, with certain exceptions, reformulated gasoline must contain at least 2.0 weight percent
oxygen. Section 211(k)(7) allows for
oxygen credits forreformulated gasoline containing greater than 2.0 weight percent oxygen, and forthe transfer and

use ofoxygen credits within the same nonattainment area to the extent such credits would not result in a lower
average oxygen content than would

occur in the absence ofany credituse. Section 211(k)(3) sets aperformance standard forVOC emissions.

As aresult ofcomments received in responseto the simple model SNPRM, EPA is proposing certain changes to the approach proposed under the simple model for ensuring that the averaged standards forVOC emissions performance and oxygen content are met.These changes include a direct survey measure forVOC emissions performance, and an annual oxygen survey with adjustments for the oxygen minimum. These proposed changes are unrelated to thecomplex model.

In the simple model SNPRM, EPA proposed a gasoline quality survey mechanism for ensuring that the average VOC emissions performance of reformulated gasoline in each covered

area would at least equal the per-gallon standard. The purpose ofcompliance surveys is to ensure that refinery/ importer averaging achieves the same compliance on average with the reformulated gasoline standards as covered area averaging, and thus does
notresult in poorer air quality than would have otherwise occurred with covered area-based averaging or with straight per-gallon standards. See SNPRM at 57FR 13462. The gasoline quality survey is described in the simple model SNPRM at 57 FR 13459-13464, and certain changes to the survey are discussed later inthis section ofthe preamble. EPA seeks comment on the burden this area-by-area averaging scheme would impose on the regulated community.

At the time ofthe SNPRM, there was
no appropriate equation for measuring VOC emissionsperformance directly. As

a result,under the simple model survey proposal, surveys conducted duringthe high ozone season would monitor average levels ofRVP and oxygen content, the parameters through which compliance with the VOC emissions is based. 6 Under this simple model proposal, ifa survey result showed an average RVP level above (orworse than) the per-gallon standard for RVP, the averaged RVP standard and the maximum per-gallon RVP standard would each beadjusted to bemore stringent. In the case ofoxygen under

6Although under thesimple model sulfur. T90, and olefins also were known to affect VOC emissions performance, the average standards for theseparameters are each refiner's or importers 1990 average levels. Asaresult. compliance with these parameters would be based upon the total reformulated gasoline produced by each refiner or imported by each importer(or, in some cases, produced ateach.reflnery). and could not be the subject ofthe gesoline quality surveys. the simple model proposal, however, there would be no adjustments to the averaged oxygen standard.Instead, in the event the survey results showed an average oxygen content ofless than 2.0 weight percent, the average and maximum RVP standards wouldbecome

more stringent. See discussion at57 FR
13458-13459.

Several commenters tothe simple rule SNPRM stated that itwould be more appropriate to apply survey measures of RVPand oxygen to a VOC emissions performance equation, rather than to survey forRVP and oxygen separately. Iftheresults ofthis equation indicate inadequate VOC emissions performance, according tothesecommenters, it would be appropriate to adjust the averaged and maximum simple model standards forRVP. Because a suitable equation for measuring VOC emissions performance is available now, EPA agrees that this suggestion would more directly ensure compliance with the VOC performance standard.

For these reasons, EPA is proposing that each survey conducted during the high ozone season would include
measurement ofRVP and oxygen, and that these two parameters wouldbe applied to a VOC emissions reduction equation for each sample collected. The average VOC emissions reduction would then be calculated forall samples collected during the survey. The standard against which thisresult would be measured would be calculated by applying to the same VOC emissions reduction equation. In the event the survey resultis lessthan the calculated standard, the averaged and maximum standards forRVP would be adjusted to be more stringent forthe city.

This proposal for monitoring the average VOC emissions reduction standard creates the possibility that the VOC standard could be satisfied for a particular survey, with an oxygen content below 2.0 weight percent. One
commenter suggested an approach to address this concern that compliance with the statutory minimum oxygen content be ensured. Under this suggestion, compliance with the statutory requirement for 2.0 weight percent oxygen would be evaluated by determining the average oxygen content ofall samples collected during all
surveys during acalendar year. Ifthis average fallsbelow 2.0 weightpercent, the minimum oxygen content standard would be adjusted to be more stringent.

EPA agrees with this suggestion, and is proposing that the average oxygen content ofall survey samples collected in each covered area during each calendaryear would becalculated. If this average oxygen content falls below 11744

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2.0 weight percent forany covered area, the minimum oxygen standard forthat covered area would be adjusted to be

more stringent.7

C. ComplianceSurvey Underthe ComplexMode

EPA is proposing certain changes to the compliance survey requirements that wereproposed inthe SNPRM, These changes are necessary to enable the compliance surveys to function during the period priorto thedate the complex model becomes mandatory, when regulated parties have the option ofcertifying reformulated gasoline under the simple model or the complex model.

During the period that begins on January 1, 1995, and lasting until the date the complex model becomes mandatory, refiners and importers would be able to certify reformulated gasoline using either the simple model

or the complex model. This results in the potential forboth "simple model reformulated gasoline" and "complex model reformulated gasoline" to be present in any covered area at any time,
up until the date that only use ofthe complex model will be allowed. This potential mixture ofsimple and complex model reformulated gasolines
creates difficulties for the gasoline quality surveys.

Forexample, under the simple model, reformulated gasoline meets the VOC emissions performance requirements based upon a VOC emissions performance equation that requires input ofvalues forRVP and oxygen. Under the complex model on the other hand. reformulated gasoline meets the VOC emissions performance requirements based upon the results of

a more complex equation that requires inputs ofseveral additional parameters, including sulfur, aromatics, olefins, T50, and T-90. As a result, any particular reformulated gasoline certified under the complex model conceivably could
meet the VOC emissions performance

7The general standards adjustment approach proposed in thesimple model SNPRM. formaking standards more and less string'et 15? FR 13462). would be followed for adjumtmnts to theoxygen minimum standard. Failure ofthe oxygen survey in any year would resultin anincrease in the oxygen standard of0.1 percent. Acer fiveyears of survey failurs.the adjustadoxygen suaWard would be equivalent to theper-galon oxygen standard (2.0%). Notethal an uea sayaccomplish aone- time readjustnent (decreasing the standard by 0.1%) undertheoxygen standard bypassing all oxygen content an'veys during two consecutive years,

IThe compliance surveys ass discussed in the SNPRM at 57 FR 13458-13464. Facept to the extent described in today'sproposal, thecompliance surveyrequirements thatare proposed for the SNPRM would apply undertoday's proposal. standard ofthe complex model, yet fail the requirements ofthe simple model. Conversely.,any particular reformulated gasoline certified under the simple model could have RVP and oxygen levels that satisfy the simple VOC equation, yet as aresult ofthe levels of other parameters included in the complexmodel VOC equation violate the VOC emissions performance standard when using the complex model.

Similarly, toxics emissions performance underthe simple model would be afunction ofa gasoline's oxygenate type and content, and its benzene content, while under the complex model toxics emissions performance wouldbe a function of benzene, oxygen, sulfur,aromatics, olefins, T-50, T-90, and RVP. Based
upon the same logic described above for VOC emissions performance, a sample ofreformulated gasoline that meets the toxics standard under the simple model may notmeet the toxics standard under thecomplex model, and vice versa.

In order to avoid being confounded, therefore, for the gasoline quality surveys, EPA must use the simple model toevaluate reformulated gasoline certified under the simple model and
must use the complex model to evaluate reformulated gasoline certified under the complexmodel. Moreover, mixtures ofreformulated gasolines thatare certified using thesimple model and those that are certified using the complex model would notbe susceptible to a survey analysisbased upon either the simple or the complex models.

For theforegoing reasons, EPA is proposing a mechanism that would allow the collection ofsamples of gasoline that are comprised only of either simple model-certified gasoline or complex model-certified gasoline. This proposed mechanism would include the designation by refiners or importers of all reformulated gasoline as being certified using either the simple orthe complex model; the mandatory segregation ofthese two categories of reformulated gasoline atall points inthe gasoline distribution system from the refinery or import facility through the. terminal from which gasoline is transported to retail outlets; and the retention atretail outlets ofproduct transfer documents for the most recent deliveries ofgasoline, to enable survey -sample-takers to know ifthe gasoline being sampled is simple model, complex model, or a mixture ofthe two. EPA seeks comment on whether the above-described proposed tracking requirements would obviate the need for surveys because refiners or importers wouldbe creating an adequate paper trail forgasoline.

Under EPA's proposal, the survey requirement would be satisfied if complete representative surveys are conducted ofeach category of reformulated gasoline being sold in each city subject to survey. That is,ifboth simple and complex model-certified gasoline is being sold in a city that is subject to the survey requirement, a set ofrepresentative samples must be collected ofthe simple model-certified gasoline, and a set ofrepresentative samples ofthe complex model-certified gasoline. Ifonly simple or only complex model-certified gasoline is being sold in

a city, however, a single set of representative samples would satisfythe
survey requirement forthat city.

EPAbe 'eves that in the case ofa city in which both simple and complex model-certified gasoline is beingused the portion ofgasoline in one ofthese categories may be so small that, in spite ofgood faith efforts to collect gasoline in both categories, collection ofa set of representative samples ofgasoline in that category would be infeasible. In such a case, EPA is considering whether itwould be adequate to permit a regulated party (orgroup ofparties) that is conducting the survey would beable
to petition the Administrator to accept the survey ascomplete, even though a set ofrepresentative samples was collected only ofone category of gasoline. EPA seeks comment on this issue.

In the SNPRM (57 FR 13459) EPA proposed that the consequence offailure
to submit a survey plan to the Administrator would be that onlypergallon standards would be allowed for all gasoline sold within the covered area forwhich the survey requirements were notmet, and that the consequence of failure to properly carry out a survey plan would be thatthe surveys not properlycarried out would be deemed
to have been failed. These consequences also would apply for failure to submit

or properly carry out the survey requirements regarding mixtures of simple and complex-model certified gasoline.

D. California EnforcementExemption
On September 18, 1992, the California Air Resources Board ("CARD") adopted regulations for its Phase 2 reformulated gasoline program. 9 These regulations establish a comprehensive set of gasoline specifications designed to achieve maximum reductions in

0New sections 2260 through2272 and 2298, and amended sections 2250, 2251.5, 2252 and2296, of Title 13, California Code ofRegulations. 11745

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### I Proposed Rules

emissions ofVOCs, NOx, CO. sulfur dioxide, and toxic air pollutants from gasoline-fueled vehicles.

The California Phase 2 reformulated asoline regulations establish standards

or eight gasoline characteristics-- sulfur,benzene, olefin, aromatic hydrocarbons, oxygen, RVP, T-90 and T-50--applicable starting March 1, 1996. The regulations also provide for the certification ofalternative gasoline formulations based on vehicle emission testing.

The standards for the six characteristics other than RVP and oxygen content include twotiers--an absolute limit ("cap") that will apply to gasoline throughout the distribution system (including alternative formulations), and a more stringent standard thatwill apply togasoline when it isinitially suppliedfrom the producer or importer (gasoline qualifying as an alternative formulation will be exempt from thismore stringent standard). For these six characteristics, producers and importers will have two options for complying withthe standards applicable to their gasoline when it is first supplied--they can choose either a "flat limit" or a more stringent limit that can be met on average through a "designated alternative limit" process.

The RVP standard of7.0psi applies during summertime control periods 10to all gasoline throughout the distribution system, including gasoline certified as
an alternative formulation. The oxygen content standards consist ofa cap applicable to all gasoline (1.8% minimum and 2.7% maximum) and a flat limit forproducers and importers (1.8% minimum and 2.2% maximum). The designated alternative limit option does not apply to the oxygen standards. Other standards apply on a year-round basis.

In enforcing the Phase 2 reformulated gasoline program, CARB has stated that it intends to

1 01nthe federalreformulated gasolineareas, San Diegoand Los Angeles (theSanDiego and South Coast AirBasins), the RVPcontrol periodisApril I through October 31. maintain the strong enforcement presence we have developed overthe more than 20-year period we havebeen enforcing ARB motor vehicle fuels regulations. The ARB's Compliance Division currentlyuses four full time persons to inspect fuel facilities, including service stations, terminals, and refineries. They presently take roughly 2300 samples a year, on a year-round inspection schedule."

CARB tests most ofits fuel samples in

amobile fuels/toxics laboratory, which

can be setup anywhere in the State within 12 hours, resulting in "a substantial increase in the number of gasoline samples taken by ARB inspectors and the number of analyses that have been performed."

Section 43016 ofthe California Health and Safety Code provides apenalty of $500 pervehicle for violations ofCARB reformulated gasoline and other fuels regulations by parties in the gasoline distribution network. To help assure the applicability ofthese "per vehicle" penalties to upstream parties, the Phase 2 reformulated gasoline regulations provide that each retail sale ofgasoline for use in a motor vehicle, and each supply ofgasoline into a motor vehicle fuel tank, is also deemed a sale by any person whopreviously sold the fuel in violation ofthe reformulated gasoline standards.

EPA is proposing thatthe producers ofcertain gasoline that is produced and sold in the State ofCalifornia under the California Phase 2reformulated gasoline

rogram ("California gasoline") would

e exempt from certain enforcement provisions proposed in today's notice and in the SNPRM. EPA is including this exemption proposal because EPA believes that the standards for California gasoline are as stringent as, ormore stringent than, the proposed content and performance standards for federal reformulated gasoline. EPA also believes that the enforcement mechanisms that will be employed by the State of California are sufficient to ensure that producers ofCalifornia gasoline will in

IIJanuary14, 1993, letter fromJames B.Boyd. Executive Officer ofCARB, to MaryT. Smith, EPA Office ofMobile Sources. fact meet the California reformulated gasoline standards. As aresult, EPA believes it is appropriate torely on the California reformulated gasoline
program to ensure compliance with the federal reformulated gasoline standards by producers ofCalifornia gasoline.

EPA is notproposing that producers ofCalifornia gasoline would be exempt from the federal reformulated gasoline standards, only thatthese producers would be exempt from certain enforcement requirements designed to demonstrate compliance with the federal reformulated gasoline standards.

Although, forpurposes ofbrevity, the discussion in this section is couched in
terms of"refiners" that produce gasoline inthe State ofCalifornia for sale inthat State,the discussion applies equally toimporters that import gasoline produced outside the United States into the State ofCalifornia, and
to oxygenate blenders inthe State of California. As discussed more fully below, refiners who produce gasoline in other states and ship it into California would not be covered bythe proposed exemption. California refiners who produce gasoline for sale outsidethe State would also notbe covered by the proposed exemption for such "nonCalifornia" gasoline.

1. Comparison ofCalifornia and Federal Reformulated Gasoline Standards

EPA has compared the properties of California gasoline to the properties of federal reformulated gasoline, and the VOC, toxic, and NOx emissions that result from both the California and federal reformulated gasoline. Table VI.1 contains estimates ofthe emissions that are expected toresult from California and federal reformulated gasoline (onboth a per gallon and averaged basis), and a comparison of estimated emissions changes from Clean Air Actbase fuel. Because some ofthe California standards are at, or outside, the range ofthe EPA model, the estimates forCalifornia gasoline are not

asreliable as those forgasoline meeting federal standards.

TABLE VII-1.--COMPARISON OF CAUFORNIA GASOLINE WITH FEDERAL REFORMULATED GASOLINE (VOC-CONTROL REGION 1)

Fuel paentmer 'CAA base k 

### ICal.phase2 1 CalphMse2 

### 1 Fedphasel 

### I Fedphasel Fuel parameters (per-galior) (averaged) (per-gallon) ] (aveged)

Oxygen (wt %) Sulfur (ppmw). RVP (psi)

....... T50 (F)

............ T90 (F)

............ 0 339

8.7 218 330 2 30

7 200 290 .....................................................................................................

....................................................................................................

........................................................................... .........................

....................................................................................................

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### 1 FrIday, February 26, 1993 / Proposed Rules

TABLE VV-1.--CODMuPON OF CALFORNIA GASOLINE WMH wEDIm REFORmulATED GASOLINE JVOC-OONTnOL REGION I)-

FV oresse- Aba iue

Arornatts (vol) Oleflns vo

-

Absolute EmleosWlo.. of.

Ehasmg VOC

............. 418.8 324.9 31.3 384.5 383.3 Eva# VOC (Clan 8)

.. ........................................... A 304.7 394.7 441.8 4183 TOW VOC 1277.3 719.6 711.0 826.3 101.3 Exhaust Benzene

............. . ......... . ................ ................................................ 25.4 14.1 111 8.7 18.8 Evap ientue e (Ceas O)

............................................ ...................................... 9.7 3.2 2.5 3.5 3.1 TotalBawma.m

...... .................................... w ----- 35,0 17.3 13.7 22 21.7 Exhaust ACET

.................. ................. . ... . ................ ......... 2.1 2.0 1.6 1.8 1.7 Exhaust FORM

.................................. 3.8 4.6 4.5 4.3 4.4 Exhaust 1.3BUT

.......... .............. . . ........ . 3 3.1 2.8 4.2 4.3 ExhaustPOM

.................................................................................................. 1.4 1.1 1.1 1.2 1.3 Total Tomtcs

... .................................................................................... 458 28.1 23.4 33.7 33.5

Percent change (A) In Emssonsfrom CAA Fuel (VOC-Cont l Region 1)

Percenl A InEjdiul

.. .VC

. . ... .......................................... -27.3 -29.3 -44.0 -14.3 Perest A In EAp VOC

......................................................... ..................... -54.1 -54.1 -48.7 -51.4 Percent.A in Total VOC

.................... ...................... -45.0 -45A -36.8 -38.7 Percent In Exhaus t Benzen e

.................................................................. .....;
.................. -44.3 -56.1 -26.3 -26.9 Percent A InEvap Benzene

............................................................................ ...................... -87.2 -73.8 -64.0 -67.5 Pement A in TOW.Bon s
.... T.a.

. .................................................................. .....- 50.8 -81. -38.2 -38.1 PercentAinTtal To

.. .... . . . ....... .... .. -38.5 -48.8 -211. -26.7 Prcnt N........

. . -13.9 -18.8 -2.2 -2.5

1The California Phase 2 mm n n oxygen "flat imit c 1.8% to 2.2%, whidh fas explained in the teX) Is" Inpractice to be equvalent to per

.. galon" anl "avee" e~I of 2i0%. Thee Isno designatedalternative for oxygen.

This analysis compares Califonia gasoline to the federal reformulated gasoline that would be sold in VOCControl Region 1,because California is located within this VOC-control region.

In the case ofVOC. toic and NOx enUssions performance. the California gasoline has agreater emissions perfornmooe reduction, ascompared to CleanAirAct basegasaiie, than the federal reformulated gasoline. Ths analysis thas sipportsthe enforcement exemption that is being proposed today.

In theicase of the oxygen content standards, ,he Agencyhasreceived

assurances from CARB that the oxygen "flat lnit" of 1.8to 2.2% will in. practice be equivalent tothe 2.0% minimum oxygencontent required by section 211{k)(2)(B) ofthe Clean Air Act. In a January 14, 1993, letterto EPA, the Executive Officer ofCARB sets forth several masons why CARB expects refiners totarget an oxygen level of 2.0% and toproduce gasoline that on average will have an oxygencontent at least equal tothis percentage, including:

9 The reproducibility ofte test method used for CARB enforcement is larger than the oxygen -contenttange. meki* that effectively theCARB standard represents "a2.0% requirementwith atesting tolerance of 0.2 weight percent;"

* New limits on other gasoline characteristics will require fundamental changes in gasoline formulations and reliance on oxygenates to maintain
current octane levels,likely resultingin refiners "blending oxygenates near the maximum end ofthe range to maximize the octanebenefits ofoxygenates;" and

9 Some refiners may use the vehicle testing for predictive model,when adopted) compliance alternative in the CARB regulations "to develop gasoline formulations which may contain oxygen levels up to 2.7 weight percent oxygen."

TheAgency agrees with CARB's
assessment concerning the likely effects ofthe oxygen content range in itsPhase 2 regulations. In anycase, EPA will still have the authority to sample and test California gasoline to assure that it
meets the federal reformulaled gasoline minimum standard of2.0%.as well as the right to review company records to

ensure thatthe federal standard has been met. Theenforcement exemptions proposed in today's noticewould not impact thesebasic EPA enforcement capabiities.

The Agency alsobelies that California's Phase 2 program will assure "thatthe federalreformulated gasoline standards are met in each ofthe two cities (LosAngeles and SanDiego) 3 2 subject to those standards, asrequired bysection 211(k) oftheAct. Both the "flat limit" and "designated alternative limit" standards in the California
program are substantially more stringent than the faderai standards, as shown in Table VI1. In addition, the RVP "cap" of7.0psi that applies throughout the distribution network ismore stringent than the federal standard, and averagifg is not allowed to meet the Calfornia
oxygen standard. Forall ofthese
reasons, it is veryunlikely thatone of the two cities willnot meetthe federal standards.1 3The Agency requests comments on this issme.

2. Applicability ofCalifornia Enforcement Exemption Provisions

EPA is proposing that the California enforcement exemption provisions

12InIbi Jaary44. 1993. leter,the CARB Executive OfficerstateddattheStaedoes net plan toopt Into thelederi reformulated gasoline pro ftaor anyothernonattainment aresinthe State.

'2Jnaddition, fthe ".vf California"caps" sesultigasollnehat istat least a clean asolne that meets thefederal standards. the would not beconcerns about either or tetwo cities meeting federal requirements. EPA has not mod" te emissIons effects-ofdie rp, howeve. ........ . .......... ........................... I

.................... ........... . ........ 11747

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### Federal Register 

### / Vol. 58, No. 37 

### / Friday, February 26, 1993 

### / Proposed Rules

would apply only to gasoline that is sold or dispensed within the State of California, and that is either produced in the State ofCalifornia or is produced outside the United States and imported at an import facility located in the State ofCalifornia. Gasoline that is produced
at arefinery located within the United States outside California would not receive the proposed exemption, even if such gasoline is sold in the State of California.

EPA believes gasoline sold in California but produced domestically outsidethe State ofCalifornia should
meet all ofthe proposed federal enforcement requirements because the producer of such gasoline wouldbe required to implement all ofthe federal enforcement provisions forthe refinery's non-California gasoline. The incremental cost ofincluding the California-market gasoline in the refinery's compliance program would
notjustify excluding this gasoline from the federal enforcement mechanisms. Additional reasons forthis distinction

are: The ultimate market forgasoline may notbe apparent when gasoline is produced, making an exclusion foronly California-market gasoline difficult to apply in practice; and the California
state enforcement mechanism includes refinery inspections, which may notbe possible inthe case ofrefineries located outside the California state boundary.

Gasoline produced in California but shipped outside the State (e.g.,to Nevada) would notbe subject to the proposed enforcement exemption

ecause it is not covered by the California reformulated gasoline program. 14The Agency understands that California producers have developed means to differentiate between fuel that is subject to existing California fuels regulations and fuel that is not, for-purposes ofassuring compliance with the State's regulations. EPA is concerned about whether these practices are adequate to allow an enforcement exemption inregard to California gasoline produced atthe

same facility, andrequests comments on thisissue.

EPAis also concerned that a refiner that operates arefinery located outside the State ofCalifornia that produces gasoline both forCalifornia and nonCalifornia markets could average very clean California gasoline with nonCalifornia gasoline, and produce nonCalifornia gasoline that is atthe low-end ofthe average range ofthe federal

14 Section 2260(a)(4) ofthe California Phase U reformulated gasoline regulations defines "California gasoline" as "gasoline sold. intended for sale, or made available for sale as amotor vehicle fuel In California." standards. The non-California gasoline thus could easilybe below the average federal standards, yet the refinery would be in compliance on average. In order to protect against thispossibility, EPA is proposing thata refiner that operates a refinery outside the State ofCalifornia would be required to separately exclude the gasoline that it sells inCalifornia from the refinery's compliance demonstration forfederal reformulated gasoline and anti-dumping requirements. This would be in addition
to demonstrating the overall compliance ofall its gasoline with federal. requirements.

Undertoday's proposal, record keeping and reporting requirements of the proposed federal anti-dumping requirements would not apply in the

case ofCalifornia gasoline. EPA believes that an exemption fromthese provisions intended to demonstrate compliance with the proposed standards or conventional gasoline is appropriate because all gasoline sold in California is included in the California reformulated gasoline rule.In other words, there is no California corollary to the federal antidumping requirements. As a result, gasoline thatwill be sold inportions of California that are outside the federal covered areas-and thatwould be subject to the federal anti-dumping requirements-will be required to meet the full California reformulated gasoline requirements. Thisfeature ofthe California program provides certainty that gasoline sold in California that is subject to the federal anti-dumping standards will exceed these federal standards. In addition, the proposed federal anti-dumping requirements would apply to California producers shipping conventional gasoline outside the State.

There are several conditions under which the proposed California exemption would not apply, eitherin
toto or inregard to specific parties. First, EPAbelieves that the exemption being proposed today should apply only

so long as the California reformulated gasoline standards are at least as stringent as the federal standards for reformulated gasoline. EPA notes that the California regulations contain provisions that would allow the certification ofadditional, undefined gasoline formulations using apredictive model (§2265 ofthe California Phase I1 reformulated gasoline regulations) or vehicle testing (S2266 of the California regulations). EPA is concerned because it is possible that agasoline formulation certified by the State ofCalifornia under

one ofthese alternative methods could be less stringentthan the federal reformulated gasoline standards, in which case the exemption being proposed today would not be appropriate.

in order to protect against this possibility, EPA is proposingthat the California exemption provisions would apply only so long as each gasoline formulation that could possiblybe certified under the California program is
at least asstringent asthe federal reformulated gasoline standards.In the
event that any formulation that isless stringent than the federal reformulated gasoline standards becomes certifiable, the entire California exemption would become null and void. Ifat any time EPA believes a less stringent formulation has been approved by the State ofCalifornia, EPA intends to publish a notice ofthis conclusion and the date that the California exemption would no longer be applical e. This notice would giveregulated parties a reasonable opportunity totake stepsto implement the federal enforcement mechanisms that hadbeen waived. This procedure would also be followed ifthe State revises itsregulations to otherwise provide for less stringent standards than the federal program.

Second, the Agency is concerned that the variance provision contained in the California regulations (§2271 ofthe California Phase 2 reformulated gasoline regulations) isnot entirely consistent with the federal provision dealing with the inability toproduce conforming gasoline in extraordinary circumstances (§80.73 ofthe proposed federal regulations). In particular, the proposed federal provision islimited primarily to Acts ofGod, while the California provision isnot so limited.In addition, the federal provision would require a party to make payment to the U.S. Treasury of the amount ofeconomic benefit derived from the nonconformity, while the California provision does not require such a payment. As a result, the frniaexemption being proposed today does not include relieffrom the proposed extraordinary circumstances provision in the federal regulations. A party that, due to extraordinary circumstances, intends to pro uce gasoline that does not meet the federal reformulated gasoline standards thus would be required to comply with the federal extraordinary circumstances provisions, regardless ofany variance obtained from the State ofCalifornia. If

a party obtains a variance from the State, EPA proposes that the enforcement exemption would cease to apply to that party unless oruntil EPA grants relief forextraordinary circumstances under § 80.73.

Third, EPA believes thatthe proposed California exemption provisions should 11748

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apply only for partiesthat are in fact In substantial compliance with both the California andthe federal reformulated gasoline requirements. The presumption that a refiner subject to the California requirements is also in compliance with the federal standards would notbe appropriate in the case ofa party that has violated the California orfederal requirements. As a result, the Agency is proposing that a regulated party that is assessed apenalty for a violation of either the California orfederal reformulated gasoline requirements would automatically be subject to the loss ofits California exemption. Under the proposal, the exemption would be lost no matter whether the penalty
assessment was theresult ofajudicial

or administrative adjudication, consent agreement, orsettlement agreement. A party subject to the loss ofits exemption could petition the Administrator for relief,in whole or in part, for good

cause. The Agency could alsogrant such relief on its own initiative. Good cause could include a showing that the violation for which a penalty was assessed was not a substantial violation ofthe reformulated gasoline regulations.

The Agency requests comments on whether it should base the loss ofthe California enforcement exemption foran individual refiner or importer onthe basis ofajudicial or administrative determination ofviolation rather than

onthe basis ofa penalty assessment. EPA also requests comments on an appropriate date (e.g., 30 days after a final penalty assessment) on whichthe loss ofthe exemption would become effective, and on whether such a loss should be stayed during the pendency ofa petition forrelief.

Fourth, the California Phase 2 regulations allow small refiners (as defined in the California regulations) to obtain a two-year extension until March 1,1998, to meet the specifications for sulfur, olefins, T-50, and T-90, under certain conditions. Small refiners will be subject to the same RVP, oxygen, aromatic hydrocarbon, and benzene requirements as otherrefiners under the California program. Because small refiners that obtain such an extension will not be required to produce gasoline that meets all the federal reformulated gasoline standards, EPA doesnot believe that it is appropriate to exempt such refiners from any ofthe federal enforcement provisions. Thus, the California gasoline exemption proposed intoday's notice would not apply to gasolineproduced under any small refiner extension grantedby CARB.

Finally,EPA believes that the proposed California exemption should apply only during thetime the federal Phase Ireformulated gasoline program is in effect, i.e., until the year 2000. EPA intends to reevaluate the California reformulated gasoline program before the year 2000, andto engage in a separate rulemaking Ifit believes that the California enforcement exemption shouldbe extended beyond the year 2000. That rulemaking would allow the Agency the opportunity to structure any future enforcement exemption tobe consistent with boththe federal and the California rules that will be in effect at that time

3. Enforcement Provisions toWhich Exemption Would Apply

-

EPA is proposing that subsequent to the date the California'Phase 2 reformulated gasoline standards become effective, regulated parties that produce

or import California gasoline and that
meetthe other criteria described in the preceding section would beexempt from meeting the proposed enforcement requirements dealing with compliance
surveys (§ 80.69), independent sampling and testing (§ 80.70(c)), designation of gasoline (§80.70(d)), marking of conventional gasoline (§80.70(g)). downstream oxygenate blending (§ 80.72), record keeping (§80.74), reporting (§ 80.75), product transfer documents (§80.77), and antidumping record keeping (§ 80.105) and reporting (580.106).

The Agency specifically requests comments on whether California gasoline shouldbe exempt from enforcement provisions related to the renewable oxygenate program in the proposed federal record keeping and reporting regulations (§§ 80.74 and 80.75), should this program become applicable to the Los Angeles and/or San Diego areas. Such an exemption
may not allow the Agency to adequately enforce this program ifregulated parties

are allowed to freely transfer renewable oxygenate units among areas subject to this program, as proposed elsewhere in today'snotice.

EPA believes that it is appropriate to exempt producers ofCalifornia gasoline from the independent sampling and testing,record keeping, and reporting provisions in the proposed federal regulations because these provisions deal solely with demonstrating compliance with the federal reformulated gasoline standards. Because the proposed exemption is predicated upon reliance on the California reformulated gasoline
program to ensure compliance with the federal standards, these provisions are duplicative and therefore unnecessary. It is appropriate to include the survey provisions in the exemption because the purpose ofthe surveys is to adjust the

- federal averaged standards if surveys reveal unequal distribution ofaveraged federal reformulated gasoline. As discussed above, the need for such federal standards adjustments is believed unnecessary in California because itishighly unlikely that either ofthe two California cities in the federal reformulated gasoline program will exceed federal standards. The gasoline designation, conventional gasoline marking andproduct transfer document provisions areappropriate for exemption because they deal only with informing other regulated parties ofthe time andplace ofuse restrictions of federal reformulated gasoline, considerations that are inapplicable within California because only reformulated gasoline may be sold for

use within that State under its program.
4. Enforcement Exemption During 1995

The State ofCalifornia's regulations provide that the California gasoline requirements become effective starting

onMarch 1, 1996, fourteen months after the proposed January 1, 1995, effective date for the federal reformulated gasoline requirements. As aresult, the enforcement exemption proposal described above would apply only beginning onthe effective date ofthe California regulations. For the period prior to this date, EPA is proposing an exemption only from a more limited set offederal enforcement requirements, I.e., the proposed compliance survey and independent sampling and testing requirements (§§ 80.69 and 80.70(c), respectively).

EPA believes that it would be appropriate to exempt producers of California gasoline from the survey requirements in 1995 because the consequence ofany survey failure in California--an adjusted averaged standard-would apply only in 1996, afterthe California program would be in effect. The Agency isconcerned, however, that there would be no regulatory mechanism to assure that federal standards are met in 1995 in each ofthe California areas subject to the federal program since, unlike 1996 and lateryears, the State's program will
notbe in place. EPA requests comments

on whether area-by-area averaging by refiners and importers, or some other tracking mechanism, should berequired in lieu ofcompliance surveys in 1995.

In the case ofthe proposed independent sampling and testing requirements, EPA believes thecosts associated with establishing the mechanisms and laboratory capabilities that would be necessary to Implement these provisions outweigh thebenefits 11749"

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ofhaving these requirements in place for only oneyear. In addition, in 1995 California refiners and importers would still be subject to the record keeping and reporting requirements of §§ 80.74 and 80.75, the latter ofwhich requires batchby-batch reporting ofgasoline properties and characteristics. These properties and characteristics will have to be determined by in-house sampling and testing, and false reporting ofthese test results will make the reporting entity liable for both civil and criminal penalties. The Agency requests
comments on the adequacy ofthese regulatory and statutory requirements as

a substitute for independent sampling and testing during 1995.

E. AttestationEngagements

EPA is reproposing regulations governing the conduct ofattestation engagements.15 At thetime of publication ofthe SNPRM, EPA's discussion ofthistopic with the regulated community and with the American Institute ofCertified Public Accountants (AICPA) was not complete. There, EPA proposed several alternative methods for conducting attestation engagements.' 8 Today, EPA proposes to adopt one ofthose alternatives and to expand upon the SNPRM by allowing the regulated comminity to use internal auditors in appropriate circumstances.

The regulation proposed today would apply to refiners, importers and oxygenate blenders. For purposes of simplicity, these parties are referred to collectively as refiners in this portion of the preamble.

Concurrent with the gasoline production reporting requirements proposed in §§ 80.75 and 80.108 ofthe proposed regulations, EPA proposes today that each refiner would be required to annually engage a certified public accountant or a firm ofcertified public accountants, orto commission an internal auditor to perform an agreedupon procedures attestation engagement ofthe information which forms the basis ofthe reports required by these sections.

1sProvisions pertaining to attestation engagements were originally proposed inthe Supplemental Notice ofProposedRulemaking, 57
FR 13415, at 13492 (April 16, 1992).

1 6An attestation engagement is to be distinguished from an audit An audit refers to a review offinancial records. An attestation engagement refers toa review ofother than financial records to determine whether a representation by acompany is supported by internal company records.An attestation engagement is "one in which apractitioner is engaged to Issueor doesissue awritten communication that expressesaconclusion about thereliability of awritten assertion that is the responsibility ofanother party." Statement on Standards forAttestation Engagements, S1O0.Ol (footnotes omitted). The purpose ofthe engagement is to corroborate the reports submitted by the regulated party to EPA. The scope ofthe engagement would cover the activities ofthe refiner relative to the reformulated gasoline and anti-dumping requirements for the previous calendar year and which are the subject ofthe required reports to EPA. Further, the scope oftheengagement procedures would be designed not to overlap with proposed independent sampling and testing requirements. The engagements would not verify the tested properties of specificbatches ofgasoline. Rather, the engagements would account for the accuracy ofthe designation ofgasoline (i.e., reformulated or conventional, VOC-controlled ornot VOC-controlled, etc.) and verify that the proposed reporting requirements fordownstream oxygenate blenders are being met. The engagements would also verify that the proposed reporting requirements for the renewable oxygenate program are met.

EPA proposes that each refinerbe required to commission such an engagement at the conclusion ofeach calendar year, and that reports ofthe engagement be filed withEPA by May 30 ofthe following year. Under EPA's proposal, submission ofthe attestor's report would be required and failure to do so would constitute a reporting violation by the refiner.

The proposed attestation engagements

are an outgrowth ofEPA's experience with the lead phasedown program, which included averaging, banking, credits,and periodic reports, and for which EPA-conducted audits were an essential part. Because the reformulated gasoline program is significantly more complex than the lead phasedown
program, EPAbelieves that attest engagements are correspondingly more important than in lead phasedown.

These engagements are notintended

as substitutes for enforcement audits conducted by EPA, but are intended to

serve as a means ofimproving compliance with the reformulated gasoline program by identifying problem areas to the regulated parties.

Such engagements would: Assure parties that the records .onwhich they base periodic reports would be reviewed and cross-checked for accuracy by a disinterested third party, including an appropriate internal attestor (as well as possibly by EPA); lead to correction of simple arithmetic errors; aid in correcting misconceptions about regulatory requirements; and generally determaking falsereports.

In addition to theattestation provisions described above, EPAis today proposing additional regulations applicable torefiners and importers subject to the proposed renewable oxygenate program. Suchrefiners would be required to include compliance with the additional requirements as part of their annual attestation engagement. The purpose ofthese additional proposed requirements is tocorroborate the reports submitted by the regulated party to EPA pertaining to the proposed renewable oxygenate requirements. The
scope ofthese additional requirements would coverthe activities ofthe refiner relative to all transactions involving the

use ofrenewable oxygenates in reformulated gasoline and which are subject to the proposed required reports to EPA. The engagements would
account for the accuracy ofrecords reporting renewable oxygenate use and verify that the proposed requirements for such use are met.

The proposed attestation requirements regarding the renewable oxygenate program would require the
attestor to identify allbatches of renewable oxygenate program reformulated gasoline supplied to each covered area. The attestor would be required toreview arepresentative sample ofrecords pertaining to those batches and verify that those products

were properly transported to their point ofdispensation foruse; identify any changes in ownership or destination; compare laboratory analyses ofthe product before and after transportation for consistency; agree to thetypes and classifications ofoxygenates used; and
trace volumes ofthe product from refinery gate to the point ofdispensation for use. The proposed requirements would culminate with the attestor including the results ofinquiry in the agreed-upon procedures report described above.

As with the reformulated gasoline program, the attestor would continue to be obligated to exercise independent judgment in collecting information not specified in the regulations that would otherwise form abasis forthe agreedupon procedures report.

Because the renewable oxygenate program would be significantly new to the regulated community, EPA invites
comment on all aspects ofthe proposed
attest engagement requirements for this
program.
1.Standards for Attest Engagements

a. ThirdPartyorInternal Attestation Engagements.In the SNPRM, 57 FR 13492, EPA proposed that "each refiner, importer and oxygenate blender commission an attestation engagement 17ofthe information which

12

Whilethe SNPRM discussed thisproposed requirement interms ofan "audit" or "attestation 11750

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forms the basis ofthe reports" required by §§ 80.75 and 80.108. The SNPRM proposed that the engagements be conducted by a certified public
accountant ("CPA")and proposed the standards forconducting the engagement. The SNPRM contemplated that the CPA would be independent of the refiner commissioning the engagement.

The proposed attestation standards pertained to the need for technical competence, independence ofmental attitude from the regulated party's influence, due professional care, adequate planning and supervision, sufficient evidence, and appropriate reporting. The proposed standards contain a detailed description ofthe specific engagement requirements for each of theelements ofthe reformulated and anti-dumping programs which are subject to engagement review, and the records and procedures which must be included in the engagement. The records and engagement procedures which are specified are the minimum
necessary for an engagement, however, and an attestor is expected to use professional judgment to devise engagement procedures to correspond with the facts ofeach individual engagement in light ofthe internal company's accounting, operating and administrative controls. The proposed regulations also provide that in the
event that the specified engagement procedures are not followed for any reason, the deviation and the reason therefore must be included in the attestor's report%

EPA received significant comments objecting to the proposal that regulated parties be required to engage independent CPAs. Commentors expressed concern that torequire a third party CPA would impose undue costs

on regulated parties which already had in-house attestation capability. Further,
commentors desired to avoid such a precedent-setting requirement. Commentors were concerned lest they be subjected to the expense ofengaging third party CPAs to attest to the gamut offederal, state and local regulatory activity engaged in by the commentors.

Commentors asserted that EPA's interest in maintaining the integrity of reports would be adequately served by allowing appropriately qualified internal attestors to conduct the engagements. Commentors stated that because only larger regulated parties would be likely to employ internal attestors, such attestors would be sufficiently segregated from petroleum

engagement" interchangeably, thecorrect term for this procedure is an "attestation engagement." product manufacturing operations so as to avoid biasing influences from the subjects oftheengagement. By contrast, smaller regulated parties in which there may be greater integration ofcompany operations are less likely to employ inhouse attestors and will need to commission independent CPAs to perform audits.

EPA accepts the rationale of allowing qualified internal attestors to conduct attestation engagements. EPA's concerns with the integrity ofthe reformulated gasoline and anti-dumping program are well-served by the propose requirement that an in-house attestorbe

a member in good standing ofthe Institute ofInternal Auditors, Inc., and completes each engagement in accordance with the Codification of Standards for theProfessional Practice ofInternal Auditing, which are proposed to be incorporated into the regulations byreference.

[Note: The Federal RegisterDocument DraftingHandbook requires that each agency must submit awritten request for incorporation by reference for approval from the Director ofthe Federal Register at least 20 days before the final rule document is submitted tothe Federal Register for publication].

In recognition ofthe eventuality that the Codification of Standards may eventually be modified, the regulations propose that partiesmay petition the Agency to implement procedures through future rulemaking which are consistent with those modifications.

Internal engagements are subject to EPA compliance verification review. The sampling andtesting requirements

assure that the data underlying the engagement will be preserved sufficiently to allow EPA to verify any internal engagement. In addition, there

are numerous checks and balances throughout the program (including the potential presumptive liability of downstream purchasers)to assure that internal engagements will be accurate. Finally, internal attestors are subject to civil and criminal liability under federal
statutes proscribing the filing offalse reports.

Accordingly, EPA proposes that the regulations permit the use oftwo types ofattestors:

(1)Internal auditors may be used in certain situations. Many large companies have internal auditors on staffwho may perform theattestation engagements required under these guidelines. Internal auditors may perform these duties provided they are Certified Internal Auditors (CIAs)or members ingood standing ofthe Institute ofInternal Auditors, Inc. (hA). As such, the internal auditors will be required to act in accordance with the HA's Standards for theProfessional Practice ofInternal Auditing,This requirement is intended to guarantee a number ofthings: That the internal auditor is independent ofthe activities being audited under these regulations; that the internal auditor is objective and proficient inhis or herprofession; and that the internal auditor isbound by a code ofprofessional ethics.

(2) When internal attestors meeting the criteria discussed above are not available within the refiner's organization, an independent CPA or firm ofindependent CPAs mustbe used
toperform the attestation engagement proposed with these regulations.

Whether an internal attestor ora CPA is engaged by arefiner, attestation engagements would have tobe conducted in accordance with the applicable professional standards following agreed upon procedures contained inthe proposed regulations. These regulations would cover a different range ofservices than an audit ofhistorical financial statements. Rather, the proposed regulations Involve review ofnon-financial records. EPA has worked closely with the AICPA and industry in establishing procedures which will accurately and efficiently provide the intended compliance information in the most cost-effective

manner.

The proposed regulations would require that an attestation engagement conducted by a certified public
accountant must be done in accordance withthe Statement on Standards for Attestation Engagements (Am. Inst. of Certified Pub. Accountants 1991) [note: The Federal Register Document Drafting Handbook requires that each agency must submit a written request for incorporation byreference for approval from the Director ofthe Federal Register
at least 20 days before the finalrule document is submitted to the Federal Register for publication], or by an internal auditor in accordance with the Standards forthe Professional Practice ofInternal Auditing. The proposed regulations also include specific instructions relating to the subject areas whichmust be included in each attestation engagement, and the minimum records and engagement procedures which are appropriate for each subject area. Nothing in the proposed regulations would preclude a CPA from requesting assistance from a refiner's internal auditors in accordance with the Statement on Standards for Attestation Engagements. In recognition ofthe eventuality that the Statement on Standards may eventually be modified, the regulations propose that parties may 

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petition the Agency to implement procedures which are consistent with those modifications.

b. Definitions.EPA has amended the proposed rule by adding a new proposed section defining terms for the
purpose ofattest engagements. The definitions are intended to clarify the
scope and content ofengagement analysis. These definitions provide the minimum scope ofdocuments tobe analyzed. EPA recognizes that many engagements may need tobe adjusted

on a case-by-case basis depending on the specific nature ofthe regulated facility. EPA anticipates that attestors will exercise theirprofessional judgment in expanding the scope of engagement inquiry to assure the integrity ofthe engagement.

c.AttestationGuidelines.The proposed rule includes a briefsection describing the method of selection of sample size required ofattestors relative
to the population ofinquiry. The sample size is prescribed so as to provide a statistical confidence level of95%in the representative character ofthe sample.

d. Agreed UponProceduresfor Refiners, ImportersandOxygenate Blenders. The new rule includes a specification ofthe minimum data tobe analyzed by an attestor to comply with the attest engagement requirements. EPA recognizes that many engagements may need tobe adjusted on a case-bycase basis depending on the specific

nature ofthe regulated facility. EPA anticipates that attestorswill exercise their professionaljudgment in expanding the scope ofengagement inquiry to assure the Integrity ofthe engagement.

. e.Agreed Upon Procedures Reports.
The proposed rule provides thatthe
attestor will issue to the regulated party

a certified report summarizing the procedures performed and findings in accordance with the Statement on Standards forAttestation Engagements

orthe Standards for the Professional Practice of Internal Auditing. In turn, the proposed ruleprovides that the regulated party shall provide acopy of the attestor's certified report to EPA within a specified time.EPA intends to develop standardized refiner-reporting forms as a means ofenhancing uniformity andconsistency in the attestation engagement and agreed-upon procedures. VIII. Anti-Dumping Compliance and Enforcement Requirements for Conventional Gasoline

A. Introduction

Today's proposal forthe antidumping program represents significant changes from the Supplemental Notice ofProposed Rulemaking published on April 16, 1992 (57 FR 13415)

- (hereinafter "SNPRM 92").This proposal contains a dramatically different solution to the problem of accounting for blendstocks, as well as other minor changes to the SNPRM 92. To aid EPA in its consideration ofthe various options proposed in today's notice, as well as in prior proposals for this rulemaking, EPA invites comments

on today's proposal (hereinafter "SNPRM 93"). The following is abrief
summary ofthose changes with respect to the major provisions ofSNPRM 92 and howthey have remained the same

or been changed in SNPRM 93:

9 Regulated Parties. Under SNPRM 92 regulated parties include refiners, blenders and importers. Under SNPRM 93, the regulated parties remain the same, except for the exclusion ofoxygenate blenders.

* 1990 Baseline. Under the SNPRM 92 refiners and Importers were required to account for all gasoline and gasoline blendstocks in determining their 1990 baseline. Under the SNPRM 93, these parties

are no longer required toaccount for blendstocks in their 1990 baseline except as provided under Methods 2and 3.

* Averaging Period.Under the SNPRM 92 refiners and importers would be required to demonstrate compliance by averaging certain properties ofconventional gasoline over a year long period and demonstrating compliance with prescribed standards to be discussed more fully below. Under the SNPRM 93, the averaging period is the same, except for the year that the Complex Model becomes mandatory in which two separate averaging periods would apply.

9 Compliance Standards. Under the Simple Model standards in the SNPRM 92, refiners and importers would be required to demonstrate on an annual basis that average exhaust benzene emissions ofconventional gasoline do not exceed the refiner's or Importer's 1990 baseline for exhaustbenzene emissions, andthat sulfur, olefins andT90 do not exceed 125% oftheir average 1990 baseline levels. Under the SNPRM 93, the Simple Model standards remain the same; under the optional use ofthe Complex Model (see further discussion below), annual
average levels ofexhaust benzene emissions would not be allowed to exceed the refiner's

or importer's 1990 average exhaust benzene emissions; and under the Mandatory Complex Model standards, annual average levels of exhausttoxic emissions and NOx emissions would not be allowed to exceed therefiner's or importer's 1990 average levels for exhaust toxic emissions and NOx emissions.Under SNPRM 93, recipients of blendstocks undercertain circumstances would have to adjust their compliance baseline based onthe volume ofsuch blendstocks. Under boththe SNPRM 92 and SNPRM 93, refiners with more than one refinery have the option ofdemonstrating compliance for each individual refinery or for all their refineries in the aggregate.

* Blendstocks. Under the SNPRM 92, all gasoline blendstocks would be included in line determination and in subsequent compliance calculations. Under the SNPRM 93,blendstocks are accounted for in compliance calculations ifthe blendstock to gasoline ratio in a certain year exceeds the combined ratio for 1990 through 1994 by

morethan 10% and certain circumstances are metto be discussed more fully below. Forthe
purposes ofestablishing theblendstock to gasolineratio only, the SNPRM 93 provides that refiners and importers will account for nine (9) specifiedblendstocks.

o Other Provisions. The SNPRM 93 includes a new provision which requires that parties account for all blendstocks that are transferred for the purpose ofevading a more stringent baseline.

9 Registration ofRegulated Parties.The SNPRM 93 remains the same asthe SNPRM 92, except that refiners and Importers are required to supply a statement ofintent as to whether compliance willbe achieved on the basis ofindividual or aggregate refineries; and whether theywill beusing the Simple Model or optional Complex Model standards prior to the date that the Complex Model

omes mandatory. * Record Keeping. The SNPRM 93 remains the same as the SNPRM 92, except the provisions have been expanded toreflect the data necessary for determining compliance under the Simple model, Optional Complex Model, Mandatory Complex Model and blendstock accounting requirements as applicable.

o Reports. The SNPRM 93remains the

same asthe SNPRM 92, excipt for the additional requirement for refiners and importers to report theblendstock to gasoline ratio for each averaging period, and for the
years 1990 through 1994 on a one-time basis.

* Company Audits. The SNPRM 93 remains the same asthe SNPRM 92, except for the additional requirement ofattest engagements specific to this new proposal.

Generally, the SNPRM 93 would prohibit a refiner or importer from producing or importing conventional gasoline that on average exceeds the applicable compliance standards for any \averaging period. Compliance standards 'would be based on the properties ofthe refiner's or importer's 1990 gasoline. In
r~sponse to the numerous comments received on the issue ofblendstocks as provided in SNPRM 92, EPA has eliminated the requirement for refiners and importers to account for blendstocks in their compliance calculations except in those cases where

a refiner or importer has significantly increased its production or importation ofblendstocks as evidenced by an increased blendstock togasoline ratio. Thisis discussed more fully in a later 11752

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### / Friday, February 26, 1993 / Proposed Rules

section ofthe preamble. Refiners with

more than one refinery would retain the option ofdemonstrating compliance for each individual refinery or forall their refineries in the aggregate. Here, as in the regulations, EPA willrefer to refiners and importers with respect to the anti-dumping requirements; however, the requirements will apply similarly toindividual refineries in those cases where arefiner has opted to determine compliance based on each refinery separately or arefinery with limited gasoline distribution based on certain geographic considerations as provided for in the regulations.

The SNPRM 93 has three separate standards ofcompliance forrefiners and importers based on the Simple Model standards, Optional Complex Model standards or the Mandatory Complex Model standards. All three model standards would require refiners and importers to average certain properties ofconventional gasoline and demonstrate compliance with prescribed standards which in some

cases are actual fuel properties and for others are emissions characteristics calculated from specific fuel properties.18

underthe Simple Model standards, refiners and importers wouldbe required to demonstrate on an annual basis, that average exhaust benzene emissions ofconventional gasoline do
not exceed the refiner's orimporter's 1990 compliance baseline forexhaust benzene emissions, and that average sulfur, olefins and T90 do not exceed 125% oftheir average 1990baseline levels. Under the Optional Complex Model standards, annual average levels of exhaust benzene emissions, as calculated under the Complex Model, would notbe allowed to exceed the refiner's or importer's 1990 average exhaust benzene emissions. Under the Mandatory ComplexModel standards, annual average levelsofexhaust toxic emissions andNOx emissions would
not be allowed to exceed the refiner's or importer's 1990 average levels for exhaust toxic emissions and NOx emissions,respectively. These standards implement the applicable requirements regarding the use efthe Simple and ComplexModels asagreed to during the negotiated rulemaking forcompliance under the anti-dumping provisions.

EPA is proposing that the year long averaging period beretained since it would providemaximum flexibility for refiners and importers in meeting the

" 8 Fora dis, of'issues concerning which. properties orpolluumtas a covered in the federal anti-dumping program. see the Notice ofProposed Rulemaking, published July 9. 1991, (56 FR 31219.- 31222). anti-dumping requirements. EPAis also proposing this timeperiod because NOx and toxics are-not a short term spiking problem that would require a short control period. Although NOx emissions contribute to ozone, which is a seasonal problem, the anti-dumping requirements do not apply inthe major

ozone nonattainment ares. In addition, Phase IIRVP standards provide substantial ozone reductions where required, thusmitigating any potential seasonal problem associated with a year long averaging period. Therefore, there is no significant benefit that would offset the additional compliance and reporting requirements associated with

a shorter compliance period.

The proposal provides that beginning in 1995 and continuing upthrough the date that the Complex Model becomes mandatory, refiners andimporters could determine compliance based on either the Simple Model anti-dumping standards or the Optional Complex Model anti-dumping standards, attheir option. However, arefiner that produces and certifies reformulated gasoline under the Simple Model would have to comply with the Simple Model antidumping standards, and a refiner that certifies reformulated gasoline under the complex model would have to comply with the Optional Complex Model standards. Forthe period beginning with the date the Complex Model standards becomes mandatory through December 31 ofthatyear, and for each subsequent averaging period, compliance willbe based on the Mandatory Complex Model,Standards. This will, therefore, create two shorter averaging periods during the year that the Complex Modal becomes mandatory with different compliance standards, which will consequently reduce the flexibility ofrefiners and importers for meeting the applicable requirements for those periods. Although the proposal presently provides fortwo separate compliance periods, there are two options that exist for determining compliance during the calendar yearin which there is a transition to the Complex Model. The options are as follows:

1.Two separate averaging periods with different compliance standards, (i.e. determine compliance for the period before thecomplex model becomes mandatory underthe simple model oroptional complex model; and determine compliance for the period after that date underthe finalcomplex model).

2. Average that portion ofthe year before the complex modelbecomes mandatory with the priorfull year. and average that portion of the year afterthe complex model becomes mandatory with the subsequent full year (i.e. include early 1997 with 1996 and includelater 1997 with 1998),

EPA is concerned about the serious

nature ofair toxics and, therefore,
proposes regulation ofthis problem over

a period no longer than a year. EPA is

aware thatthis option reduces the flexibility ofregulated parties, but believes there is sufficient lead time to achieve compliance within these time periods. We request comments on other options aswell.

The SNPRM 93 provides that the antidumping enforcement program,would consist ofa combination ofthe following enforcement mechanisms to monitor compliance with the regulations, including: (1) Reistration ofregulated parties, (2) record keeping, (3) reporting, (4)company commissioned audits, and (5) Agency audits. This program remains unchanged from the SNPRM 92 except for the changes mentioned above. The Agency believes thatall the mechanisms proposed are necessary because they enable the Agency to collect and review data from regulated parties to ensure compliance with the anti-dumping requirements. Thisbelief isbased, in large part, on the Agency's experience in enforcing the lead phasedown
program. In that program, compliance improved dramatically when the Agency shifted from an enforcement
program based merely on the review of periodic reports to one that included compliance audits,The reports submitted under lead phasedown provided the agency the data necessary to monitor refiner and importer compliance and often provided clues to potential problems. The records retained by regulated parties provided the means for agency auditors to look behind the reports submitted and ultimately identify violations.EPA audits under lead phasedown also identified more honest mistakes or oversights by regulated parties, which would likely be uncovered through
company commissioned audits. Therefore, the agency believes all theabove mechanisms serve a useful
purpose in assuring compliance with these requirements.

B.RegulatedParties

Thebasic anti-dumping requirement that gasoline and gasoline blendstocks

must meet standards for exhaust benzene emissions, sulfur,.T90, olefins, exhaust toxic:emissions and/or NOx emissions, as applicable, would apply to refiners and importers. The terms 11753

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"refiner" 19 and "importer" 20 have been defined and applied in earlier environmentaregulatory programs involving gasoline21

. EPA proposes that these definitions continue to apply for purposes ofthe anti-dumping requirements.

The new anti-dumping requirement regarding the volume ratio of blendstocks produced orimported and transferred to others, would also apply
to any producers or importers of blendstocks. In addition, any partythat adds gasoline blendstock togasoline22

or whocombines gasoline blendstocks
to produce gasoline (i.e., a "blender")is already encompassed in the definition ofa refiner, because it is producing gasoline. EPA's proposal would not reach a person who is not a refiner (i.e.

aperson who does not own, lease, operate, control or supervise any facility thatproduces gasoline) orimporters of products not.produced ata gasoline refinery, such as a natural gas liquid plant. Similarly, chemical products produced ata refinery or imported but
not sold forgasoline blending purposes, would notbe subject to these requirements.

The SNPRM 93 proposes exclusion of parties that operate only as oxygenate blenders. The SNPRM 92 also proposed that oxygenate blenders not be required
to comply with the antidumping requirements. Inthe case ofdownstream oxygenate blending, bothproposals require that producers or importers of. the base gasoline account for the applicable properties under the antidumpingprogram. The addition of oxygenates will only improve the final blended properties ofgasoline under the Simple Model. Although the addition of certain oxygenates will increase exhaust NOx emissionsunder the Complex Model, these emissions will be offset by reductions in VOC, toxics and CO on a
mass basis.EPA believes that the net emissionsimpact is not ofsufficient magnitude to justify the significant disruption and complexity that would be required for oxygenate blenders to comply with these anti-dumping

19"Reflner" is defined as any person whoowns, leases, operates, controlsor supervises arefinery," 40 CFR 80.2(1), and "refinery" is definedas "a plant
at which gasolineis produced," 40 CFR 80.2(h).

2oimporter" is defined as "a person who imports gasoline orgasoline blending stocks or components from aforeign country into the United States

* , " 40 CFR 80.2(r). 1current regulatory programs that involve gasoline include the lead phasedown program. 40 CFR 80.20, and the gasolinevolatility program, 40
CFR 80.27-28.

22"Gasoline" is defined as "any fuel sold inany state foruse in motorvehicles and motor vehicle engines,and commonly orcommercially knownor sold asgasoline" (footnote omitted). 40 CFR 80.2(c). requirements.23Therefore, under today's proposal such parties would not be subject to the requirements ofthis subpart.

C.Accounting forGasolineBlendstocks
The preamble to the SNPRM 92 discussed atgreat length the anticipated problem ofblendstocks being "dumped" inconventional gasoline as a result ofthe stringent requirements placed on reformulated gasoline (57FR 13484). The preamble setforth the economic incentives created by the differences inbaselines between different refiners including those for whom the default baseline applies, and
gave an example ofhow the goal of preventing "dumping" could be frustrated. These differences in baseline provide amechanism fora refiner or importer to circumvent the requirements by shipping blendstocks to be used in the production of conventional gasoline to a party that

was not in operation in 1990 and for whom the less stringent 1990 Clean Air Act default baseline would apply.

During the negotiated rulemaking
process it was recognized that certain segments ofindustry, such as downstream blenders ornew refiners, could gain significant competitive advantage from the less stringent default baseline,however, there was no clear proposal to address thisproblem. Refiners will likely remover such components as benzene, aromatics, etc. from typical 1990 gasoline in order to meetthe reformulated gasoline requirements. This will result in the extensive availability ofsuch components in the marketplace which will then have a high potential ofbeing "dumped" into conventional gasoline. If the cost ofthese components is less than the cost ofgasoline, as it islikely to be, they will almost assuredly be used to produce conventional gasoline ifthere is nomechanism toprevent It.EPA's prior experience with both the lead phasedown and fuel switchingprograms indicates that a few cents wholesale price differential provides sufficient incentive to violate and would certainly encourage dumping without appropriate controls. Several parties have brought thisto EPA's attention. In light ofthe above, EPA believesthat appropriate controls are necessary. Today's proposal is an attempt to develop a program that effectively addresses this problem without imposing unnecessary costs and burdens on the regulated community.

2The preamble to the NPRM discussed how NOx increasesfrom oxygenates are more than offset by decreasesin VOC. toxics,and CO. See 56 FR

31220-31222. As contrasted tothe SNPRM 92, the SNPRM 93 would notrequire that refiners or importers account for all gasoline blendstocks that areproduced

or imported, andwould alsoremove the prohibition and defenses associated with transporting, storing or containing the chemical marker required forcertain blendstocks underthe earlierproposal. After further review ofthis issue, EPA believes that accounting forall blendstocks for antidumping compliance and requiring the addition ofa chemical marker formonitoring blendstocks use may be more burdensome and disruptive than
necessary, without a clear indication of the need for such regulatory requirements at thistime. Therefore, EPAbelieves that itmaybe more appropriate toidentify a mechanism to monitorthe transfer, sale and production ofblendstocks as an indicator ofpossible dumping of blendstocks and to trigger further controls as necessary. EPA also believes that it is appropriate to propose a regulatory program now, rather than waiting untilafter aproblem with the dumping ofblendstocks is discovered. EPA also believes that itismore appropriate to limit the controls to circumstances where it is likely to be an environmental problem.

The SNPRM 93 isintended to identify potential "dumping" by a refiner or importer, andto provide a mechanism
to mitigate any adverse environmental effect in such a case. Under EPA's proposal,refiners and importers would be required to determine foreach averaging period: (1)The total volume ofcertain specified blendstocks, as defined by the proposal, produced or imported and transferred to others; (2) the total volume ofconventional gasoline produced orimported; and (3) the ratio ofthese blendstocks to gasoline (ratio). Ifthisblendstock to gasoline ratio forany averaging period exceeds the blendstock to gasoline ratio forthe overall average ofcalendar years 1990 to 1994 by more than 10%, the refiner or importer would be required to exercise

one oftwo options. The refiner or importer would be required to either: (1) Inform any blendstock recipient that they arerequired to adjust their compliancebaseline in the subsequent averaging period based on the refiner's

orimporter's compliance baseline for the volume ofblendstock received, or (2) account for the properties ofany blendstock in its own compliance calculations forthe averaging period in which the blendstocks were transferred. The recipient ofblendstocks under this provision may not have notice until late 11754

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in the averaging period thatthe supplier has exceeded the 10%trigger, and, therefore, it wouldbeunreasonable to require the recipient to make adjustments until the subsequent averaging period.On the otherhand, the supplier should be monitoring its own blendstock transfers continuously and shouldbe able to makethe necessary adjustments to achieve compliance during the same averaging period. Additional reporting and transfbr documentation requirements associated with each option are discussed more fullybelow*Blendstocks transferred between refineries with acommon baseline would be exempt from accounting under this requirement.

inorder to further limit the application ofthese additional controls
to only those circumstances where it is likely to be an environmental problem, the regulations exempt those refiners and importers from further controls regardingapplicable blendstocks where: (1)Theirblendatock production or importation is less than 3% of conventional gasoline produced or imported during the averaging period,

or (2) their 1990 baseline isless stringent than the default-baseline for all regulated fuel properties. EPA believes that the burden should be eased on low volume producers ofblendstock where theirblendstock production is not likely
to adversely impact air quality. EPA believes that 3% ofproduction is insignificant for any refiner or importer and, therefore, itwould beunnecessary to even monitor changes in the blendstock to gasoline ratio at this low level. EPA seeks comments on the appropriateness of 3% asthe trigger for this exemption. Inaddition, where a refiner's 1990 baseline is less stringent than the default baseline, there is no economic incentive to "dump" blendstocks. Therefore, EPA believes it would notbe necessary tomonitor blendstocks in that situation either.

UnderEPA's proposal, a comparison is made between the ratio foreach averaging period and the aggregate four yearratio.EPA believes thatthe aggregate blendstock to gasoline ratio for calendar years 1990 through 1994 would more comprehensively ciaracterize the general use of blendstocks by a particular refiner or importer prior to the implementation of the reformulated gasoline requirements The alternative of looking at the blendstock to gasoline ratio for any individual,calendar year or, I. particular, a peak ratioyear, may not take into account legitimate fluctuations in the market.EPA is concerned that the.

use of asingle peak yearbaseline would provide refiners and Importers the opportunity to increase blendstocks in 1993 or 1994so asto inflate the "baseline" ratio. Nevertheless, EPA invites comments on whether it is more appropriate to use an aggregate 1990 through 1994 ratio orthe ratio for a single year forthis purpose,

Under EPA's proposal, a 10%increase in the blendstock to gasoline ratio would trigger the additional blendtock compliance requirements. EPA is currently analyzing a substantial
amount ofhistorical data regarding blendstock production, salesand transfers to determine whether this threshold isappropriate and will make thisinformation available forreview when complete. EPA may adjust the blendstock to gasoline ratio figure accordingly, based on the analysis results. EPA believes that untilthat process is completed.,it is appropriate to take arelatively conservative approach, in orderto identify refiners orimporters that attempt to circumvent the antidumping requirements. At present, EPA believes that the 10% figure is a sufficient threshold to allow for expected or normal fluctuations in blendstock production from year to year dueto implementation ofthe reformulated gasoline requirements. EPA also believes this amount is small enough to reasonably identify any refiner or importer that may be "dumping" dirtygasoline blendstocks. However, we are requesting the submittal ofappropriate data in this

area and comments on other figures that might bemore appropriate for this requirement.

naddition, EPA is proposing inclusion under this, provision ofonly those refinery products that may have

an adverse effect on the regulated parameters under the anti-dumping
program. This should minimize the burden on industry by limiting this provision to monitoring thoseproducts where there is.an adequate environmental justification. This represents a significant reduction from the extensive list ofblendstocks provided in the SNPRM 92. However, forpurposes ofdetermining 1990 baselines under Methods 2 and 3, it is

more appropriate to include a complete list ofallrefinery products used as gasoline blendstocks in orderto properly characterize 1990 gasoline in accordance with theintent oftheantidumping program..

EA recognizes thatblendstocks may betransferred to differentr parties in the distribution system, including:brokers, and that there needs to be affirmative obligation to ensure proper notification, ofthe applicable requirements-to parties downstream. We have.therefore, required refiners or importers whose ratioexceeds the 10% threshold, and who follow the first option, to notify recipient parties by written notice, either stated on thetransfer documents

orby separate communication, thatthe blendstock recipient must adjust its compliance baseline forthis blendtock. In addition, the refiner or importer must provide the necessary baseline data for making the adjustment. Alternatively, if the refiner or importer follows the second option, it is required toprovide written notice that such blendstocks have already been accounted for in its compliance baseline and are tobe excluded from the compliance calculations of any subsequent recipient. Thus, the appropriate transfer documents must convey with each transfer ofblendstocks subject to these requirements. In the case offungibly mixedproducts, EPA willleave it up to the parties involved to ensure that the proper notification takes place rather than prescribing detailed product accounting and notification procedures.

As stated in the SNPRM 92, the inclusion ofoxygenate volume forantidumping compliance calculations by refiners and importers would be optional, except as required in the calculation ofother exhaust emission products under the applicable model. Any refiner orimporter that elects to include oxygenate volume in its compliance calculations, however, would be requfired to include oxygenates in its 1990 baseline determination aswell.

Under EPA's proposal, gasoline and other petroleum products wouldbe included in the anti-dumping compliance calculations only once, in orderto avoid double counting of products. Thus, a refiner or importer would notinclude in its compliance calculations gasoline it did not produce

orimport or gasoline blendstocks accounted for by others. A refiner that

usesblendstock accounted-for by another, would have to "back out" the

foperties and volume ofsuch lendstock from the volunre and properties ofthe final product.

EPA believes the SNPRM 93'will address the environmental implications ofincreasedblendstock production by requiring additional controls for specified refinery products only when it
appears that a significantdeviation from, past practices has occurred, as evidenced by a 10% increase in blendstck to gasoline ratio. In addition, under the SNPRM 93we are including only those blendstocks that have an adverse environmental effect onthe* regulated parameters. The Agency seeks
comments on:all aspects ofthe above' 11755

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scheme toprevent dumping and mitigate its effect as itrelates to the requirements and intent ofthe antidumping program.

EPA has included an additional requirement to address situations where it is clear that a refiner or importer Is transferring dirty blendstocks to a party with a less stringentbaseline in orderto evade the anti-dumping requirements. Under proposed §80.102(i), arefiner or importer would be required to include in their determination ofcompliance
any applicable blendstocks that were transferred in whole or in part to evade

a baseline requirement.

The 3%and 10%blendstock to gasoline ratio thresholds discussed earlier are intended to address the majority ofpotential anti-dumping problems. However, EPA believes that

some refiners and importers may engage inblendstock transfers contrary to the intent ofthe anti-dumping regulations. As a deterrent to this practice, EPA will monitor such blendstock transfers to determine ifthey are occurring with this motivation. In making this determination regarding the transfer of blendstocks between parties,EPA will look at such factors as:The magnitude of differences in baselines; the nature of any prior business relationship; the extent offinancial incentives for transferring blendstocks; the refiner's process for the production of reformulated gasoline, I.e. which blendstocks are removed to meet the reformulated gasoline requirements; the historical corporate relationship, Ifany, that existed between the parties; and whether thistransfer represents a departure from any prior business practices. EPA will also look to see if other means were available to the blendstock producer to achieve compliance with the anti-dumping requirements without such transactions. EPA would consider enforcement under thisprovision when there is compelling evidence that a regulated party is dumping "dirty" blendstocks withoutaccounting forthe blendstocks in its

own compliance determination.

D.ComplianceCalculations
1.Compliance Baseline Calculation

The compliance baseline calculation

as discussed in the SNPRM 92 is based

on the 1990 "equivalent" conventional gasoline volume (57 FR 13488). The SNPRM 93 would change the compliance baseline to reflect the receipt ofblendstock from a refiner or importer that has exceeded the specified 10%blendstock to gasoline ratio, as discussed previously.The refiner or importer would be required toprovide the recipient with the appropriate baseline values for making the adjustment. The blendstock recipient that must adjust its compliance baseline is required to make the adjustment in the subsequent averaging period because the producing refiner would not have notice that itactivated the 10% trigger until the present averaging period was over. The producing refiner,

on the other hand, has control over its gasoline and blendstock production during the year and, with proper planning, shouldbe able to achieve compliance with such blendstocks included during the current averaging period.

2. Compliance Determination

The SNPRM 93 would expand the SNPRM 92to include exhaust benzene emissions under the Optional Complex Model and exhaust toxics emissions and NOx emissions under the Mandatory Complex Model. In addition, refiners that produce reformulated gasoline during 1995, 1996 and early 1997 would have touse the same compliance model fortheir conventional gasoline during those averaging periods. Compliance levels would be determined on average for that averaging period and compared against the applicable 1990baseline for thoseparameters ascalculated in a similar manner. Individual refinery compliance, composite sampling and compliance based on combining the properties ofindividual blendstock batches would be unchanged from the SNPRM 92.

E.Registration

The SNPRM 93 expands the registration proposal in the SNPRM 92 (57FR 13488) torequire refiners and importers to submit a statement of intent asto whether compliance willbe achieved on the basis ofindividual or aggregate refineries, and whether compliance will bebased on the Simple

or Optional Complex Model for 1995, 1996, and the period prior to the date the Complex Modelbecomes mandatory.

F.

RecordKeeping
The SNPRM 93 expands the record keeping proposal in the SNPRM 92 (57 FR 13488) to include the results oftests performed to determine compliance under the newly proposed Optional Complex Model and Mandatory Complex Model standards. EPA's proposal would require refiners and importers toretain documents pertaining to any adjustment of compliance baseline required and documents which demonstrate the transfer ofblendstocks. G. Reporting
All refiners or importers of conventional gasoline would be required to submit to EPA a report within thirty (30) days following the conclusion ofeach averaging period which contains the following information: Total gallons of conventional gasoline produced or imported during the averaging period; average exhaustbenzene emissions, sulfur, olefins and T0 ifusing the ComplexModel, exhaust benzene emissions ifusing the Optional ComplexModel, or exhaust toxics and NOx emissions ifusingthe Mandatory Complex Model, and the calculations used to derive such averages forthe total volume ofconventional gasoline produced orimported during the averaging period; the total gallons of blendstocks produced or imported and transferred to others foruse in gasoline blending. These requirements would apply for refiners that produce conventional gasoline through the combining ofblendstocks as well.The above reporting requirements would not apply in the case of any conventional gasoline or gasoline blendstock that is excluded from arefiner's or importer's compliance calculation.

In addition, EPA is proposing a onetime reporting requirement in order to establish the "baseline" blendstock to gasoline ratio. Anyrefiner orimporter of conventional gasoline would be required to submit to EPA, by January 31, 1995, a report containing the total volume ofgasoline produced and imported for each calendar year 1990 through 1994 forwhich such data are available, the total volume ofgasoline blendstocks produced and Imported, and transferred to others foreach calendar year 1990 to 1994 for which such data are available, andthe ratio of total blendstock volumes to total gasoline volumes. Refiners and importers would be required to follow the same protocols fordetermining the availability ofdata that arebeing proposed for establishing 1990

aselines.

H.AdditionalProcedures forRefiners andImportersofConventionalGasoline andBlendstock

The Notice ofProposed Rulemaking included attest engagement procedures for the production ofreformulated and conventional gasoline. This supplemental notice includes additional procedures as a result ofthe changes made in the scheme for accounting for gasoline blendstockr. These procedures would require the review ofa refiner's

or importer's records for compliance 11756

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withthe requirements ofthis subpart, to include review of. (1)The relevant documents to deterr~le the blendstock
to gasoline ratio; (2) any adjustment to compliance baseline calculations; (3) application oftheadjusted baseline; and (4) the refiner's orimporter's quality

assurance program for determining the applicable values ofregulated fuel properties. Thisreview would follow the same general criteria for sample selection andtesting as outlined under the reformulated gasoline requirements. EPA is proposing attest engagement procedures forthe samereasons set forth in the preamble to the reformulated gasoline requirements.

IX. Anti-Dumping Requirements for Conventional Gasoline

A. Introduction

Section 211(k)(8) ofthe Act requires that average per gallon emissions of specified pollutants from nonreformulated, orconventional, gasoline

use must notdeteriorate relative to emissions from 1990 gasoline, on a refiner or importer basis. Compliance is measured by comparing emissions ofa refiner's or importer's conventional gasoline against a baseline gasoline. An individual baseline is developed for each refiner or importer based onthe quality oftheir 1990 gasoline, although under certain circumstances the individual baseline is set at the statutory baseline. To implement this requirement, EPA has proposed requirements known asthe antidumping provisions for conventional gasoline producers and importers. Today's proposal describes additional anti-dumping provisions aswell as modifications topreviously proposed provisions applicable to conventional gasoline. These are detailed in the accompanying proposed regulations, and comments arerequested on any or all oftoday's proposal. Further background information can be found in EPA's prior proposals.

B. Proposed Requirements for IndividualBaselines
1.Baseline Determination

In the SNPRM, EPA proposed a requirement for "sufficient" sampling of finished gasoline orblendstock streams,

as appropriate by the methods proposed in the SNPRM. Atthis time, EPA believes that a minimum data requirement must be specifiedto ensure that enough samples are taken from which to develop a representative baseline and to minimize the picking and choosing ofdata. For a Method I determination, EPA is proposing to require that at least halfofthe shipments in a calendar month shall have been tested fora particular parameter. For Methods 2 and 3, EPA is proposingto require atleast weekly sampling ofcontinuous blendstock
streams and, ifblendstocks are produced on a batchbasis, sampling of
at least halfofthebatches ofeach blendstock produced ina month. EPA realizes that this proposal differs significantly from the SNPRM, but believes that such a requirement maybe necessary to insure a sufficiently
accurate baseline. Comments are requested asto the necessity ofsuch a requirement, and onthe minimum sampling requirements discussed above foreach Method.

Inthe SNPRM, EPA proposed that at leastthree months ofsummer and three months ofwinter data mustbe available forthe determination ofaparameter value by aparticular method. Insufficient data would require use of the nextmethod down (e.g., Method 2 instead ofMethod 1)or collection of additional data which would necessitate

aMethod 3 determination. If,following promulgation ofthe final rule, additional data needs to be collected because the minimum data requirements specified for using Method 1, 2 or 3 fordetermining a fuel component baseline value (perthe proposed regulations) have notbeen met, EPA proposes that data shall be collected through the end ofthe third month ofthe first three full months during which summer gasoline is produced by the refiner following promulgation ofthe final rule. The requirement to collect at leastthree months ofdata on a refiner's winter gasoline and at least three months of data on a refiner's summergasoline would still have to be met.

In the case ofa Method 1 determination, where actual 1990 gasoline shipment data is used, inconsistent sampling may have occurred causing a lackofdata on one grade and abundant data on another. For example, ifarefinery produced a special grade ofgasoline, it may have tested each shipment ofthat gasoline for several fuel properties. In comparison, it
may have only tested every other shipment ofits typical gasoline forthese

same properties. Combination ofall of the available data fora parameter would result in abaseline value which was, skewed to the specially-produced gasoline. To minimize such skewing, andto thusget a more representative baseline, EPA proposes that average fuel parameter values be determined first for each grade ofgasoline produced, and the resulting values weighted by the fraction ofeach grade sold in the period over which the value is determined. EPA proposes that "grade" mean each individual octane number ofgasoline produced in the refinery (rounded to the
nearest whole number). Comments are requested on thisproposal, specifically

onthe ability ofthe proposal to minimize skewing ofdata, and as to whether each octane number ofgasoline produced should be considered a separate grade. Comments on other "definitions" ofgrade foruse under this proposal are requested.

EPA also requests comments on allowing a refinery's own production volumes ofsummer and winter gasoline (based onRVP) to be used in the weighting ofdata on a summer and winter basis. EPA had proposed that a national average summer/winter percentage split of46.8/53.2 be used, whichwas based on gasoline consumption during the summer and winterperiods. Because fuel production

can lead fuel consumption by upto 2 months, EPAbelieves that use of refinery-specific production volumes andtime periods in the baseline determination will result in more representative baselines. Comments are requested onthis proposal and as to how transitions infuel production between seasons will affect this proposal and individual baseline determination.

Testing ofa refinery stream for one or

more ofthe fuelproperties for which a baseline value must be determined would be an unnecessary expense ifa refiner can show that the refinery stream contains negligible amounts ofone or

more ofcertain fuel properties for which

a baseline value must be determined. The properties that EPA proposes would
not haveto be determined under these circumstances are benzene, aromatics, olefins, saturates and sulfur. EPA proposes that the first four listed parameters would be deemed to exist in negligible amounts ifthey exist at less than 1.0 volume percent in arefinery stream. Sulfur would be deemed to exist in a negligible amount ifit exists at less than 10 ppm in a refinery stream. Any properties shown to existin a refinery
stream in negligible amounts shallbe assigned avalue of0.0. For example, EPAbelieves it would be generally easy fora refiner to showthat MTBE and alkylate streams have negligible aromatic, sulfur and benzene contents. Comments are requested on this proposal, particularly on the levels of each parameter which would be considered negligible. Comments are also requested as to whether EPA should require criteria, and what those criteria should be, to show that negligible quantities ofa parameter 11757

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exist. Forexample, one way to prove that one ormore fuel parameters exist in negligible quantities may be to show that a stream consists ofa single chemical compound (i.e.,the criteria would be that the stream Is99 percent by volume pure component). Or, it may be possible to demonstrate using -chemical reaction theory orgeneral refinering practice supported by industry survey results that an alkylate stream, for example, which is a very complex mixture, still has aromatic and benzene contents ofless than I volume percent without measuring the benzene content of the stream.

EPA previously proposed that post1990 finished gasoline could beused in

a Method 3 determination ifthe volumetric fraction of each blendstock in post-1990 finished gasoline was within five (5)percent ofthe volumetric fraction ofthe same blendstock in 1990 finished gasoline. However, based on comments that typical year-to-year fluctuations would cause the blendstock volumetric fractions to exceed the proposed 5 percent requirement, EPA
proposes to allow post-1990 finished gasoline data to be used if each ofthe post-1990 blendstock fractions is within
10 percent ofthe respective 1990 blendstock volumetric fraction. Comments are requested as to whether the 10 percent criteria is appropriate.

In a slight change from the SNPRM, EPA proposes that the Director ofthe Office ofMobile Sources approve baselines and grant petitions under circumstances where petitions are allowed.

Establishmentof Baselinesby Foreign Refineries

EPA hasreceived comments pertaining to the establishment of1990 baselines by foreign refiners. The 1990 baseline is relevant in the early years of the reformulated gasoline program for purposes ofcertifying reformulated gasoline under the Simple Model, 4 and it is relevant from 1995 onward for purposes ofmeasuring compliance with the anti-dumping provisions ofthis program.

In the SNPRM (April 1992), EPA proposed that domestic refiners establish their individual baseline using

one ofthree proposed methods to calculate their 1990 average fuel parameters. Method I would be used if sufficient data was available; ifnot, then Method 2; orMethod 3, ifinsufficient data was available forMethod 2. EPA proposed that importers of foreign

The proposed Simple Model would apply from January 1,1995 until the Complex Modelbecomes mandatory during 1997. gasoline establish their baselines using the first proposed method, and that importers "default" to the statutory baseline if sufficient data was not available for that method.

EPA did notpropose any methodology for foreign refinersto establish individual baselines. Rather, the quality ofgasoline imported from foreign refiners was tobe controlled by regulation ofdomestic importers. However, EPA proposed an exception to this scheme forrefiners that were also domestic importers and that imported 75% ofthe gasoline produced at the refinery. EPA proposed that these importers be permitted to use the three methodologies for establishing an individual baseline.

The proposed approach regarding the establishment ofindividual baselines by foreign refineries arose from three principle concerns by EPA: 1.EPA was concerned that foreign refiners that imported less than a significant portion oftheir total production into the United States would beunable to produce verifiable data adequate tojustifyuse ofthe three proposed methodologies. EPA did not believe that foreign refiners had records ofthe relevant fuel parameters necessary to accurately establish a 1990 baseline for that fraction oftheir total 1990 gasoline production exported to the United States.

2. EPA was concerned with itsability to conduct verification and compliance audits on foreign soil to verify the calculation ofindividual baselines for foreign refiners. Domestic refiners and importers are subject to regulation by the Agency, whereas regulation of foreign refiners raises significant questions on legal authority and regulatory jurisdiction. EPA's concern also extended to the effect product fungibility and mixing during shipment would have on the Agency's ability to correlate imported product with individual foreign refinery baselines.

3.EPA was concerned that permitting foreign refiners to establish individual baselines would lead to "gaming" ofthe system. Specifically, EPA was concerned that foreign refiners that had exported gasoline to the U.S. in 1990 that was cleaner than thestatutory baseline would have economic incentives to default to the less stringent statutory standard. As a result, foreign refiners could use EPA'slimited ability
to auditor-verify a foreign refiner's records and intentionally default to the I;X stringent baseline. Such "gaming" might have the effect ofskewing the anticipated average quality ofgasoline characteristics within the United States, especially in areas where imported gasoline is a significant percentage of the total gasoline consumption.

Petroleos de Venezuela S.A. (PDVSA) claims that EPA's first concern would be satisfied ifa foreign refiner's data was sufficiently detailed such thatthe qualities ofthe 1990 gasoline exported
to the United States could be determined, ascompared to the qualities ofthe refiner's overall 1990 gasoline production. In such a situation, PDVSA claims that a foreign refiner should not be precluded from using the three methods to establish individual baselines for its refineries.

With respect to EPA's second
concern, PDVSA claims that foreign refiners and theirgovernments would be amenable to EPA conducting verification and compliance audits.This could be arranged through diplomatic instruments ifnecessary. With respect to EPA's concerns on reliably tracking the origin ofgasoline to specific refiners and refineries, PDVSA believes that EPA could continue, ifnecessary, toregulate importers offoreign gasoline.A refiner's

or refinery's individual baseline would follow its gasoline aslong as its gasoline could be fairly tracked atthe point of importation. For example, a foreign refiner could segregate itsproduct from others, or the point oforigin could be clearly traceable from the documentation accompanying the gasoline. Ifthe point oforigin could be clearly identified, then the importer would use the foreign refiner's baseline for that product's baseline. Ifthe point oforigin could notbe clearly identified, then the importer would usethe statutory baseline forthat gasoline. In effect, the burden ofclearly identifying the point oforigin would be on the importer, and through them on the foreign refiner.

Finally, withrespect to the gaming

concern, PDVSA believes there is no significant economic incentive for such gaming as it would be economic incentive for such gaming asit would
notbe economic for a refiner to intentionally degrade the quality ofthe gasoline it exports to the United States
to the statutory baseline. In addition, PDVSA claims there is norealistic chance ofan adverse air quality impact from this gaming potential. PDVSA also claimed that failing to allow foreign refiners to establish individual baselines could distort the export market in a way that potentially could disrupt the supply ofgasoline in certain areas ofthe country.

EPA invites comment on all ofthe above issues, including EPA's concerns and the suggestions ofPDVSA. EPA also invites comments on alternatives to the approaches proposed today, including 11758

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allowing foreign refiners to establish individual baselines under reasonably limited circumstances based on the

concerns noted above, foruse in the reformulated gasoline program under the SimpleModel and/or for use inthe anti-dumping program.

2. Baseline Adjustment forWork-inProgress

In the SNPRM, EPA proposed that a work-in-progress (WIP) adjustment to a refiner's baseline would be allowed if certain criteria were met. One ofthe criteria presented in the SNPRM addressed the situation where a refiner's exhaust benzene emission value differed significantly when calculated with and without the WIP adjustment. EPA believes that the WIP adjustment should also apply to the fuel components which are capped when the simple model is used, and, perthe regulatory negotiation's Agreement-in-Principle, to exhaust toxics and NOx emissions in the years when the complex model is required. EPA proposes that this adjustment apply when one ormore of the following situations occur: (1)At least a 25.0 percent difference exists between sulfur,olefin and/or T90 values calculated with and without the WIP adjustment; (2) at least a 5.0 percent difference exists between the refiner's baseline exhaust benzene emissions calculated with and without the WIP adjustment; (3) at least a 5.0 percent difference exists between the refiner's baseline exhaust toxics emissions calculated with and without the WIP adjustment; (4) at least a 5.0 percent difference exists between the refiner's baseline NOx emissions calculated with and without the WIP adjustment. Comments are requested on the extension ofthe WIP adjustment to sulfur, T90 and olefins. Comments are also requested as to whether the proposed 25.0 percent difference requirement is an appropriate value.

Another ofthe criteria proposed in the SNPRM required that a refiner show that failure to allow a WIP adjustment would result in a substantial portion of the capital associated with the WIP to be
at risk. "Substantial" was proposed to be capital involved with the WIP which exceeded 10 percent ofthe refinery's depreciated plant and equipment value. Comments were received which stated that it is possible that this requirement could bebiased against recently built or recently upgraded refineries because the depreciated value would be higher for these facilities than for older refineries ofthe same size. The commenter also claimed that newer facilities tend to be benefit the environment more than similar, older facilities, and thus could be unfairly penalized, compared to older facilities, by the proposal. Based

on these comments. EPA proposes an alternative criteria which could be met in lieu ofthe "10 percent" criteria. EPA proposes and requests comments on the allowing either the "10 percent" criteria

or minimum cost ofthe WIP to satisfy the capital-at-risk criteria. Comments

are requested as to whether $10 million is an appropriate minimum cost.

Because WIP was not previously clearly defined, EPA proposes that WIP include both projects actually under construction in 1990 andprojects for which contracts were signed in 1990 such that construction wouldbe completed in time to comply with the regulatory requirement motivating the WIP (perthe discussion ofthis requirement in the SNPRM). Comments

are requested as to whether this proposal is appropriate. Detailed
comments are also requested which address the type ofcontracts that would qualify.
3. Baseline Adjustment for Multiple Modes ofOperation
EPA proposed that separate individual baselines be developed for each ofthe different modes ofrefinery operation (asdiscussed in the SNPRM)
to minimize anticompetitive effects which could hurt smaller refiners, blenders and importers. However, some refineries may be sufficiently integrated with a blending operation such that the blending operation would not exist without the refinery, or such that negligible blendstocks orgasoline are brought into the blending operation other than those which come from the associated refinery. In such a situation, the concern about anticompetitive effects is greatly reduced. EPA proposes that a refiner which is involved in both ofthe regulated modes ofoperation may petition EPA to develop a single baseline for the combined operation, if it can show to the Administrator's satisfaction that a closely integrated relationship exists. EPA does not expect "closely integrated" to apply broadly to refiners whohappen to also have blending operations. Comments are requested on this proposal, particularly

on the proofrequired to show "close integration".
4. Ability to Petition for Extraordinary Individual Circumstance

EPA requests comments on the use of

an adjusted baseline if, due to the

occurrence ofextenuating or extraordinary circumstances in 1990, or due to its unique individual situation, a refinery's baseline is unrepresentative of the gasoline it would have produced in 1990. EPA also requests comment on what criteria would have to be met, or proofgiven, to demonstrate that 1990 refinery operations were indeed different than ifthe special circumstance had not existed. EPA expects that a refiner would have to petition EPA, and would have to show the baseline values calculated without and without the adjustment.

To limit petitions, EPA proposes that petitions may be granted only if certain proofis presented in the petition, in addition to the baseline parameters calculated with and without the adjustment. Such proofmay include a showing that significant financial burden will exist orthat the viability of the refinery is at stake. EPA could also require a showing that 1990 operations

were significantly different than 1988- 89 and 1991-92 operations. Comments

are requested as to the degree of financial hardship that might be required to be shown and on additional criteria which might have to be met in orderto restrict any such petition to situations falling within the agency's authority under Alabama Power, as discussed in the SNPRM.

Examples ofextenuating circumstances could include the following two examples, and EPA requests comments as to whether such circumstances should be deemed extenuating: (1) Downtime which occurs every 4-5 years and which happened to

occur in 1990 (nonannual turnaround); and (2) disasters which took out a gasoline blendstock producing unit for 30 days or more (and whether 30 days is appropriate). EPA requests comments

as to whether, and what type of, other extenuating circumstances may exist.

EPA also requests comment on whether it should consider allowing a baseline adjustment for the situation where (1) a fuel produced in 1990 under

contract to the federal government (e.g., the military) will be phased out of production by 1995 due to changes in fuel requirements by the federal government, and (2) production ofthat fuel constituted at least 30 percent ofa refiner's total production in 1990. For example, JP-4 jet fuel use is being eliminated by the Department of Defense. Because JP-4 is a naphtha/ kerosene blend, feedstock previously used to produce it will in the future be used in gasoline. However, that feedstock cannot be used in gasoline without first going through a reformer to increase its octane to suitable gasoline levels. This will naturally increase the
average aromatic content of a refiner's gasoline. Refiners for whom JP-4 production constituted a large portion of their total production will have low 11759

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baseline aromatics andbenzene values relative tothe values ofthe gasoline that will beproduced in lieu ofJP-4. Under certain individual circumstances, a refinery may have to close ifit cannot comply with the anti-dumping provisions because itsbaseline parameter values were determined while it was under contract to the federal government toproduce anongasoline fuel. EPA requests comments

on this situation, and ifadjustments to

a baseline determination are granted, how much ofarefinery's 1990 production must have constituted the soon-to-be-eliminated fuel for the circumstance tobe extenuating.

Forall ofthe above situations, EPA requests comments as to whether such

a petitioner should get an individual adjusted baseline, the statutory baseline,

or the statutory baseline on an individual parameter basis ifonly certain parameters were affected by the circumstance, and whether volume adjustments should beallowed.

C.Auditor" 5 Requirementsand Certification
1.Introduction

In the SNPRM, EPA proposed that an Agency-certified auditor be utilized to verify arefiner's or importer's 1990 individual baseline (i.e., the parameter determination) prior to submission of thebaseline to EPA for approval. EPA also proposed that the auditor be independent ofthe refiner orimporter and that EPA would certify the auditor based on criteria developed in consultation with persons knowledgeable in the technical aspects ofgasoline refining. EPA recently held

a public workshop on thistopic and, considering the discussion at that workshop, EPA is proposing additional regulations concerning the certification ofauditors and the submission ofthe individual baseline to EPA.

2. Requirements for Auditors

Forthe attached regulations, EPA
proposes that the term auditor mean an individual or an organization although various persons involved with the auditor may also have to meet certain requirements.

EPA proposes that auditors (and where applicable, the auditor's organization and/or other persons) meet criteria in two areas in order tobe

;1EPA recognizes that the term "auditor" usually refers to aperson who evaluates financial data. However. in thecontext ofthe baseline development discussed in thisproposed ndemaking. "auditor" shall refer to aperson who technicallyevaluates thebaseline determination of

arefiner or importer forcorrectness, asdefined in this proposal. certified by EPA to audit refiner and importer baselines.These proposed

areas are (1)indepondence from the refiner or importer,and (2) technical capability to evaluate the process used
to develop thebaseline parameters. Although these general areas were proposed in the SNPRM, they arebeing reproposed today inmore detail.

Concerning independence, EPA
proposesthat auditors and any other individuals or organizations, including contracting and subcontracting personnel, who are involved in substantive aspects ofbaseline verification be independent ofthe submitter. For example, EPA proposes that all persons involved inthe substantive aspects ofbaseline verification could nothave worked in the past five years asan employee ofthe refiner orimporter whosebaseline is being verified.EPA expects such criteria
to mitigate potential conflict-of-interest

concerns that could arise concerning the verification process ifthe auditor were tohave an intimate relationship with the refiner or importer. Additionally, EPA is proposing thatthe auditor and its contractors and subcontractors be financially independent ofthe submitter. Specific criteria are listed In the accompanyin$ proposed regulations.

However, WA is proposing to allow

a person to audit the baseline parameters for aparticular refiner or importer even ifthat person also developed thebaseline parameters for the same refiner orimporter, as long as the person (andhis/her contractors, etc.)
meet allthe requirements foran auditor. While larger refiners are likely to develop their baselines using in-house expertise, this proposal would most likely benefit smaller refiners and importers which are more likely tohave their baselines determined for them by

an outside company.

EPArequests comments on how to

ensure that the independence requirements remain intact throughout the duration ofthe relationship between the auditor and the refiner, and asto whether the independence requirements should be continued fora time period after thebaseline is approved, and what this time period shouldbe.

EPA is also proposing that auditors be technically experienced and knowledgeable in refinery operations. This criterion is important because of the complexity of refinery operations and because refiners may have made substantial changes in feedstocks or refinery operating conditions between 1990 andyear(s) when data was collected. Such changes would have to be accounted for in the individual 1990 baseline determinations. Auditing the accounting for such changes and confirming that the necessary adjustments were made is expected to be technically challenging and only thosepersons with sufficient knowledge and experience would be capable.

EPA is also proposingregulations which describe the technical roleEPA expects auditors to fulfill in the verification process. Under these proposed regulations, the auditor would

ave to perform several tasks to verify certain aspects ofthe data collection andbaseline calculations. Additionally, the auditorwould have to describe a minimal amount ofits verification
processto EPA.As apart ofthis
process, EPA would expect an auditor to

ow te relevant details and assumptions that went into the baseline determination itverified. Through the fulfillment ofthese requirements, EPA expects to gain sufficient confidence to approve many ofthe baseline parameter submissions. Forbaseline submissions where EPA has some uncertainty, EPA would follow up with the refiner or importer and its auditor to gain this certainty.

EPA requests comment on its Srposed criteria requiring that auditors

independent andtechnically capable ofevaluating the baseline parameters. EPA also requests comment on what technical role and reporting role the auditor should play inthe verification
process, and ifEPA should approve persons as auditors who were also involved in developing the baseline parameters for the refiner or importer.

3. Auditor Certification

Because regulations under section 211(k) ofthe Act are aimed at refiners and importers, EPA believes that the refiner or importer should be responsible for choosing an auditor who
meetsthe proposed requirements. EPA is considering two options for certifying auditors, and requests comments on each ofthese options.

Under the first option, the refiner or importer would be required to ensure that the auditor meets the criteria, and provide such proofwith the baseline submission. The auditor would notbe pre-certified by EPA. Ifan auditor who does not meet the criteria is used by the refiner or importer, thebaseline submission would not be approved. This option allows the refiner or importer tobegin working with an auditor immediately, ifit believes it can prove that the auditor will meet the criteria promulgated in the final rule.

Under the second option, the qualifications ofpotential auditors would be submitted (by a potential auditor or by a refiner or importer)to 11760

HeinOnline -- 58 Fed. Reg. 11760 1993