Document ID: EPA-HQ-OAR-2018-0775-0002
Agency: epa
Document Type: Proposed Rule
Title: Modifications to Fuel Regulations: Provide Flexibility for E15; Modifications to RFS RIN Market Regulations
Posted Date: 2019-03-21T04:00Z

[Federal Register Volume 84, Number 55 (Thursday, March 21, 2019)]
[Proposed Rules]
[Pages 10584-10630]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05030]

[[Page 10583]]

Vol. 84

Thursday,

No. 55

March 21, 2019

Part II

 Environmental Protection Agency

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40 CFR Part 80

Modifications to Fuel Regulations To Provide Flexibility for E15; 
Modifications to RFS RIN Market Regulations; Proposed Rule

  Federal Register / Vol. 84 , No. 55 / Thursday, March 21, 2019 / 
Proposed Rules  

[[Page 10584]]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2018-0775; FRL-9991-04-OAR]
RIN 2060-AU34

Modifications to Fuel Regulations To Provide Flexibility for E15; 
Modifications to RFS RIN Market Regulations

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: The Environmental Protection Agency (EPA) is proposing 
regulatory changes to allow gasoline blended with up to 15 percent 
ethanol to take advantage of the 1-pound per square inch (psi) Reid 
Vapor Pressure (RVP) waiver that currently applies to E10 during the 
summer months. EPA is also proposing an interpretive rulemaking which 
defines gasoline blended with up to 15 percent ethanol as 
``substantially similar'' to the fuel used to certify Tier 3 motor 
vehicles. Finally, EPA is proposing regulatory changes to modify 
certain elements of the Renewable Fuel Standard (RFS) compliance 
system, in order to improve functioning of the renewable identification 
number (RIN) market and prevent market manipulation.

DATES: Comments must be received on or before April 29, 2019. Under the 
Paperwork Reduction Act (PRA), comments on the information collection 
provisions are best assured of consideration if the Office of 
Management and Budget (OMB) receives a copy of your comments on or 
before April 22, 2019.
    Public Hearing. EPA will announce the public hearing date and 
location for this proposal in a supplemental Federal Register document.

ADDRESSES: You may send your comments, identified by Docket ID No. EPA-
HQ-OAR-2018-0775, by any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov 
(our preferred method) Follow the online instructions for submitting 
comments.
     Mail: U.S. Environmental Protection Agency, EPA Docket 
Center, Office of Air and Radiation Docket, Mail Code 28221T, 1200 
Pennsylvania Avenue NW, Washington, DC 20460.
     Hand Delivery/Courier: EPA Docket Center, WJC West 
Building, Room 3334, 1301 Constitution Avenue NW, Washington, DC 20004. 
The Docket Center's hours of operations are 8:30 a.m.-4:30 p.m., 
Monday-Friday (except Federal Holidays).
    Instructions: All submissions received must include the Docket ID 
No. for this rulemaking. Comments received may be posted without change 
to https://www.regulations.gov, including any personal information 
provided. For detailed instructions on sending comments and additional 
information on the rulemaking process, see the ``Public Participation'' 
heading of the SUPPLEMENTARY INFORMATION section of this document.

FOR FURTHER INFORMATION CONTACT: Julia MacAllister, Office of 
Transportation and Air Quality, Assessment and Standards Division, 
Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, MI 
48105; telephone number: 734-214-4131; email address: 
macallister.julia@epa.gov.

SUPPLEMENTARY INFORMATION: 
    Potentially Affected Entities. Entities potentially affected by 
this proposed rule include those involved with the production, 
importation, distribution, marketing, and retailing of transportation 
fuels, including gasoline and diesel fuel or renewable fuels such as 
ethanol, biodiesel, renewable diesel, and biogas. Potentially affected 
categories include:

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                                                                                                  Examples of
            Category                     NAICS \1\ codes                SIC \2\ codes             potentially
                                                                                               affected entities
----------------------------------------------------------------------------------------------------------------
Industry........................                        324110                          2911  Petroleum
                                                                                               refineries.
Industry........................                        325193                          2869  Ethyl alcohol
                                                                                               manufacturing.
Industry........................                        325199                          2869  Other basic
                                                                                               organic chemical
                                                                                               manufacturing.
Industry........................                        424690                          5169  Chemical and
                                                                                               allied products
                                                                                               merchant
                                                                                               wholesalers.
Industry........................                        424710                          5171  Petroleum bulk
                                                                                               stations and
                                                                                               terminals.
Industry........................                        424720                          5172  Petroleum and
                                                                                               petroleum
                                                                                               products merchant
                                                                                               wholesalers.
Industry........................                        454319                          5989  Gasoline service
                                                                                               stations.
Industry........................                        447190                          5541  Marine service
                                                                                               stations.
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\1\ North American Industry Classification System (NAICS).
\2\ Standard Industrial Classification (SIC).

    This table is not intended to be exhaustive, but rather provides a 
guide for readers regarding entities likely to be affected by this 
proposed action. This table lists the types of entities that EPA is now 
aware could potentially be affected by this proposed action. Other 
types of entities not listed in the table could also be affected. To 
determine whether your entity would be affected by this proposed 
action, you should carefully examine the applicability criteria in 40 
CFR part 80. If you have any questions regarding the applicability of 
this proposed action to a particular entity, consult the person listed 
in the FOR FURTHER INFORMATION CONTACT section.
    Public Participation. Submit your comments, identified by Docket ID 
No. EPA-HQ-OAR-2018-0775, at https://www.regulations.gov (our preferred 
method), or the other methods identified in the ADDRESSES section. Once 
submitted, comments cannot be edited or removed from the docket. EPA 
may publish any comment received to its public docket. Do not submit 
electronically any information you consider to be Confidential Business 
Information (CBI) or other information whose disclosure is restricted 
by statute. Multimedia submissions (audio, video, etc.) must be 
accompanied by a written comment. The written comment is considered the 
official comment and should include discussion of all points you wish 
to make. EPA will generally not consider comments or comment contents 
located outside of the primary submission (i.e., on the web, cloud, or 
other file sharing system). For additional submission methods, the full 
EPA public comment policy, information about CBI or multimedia 
submissions, and general guidance on making effective comments, please 
visit https://www.epa.gov/dockets/commenting-epa-dockets.

Outline of This Preamble

I. Executive Summary
    A. Purpose of This Action

[[Page 10585]]

    B. Summary of the Major Provisions of This Action
    1. E15 RVP
    2. RIN Market Reform
II. Extension of the 1-psi Waiver to E15
    A. Background
    1. Background of E10 and E15 CAA Sec. 211(f)(4) Waivers
    2. Background on CAA Sec. 211(h)
    B. Proposed Interpretation of CAA Sec. 211(h)(4)
    1. Proposed Interpretation
    2. Regulatory Amendments
    3. Effects on Regulated Parties
    C. Proposed Interpretation of ``Substantially Similar'' for 
Gasoline
    1. Statutory Framework
    2. Certification Fuels
    3. History of Sub Sim Interpretations
    4. Criteria for Determining Whether a Fuel Is ``Substantially 
Similar''
    5. Technical Rationale and Discussion
    6. Other Aspects of the Proposed Interpretative Rulemaking
    D. E15 Misfueling Mitigation
    E. E15 Emission Impacts
    F. E15 Economic Impacts
    1. Benefits for E15 RVP
    2. Costs for E15 RVP
III. RIN Market Reforms
    A. Overview of RFS Compliance
    B. RIN Market Assessment
    C. President's Directive
    D. Objectives
    E. Proposed Approach to Individual Regulatory Reforms
    1. Reform One: Public Disclosure if RIN Holdings Exceed Certain 
Threshold
    2. Reform Two: Increase RFS Compliance Frequency
    3. Reform Three: Limiting Who Can Purchase Separated RINs
    4. Reform Four: Limiting Duration of RIN Holdings by Non-
Obligated Parties
    5. Enhancing EPA's Market Monitoring Capabilities
    F. RIN Market Reform Economic Impacts
    1. Benefits of RIN Market Reform
    2. Costs of RIN Market Reform
    G. Conclusion
IV. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review and 
Executive Order 13563: Improving Regulation and Regulatory Review
    B. Executive Order 13771: Reducing Regulations and Controlling 
Regulatory Costs
    C. Paperwork Reduction Act (PRA)
    D. Regulatory Flexibility Act (RFA)
    E. Unfunded Mandates Reform Act (UMRA)
    F. Executive Order 13132: Federalism
    G. Executive Order 13175: Consultation and Coordination With 
Indian Tribal Governments
    H. Executive Order 13045: Protection of Children From 
Environmental Health Risks and Safety Risks
    I. Executive Order 13211: Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use
    J. National Technology Transfer and Advancement Act (NTTAA)
    K. Executive Order 12898: Federal Actions To Address 
Environmental Justice in Minority Populations and Low-Income 
Populations
V. Statutory Authority

I. Executive Summary

A. Purpose of This Action

    The objectives of this action are twofold. First, this rulemaking 
will take steps intended to create parity in the way the RVP of both 
E10 and E15 fuels is treated under EPA regulations. Second, this action 
proposes reforms to RIN regulations intended to increase transparency 
and deter potential manipulative and other anti-competitive behaviors 
in the RIN market.

B. Summary of the Major Provisions of This Action

1. E15 RVP
    We are proposing to adjust the volatility requirements for E15 
during the summer season or the period of May 1 through September 
15.1 2 The changed volatility requirements for these blends 
will allow E15 to receive the benefit of the provision at CAA sec. 
211(h)(4), commonly referred to as ``the 1-psi waiver.'' The 1-psi 
waiver allows gasoline-ethanol blends to have a higher RVP \3\ than 
would be allowed under CAA sec. 211(h)(1) and the corresponding 
volatility regulations, which prohibit the RVP of gasoline from 
exceeding 9.0 psi during the summer.\4\ Currently, only blends of 
ethanol and gasoline containing at least 9 percent and no more than 10 
percent ethanol by volume (E10) are granted the 1-psi waiver.\5\
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    \1\ For purposes of this preamble, E15 refers to gasoline-
ethanol blended fuels that contain greater than 10 volume percent 
and no more than 15 volume percent ethanol content.
    \2\ CAA sec. 211(h)(1) requires EPA to establish volatility 
requirements during the high ozone season. To implement these 
requirements, EPA defines ``high ozone season'' at 40 CFR 80.27 as 
the period from June 1 to September 15. The regulations at 40 CFR 
80.27 also specify that all parties except for retailers must make 
and distribute gasoline meeting the RVP standards at Sec.  80.27 
from May 1 through September 15 and calls this period the 
``regulatory control period.'' The E15 partial waivers impose the 
9.0 psi RVP limit on E15 from May 1 through September 15. In general 
practice by industry and for purposes of this preamble, the high 
ozone season and regulatory control period is referred to as the 
``summer'' or ``summer season'' and gasoline produced to be used 
during the regulatory control period and high ozone season is called 
``summer gasoline.'' EPA does not have any volatility requirements 
on gasoline outside of the summer season.
    \3\ RVP is a measure of the volatility of gasoline. Gasoline 
must have volatility in the proper range to prevent driveability, 
performance, and emissions problems. Too low and the gasoline will 
not ignite properly; too high and the vehicle may experience vapor 
lock. Importantly for this proposal, excessively high volatility 
also leads to increased evaporative emissions from the vehicle. 
Vehicle evaporative emission control systems are designed and 
certified on gasoline with a volatility of 9.0 psi RVP. Higher 
volatility gasoline may overwhelm the vehicle's evaporative control 
system, leading to a condition described as ``breakthrough'' of the 
cannister and mostly uncontrolled evaporative emissions.
    \4\ In a few areas, specified at 40 CFR 80.27, the RVP standard 
is 7.8 psi. In these areas, after application of the 1-psi waiver, 
gasoline-ethanol blended fuels covered by the 1-psi waiver could 
have an RVP of up to 8.8 psi.
    \5\ This applies only to conventional gasoline. E10 reformulated 
gasoline does not receive the 1-psi waiver under CAA sec. 211(h)(4), 
and neither would E15 reformulated gasoline as a result of this 
proposed action. Reformulated blendstock for oxygenate blending 
would continue to need to meet a lower RVP level to allow for the 
subsequent addition of ethanol.
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    EPA is proposing several steps to accomplish this change. First, we 
are proposing to modify our interpretation of CAA sec. 211(h)(4). 
Second, we are proposing a regulation that would effect two changes: 
(1) Remove limitations in our regulations that were put in place in 
keeping with the prior interpretation of CAA sec. 211(h)(4) on the 
volatility of E15 promulgated in the E15 Misfueling Mitigation Rule 
(``MMR''); \6\ and (2) modify the associated product transfer document 
(PTD) requirements also promulgated in the MMR. Third, we are proposing 
to clarify our interpretation of CAA sec. 211(f), making it clear that 
the conditions on the CAA sec. 211(f)(4) waivers granted to E15 in 2010 
and 2011 do not restrict the application of the 1-psi waiver to 
downstream oxygenate blenders in most circumstances.
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    \6\ See 76 FR 44406 (July 25, 2011).
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    As a result of this action, parties would be able to make and 
distribute E15 made with the same conventional blendstock for oxygenate 
blending (CBOB) \7\ that is used to make E10 by oxygenate blenders 
during the summer.\8\ E15 would then be held to the same gasoline 
volatility standards that currently apply to E10, maintaining 
substantially the same level of emissions performance as E10 since E15 
made from the same CBOB during the summer would have slightly lower RVP 
than E10 and would be expected to have similar emissions performance as 
discussed in Sections II.C and II.E.
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    \7\ CBOB is the base gasoline made specifically for blending 
with 10 percent ethanol in conventional gasoline areas of the 
country.
    \8\ EPA does not have volatility limitations on gasoline outside 
of the summer season. Therefore, E15 can already be made from the 
same blendstock used for E10 outside of the summer season. The rest 
of the year is commonly referred to as the ``winter season'' or 
``winter.''
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    As discussed in Section II.C, we are also proposing a 
``substantially similar'' (sub sim) interpretative rulemaking for

[[Page 10586]]

gasoline.\9\ We are proposing two alternative sub sim interpretations. 
We are proposing that E15 with an RVP of 10.0 psi is sub sim to fuel 
used to certify Tier 3 light duty vehicles (i.e., E10 with an RVP of 
9.0 psi). We are also proposing and seeking comment on an alternative 
interpretation that E15 with an RVP of 9.0 psi is sub sim to fuel used 
to certify Tier 3 light duty vehicles. Either of these sub sim 
interpretations would enable E15 to be lawfully blended from the same 
gasoline blendstock (i.e., CBOB) that is used to make E10 during the 
summer by all fuel manufacturers (in addition to oxygenate blenders who 
would be able to do so without a new sub sim interpretative 
rulemaking).
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    \9\ EPA last issued an interpretative rulemaking for what it 
considers sub sim for gasoline in 2008. See 73 FR 22281 (April 25, 
2008).
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2. RIN Market Reform
    EPA takes claims of RIN market manipulation seriously and although 
we have yet to see data-based evidence of such behavior, the potential 
for manipulation is a concern. Accordingly, we are proposing the four 
reforms outlined in President Trump's October 11, 2018 statement \10\ 
and are requesting comments on additional steps we can take to identify 
and prevent RIN market manipulation. Specifically, we are proposing and 
seeking comment on the following RIN market reforms outlined by the 
President, as well as some additional items identified by EPA:
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    \10\ See: https://www.whitehouse.gov/briefings-statements/president-donald-j-trump-expanding-waivers-e15-increasing-transparency-rin-market.
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     Requiring public disclosure when RIN holdings held by an 
individual actor exceed specified limits.
     Requiring the retirement of RINs for the purpose of 
compliance be made in real time.
     Prohibiting entities other than obligated parties from 
purchasing separated RINs.
     Limiting the length of time a non-obligated party can hold 
RINs.
    For the first reform, we are proposing to set two RIN holding 
thresholds that would work in tandem to prevent potential accumulation 
of market power. These thresholds would apply to holdings of separated 
D6 RINs only.\11\ The first threshold would be triggered if a party's 
end-of-day separated D6 RIN holdings exceeded three percent of the 
total implied conventional biofuel volume requirement. An obligated 
party that triggered the first threshold would then apply a second 
threshold by comparing its end-of-day separated D6 RIN holdings with 
130 percent of its individual implied conventional renewable volume 
obligation (RVO). We are proposing that parties make daily calculations 
and make a yes/no certification statement to EPA in a quarterly report 
and that we would publish on our website the names of any parties that 
reported exceeding the thresholds. We seek comment on whether exceeding 
the thresholds should be considered a prohibited act. We are also 
proposing that the RIN holdings of corporate affiliates be included in 
a party's calculations to determine if they trigger a threshold.
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    \11\ RINs specify a ``D-code'' corresponding to the renewable 
fuel category applicable to the fuel, as determined by the feedstock 
used, fuel type produced and GHG emissions of the fuel, among other 
characteristics. There are five different D-Codes for RINs in the 
RFS program. D3 RINs are cellulosic biofuel RINs. D4 RINs are 
biomass-based diesel (including both biodiesel and renewable diesel) 
RINs. D5 RINs are advanced biofuel RINs. D6 RINs are conventional 
biofuel RINs (primarily corn ethanol). D7 RINs are cellulosic diesel 
RINs which meet the requirements for both cellulosic biofuel and 
biomass-based diesel.
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    For the second reform, we are proposing to establish RIN retirement 
requirements for the first three quarters of the compliance year, 
calculated by an obligated party as its gasoline and diesel production 
and import volume through the end of the quarter multiplied by the 
current year renewable fuel standard. We propose to discount the 
requirement to 80 percent of the calculated volume to provide necessary 
flexibility. Obligated parties would submit reports to EPA 60 days 
after the end of the quarter to demonstrate compliance with these 
requirements and could use any D-code RINs to do so. This reform would 
not impact the current annual RVO calculations or compliance, including 
the two-year RIN life, the annual deficit carryover, or the 20 percent 
carryover provisions. We propose that an obligated party that fell 
short of its quarterly RIN retirement requirement in the current year 
would not be able to incur a deficit in its next year annual RVO.
    For the third reform, we are proposing that only obligated parties, 
exporters, and certain non-obligated parties be allowed to purchase 
separated D6 RINs. Non-obligated parties would be exempt from this 
proposed restriction if they were a corporate or contractual affiliate 
to an obligated party. This would include blenders who could 
demonstrate that they had contracts to deliver separated RINs to an 
obligated party for the purpose of compliance. Non-obligated parties 
that need to replace invalid RINs would also be exempt from this 
proposed provision.
    For the fourth reform, we are proposing a limit on the duration 
that a non-obligated party could hold separated D6 RINs. Specifically, 
we are proposing that a non-obligated party would be required to sell 
or retire as many RINs as it obtained in a quarter. We are proposing 
that parties would make a yes/no certification statement to EPA about 
its compliance with this limit in a quarterly report and that auditors 
would confirm this statement in the annual attest engagement.
    Lastly, we outline our consideration of taking additional steps 
beyond those listed in the President's directive to enhance our market 
monitoring capabilities. We propose that auditors would include in 
their attest engagements to EPA a full list of a party's affiliates, 
including affiliates not registered with the RFS program. To improve 
our abilities to analyze and publish RIN price data, we propose that 
parties would follow certain conventions when reporting RIN prices to 
EPA and that they would report whether the RIN transaction was on the 
spot market or as the result of a term contract. We also explain that 
we plan to update business rules in EMTS to require that both parties 
in a RIN transaction enter the same RIN price. Finally, we discuss the 
possibility of employing a third-party market monitor to conduct 
analysis of the RIN market, including screening for potential anti-
competitive behavior.

II. Extension of the 1-psi Waiver to E15

    In this action, we are proposing to adjust the volatility 
requirements for E15 during the summer season based on a revised 
interpretation of CAA sec. 211(h)(4). The changed volatility 
requirements for these blends will allow E15 to receive the benefit of 
the 1-psi waiver. The 1-psi waiver, at CAA sec. 211(h)(4), allows 
gasoline-ethanol blends to have a higher RVP than would be allowed 
under CAA sec. 211(h)(1) and the corresponding volatility regulations 
that prohibit the RVP of gasoline from exceeding 9.0 psi during the 
summer. Currently, EPA regulations only grant the 1-psi waiver to 
blends of ethanol and gasoline containing at least 9 percent and no 
more than 10 percent ethanol by volume. The proposed interpretation in 
this action is in response to the increased presence of E15 in the 
gasoline marketplace, and the conditions that led us to provide the 
original 1-psi waiver for E10 in 1990 are equally applicable to E15 
today.
    The volatility of E15 is also limited by CAA sec. 211(f). CAA sec. 
211(f) prohibits the introduction into commerce of fuels and fuel 
additives unless they are substantially similar to fuels utilized in 
the certification of motor vehicles, or receive a waiver from the sub 
sim requirement in accordance

[[Page 10587]]

with CAA sec. 211(f)(4). E15 currently has a sub sim waiver, and the 
waiver conditions put in place for E15 set the maximum RVP level at 9.0 
psi. In order to allow E15 to receive the 1-psi waiver under CAA sec. 
211(h)(4) and introduce E15 at the higher RVP level into commerce, we 
must address the statutory provisions under both CAA sec. 211(f) and 
(h).
    EPA is proposing several steps to accomplish this change. First, we 
are proposing to modify our interpretation of CAA sec. 211(h)(4). Under 
this new interpretation, ethanol blends containing at least 10 percent 
ethanol would receive the 1-psi waiver, including E15. To effectuate 
this change, we are proposing the following changes to EPA's fuels 
regulations: (1) Remove limitations in our regulations that were put in 
place in keeping with the prior interpretation of CAA sec. 211(h)(4) on 
the volatility of E15 promulgated in 40 CFR 80.27 and the MMR (i.e., 40 
CFR part 80, subpart N); and (2) modify the associated PTD requirements 
promulgated in the MMR.
    After application of the CAA sec. 211(h)(4) waiver, we must then 
ensure that E15 with an RVP of 10 psi can be introduced into commerce. 
Therefore, as a second step, in order to allow the introduction into 
commerce of E15 at 10.0 RVP in the summer under CAA sec. 211(f), we are 
co-proposing two potential mechanisms. The first mechanism clarifies 
our interpretation of CAA sec. 211(f), making it clear that the 
conditions on the CAA sec. 211(f)(4) waivers granted to E15 in 2010 and 
2011 do not restrict the application of the CAA sec. 211(h)(4) 1-psi 
waiver to downstream oxygenate blenders, as explained in more detail 
later in this notice. We are co-proposing a second mechanism that would 
find that E15 is substantially similar to the E10 fuel utilized to 
certify Tier 3 light-duty vehicles, thus allowing E15 similar treatment 
to E10 with respect to RVP.
    The following subsections provide further details on how we will 
accomplish this change, as well as impacts on emissions and the 
economy.

A. Background

1. Background of E10 and E15 CAA Sec. 211(f)(4) Waivers
    CAA sec. 211(f)(1) makes it unlawful for any manufacturer of any 
fuel or fuel additive (``fuel or fuel additive manufacturer'') to first 
introduce into commerce, or to increase the concentration in use of, 
any fuel or fuel additive for use by any person in motor vehicles 
manufactured after model year (MY) 1974, which is not substantially 
similar (commonly referred to as ``sub sim'') to any fuel or fuel 
additive used in the certification of any MY1975, or subsequent model 
year, vehicle or engine under CAA sec. 206. Fuels that are not sub sim 
to a fuel used in certification cannot be introduced into commerce 
unless EPA has granted a waiver under CAA sec. 211(f)(4). CAA sec. 
211(f)(4) provides that upon application of any fuel or fuel additive 
manufacturer, the Administrator may waive the prohibitions of CAA sec. 
211(f)(1) if the Administrator determines that the applicant has 
established that such fuel or fuel additive, or a specified 
concentration thereof, will not cause or contribute to a failure of any 
emission control device or system (over the useful life of the motor 
vehicle, motor vehicle engine, nonroad engine or nonroad vehicle in 
which such device or system is used) to achieve compliance by the 
vehicle or engine with the emission standards to which it has been 
certified pursuant to CAA sec. 206 and 213(a).
    In 1978, a waiver application was submitted for gasoline containing 
ethanol at 10 percent by volume (E10). EPA did not act to grant or deny 
the petition for a waiver for E10, and consequently, under the 
statutory scheme as it existed at that time, the waiver was deemed 
granted by operation of law.\12\ Thus, E10 was granted a waiver under 
CAA sec. 211(f)(4) without any conditions, in contrast to prior CAA 
sec. 211(f)(4) waivers, which included, for example, conditions on 
RVP.\13\
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    \12\ See 44 FR 20777 (April 6, 1979).
    \13\ See e.g., ``Fuels and Fuel Additives; Waiver Application,'' 
Octamix Waiver, 53 FR 3636 (February 8, 1988).
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    For E15, EPA granted partial waivers under CAA sec. 211(f)(4) in 
2010 and 2011.\14\ Specifically, on October 13, 2010, EPA approved a 
partial waiver request to allow the introduction of E15 into commerce 
for use in MY2007 and newer light-duty motor vehicles subject to 
certain waiver conditions.\15\ Subsequently, on January 21, 2011, EPA 
extended this partial waiver to include MY2001-2006 light-duty motor 
vehicles after receiving and analyzing additional U.S. Department of 
Energy (``DOE'') test data and finding that E15 will not cause or 
contribute to a failure to achieve compliance with the emissions 
standards to which these vehicles were certified over their useful 
lives.\16\ EPA also denied the waiver request for MY2000 and older 
light-duty motor vehicles, heavy-duty gasoline engines and vehicles, 
highway and off-highway motorcycles, and nonroad engines, vehicles, and 
equipment. This denial was based on EPA's engineering judgement that 
E15 could adversely affect the emissions and emissions controls of 
vehicles, engines, and equipment not covered by the partial waivers and 
that the applicants had not provided sufficient data or other 
information to demonstrate that E15 would not cause or contribute to a 
failure to achieve compliance with the emissions standards to which 
these vehicles, engines, and equipment were certified over their full 
useful lives, as required by CAA sec. 211(f)(4).
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    \14\ See 75 FR 68094 (November 4, 2010) and 76 FR 4662 (January 
26, 2011), respectively.
    \15\ See 75 FR 68094 (November 4, 2010).
    \16\ See 76 FR 4662 (January 26, 2011).
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    In the October 2010 waiver, for MY2007 and newer motor vehicles, 
EPA also concluded that the data and information show that E15 will not 
lead to violations of evaporative emissions standards, so long as the 
fuel does not exceed an RVP of 9.0 psi in the summer.\17\ Subsequently, 
in the January 2011 waiver, EPA imposed identical waiver conditions for 
MY2001-2006 motor vehicles, including the requirement that the fuel not 
exceed an RVP of 9.0 psi in the summer, based on the same 
conclusion.\18\
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    \17\ See 75 FR 68149-68150 (November 4, 2010).
    \18\ See 76 FR 4682-4683 (January 26, 2011).
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    Taken together, these partial waivers permitted E15 to be used in 
MY2001 and newer light-duty motor vehicles subject to particular waiver 
conditions, including fuel quality conditions and conditions on the 
sale and use of E15. These waiver conditions included the prohibition 
on the use of E15 in pre-MY2001 motor vehicles, in addition to heavy-
duty gasoline engines or vehicles, or motorcycles, as well as any 
nonroad engines or nonroad vehicles. The waiver conditions also placed 
limitations on the ethanol that can be added (both the concentration 
and quality),\19\ as well as a condition that the RVP of the final fuel 
not exceed 9.0 psi.\20\ The waiver conditions also require fuel and 
fuel additive manufacturers to submit a misfueling mitigation plan 
describing all reasonable precautions for ensuring E15 is only used in 
MY2001 and newer motor vehicles, as described in the

[[Page 10588]]

waiver conditions.\21\ EPA is not proposing to revise the E15 partial 
waivers under CAA sec. 211(f)(4), and is therefore not soliciting 
comments on the waiver itself or any of its conditions.
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    \19\ For example, the ethanol used to make E15 must meet ASTM 
D4806-10 specifications for ethanol quality. See ASTM D4806-10, 
``Standard Specification for Denatured Fuel Ethanol for Blending 
with Gasolines for Use as Automotive Spark-Ignition Engine Fuel,'' 
ASTM International, West Conshohocken, PA, 2010.
    \20\ This RVP limit is identical to the limitation under CAA 
sec. 211(h)(1) of 9.0 psi RVP during the high ozone season. The high 
ozone season was defined by the Administrator via regulation to mean 
the period from June 1 to September 15 of any calendar year.
    \21\ See 76 FR 4662, 4582 (January 26, 2011).
---------------------------------------------------------------------------

    To help facilitate the implementation of the waiver conditions and 
place requirements on parties other than fuel and fuel additive 
manufacturers, EPA promulgated the E15 Misfueling Mitigation Rule (MMR) 
in 2011, under CAA sec. 211(c), subsequent to the E15 partial waiver 
decisions.\22\ The E15 MMR imposed fuel dispenser labeling, PTD, and 
compliance survey requirements on parties that make and distribute E15. 
The E15 MMR also promulgated EPA's interpretation of the applicability 
of the 1-psi waiver in CAA sec. 211(h)(4) to E15 and certain 
regulations designed to effectuate that interpretation.\23\ In this 
action, EPA is proposing to revise the interpretation of CAA sec. 
211(h)(4) articulated in the MMR and the regulations adopted to 
implement that interpretation.
---------------------------------------------------------------------------

    \22\ See 76 FR 44406 (July 25, 2011).
    \23\ As discussed further in the following section, in 
promulgating regulations following the enactment of CAA sec. 
211(h)(4), EPA interpreted 211(h)(4) to apply to gasoline ethanol 
blends containing about 10 percent ethanol. See 56 FR 64708 
(December 12, 1991).
---------------------------------------------------------------------------

2. Background on CAA Sec. 211(h)
    To properly understand this proposed action, it is important to 
review the history of EPA's volatility controls both leading up to and 
after the enactment of CAA sec. 211(h). Congress enacted CAA sec. 
211(h) as part of the CAA Amendments of 1990 to address the volatility 
of gasoline. Congress did so in the context of EPA's prior regulatory 
actions, under CAA sec. 211(c), which aimed to control the RVP of 
gasoline. EPA has historically viewed Congress's enactment of 211(h), 
therefore, as a codification of EPA's regulatory actions with regard to 
RVP up to that point.\24\ Accordingly, CAA sec. 211(h)(1) prohibits the 
sale of gasoline with an RVP in excess of 9.0 psi during the high ozone 
season while CAA sec. 211(h)(2) allows EPA to promulgate more stringent 
RVP requirements for nonattainment areas. CAA sec. 211(h)(4) further 
provides a 1.0 psi RVP allowance for ``fuel blends containing gasoline 
and 10 percent'' ethanol and recognizes the existence of the CAA sec. 
211(f)(4) waiver for E10--the only ethanol blend which had received 
such a waiver at that time--in the ``deemed to comply'' provisions 
contained in CAA sec. 211(h)(4)(A-C).
---------------------------------------------------------------------------

    \24\ See 76 FR 44433 (July 25, 2011).
---------------------------------------------------------------------------

a. Pre-Enactment Volatility Regulations
    In 1987, prior to the 1990 CAA amendments, EPA for the first time 
proposed limitations on the volatility of gasoline under CAA sec. 
211(c), which provides EPA with general authority to regulate fuels and 
fuel additives. These limitations on gasoline volatility were put into 
place to address evaporative emissions from gasoline-fueled vehicles 
due to their contribution to ozone formation. The volatility of 
gasoline had begun rising significantly in the years preceding EPA's 
action, due to vehicle design becoming more tolerant of higher RVP 
through fuel injected engines, as well as strong economic incentive to 
add butane \25\ to fuel due to favorable blending economics.\26\ This 
lead to very high evaporative volatile organic compound (VOC) emissions 
from the in-use fleet of gasoline vehicles. EPA believed that matching 
the volatility of certification fuel to the volatility of in-use fuel 
would reduce evaporative emissions, and would help ensure vehicle were 
designed to handle in-use conditions. In particular, limiting the 
volatility of gasoline to 9.0 psi RVP, which is the level in the E0 
gasoline on which vehicles were certified under CAA sec. 206 at that 
time, would reduce emissions from all gasoline-related sources, and 
enable additional VOC emission reductions.\27\
---------------------------------------------------------------------------

    \25\ Butane, in this context, refers to a high-volatility, 
relatively inexpensive gasoline blendstock that gasoline refiners 
typically add to or remove from gasoline to control RVP.
    \26\ 52 FR 31279 (August 19, 1987).
    \27\ See 52 FR 31274 at 31278-31287 (August 19, 1987).
---------------------------------------------------------------------------

    At the time of the 1987 proposal, some parties had begun the 
practice of adding ethanol to gasoline after the refinery process has 
been completed to make what was then known as ``gasohol.'' \28\ This 
practice was known as ``splash blending'' ethanol into gasoline and 
generally took place at downstream terminals. At the time, gasohol also 
had a tax credit because Congress intended to encourage the use of 
ethanol as a means of reducing dependence on foreign oil and making use 
of excess agricultural production.\29\ Adding 10 percent ethanol to 
gasoline, however, causes roughly a 1.0 psi RVP increase in the blend's 
volatility.\30\ At the time, due to the limited amount of ethanol 
blended into gasoline, almost no low-RVP gasoline was available into 
which 10 percent ethanol could be splash-blended without the gasoline-
ethanol blended fuel exceeding the proposed RVP limit. Unlike E15, 
because gasohol was given a CAA sec. 211(f)(4) waiver by operation of 
law, no volatility controls had previously been placed on it. Thus, 
even though the CAA sec. 211(f)(4) waiver allowed E10 to be lawfully 
introduced into commerce, the lowered RVP standards had the potential 
to shut down the nascent ethanol blending industry.
---------------------------------------------------------------------------

    \28\ 52 FR 31292 (August 19, 1987).
    \29\ Id.
    \30\ Id.
---------------------------------------------------------------------------

    To address this potential hurdle to continued ethanol blending, EPA 
proposed interim regulations for gasohol that allowed it to be 1.0 psi 
RVP higher than otherwise required for gasoline.\31\ This is referred 
to as the 1-psi waiver.\32\ As a result, 10 percent ethanol could be 
blended at downstream terminals into the gasoline that refineries had 
already produced. The agency, therefore, designed the 1-psi waiver as a 
means of accommodating the CAA sec. 211(f)(4) waiver that was then 
applicable to E10 and to address public policy concerns, such as 
reducing dependence on foreign oil and making use of excess 
agricultural production, as referenced above. The Agency proposed that 
the 1-psi waiver be conditioned on sampling and testing the final blend 
of gasoline and ethanol for RVP by all regulated parties, including 
downstream blenders, that elected to use the waiver.\33\
---------------------------------------------------------------------------

    \31\ See 52 FR 31274, 31316 (August 19, 1987).
    \32\ See 52 FR 31316 (August 19, 1987).
    \33\ See 52 FR 31274, proposed 40 CFR 80.27(d)(1) (August 19, 
1987). See also 54 FR 11872-73 (March 22, 1989), where we declined 
to finalize this approach.
---------------------------------------------------------------------------

    In 1989, EPA finalized regulations that imposed limits on the 
volatility of gasoline and ethanol blends as ``Phase I'' of a two-phase 
regulation under CAA sec. 211(c), which is EPA's general authority to 
regulate fuels and fuel additives. EPA's regulation established a 
maximum RVP limit of 10.5 psi for gasoline sold during the high ozone 
season.\34\ In that action, EPA also provided a RVP allowance ``for 
gasoline-ethanol blends commonly known as gasohol'' that was 1.0 psi 
higher than for gasoline.\35\ This was finalized as an interim measure 
with the intent to revisit the issue in ``Phase II'' of the volatility 
regulations.\36\
---------------------------------------------------------------------------

    \34\ See 54 FR 11879 (March 22, 1989).
    \35\ Id.
    \36\ Id.
---------------------------------------------------------------------------

    EPA's final regulations in that action provided that in order to 
receive the 1-psi waiver, ``gasoline must contain at least 9% ethanol 
(by volume),'' and that ``the ethanol content of gasoline shall be 
determined by use of one of the testing methodologies specified in 
Appendix F to this part.'' The regulations also provided that ``the 
maximum ethanol content of gasoline shall not exceed any applicable 
waiver conditions under

[[Page 10589]]

section 211(f)(4) of the Clean Air Act.'' \37\
---------------------------------------------------------------------------

    \37\ 54 FR 11872-73 (March 22, 1989) (codified at 40 CFR 
80.27(d)).
---------------------------------------------------------------------------

    In that action, EPA did not place limits on the upper bound of the 
ethanol content, other than by providing, as quoted above, that the 
ethanol content shall not exceed any applicable waiver conditions under 
CAA sec. 211(f)(4) (and thereby implicitly incorporating any upper-
bound limit imposed as a condition on any future applicable waiver). At 
the time, the highest permissible ethanol content under a CAA sec. 
211(f)(4) waiver was 10 percent ethanol, and thus, this provision could 
only apply to blends containing 9-10 percent ethanol. In other words, 
EPA designed the 1-psi waiver to allow for the continued lawful 
introduction into commerce of E10 and, the Phase I RVP regulatory 
language would have automatically accommodated future increases in 
allowable ethanol concentration in gasoline under a CAA sec. 211(f)(4) 
waiver.
    In June 1990, in ``Phase II'' of the volatility regulations, EPA 
established a maximum RVP limit of 9.0 psi. The regulations also 
established an RVP limit of 7.8 psi for gasoline sold during the high 
ozone season in both ozone attainment and nonattainment areas in the 
southern states of the country. EPA further maintained the 1 psi RVP 
allowance for blends of 10 percent ethanol and gasoline and did not 
modify the regulations at 40 CFR 80.27(d).\38\ Thus, both the language 
stating that the gasoline must contain at least 9 percent ethanol, and 
the language stating that the maximum ethanol content of gasoline shall 
not exceed any applicable waiver conditions under CAA sec. 211(f)(4), 
remained in the regulations.\39\ In doing so the agency reiterated that 
this was in recognition of the importance of ethanol to the nation's 
energy security as well as the agricultural economy sector. The agency 
also addressed air quality impacts of allowing the 1-psi waiver given 
that a higher RVP limit for blends of 10 percent ethanol and gasoline 
would result in increased evaporative VOC emissions. It ``reflects the 
moderation in EPA's concern about negative air quality impact as well 
as a reluctance to threaten the motor fuel ethanol production and 
blending industries with collapse.'' \40\
---------------------------------------------------------------------------

    \38\ See 55 FR 23658, 23660 (June 11, 1990).
    \39\ Id.
    \40\ ``While some believe the industry should not exist . . . 
[o]ther agencies and Congress will continue to address related 
agricultural, trade and energy issues which have led to federal 
support for the existence of the gasohol industry.'' 55 FR 23666 
(June 11, 1990).
---------------------------------------------------------------------------

b. Enactment of CAA Sec. 211(h)
    In November 1990, Congress enacted the CAA Amendments of 1990, 
including CAA sec. 211(h), which provided the first statutory 
provisions specifically addressing RVP. CAA sec. 211(h)(1) required EPA 
``to promulgate regulations making it unlawful . . . during the high 
ozone season to sell . . . or introduce into commerce gasoline with a 
Reid Vapor Pressure in excess of 9.0 pounds per square inch.'' Further 
in CAA sec. 211(h)(4), Congress, following EPA's lead in the 1989 and 
1990 volatility regulations, also allowed fuel blends containing 
gasoline and 10 percent ethanol to have 1 psi higher RVP than the RVP 
standard otherwise established in CAA sec. 211(h)(1). CAA sec. 
211(h)(4) provides the following:

    (4) Ethanol waiver. For fuel blends containing gasoline and 10 
percent denatured anhydrous ethanol, the Reid vapor pressure 
limitation under this subsection shall be one pound per square inch 
(psi) greater than the applicable Reid vapor pressure limitations 
established under paragraph (1).

    According to legislative history, ``[t]his provision was included 
in recognition that gasoline and ethanol are mixed after the refining 
process has been completed. It was recognized that to require ethanol 
to meet a nine pound RVP would require the creation of a production and 
distribution network for sub-nine pound RVP gasoline. The cost of 
producing and distributing type of fuel would be prohibitive to the 
petroleum industry and would likely result in the termination of the 
availability of ethanol in the marketplace.'' \41\ EPA has interpreted 
CAA sec. 211(h) as largely a codification of our prior RVP 
regulations.\42\ Relevant legislative history also indicates that 
Congress based the 1.0 psi waiver on technical data showing that 
blending gasoline with 9-10 percent ethanol would result in an 
approximate 1 psi RVP increase for the final gasoline-ethanol blend. 
Hearing testimony provides that ``[t]he certainty of physical chemistry 
provides the assurance the addition of 10 percent ethanol to the base 
gasoline will not exceed 1.0 psi RVP. . . . [A]nd the Clean Air Act 
itself which prohibits addition of more than 10 percent ethanol, 
alleviates any concern that the addition of ethanol to gasoline will 
result in different volatility levels than already recognized by EPA as 
adding less than 1.0 psi RVP to gasoline.'' \43\
---------------------------------------------------------------------------

    \41\ S. Rep. No. 101-228, at 110 (1989) (Conf. Rep.); reprinted 
at 5 Leg. Hist. at 8450 (1993).
    \42\ See 76 FR 44433 (July 25, 2011).
    \43\ Clean Air Act Amendments: Hearings on H.R. 2521, H.R. 3054 
and H.R. 3196 Before the Subcommittee on Health and the Environment 
of the Committee On Energy and Commerce, 100th Cong. 1st Sess. 
(1987) at 366 (statement of Eric Vaughn, President and CEO of 
renewable Fuels Association).
---------------------------------------------------------------------------

    Further, Congress also enacted a conditional defense against 
liability for violations of the RVP level allowed under the 1-psi 
waiver by stating:

[p]rovided; however, that a distributor, blender, marketer, 
reseller, carrier, retailer, or wholesale purchaser consumer shall 
be deemed to be in full compliance with the provisions of this 
subsection and the regulations promulgated thereunder if it can 
demonstrate that--(A) The gasoline portion of the blend complies 
with the Reid vapor pressure limitations promulgated pursuant to 
this subsection; (B) the ethanol portion of the blend does not 
exceed its waiver condition under subsection (f)(4) of this section; 
and (C) no additional alcohol or other additive has been added to 
increase the Reid Vapor Pressure of the ethanol portion of this 
blend. CAA sec. 211(h)(4).

    This is referred to as the ``deemed to comply'' provision, or the 
alternative compliance mechanism for the 1-psi waiver. It is considered 
a statutorily mandated defense that allows regulated parties such as 
downstream oxygenate blenders to demonstrate compliance with the 
relaxed RVP standard instead of complying with the testing provisions 
in 40 CFR 80.27(d)(2) (1987). It also reflects Congressional response 
to EPA's proposed compliance testing provisions for the 1-psi waiver in 
the 1987 proposed rulemaking, which they viewed as complicated and 
burdensome; ``the enforcement strategy recently proposed by the Agency 
. . . would be totally unworkable for those motor vehicle fuels which 
are a blend of gasoline and ethanol and which are allowed a higher RVP 
limit under the reported bill.'' \44\
---------------------------------------------------------------------------

    \44\ S. Rep. No. 100-231, 100th Cong. 1st Sess. at 149 (1987).
---------------------------------------------------------------------------

c. Implementation of CAA Sec. 211(h)(4)
    Subsequent to Congress's enactment of CAA sec. 211(h)(4), EPA 
modified these regulations to more explicitly align with the new 
statutory provisions, but ``did not propos[e] any change to the current 
requirement that the blend contain between 9 and 10 percent ethanol (by 
volume) to obtain the one psi allowance.'' \45\ However, EPA did modify 
its regulations at 40 CFR 80.27 to clarify that ``gasoline must contain 
denatured, anhydrous ethanol,'' and that ``[t]he concentration of the 
ethanol, excluding the required denaturing

[[Page 10590]]

agent, must be at least 9% and no more than 10% (by volume) of the 
gasoline'' (where, as quoted above, the previous version of the 
regulations provided that gasoline ``must contain at least 9% ethanol'' 
to qualify for the 1-psi RVP waiver). We read both the statutory 1-psi 
waiver provision and the ``deemed to comply'' provision in CAA sec. 
211(h)(4) together to limit the volume concentration of ethanol to 
between 9 and 10 percent, as only blends of gasoline and up to 10 
percent ethanol had a waiver under CAA sec. 211(f)(4) at the time EPA 
promulgated the RVP requirements.\46\ We further stated that ``this is 
consistent with Congressional intent [because] the nature of the 
blending process . . . further complicates a requirement that the 
ethanol portion of the blend be exactly 10 percent ethanol.'' \47\ For 
these reasons, the 1-psi waiver reflected Congressional recognition of 
the existing CAA sec. 211(f)(4) waiver for E10; Congress intended that 
the 1-psi waiver from the 9.0 psi RVP requirement in CAA sec. 211(h)(1) 
would allow for E10's continued lawful introduction into commerce.\48\
---------------------------------------------------------------------------

    \45\ See 56 FR 64708 (December 12, 1991).
    \46\ Id.
    \47\ Id.
    \48\ Id.
---------------------------------------------------------------------------

    In issuing implementing regulations at 40 CFR 80.28(g)(8) related 
to the ``deemed to comply'' provision in CAA sec. 211(h)(4), EPA 
allowed parties to demonstrate a defense against liability by making 
the showings provided in CAA sec. 211(h)(4), stating that ``EPA 
believes this defense is limited to ethanol blends which meet the 
minimum 9 percent requirement in the regulations and the maximum 10 
percent requirement in the waivers under section 211(f)(4).'' \49\ In 
doing so, EPA explicitly specified its applicability to E10. (``The 
ethanol portion of the blend does not exceed 10 percent (by volume)'' 
as compared to CAA sec. 211(h)(4), which merely references the CAA sec. 
211(f)(4) waiver. (``[T]he ethanol portion of the blend does not exceed 
its waiver condition under subsection (f)(4) of this section'')). We 
also stated that the deemed to comply provision was a ``new defense 
against liability for violation of the ethanol blend RVP requirement 
[and that] EPA believes that this statutorily mandated defense is in 
addition to and does not supersede any of the defenses currently 
contained in the regulations.'' \50\ We further explained that the 
provision would allow ``a party to demonstrate the elements of the new 
defense by production of a certification from the facility from which 
the gasoline is received.'' \51\ EPA also issued regulations for 
additional defenses against liability at 40 CFR 80.28(g)(1-7).
---------------------------------------------------------------------------

    \49\ Id. and 40 CFR 80.28(g).
    \50\ 56 FR 64708.
    \51\ Id.
---------------------------------------------------------------------------

d. Enactment of CAA sec. 211(h)(5)
    As part of the Energy Policy Act of 2005 (``EPAct''), Public Law 
109-58 (2005), Congress added CAA sec. 211(h)(5), which provides:

    Upon notification, accompanied by supporting documentation, from 
the Governor of a State that the RVP limitation established by 
paragraph (4) will increase emissions that contribute to air 
pollution in any area in the State, the Administrator shall, by 
regulation, apply, in lieu of the RVP limitation established by 
paragraph (4), the RVP limitation established by paragraph (1) to 
all fuel blends containing gasoline and 10 percent denatured 
anhydrous ethanol [sold] in the area during the high ozone season.

    EPA also read this provision as consistent with the statutory 
scheme of CAA sec. 211(h) to apply to blends of gasoline and 9-10 
percent ethanol produced by downstream oxygenate blenders. At the time 
CAA sec. 211(h)(4) and 211(h)(5) were enacted, the language ``the 
ethanol portion of the blend does not exceed its waiver condition under 
subsection (f)(4)'' could only refer to an ethanol portion of up to 10 
percent, because only blends of gasoline and up to 10 percent ethanol 
had received a waiver under CAA sec. 211(f)(4).

B. Proposed Interpretation of CAA Sec. 211(h)(4)

    In this action, we are proposing to interpret CAA sec. 211(h)(4) 
recognizing the changed gasoline marketplace since the Agency last 
issued implementing RVP regulations in 1990, in a manner that is 
consistent with the text of the provision, its context within CAA sec. 
211(h), and Congressional intent. The presence of E15 in the 
marketplace has increased since EPA interpreted CAA sec. 211(h)(4) in 
the MMR from zero retail stations to over 1,300 retail stations.\52\ In 
addition to granting partial waivers for E15, we have also promulgated 
the Tier 3 Motor Vehicle Emissions and Fuel Standards Rule, which 
changed the ethanol content of the vehicle certification test fuel from 
``indolene'' (gasoline without any added ethanol at 9.0 psi RVP), to 
E10 at 9.0 psi RVP for the certification of all Tier 3 light-duty and 
chassis-certified heavy-duty gasoline vehicles.\53\ This change 
reflected the near complete transition of the in-use gasoline supply to 
E10 in the years following the passage of EPAct and the Energy 
Independence and Security Act (``EISA'') and the implementation of the 
Renewable Fuel Standard program at CAA sec. 211(o).\54\ E15 has now 
entered the marketplace, but the current limitation of the 
applicability of the 1-psi waiver to only E10 is one of several hurdles 
to the continued entry of E15 into the marketplace.\55\ The same market 
limitation that prompted EPA to provide the 1-psi waiver for E10 in 
1989 currently exists for E15. Namely, in much of the U.S., there is 
very little low-RVP CBOB being produced and made available into which 
15 percent ethanol could be blended while still meeting the 9.0 psi RVP 
standard for gasoline during the high ozone season.\56\ As a result, 
parties that might otherwise consider making and distributing E15 may 
choose not to, given the difficulty in obtaining CBOB that when blended 
to produce E15 would meet the 9.0 psi RVP during the summer. If we 
extend the 1-psi waiver, 15 percent ethanol could be blended using the 
same CBOBs currently being distributed for use with 10 percent ethanol, 
year-round.\57\ Today's proposal, therefore, is a response to changed 
circumstances since the Agency's promulgation of RVP regulations in 
1990, which pre-dates EPAct in 2005 and EISA in 2007. Further, because 
blending 15 volume percent ethanol into gasoline would result in an 
approximate 1.0 psi RVP increase, similar to E10, the resultant RVP for 
any gasoline-ethanol blended fuel would be no higher than the RVP 
standard plus the 1-psi waiver, which is currently 10.0 psi for a 
gasoline-ethanol blended fuel containing 10 percent ethanol.\58\ This 
proposed interpretation is consistent with the plain language of CAA 
sec. 211(h) and with Congress' intent to promote ethanol blending into

[[Page 10591]]

gasoline, and is not expected to cause significant increases in 
emissions as compared to E10 as discussed in Section II.E.
---------------------------------------------------------------------------

    \52\ See ``Availability of E15 Keeps Growing,'' available at: 
https://growthenergy.org/2018/02/28/availability-e15-keeps-growing.
    \53\ See 79 FR 23414 (April 28, 2014).
    \54\ ``Energy Independence and Security Act,'' P.L. 110-140 
(2007).
    \55\ See,e.g., Prime the Pump: Driving Ethanol Gallons, 
available at: https://growthenergy.org/wp-content/uploads/2019/01/MDEV-19022-PTP-Overview-2019-01-25.pdf.
    \56\ Some parties have access to low RVP blendstocks created for 
low-RVP areas, however these blendstocks are not widely distributed 
in all areas. For a list of state low-RVP areas, see EPA's ``State 
Fuels'' website available at: https://www.epa.gov/gasoline-standards/state-fuels.
    \57\ In reformulated gasoline areas (approximately one-third of 
gasoline nationwide) and certain other areas that do not provide a 
1-psi waiver for E10, E15 can already be blended using the same 
blendstocks used for E10.
    \58\ As discussed further in Section II.B.3.b, this is true for 
E15 made from blends of certified gasoline or BOB and ethanol. This 
volatility relationship is not maintained when other products (e.g., 
natural gas liquids) are blended to make E15.
---------------------------------------------------------------------------

1. Proposed Interpretation
    In the MMR, we interpreted CAA sec. 211(h)(4) as providing a 1-psi 
waiver for fuel blends of gasoline and at least 9 volume percent 
ethanol and not more than 10 volume percent ethanol. As previously 
explained, this interpretation was premised on a reading of regulations 
and statutory provisions that reflected the highest available ethanol 
content in the gasoline marketplace at the time of the 1990 amendments. 
Due to changes in the gasoline marketplace, including the increased 
presence of gasoline ethanol blends of up to 15 percent ethanol, we 
propose to construe CAA sec. 211(h)(4) as specifying the minimum 
ethanol content that fuel blends containing ethanol and gasoline must 
contain in order to qualify for the 1-psi waiver. We are proposing a 
new interpretation of this statutory provision under which the 1-psi 
waiver would apply to gasoline containing at least 10 percent ethanol. 
In conjunction with CAA sec. 211(f), this would then allow the 1-psi 
waiver for any ethanol blend that has received a CAA sec. 211(f)(4) 
waiver, which at present are blends up to 15 percent ethanol, based on 
EPA's prior issuance of partial waivers under CAA sec. 211(f)(4) for 
E15.
    It is well settled that EPA has inherent authority to reconsider, 
revise, or repeal past decisions to the extent permitted by law so long 
as we provide a reasoned explanation. This authority exists in part 
because EPA's interpretations of the statutes we administer ``are not 
carved in stone.'' \59\ An agency ``must consider varying 
interpretations and the wisdom of its policy on a continuing basis.'' 
\60\ This is true when, as is the case here, review is undertaken ``in 
response to changed factual circumstances or a change in 
administration.'' \61\ EPA must also be cognizant where we are changing 
a prior position that the revised position is permissible under the 
statute and must articulate a reasoned basis for the change.\62\ This 
proposal reflects changed circumstances that have arisen since we 
issued the partial waivers for E15 in 2010 and 2011.
---------------------------------------------------------------------------

    \59\ Chevron U.S.A. Inc. v. NRDC, Inc., 467 U.S. 837, 863 
(1984).
    \60\ Id. at 863-64.
    \61\ Nat'l Cable & Telecomms. Ass'n v. Brand X internet Servs., 
545 U.S. 967, 981 (2005). See also Nat'l Ass'n of Home Builders v. 
EPA, 682 F.3d 1032, 1043 (change in administration is a ``perfectly 
reasonable basis'' for an agency's reappraisal of its regulations 
and programs).
    \62\ FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515.
---------------------------------------------------------------------------

    The term ``containing'' as used in CAA sec. 211(h)(4) in the phrase 
``fuel blends containing gasoline and 10 percent denatured anhydrous 
ethanol'' is ambiguous. We interpret this language as establishing a 
lower limit, or floor, on the minimum ethanol content for a 1-psi 
waiver from the volatility requirements expressed in CAA sec. 
211(h)(1), rather than an upper limit on the ethanol content. We can 
look to the use of the term ``containing'' in its ordinary sense. 
``Containing'' is defined as ``to have within: hold.'' \63\ Under this 
interpretation, the statute sets the minimum ethanol content, such that 
all fuels which contain at least 10 percent ethanol may receive the 1-
psi waiver, including blends that contain more than 10 percent 
ethanol.\64\ Therefore, E15, which has within it 10 percent denatured 
anhydrous ethanol, meets this definition, and should receive the 1-psi 
waiver specified in CAA sec. 211(h)(4).\65\
---------------------------------------------------------------------------

    \63\ Webster's Third New International Dictionary 491 
(unabridged ed. 1981).
    \64\ We are not changing our definition of the term 10 percent, 
which includes as little as 9 percent, to continue to provide the 
necessary blending flexibility for E10 blends. In promulgating 
regulations implementing CAA sec. 211(h)(4), we stated that 
requiring exactly 10 percent ethanol ``would place a next to 
impossible burden on ethanol blenders,'' and that ``[t]he nature of 
the blending process itself . . . further complicates a requirement 
that the ethanol portion of the blend be exactly 10 percent 
ethanol.'' See 56 FR 24245 (May 29, 1991).
    \65\ CAA sec. 211(h)(5) also contains the language ``fuel blends 
containing gasoline and ten percent denatured anhydrous ethanol.'' 
Our changed interpretation of CAA sec. 211(h)(4) also has 
implications for CAA sec. 211(h)(5), which allows states to opt out 
of the 1-psi wavier provided by CAA sec. 211(h)(4) for particular 
areas upon a showing that the 1-psi waiver will increase emissions 
that contribute to air pollution. Because the language in CAA sec. 
211(h)(5) pertaining to the 1-psi waiver is identical to the 
language in CAA sec. 211(h)(4), and both refer to the 1-psi waiver, 
we believe that both sections should be read together to apply the 
1-psi waiver to E10 and E15. Accordingly, we interpret CAA sec. 
211(h)(5) to allow states to opt out of the 1-psi waiver provided by 
CAA sec. 211(h)(4) for fuel blends containing gasoline and 9-15 
percent denatured anhydrous ethanol.
---------------------------------------------------------------------------

    We also acknowledge that Congress can legislate and thus could have 
used terms that connote a minimum ethanol content, such as the language 
employed in CAA sec. 211(m)(2) (``not less than 2.7 percent'').\66\ But 
Congress also used terms connoting a maximum ethanol content, such as 
in CAA sec. 211(k)(3) (``shall not exceed 1.0 percent'').\67\ Even more 
specifically, in CAA sec. 211(h)(1) Congress instructed EPA to 
promulgate regulations prohibiting the introduction into commerce of 
``gasoline with a Reid Vapor Pressure in excess of 9.0 pounds per 
square inch.'' Therefore, when Congress intended to impose an upper 
limit on the content of a particular compound or property of gasoline, 
it did so. In contrast, in CAA sec. 211(h)(4), Congress provided a 
higher RVP limit for ``fuel blends containing gasoline and ten percent 
ethanol.'' This provision lacks terms modifying the term 
``containing,'' in contrast to the other statutory provisions 
referenced above, supporting our finding that this term is ambiguous. 
It is therefore permissible, where Congress has used only the ambiguous 
term ``containing'' in CAA sec. 211(h)(4), to interpret ``containing'' 
to mean ``containing at least.''
---------------------------------------------------------------------------

    \66\ See, e.g., CAA sec. 211(m)(2) (``gasoline is to be blended 
to contain not less than 2.7 percent oxygen by weight'' during the 
wintertime carbon monoxide season).
    \67\ See, e.g., CAA sec. 211(k)(3)(A)(1) and (ii) (``The benzene 
content of reformulated gasoline shall not exceed 1.0 per cent by 
volume;'' ``The aromatics hydrocarbon content of the reformulated 
gasoline shall not exceed 25 percent by volume.'')
---------------------------------------------------------------------------

    Implementing regulations under both CAA sec. 211(c) prior to the 
enactment of CAA sec. 211(h) and under CAA sec. 211(h) have reflected 
the highest permissible ethanol content at the time EPA's RVP 
regulations were issued, which was 10 percent ethanol under a CAA sec. 
211(f)(4) waiver. We stated that the 1-psi waiver is ``for blends of 
gasoline with about 10 percent ethanol, or gasohol'' \68\ and in 
regulations, codified the conditions, providing that ``[t]he maximum 
ethanol content . . . in gasoline shall not exceed any applicable 
waiver conditions under CAA sec. 211(f)(4) waiver.'' \69\ Additionally, 
EPA statements on the imprecise nature of ethanol-gasoline blending 
also support the view that neither Congress nor EPA intended to limit 
ethanol content for the 1-psi waiver. ``The nature of the blending 
process . . . complicates a requirement that the ethanol portion of the 
blend be exactly 10 percent ethanol.'' \70\
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    \68\ 55 FR 23660 (June 11, 1990).
    \69\ 55 FR 23660 (June 11, 1990) and 40 CFR 80.27(d)(2) (1987).
    \70\ 56 FR 24245 (May 29, 1991).
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    We further note that in the legislative history, Congress employed 
the term ``at least'' 10 percent ethanol when discussing the 1-psi 
waiver, which suggests this provision is a floor for ethanol content in 
gasoline. For example, section 216 of the House bill provided in part 
that ``[a] manufacturer or processor of gasoline containing at least 10 
percent ethanol shall be deemed in full compliance.'' \71\
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    \71\ Clean Air Act Amendments, H.R. 3030 (101st Congress, 1990). 
See also H.R. Rep. No. 101-490, at 71 (1990) (Conf. Rep.); reprinted 
at 2 Leg. Hist. at 3095 (1993).

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[[Page 10592]]

    The Senate Report published along with the enactment of the 1990 
CAA Amendments and CAA sec. 211(h)(4) also describes both the purpose 
of including CAA sec. 211(h)(4), and general language about ethanol use 
---------------------------------------------------------------------------
in the fuel supply. The report states that the 1-psi waiver was:

    included in recognition that gasoline and ethanol are mixed 
after the refining process has been completed. It was recognized 
that to require ethanol to meet a 9 pound RVP would require the 
creation of a production and distribution network for sub-nine pound 
RVP gasoline. The cost of producing and distributing this type of 
fuel would be prohibitive to the petroleum industry and would likely 
result in the termination of the availability of ethanol in the 
marketplace. Under this provision, the RVP limitations promulgated 
pursuant to this subsection for such ethanol/gasoline blends shall 
be one pound per square inch greater than the applicable Reid vapor 
pressure which apply to gasoline. Senate Report 101-228, at 3495.

    Finally, the Senate report states that the 1-psi waiver would 
``allow ethanol blending to continue to be a viable alternative fuel, 
with its beneficial environmental, economic, agricultural, energy 
security and foreign policy implications.'' \72\ While this legislative 
history does not speak to the meaning of the word ``containing,'' it 
does articulate congressional intent in enacting the provision, 
recognizing the role for ethanol in the marketplace. This report and 
other relevant legislative history do not explicitly address whether 
CAA sec. 211(h)(4) is intended to apply to blends with greater than 10 
percent ethanol, but all the reasons it gives for extending the 1-psi 
waiver to gasoline ethanol blends up to 10 percent ethanol now would 
similarly weigh in favor of interpreting the 1-psi waiver to apply to 
E15, given that Congressional action in CAA sec. 211(h) was largely a 
ratification of agency regulations for RVP that were initiated 
beginning in 1987, under CAA sec. 211(c).
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    \72\ See S. Rep. No. 101-228 at 110 (1989).
---------------------------------------------------------------------------

    Congress designed the 1-psi waiver ``deemed to comply'' language of 
CAA sec. 211(h)(4) to adjust to gasoline-ethanol blends with more than 
10 volume percent ethanol if allowed under separate provisions of the 
CAA (i.e., in the case where EPA grants a CAA sec. 211(f)(4) waiver 
that allows for greater than 10 volume percent ethanol in gasoline). In 
other words, the blended fuel is ``deemed to comply'' not because it is 
E10, but because it is a gasoline-ethanol blended fuel that has 
received a CAA sec. 211(f)(4) waiver. The Senate Report described the 
``deemed to comply'' provision as an ``alternative enforcement 
arrangement'' that had the benefit of simplifying compliance 
demonstrations due to the inconsistency between the production of 
gasoline batches, measured in millions of gallons, to ethanol blending 
at the terminal in batches on the order of thousands of gallons. The 
``deemed to comply'' provision further supports the interpretation that 
the 1-psi waiver under CAA sec. 211(h)(4) can apply to gasoline with 
ethanol content greater than 10 percent. The ``deemed to comply'' 
provision lays out the compliance mechanisms for regulated parties, but 
also contemplates ethanol blends beyond E10, the only gasoline-ethanol 
blended fuel with a CAA sec. 211(f)(4) waiver at the time of enactment, 
because EPA's waiver authority under that provision is not limited to 
gasoline containing any particular range of volume percent ethanol. CAA 
sec. 211(h)(4)(B) provides that the ``deemed to comply provision'' will 
apply upon a demonstration that, among other things, ``the ethanol 
portion of the blend does not exceed its waiver condition under 
subsection (f)(4).'' We read this phrase to apply to only the waiver 
condition specifying the ethanol content of the fuel. Pursuant to the 
E15 waivers issued in 2010 and 2011, a fuel that includes 15 percent 
ethanol contains an ethanol portion that does not exceed the 211(f)(4) 
waiver condition. As previously shown, if Congress had wanted to limit 
the application of the (h)(4) waiver to E10, it could have done so, but 
it did not. Instead, Congress contemplated that ethanol content may 
increase in the future, that parties would likely apply for an 
211(f)(4) waiver for those higher blends, that the 211(h)(4) waiver 
would apply to these fuels, and that the 211(h)(4) ``deemed to comply'' 
provision would also apply.
    Therefore, CAA sec. 211(h)(4) can be read as specifying the minimum 
ethanol content for ethanol-gasoline blends for purposes of the 1-psi 
waiver while the deemed to comply provision can be construed as a 
defense against liability for any ethanol blend that has received a CAA 
sec. 211(f)(4) waiver, which at present includes E15. As previously 
explained, the ``deemed to comply'' provision that was enacted at the 
inception of the RVP program to address industry practices at the time, 
reflects the highest permissible ethanol content at that time because 
of the waiver under CAA sec. 211(f)(4). CAA sec. 211(h)(4)(B) (``the 
ethanol portion of the blend does not exceed its waiver condition under 
subsection (f)(4) of this section.'') It is a statutorily mandated 
defense that is in addition to other defenses codified at 40 CFR 
80.28(g)(1) through (7). It is not and has never been the sole 
enforcement mechanism for the 1-psi waiver. These other equally 
effective provisions would be applicable to gasoline-ethanol blended 
fuels containing 15 percent ethanol and our extending the 1-psi waiver 
to such blends should have no effect on the enforcement of RVP 
standards. Regulated parties could also continue to avail themselves of 
this provision, if necessary. Moreover, considerations that animated 
this provision, are now largely attenuated considering changes in the 
refinery process. Today, ethanol blending is done almost completely 
through in-line blending ethanol into CBOB specially made for blending 
with ethanol as compared to the nascent days where it was splash 
blended after completion of the refining process.
    Our primary consideration has been to balance the goals of limiting 
gasoline volatility and ensure that the addition of ethanol does not 
cause the exceedance of the maximum RVP standard, while also promoting 
the use of ethanol consistent with the purpose of CAA sec. 211(h)(4). 
As previously explained, blending gasoline with at least 10 percent 
ethanol results in an approximate 1.0 psi RVP increase. It does not 
result in ``different volatility levels than already recognized by EPA 
as adding less than 1.0 psi RVP to gasoline.'' \73\ Similarly, we also 
expect that E15 produced from the same BOB as E10 would have a similar 
(if not slightly lower) RVP than E10 and thus, would not exceed the 
current 10.0 psi RVP limit.\74\ Therefore, we are fairly confident that 
relative evaporative emissions effects for E15 would largely be similar 
or slightly less than those for E10, as discussed in Section II.E.
---------------------------------------------------------------------------

    \73\ Clean Air Act Amendments: Hearings on H.R. 2521, H.R. 3054 
and H.R. 3196 Before the Subcommittee on Health and the House 
Committee on Environment and Committee On Energy and Commerce, 100th 
Cong. 1st Sess. (1987) (statement of Eric Vaughn, President and CEO 
of renewable Fuels Association).
    \74\ ``Determination of the Potential Property Ranges of Mid-
Level Ethanol Blends.'' American Petroleum Institute, Washington, 
DC. April 2010.
---------------------------------------------------------------------------

    In sum, the primary consideration underlying the 1-psi waiver is to 
limit gasoline volatility while promoting the use of ethanol due to its 
importance to energy security and the agricultural sector. Today's 
proposed interpretation, if finalized, will continue to further these 
policy concerns given that agency action will now afford similar 
treatment to all ethanol-gasoline blends.
2. Regulatory Amendments
    This proposal includes technical amendments that would effectuate 
our

[[Page 10593]]

proposed interpretation to allow the 1-psi waiver for E15 during the 
summer under CAA sec. 211(h)(4). First, we are proposing to modify or 
remove volatility controls associated with our prior interpretation of 
CAA sec. 211(h)(4). These controls, found in 40 CFR 80.27, place 
limitations on the RVP of gasoline-ethanol blends at specific 
concentrations. Given that the primary effect of our proposed 
interpretation of CAA sec. 211(h)(4) would expand the ``special 
treatment for gasoline-ethanol blends'' to fuel blends containing 9-15 
percent ethanol, we are proposing to modify the controls extending the 
1-psi waiver from gasoline containing 9-10 percent ethanol to gasoline 
containing 9-15 percent ethanol at 40 CFR 80.27 and related defense 
provisions in 40 CFR 80.28.
    Second, we are proposing to remove or modify provisions in the MMR 
that were imposed to effectuate the prior 1-psi waiver interpretation 
under CAA sec. 211(h)(4). Subsequent to the grant of the CAA sec. 
211(f)(4) partial waivers for E15, we adopted regulations under CAA 
sec. 211(c) to ensure that E15 would not be used in certain vehicles 
and engines for which the waivers did not apply. To do so, in addition 
to the conditions on the waivers that applied to fuel manufacturers, we 
promulgated regulations to ensure that those same conditions were 
enforceable on downstream parties. No changes were made to the RVP 
regulations at 40 CFR 80.27 as a direct result of our interpretation 
under CAA sec. 211(h)(4) that the 1-psi waiver did not extend to 
gasoline-ethanol blends with an ethanol concentration greater than 10 
percent. Additional regulations were put in place including regulations 
currently found in 40 CFR 80.1504(f) and (g) (placing prohibitions on 
the commingling of E10 and E15), and 40 CFR 80.1503 (placing PTD 
requirements on E15). These regulations were put in place in order to 
ensure that the RVP of E15 did not exceed 9.0 psi in accordance with 
our interpretation of CAA sec. 211(h)(4) at the time. However, since 
our proposed interpretation of CAA sec. 211(h)(4) increases the RVP 
allowance to 10.0 psi, these provisions are no longer necessary. 
Additionally, because the RVP of E15 will be approximately the same as 
E10 if produced from the same blendstock, we do not anticipate 
emissions impacts from this equal treatment. Given that we are 
proposing to interpret CAA sec. 211(h)(4) to extend to gasoline-ethanol 
blends of up to 15 percent ethanol, the prohibition on the commingling 
of E15 and E10 is no longer necessary.
    Finally, we are proposing to remove the PTD requirements related to 
the 1-psi waiver at 40 CFR 80.1503. In 40 CFR part 80, subpart N, we 
included PTD language designed to help ensure that E15 that did not 
receive the 1-psi waiver would be segregated from E10 that did receive 
the 1-psi waiver. Since we are proposing to allow the 1-psi waiver for 
E15, we no longer need these PTD requirements. However, parties that 
produce and distribute gasoline-ethanol blended fuels would still be 
required to identify ethanol concentrations on PTDs as specified in 40 
CFR 80.27 and 40 CFR 80.1503.
    All other E15 misfueling mitigation provisions in 40 CFR part 80, 
subpart N, would remain unchanged. In the MMR, we promulgated 
regulations under CAA sec. 211(c)(1), which prohibit the use of E15 in 
MY2000 and older motor vehicles, nonroad vehicles, engines, and 
equipment (including motorcycles, and heavy-duty motor vehicles). CAA 
sec. 211(c)(1) gives EPA authority to ``control or prohibit the 
manufacture, introduction into commerce, offering for sale, or sale'' 
of any fuel or fuel additive (A) whose emission products, in the 
judgment of the Administrator, cause or contribute to air pollution 
``which may be reasonably anticipated to endanger public health or 
welfare'' or (B) whose emission products ``will impair to a significant 
degree the performance of any emission control device or system which 
is in general use, or which the Administrator finds has been developed 
to a point where in a reasonable time it would be in general use'' were 
the fuel control or prohibition adopted. We promulgated the MMR based 
on our assessment that E15 would significantly impair the emission 
control systems used in MY2000 and older light-duty motor vehicles, 
heavy-duty gasoline engines and vehicles, highway and off-highway 
motorcycles, and all nonroad products. This led to our conclusion that 
under CAA sec. 211(c)(1)(A), E15 use in these particular vehicles, 
engines, and non-road products would likely result in increased VOC, 
carbon monoxide (CO), and nitrogen oxide (NOX) 
emissions.\75\ The proposed regulatory changes to 40 CFR part 80, 
subparts B and N in this proposed rulemaking are solely related to our 
proposed interpretation to allow the 1-psi waiver for E15 under CAA 
sec. 211(h)(4). This proposed action would not change the basis of our 
CAA sec. 211(c)(1)(A) and (B) finding in the MMR that prohibits E15 
from use in MY2000 and older light-duty motor vehicles, heavy-duty 
gasoline engines and vehicles, highway and off-highway motorcycles, and 
all nonroad products. This action also does not propose to modify the 
misfueling mitigation measures promulgated in the MMR, but, as 
discussed in Section II.D.3, we seek comment on the need for additional 
E15 misfueling measures.
---------------------------------------------------------------------------

    \75\ 76 FR 44422 (July 25, 2011).
---------------------------------------------------------------------------

3. Effects on Regulated Parties
    This section discusses distinctions between the obligations that 
apply to certain parties in the fuel production, blending, and retail 
chain, and how this proposed action would affect (or would not affect) 
those parties. Specifically, we discuss how the proposed CAA sec. 
211(h)(4) interpretation under which the 1-psi waiver would extend to 
E15 would affect fuel manufacturers (e.g., refiners and importers of 
gasoline), downstream oxygenate blenders, and retailers that make E15 
at a blender pump.
a. E15 Made by Refiners, Importers, and Downstream Oxygenate Blenders
    In this action, we are maintaining all of the CAA sec. 211(f)(4) 
waiver conditions for E15 as they currently apply to fuel and fuel 
additive manufacturers.\76\ CAA sec. 211(f)(1) operates as a 
prohibition against the introduction into commerce of fuels and fuel 
additives by manufacturers of fuels and fuel additives, and CAA sec. 
211(f)(4) provides a mechanism to waive that prohibition if certain 
criteria are met. Therefore, fuel and fuel additive manufacturers are 
subject to any conditions that apply to a CAA sec. 211(f)(4) waiver. 
Under this approach, fuel and fuel additive manufacturers would still 
need to produce E15 that meets the 9.0 psi RVP requirement of the 
waiver condition, while downstream parties are not similarly bound. 
EPA's fuel and fuel additive registrations (FFARs) regulations at 40 
CFR 79.2(d) define which parties are fuel manufacturers and makes clear 
that parties that only blend oxygenates at allowable levels under CAA 
sec. 211(f) are excluded from the definition of fuel manufacturers. We 
are, however, neither reopening 40 CFR 79.2(d), nor soliciting comments 
on this provision. We will therefore treat any comments we receive on 
this topic as beyond the scope of this rulemaking.
---------------------------------------------------------------------------

    \76\ We note, however, that under the new substantially similar 
interpretive rulemaking proposed in Section II.C, such that it 
includes E15, such waiver conditions would no longer apply to fuel 
and fuel additive manufacturers.
---------------------------------------------------------------------------

    We are not changing our interpretation of the way the CAA controls 
fuels and the way our regulations regulate fuels in any way other than 
providing the 1-psi waiver to

[[Page 10594]]

gasoline containing greater than 10 volume percent ethanol as a 
consequence of interpreting the 1-psi RVP waiver to apply to E15. The 
1-psi waiver applies to all parties that blend and distribute gasoline-
ethanol blends containing at least 10 percent ethanol unless 
specifically restricted under another portion of the CAA, in this case 
CAA sec. 211(f) through the 9.0 psi RVP limit on E15 from May 1 through 
September 15 as a condition of its CAA sec. 211(f)(4) partial waivers. 
The 1-psi RVP waiver under CAA sec. 211(h)(4) is thus available to 
downstream oxygenate blenders who produce E15 and to downstream parties 
who distribute and sell E15, but the 1-psi waiver is not available to 
fuel or fuel additive manufacturers since fuel and fuel additive 
manufacturers must comply with the high ozone season 9.0 psi RVP E15 
waiver condition.
    This is in accordance with how the fuel marketplace currently 
functions with regard to E10. Refiners and importers currently produce 
or import gasoline (or conventional blendstock for oxygenate blending 
(CBOB)), which can then be blended with ethanol downstream. It is not 
until that ethanol is blended into the gasoline or CBOB that parties 
are able to receive the benefits of the 1-psi waiver (i.e., an RVP 
volatility limit of 10.0 psi). Therefore, a refiner's or importer's 
gasoline or CBOB must always meet a 9.0 psi RVP limitation prior to the 
addition of ethanol.\77\ However, because the CAA sec. 211(f)(4) waiver 
for E10 was granted by operation of law, and thus did not contain a 
waiver condition limiting the RVP to 10.0 psi, in contrast to E15, 
refiners and importers can take advantage of the 1-psi waiver for E10. 
It should be noted, however, that if another part of the CAA or EPA 
regulation precludes the 1-psi waiver, for example, reformulated 
gasoline (RFG) required under CAA sec. 211(k) or a low-RVP fuel program 
established in a state implementation plan, parties cannot take 
advantage of the 1-psi waiver for E10 or E15.\78\ In such 
circumstances, however, the same CBOBs already supplied for E10 
blending can already be used for E15 blending, so the 1-psi waiver is 
not at issue.
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    \77\ In fact, as discussed above, downstream parties can only be 
deemed in compliance under CAA sec. 211(h)(4)(A) if the gasoline or 
CBOB met the applicable RVP standard prior to the addition of the 
ethanol.
    \78\ During the pre-proposal development process, we received a 
document related to whether allowing E15 the 1-psi waiver would 
result in states being preempted under CAA sec. 211(c)(4). Please 
see ``RVP Preemption Memorandum'' in the docket at EPA-HQ-OAR-2018-
0775 for this document.
---------------------------------------------------------------------------

    The 1-psi waiver for E15 would function the same way, although if a 
refiner or importer were to choose to blend E15, including but not 
limited to blending at a co-located terminal or at a terminal 
downstream of a refinery operated by the refiner or importer, they 
would not be able to use the 1-psi waiver because the exclusion from 
the definition of a ``fuel manufacturer'' only includes a party 
``(other than a fuel refiner or importer).'' \79\ This means that 
refiners and importers who blend E15 would still need to comply with 
the waiver conditions under CAA sec. 211(f)(4).
---------------------------------------------------------------------------

    \79\ If a separate party operated a terminal co-located with a 
refinery and the party was excluded from the definition of fuel 
manufacturers under 40 CFR 79.2(d)(2), the party that operated the 
co-located terminal would be not be subject to the E15 waiver 
conditions. As previously noted, we are neither reopening this 
provision for comments nor soliciting comments on it and any 
comments on it we receive will be treated as beyond the scope of 
this rulemaking.
---------------------------------------------------------------------------

    This interpretation of CAA sec. 211(f)(4) is consistent with our 
past treatment of CAA sec. 211(f)(1) and (f)(4)'s applicability to only 
fuel and fuel additive manufacturers, and is further supported by our 
actions in the MMR, which imposed regulatory requirements that are 
similar to the E15 CAA sec. 211(f)(4) waiver conditions on downstream 
parties, to whom the waiver conditions do not reach.\80\ The MMR was 
enacted ``to mitigate misfueling with E15 that lawfully has been 
introduced into commerce under the terms of the waiver[s]. The waiver 
conditions, and implementation of the waiver conditions, address a 
closely related but different issue--when, how and by whom E15 can be 
introduced into commerce under the partial waiver decisions. This rule 
only addresses the issue of mitigating misfueling in the event E15 is 
lawfully introduced into commerce under the partial waivers, and is 
issued under EPA's authority under section 211(c).'' \81\
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    \80\ See 76 FR 44421 (July 25, 2011) (enacting E15 MMR 
provisions ``to ensure that E15 being sold at retail stations was in 
compliance with the RVP condition of the E15 waiver and that an E10 
fuel that used the 1.0 psi RVP waiver under CAA sec. 211(h) was not 
commingled with E15, which must have a lower RVP in the 
summertime'').
    \81\ See 76 FR 44440 (July 25, 2011).
---------------------------------------------------------------------------

    As discussed above, CAA sec. 211(f) imposes limitations on fuel and 
fuel additive manufacturers. All fuel and fuel additive manufacturers 
must meet the statutory requirements of CAA sec. 211(f)(1) or the 
waiver conditions imposed under a CAA sec. 211(f)(4) waiver. As 
previously explained fuel manufacturers are defined in our regulations 
at 40 CFR 79.2. This definition explicitly excludes parties ``(other 
than a fuel refiner or importer) who add[] an oxygenate compound to 
fuel in any otherwise allowable amount.'' These excluded parties may 
also be considered ``oxygenate blenders'' under our regulations in 40 
CFR part 80.\82\ An ``oxygenate blender'' is defined as ``any person 
who owns, leases, operates, controls, or supervises an oxygenate 
blending facility, or who owns or controls the blendstock or gasoline 
used or the gasoline produced at an oxygenate blending facility.'' \83\ 
An ``oxygenate blending facility'' is defined as ``any facility 
(including a truck) at which oxygenate is added to gasoline or 
blendstock, and at which the quality or quantity of gasoline is not 
altered in any other manner except for the addition of deposit control 
additives.'' \84\
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    \82\ 40 CFR 80.2.
    \83\ Id.
    \84\ Id.
---------------------------------------------------------------------------

    While our proposed interpretation of CAA sec. 211(h)(4) would allow 
for gasoline-ethanol blends that contain at least 10 volume percent 
ethanol to receive the 1-psi waiver, CAA sec. 211(f) and our 40 CFR 
parts 79 and 80 fuels regulations continue to limit the amount of 
ethanol allowed to be blended into gasoline, and also the gasoline 
ethanol blends that can receive the 1-psi waiver. The definition of 
``fuel manufacturer'' also places a limitation on the ethanol content 
of the fuel. Only parties who ``add[] an oxygenate compound to fuel in 
any otherwise allowable amount'' are excluded from the definition of 
fuel manufacturer.\85\ This provision only allows the addition of 
oxygenate compounds up to the amount of any CAA sec. 211(f)(4) waiver, 
or any allowable oxygen content under our interpretation of the meaning 
of ``substantially similar.'' A party who unlawfully adds an oxygenate 
compound in a volume that exceeds the oxygen content limit in the 
interpretative definition of ``substantially similar'' or the CAA sec. 
211(f)(4) waiver condition, or who adds anything other than an 
oxygenate compound allowed by the substantially similar interpretative 
rule, is a fuel manufacturer, and does not receive the 1-psi waiver for 
fuels containing at least 10 percent ethanol.
---------------------------------------------------------------------------

    \85\ 40 CFR 79.2(d).
---------------------------------------------------------------------------

    The result is that any party who is not a refiner or importer that 
produces E15 from only certified gasoline (including CBOB) and 
denatured fuel ethanol would be entitled to the 1-psi waiver just as is 
the case currently when such parties produce E10. This could occur at

[[Page 10595]]

a downstream terminal where ethanol is added along with gasoline to a 
tank truck for delivery to a retail station. This could also occur at 
retail stations that blend E15 onsite using blender pumps that utilize 
either gasoline and denatured fuel ethanol as blendstocks onsite, or 
that use gasoline (either E0 or E10) and E85 \86\ as blendstocks onsite 
so long as that E85 had itself been produced solely from denatured fuel 
ethanol and certified gasoline (or CBOB).
---------------------------------------------------------------------------

    \86\ For purposes of this preamble, E85 means a gasoline-ethanol 
blended fuel that contains at least 50 volume percent ethanol but no 
more than 83 volume percent ethanol. We use the term E85 as the 
market has historically and commercially identified such fuels as 
E85.
---------------------------------------------------------------------------

b. E15 Made at Blender Pumps
    For the reasons described in this section, a retail station that 
blends E15 using E85 that contains hydrocarbons not certified as 
gasoline or blendstock for oxygenate blending (BOB) (e.g., the natural 
gas liquids that are often used at ethanol plants to denature ethanol 
and make E85) would not be entitled to the 1-psi waiver.
    First, parties that produce E15 via a blender pump using E85 made 
with ethanol and natural gas liquids (i.e., an uncertified gasoline 
blendstock) are fuel manufacturers under our existing 40 CFR part 79 
regulations (covering registration of fuels and additives), and as such 
are subject to the 9.0 psi RVP condition under the existing E15 CAA 
sec. 211(f)(4) waivers. Any party that blends an uncertified gasoline 
blendstock into gasoline is a fuel manufacturer under our 40 CFR part 
79 regulations because they are altering the chemical composition of a 
fuel. Regardless of our proposed interpretation of CAA sec. 211(h)(4), 
then, any such parties that produce E15 are still subject to the 9.0 
psi RVP standard. E15 made at blender pumps may only receive the 
proposed extension of the 1-psi waiver in instances where an oxygenate 
blender blends certified gasoline (or CBOB) with E85 made from ethanol 
and certified gasoline (or CBOB).
    Second, such parties are also gasoline refiners under our existing 
40 CFR part 80 regulations because they blend uncertified gasoline 
blendstocks into gasoline.\87\ Under our regulations in 40 CFR part 80 
(covering implementation of our fuels control programs), any party that 
blends uncertified blendstocks into gasoline is a gasoline refiner and 
must meet all requirements applicable to gasoline refiners under 40 CFR 
part 80. These requirements include, but are not limited to, sampling 
and testing each batch of gasoline for conformance to EPA's fuel 
standards, demonstrating compliance with annual average sulfur and 
benzene standards, registering as a gasoline refiner under 40 CFR part 
80, submitting periodic and annual compliance reports, and arranging 
for an annual audit by an independent auditor. These requirements were 
put in place to help ensure that parties downstream of gasoline 
refineries did not adversely affect fuel quality in ways that damaged 
vehicle and engine emission controls and helped ensure that the air 
quality benefits of our fuel quality regulations are met.
---------------------------------------------------------------------------

    \87\ The regulations at 40 CFR part 80 allow for parties to 
blend uncertified gasoline blendstock into previously certified 
gasoline as long as the party complies with our sampling and testing 
requirements at 40 CFR 80.65, 80.101, and 80.1640.
---------------------------------------------------------------------------

    Third, under our FFARS regulations in 40 CFR part 79, parties that 
blend uncertified blendstocks into gasoline are fuel manufacturers and 
must register their fuels and fuel additives as required under the CAA. 
In the case where a blender pump produces E15 by blending a certified 
gasoline (typically E10) with E85 that contains uncertified blendstocks 
(e.g., natural gas liquids), the operator of the blender pump meets the 
definitions of both a gasoline refiner under 40 CFR part 80 and a fuel 
manufacturer under 40 CFR part 79 and must comply with associated 
requirements.
    We proposed to address this situation in the Renewables Enhancement 
and Growth Support (REGS) rule \88\ by proposing provisions that would 
control the sulfur, benzene, and volatility of E85 used to make E15 via 
a blender pump, which would allow gasoline made via blender pumps to 
meet applicable EPA fuel quality standards and lawfully be made.\89\ 
The proposed REGS rule also proposed to remove the FFARS requirements 
under 40 CFR part 79 for blender pump operators that make gasoline via 
a blender pump. Since those proposed provisions have not been 
finalized, the only way for a blender pump operator to lawfully make 
E15 at a blender pump is to make E15 with certified gasoline and E85 
made from ethanol and certified gasoline (or CBOB) or to comply with 
all requirement applicable to refiners and fuel manufacturers.
---------------------------------------------------------------------------

    \88\ See 81 FR 80841 (November 16, 2016).
    \89\ In the proposed REGS rule, to specifically address the 
issue of E10, E15, and other gasoline-ethanol blended gasolines 
(i.e., gasoline containing between 16 and 50 volume percent ethanol 
or ``E16-50'') produced at a blender pump, we proposed limitations 
on the use of fuels that a blender pump operator could use to make 
compliant gasoline. In general, under the proposed REGS rule, 
blender pump operators would need to use certified gasoline and 
certified E85 to assure compliance with EPA's gasoline fuel quality 
standards under 40 CFR part 80. See 81 FR 80847-80848 (November 16, 
2016).
---------------------------------------------------------------------------

    Finally, and perhaps most importantly, even if we finalize the 
proposed REGS rule and allow blender pumps to make gasoline at blender 
pumps and exempt blender pump operators from complying with the 
requirements for gasoline refiners and fuel manufacturers, based on 
information received during the comment period of the proposed REGS 
rule, it is likely that E15 made at blender pumps with E85 produced 
from natural gas liquids would often violate the applicable RVP 
standards even with the 1-psi waiver. Natural gas liquids often have 
RVP levels well above 10.0 psi. Adding such potentially highly volatile 
components to E15 (via E85) in significant concentrations would result 
in a finished E15 with a volatility in excess of 10.0 psi RVP. 
Therefore, in this proposal, only E15 produced using certified gasoline 
(or CBOB) and denatured fuel ethanol would be eligible for the 1-psi 
waiver.
c. Summary and Conclusion
    Table II.B.4.c-1 summarizes how we believe the E15 partial waiver 
conditions imposed via CAA sec. 211(f)(4) and the 1-psi waiver under 
CAA sec. 211(h)(4) would apply to fuel manufacturers, downstream 
oxygenate blenders, and retailers that make E15 via a blender pump as a 
result of our proposed interpretation to allow E15 to receive the 1.0 
psi waiver.

                      Table II.B.4.c-1--Summary of E15 1-psi Waiver Applicability by Party
----------------------------------------------------------------------------------------------------------------
                                 Can take advantage of the    Subject to E15 waiver     Could lawfully make/sell
                                       1-psi waiver?               conditions?          E15 at 10 psi in summer?
----------------------------------------------------------------------------------------------------------------
Fuel Manufacturers............  Yes.......................  Yes......................  No.
Oxygenate Blenders............  Yes.......................  No.......................  Yes.

[[Page 10596]]

 
Retailers that make E15 with    Yes.......................  No.......................  Yes.
 E85 made with gasoline/BOB.
Retailers that make E15 with    Yes.......................  Yes......................  No.
 E85 made with something other
 than gasoline/BOB.
----------------------------------------------------------------------------------------------------------------

    As mentioned above, under our proposed interpretation, all parties 
can take advantage of the 1-psi waiver unless they are precluded from 
doing so by some other requirement. We believe that the E15 waiver 
condition limiting the RVP of E15 to 9.0 psi during the summer would 
preclude fuel manufacturers (i.e., refiners and importers) from being 
able to introduce E15 into commerce under CAA sec. 211(f), but would 
not preclude downstream oxygenate blenders that were not otherwise fuel 
manufacturers from blending E15. For retailers that blend E15 using E85 
made from denatured fuel ethanol (``DFE'') and certified gasoline (or 
CBOB) via a blender pump, those parties are acting analogous to 
downstream oxygenate blenders and could lawfully make E15. For all of 
the reasons described above, for retailers using E85 made with anything 
other than DFE and certified gasoline (or CBOB), those parties are 
acting analogous to fuel manufacturers and could not lawfully make E15.
    We seek comment on our proposed interpretation of CAA sec. 
211(h)(4) as specifying a minimum ethanol content for fuel blends 
containing gasoline and ethanol as well as these implementing 
requirements. Under this construct, only certain regulated parties that 
produce and distribute E15 would be able to avail themselves of the 1-
psi waiver.

C. Proposed Interpretation of ``Substantially Similar'' for Gasoline

    This action proposes a new interpretation of ``substantially 
similar'' which defines which fuels are substantially similar to Tier 3 
E10 certification fuel under CAA sec. 211(f)(1), as an alternative to 
the approach described above which would apply the CAA sec. 211(f)(4) 
waiver and its associated conditions.\90\ Specifically, we are 
proposing that E15 with an RVP of 10.0 psi is sub sim to fuel used to 
certify Tier 3 light-duty vehicles (i.e., E10 with an RVP of 9.0 psi). 
Alternatively, we propse that E15 with an RVP of 9.0 psi is sub sim to 
fuel used to certify Tier 3 light-duty vehicles. Either of these new 
interpretations of sub sim would increase the allowable concentration 
of ethanol blended into gasoline to up to 15-volume-percent because we 
believe that E15 is sub sim to Tier 3 E10 certification fuel.
---------------------------------------------------------------------------

    \90\ Tier 3 vehicles must be certified on fuels described at 40 
CFR 1065.710(b). For purposes of this preamble, we refer to 
certification test fuel used in certification testing for Tier 3 
motor vehicles that contains 10-volume-percent ethanol as ``Tier 3 
E10 certification fuel''.
---------------------------------------------------------------------------

    E15 would have similar effects on emissions (exhaust and 
evaporative), materials compatibility, and driveability for light-duty 
motor vehicles certified using Tier 3 E10 certification fuel.\91\ This 
proposed interpretative rule would, if finalized, make it lawful for 
refiners and importers (e.g., fuel manufacturers as described in 40 CFR 
79.2(d) discussed above) to make and introduce into commerce E15 at 
10.0 psi RVP without the use of the E15 partial waivers since we would 
now interpret E15 as sub sim to Tier 3 E10 certification fuel. We are 
proposing two alternative interpretations of the sub sim provision for 
E15. First, we are proposing that E15 at 10 psi RVP is substantially 
similar to Tier 3 E10 certification fuel at 9 psi RVP. Alternatively, 
we are proposing that E15 at 9 psi is substantially similar to Tier 3 
E10 certification fuel at 9 psi RVP. In conjunction with our 
interpretation of CAA sec. 211(h)(4) described above, this would allow 
all fuel manufacturers, not only downstream oxygenate blenders, the 
ability to lawfully introduce into commerce E15 at 10.0 psi RVP from 
May 1 through September 15. Prohibitions on the use of E15 in 2000 and 
older MY light-duty vehicles that currently apply as conditions of the 
CAA sec. 211(f)(4) waiver and as regulations established under CAA sec. 
211(c), as well as the use of E15 in other vehicles, engines, and 
equipment not covered by the E15 partial waivers, would remain in 
place, and parties that make and distribute E15 and ethanol for use in 
producing E15 would still need to satisfy the MMR requirements under 40 
CFR part 80, subpart N. This section outlines the background and 
rationale for our proposed interpretative rulemaking.
---------------------------------------------------------------------------

    \91\ Auto manufacturers certified some light-duty motor vehicles 
using E10 certification fuel as early as MY2017 and almost all auto 
manufacturers must certify their light-duty motor vehicles using E10 
certification fuel by MY2020.
---------------------------------------------------------------------------

1. Statutory Framework
    The Air Quality Act of 1967 and the CAA of 1970 established the 
basic framework for EPA fuels regulation. CAA sec. 211(a) allows EPA to 
designate fuels and fuel additives for registration. CAA sec. 211(b) 
sets forth registration requirements for fuels and fuel additives and 
authorizes EPA to require health and environmental effects testing for 
the registration of fuels and fuel additives. CAA sec. 211(c) 
authorizes EPA to regulate or prohibit fuels or additives for use in 
motor (or nonroad) vehicles or engines if: (A) ``any fuel or fuel 
additive or any emission product of such fuel or fuel additive causes, 
or contributes, to air pollution . . . that may reasonably be 
anticipated to endanger the public health or welfare, or (B) if 
emission products of such fuel or fuel additive will impair to a 
significant degree the performance of any emission control device or 
system.''
    In the CAA Amendments of 1977, Congress established CAA sec. 
211(f)(1), which prohibits manufacturers from first introducing into 
commerce any fuel or fuel additive for general use in light-duty 
vehicles that is not ``substantially similar to any fuel or fuel 
additive utilized in the certification of any model year 1975, or 
subsequent model year, vehicle.'' If a fuel or fuel additive is not sub 
sim, a fuel or fuel additive manufacturer may obtain a waiver under CAA 
sec. 211(f)(4) if the manufacturer can demonstrate that the new fuel or 
fuel additive ``will not cause or contribute to a failure of any 
emission control device or system (over the useful life of the motor 
vehicle, motor vehicle engine, nonroad engine, or nonroad vehicle in 
which such device or system is used) to achieve compliance by the 
vehicle or engine with the emission standards with respect to which it 
has been certified.'' Together, these CAA sec. 211(f) provisions were 
designed to prevent fuels and fuel additives from being introduced into 
commerce that would degrade the emission performance of the existing 
fleet and protect vehicle manufacturers from their

[[Page 10597]]

vehicles consequently failing emission standards in use.
    As discussed above, in the CAA Amendments of 1990, Congress added 
CAA sec. 211(h) to address the volatility of gasoline, which largely 
codified EPA's then-new RVP regulations. Accordingly, entirely separate 
from CAA sec. 211(f), CAA sec. 211(h)(1) prohibits the sale of gasoline 
with an RVP in excess of 9.0 psi during the high ozone season (while 
allowing EPA to promulgate more stringent RVP requirements for 
nonattainment areas), and CAA sec. 211(h)(4) provides a 1.0 psi RVP 
allowance for ``fuel blends containing gasoline and 10 percent'' 
ethanol.
2. Certification Fuels
    Historically, two fuels are utilized in EPA's emissions standards 
certification of gasoline-powered vehicles and engines: standardized 
gasoline with controlled parameters to ensure consistency across 
vehicle and engine certification used in emissions testing, and 
commercially available mileage accumulation fuels used to ensure 
durability in use of exhaust and evaporative emissions controls.\92\ 
Historically the fuel used in emissions testing (``certification test 
fuel'') contained no oxygenates (e.g., ethanol) and was often referred 
to by its brand name, ``indolene.''
---------------------------------------------------------------------------

    \92\ See 46 FR 38582 (July 28, 1981).
---------------------------------------------------------------------------

    In the 2014 Tier 3 rulemaking, we updated the certification test 
fuel for Tier 3 certified motor vehicles and changed the certification 
test fuel from E0 to E10 to reflect the widespread use of E10 in the 
marketplace.\93\ The requirement to use Tier 3 E10 certification fuel 
may have applied as early as MY2015 if a manufacturer elected to comply 
early with the Tier 3 vehicle emissions standards, but the requirement 
to use E10 in at least some vehicles began with MY2017. Almost all 
MY2020 and newer vehicles must be certified for emissions testing with 
Tier 3 E10 certification fuel with some exceptions for small volume 
vehicle manufacturers, which must use Tier 3 E10 certification fuel by 
MY2022.
---------------------------------------------------------------------------

    \93\ See 79 FR 23414 (April 28, 2014).
---------------------------------------------------------------------------

    Service accumulation fuel for durability must be representative of 
commercially-available gasoline \94\ and evaporative emissions 
durability must ``employ gasoline fuel for the entire mileage 
accumulation period that contains ethanol in, at least, the highest 
concentration permissible in gasoline under federal law and that is 
commercially available in any state in the United States.'' \95\ Since 
MY2004, service accumulation fuel used for evaporative system aging 
must contain the highest concentration of ethanol available in the 
market. After EPA partially granted the waivers for E15 in 2010 and 
2011, we notified manufacturers in early 2012 that new evaporative 
emission families must be aged on E15 under 40 CFR 86.1824-08(f)(1). We 
believe that auto manufacturers began evaporative system aging on E15 
as early as MY2014.
---------------------------------------------------------------------------

    \94\ See 40 CFR 86.113-15(a)(5).
    \95\ See 40 CFR 86.1824-08(f)(1).
---------------------------------------------------------------------------

3. History of Sub Sim Interpretations
    EPA has issued four interpretative rules that defined the meaning 
of ``substantially similar'' for gasoline. These interpretive rules 
describe the types of unleaded gasoline that are considered 
substantially similar to the unleaded gasoline utilized in our vehicle 
and engine certification programs by placing limits on a gasoline's 
chemical composition and physical properties, including the types and 
amount of alcohols and ethers (oxygenates) that may be added to 
gasoline. Fuels that are found to be substantially similar to our 
certification fuels may be introduced into commerce. Each of our past 
interpretative rules provided an allowance for oxygenates within the 
gasoline. We last issued an interpretative rule in 2008 on the phrase 
``substantially similar'' for gasoline.\96\ The current substantially 
similar interpretative rule for unleaded gasoline allows oxygen content 
up to 2.7 percent by weight for certain ethers and alcohols. Despite 
having changed certification test fuel to include 10 volume percent 
ethanol, prior to this proposed action, we have not addressed what 
should be considered substantially similar to Tier 3 E10 certification 
fuel utilized in Tier 3 light duty vehicle certification.
---------------------------------------------------------------------------

    \96\ See 73 FR 22281 (April 25, 2008).
---------------------------------------------------------------------------

    In defining what qualifies as sub sim to certification fuels, we 
have listed general physical and chemical characteristics, such as 
oxygen content, because fuels and fuel additives meeting these general 
``sub sim'' characteristics will ``not adversely affect emissions.'' If 
we were to later find that a fuel or fuel additive that satisfies the 
physical and chemical sub sim characteristics ``may reasonably be 
anticipated to endanger public health or welfare'' or ``impair to a 
significant degree the performance of any emission control device or 
system,'' either in general or in particular vehicles or circumstances, 
we have authority to regulate that fuel or fuel additive under CAA sec. 
211(c), which provides that we may by regulation place controls or 
prohibitions on fuels and fuel additives to protect public health or 
welfare or protect emission control devices or systems.\97\ In our past 
interpretations defining what physical and chemical characteristics are 
necessary to make a fuel or fuel additive ``sub sim'' to certification 
test fuel, we have taken three primary factors into account: (1) 
Emissions, (2) materials compatibility, and (3) drivability.\98\
---------------------------------------------------------------------------

    \97\ See 45 FR 67443 (October 10, 1980).
    \98\ See 56 FR 5352 (February 11, 1991).
---------------------------------------------------------------------------

    We initially specified that fuel with oxygen content up to 2.0 
weight percent is sub sim to certification test fuel.\99\ We later 
revised the definition to allow oxygen content up to 2.7 weight percent 
for gasoline containing aliphatic ethers and/or alcohols (excluding 
methanol), finding, based on data and our experience with CAA sec. 
211(f)(4) waiver applications, that such levels would not result in 
emissions, materials compatibility, or drivability problems compared 
with certification test fuel.\100\ Thus, we have a history of 
establishing maximum oxygen content as a criterion, in addition to 
other criteria, for determining whether a fuel or fuel additive is 
substantially similar to a fuel utilized in certification.
---------------------------------------------------------------------------

    \99\ See 45 FR 6743 (October 10, 1980). 2.0 wt% oxygen equates 
to approximately 5.7 vol% ethanol.
    \100\ See 56 FR 5352 (February 11, 1991). 2.7 wt% oxygen equates 
to approximately 7.7 vol% ethanol.
---------------------------------------------------------------------------

    With respect to fuel volatility, our sub sim interpretations have 
specified that in order to qualify as sub sim to certification test 
fuel, which has historically had an RVP of 9.0 psi, fuels need only 
``meet ASTM standards in general, that is, not necessarily for every 
geographic location and time of year.'' \101\ To qualify as sub sim, 
gasoline (whether or not containing ethanol) ``must possess, at time of 
manufacture, all the physical and chemical characteristics of an 
unleaded gasoline as specified in ASTM D 4814-88 for at least one of 
the Seasonal and Geographical Volatility Classes specified in the 
standard.'' \102\
---------------------------------------------------------------------------

    \101\ See 46 FR 38585 (July 28, 1981).
    \102\ See 73 FR 22281 (April 25, 2008).
---------------------------------------------------------------------------

4. Criteria for Determining Whether a Fuel is ``Substantially Similar''
    In order to be substantially similar, a fuel or fuel additive must 
be sub sim to a fuel used in the certification of any vehicle or engine 
under CAA sec. 206. To make this determination, we have generally 
considered the effects of a fuel or fuel additive on emissions (exhaust 
and evaporative), materials compatibility, and driveability for motor

[[Page 10598]]

vehicles and motor vehicle engines certified under CAA sec. 206.\103\
---------------------------------------------------------------------------

    \103\ See, e.g., 56 FR 5354 (February 11, 1991).
---------------------------------------------------------------------------

    In this proposed CAA sec. 211(f)(1) interpretative rulemaking, we 
consider whether E15 is substantially similar to Tier 3 E10 
certification fuel when used in Tier 3 light-duty vehicles. The scope 
of that comparison is relatively narrow for two reasons. First, CAA 
sec. 211(f)(1) only requires a consideration of the potential impacts 
on light-duty motor vehicles and motor vehicle engines. In this regard, 
CAA sec. 211(f)(1) is different than what an applicant must demonstrate 
in a waiver under CAA sec. 211(f)(4) from the restrictions of CAA sec. 
211(f)(1). CAA sec. 211(f)(1) is focused on motor vehicles and motor 
vehicle engines under CAA sec. 206 and applies to a broad class of 
fuels. A CAA sec. 211(f)(4) waiver, on the other hand, requires that a 
specific fuel not cause or contribute any vehicle or engine certified 
under CAA sec. 206 and 213 to exceed emission standards over the useful 
life of the vehicle or engine. Thus, the scope of vehicles and engines 
considered to determine whether a fuel is substantially similar under 
CAA sec. 211(f)(1) is significantly narrower than the scope of vehicles 
and engines that must be considered by EPA for a waiver to be granted 
under CAA sec. 211(f)(4).
    Second, under CAA sec. 211(f)(1), the sub sim determination need 
only demonstrate that E15 is sub sim to a fuel used in certification of 
a 1975 or later MY vehicle or engine, not substantially similar to all 
certification fuels required and used historically (e.g., E0 for light-
duty vehicles and trucks prior to Tier 3) to assess compatibility and 
emission performance. In this case, the sub sim determination 
demonstrates that E15 is sub sim to Tier 3 E10 certification fuel.
5. Technical Rationale and Discussion
    As discussed above, we have considered whether a fuel has similar 
effects on emissions, materials compatibility, and driveability when 
determining whether a fuel is substantially similar to certification 
fuel. Based on existing data and our engineering judgement, we have 
concluded that E15, with its additional oxygen content relative to Tier 
3 E10 certification fuel, would have effects on emissions, materials 
compatibility, and drivability substantially similar to E10 in Tier 3 
vehicles.
a. Exhaust Emissions
    In the 2010 CAA sec. 211(f)(4) partial waiver for E15, we concluded 
from available data that neither the immediate combustion effects nor 
the long-term durability impacts of operating on E15 blends would 
prevent MY2001 and newer light-duty vehicles from complying with their 
full useful life emission standards.\104\ This decision was supported 
by a large study conducted by DOE that tested 16 high-sales vehicles 
spanning model years 1999-2007 using ethanol splash blends made from 
Tier 2 certification gasoline (E0).\105\ Analysis of the resulting data 
shows that the E15 blend produced approximately 5% higher 
NOX, 4% higher NMOG, and 4% lower CO compared to E10, though 
none of these differences was statistically significant. This work did 
not measure PM emissions, but the expectation at the time was that PM 
should react to ethanol in a similar way as NMOG emissions.
---------------------------------------------------------------------------

    \104\ See 75 FR 68096 (November 4, 2010).
    \105\ Knoll, K., West, B., Huff, S., Thomas, J. et al., 
``Effects of Mid-Level Ethanol Blends on Conventional Vehicle 
Emissions,'' SAE Technical Paper 2009-01-2723, 2009.
---------------------------------------------------------------------------

    Since the time of the 2010 waiver decision, additional data have 
been published on the effects of ethanol blends on Tier 2 vehicles. The 
EPAct/V2/E-89 study (referred to as ``EPAct study''), jointly conducted 
by EPA, DOE/National Renewable Energy Laboratory (NREL), and the 
Coordinating Research Council (CRC) in 2009-2010, looked at the effects 
of five fuel properties, including ethanol concentration, on emissions 
from 15 high-sales light-duty vehicles from MY2008. Measurements 
included PM, a pollutant for which its relationship to fuel properties 
had previously not been examined in much detail for gasoline vehicles. 
The size and scope of this study allowed for statistical models to be 
developed that could be used to correlate the impacts of the five fuel 
properties, including ethanol concentration, on emissions, enabling 
projections to be made of the emission impacts of a wide range of 
fuels, not limited to those tested. Results generally confirmed the 
NOX and CO emission impacts described above, while 
indicating that ethanol's effects on NMOG and PM are more complex and 
depend on other fuel parameters, such as the fuel's distillation 
profile and aromatics content.\106 107\ For example, the EPAct study 
statistical models estimate approximately 2% higher NOX, 4% 
lower NMOG, 2% lower CO, and 2% higher PM for E15 compared to the E10 
fuels used in the DOE study. If we instead assume an E15 splash blend 
starting from a typical E10 market fuel, the EPAct study models project 
2% higher NOX, 2% higher NMOG, 2% lower CO, and 4% higher 
PM. Since these figures represent the output of models whose 
coefficients survived a process of statistical testing, they are 
meaningful despite being small. This type of analysis is different from 
performing a test for significant differences directly on paired 
emission measurements, as is presented for the other studies discussed 
below, where measured differences may be statistically insignificant 
due to the limited scope of the test program and/or the number of 
variables left uncontrolled.
---------------------------------------------------------------------------

    \106\ EPA Office of Transportation and Air Quality. ``EPAct/V2/
E-89: Assessing the Effect of Five Gasoline Properties on Exhaust 
Emissions from Light-Duty Vehicles Certified to Tier 2 Standards: 
Final Report on Program Design and Data Collection''. EPA-420-R-13-
004. April 2013.
    \107\ Butler, A., Sobotowski, R., Hoffman, G., and Machiele, P., 
``Influence of Fuel PM Index and Ethanol Content on Particulate 
Emissions from Light-Duty Gasoline Vehicles,'' SAE Technical Paper 
2015-01-1072, 2015, doi:10.4271/2015-01-1072.
---------------------------------------------------------------------------

    Two studies published in 2017 and 2018 by CRC, projects E-94-2 and 
E-94-3, respectively, examined the effects of ethanol and PM Index on 
PM and other emissions from MY2012-2015 Tier 2 vehicles, all with 
gasoline direct injected (GDI) engines and several with 
turbocharging.\108 109\ Results for the overall test fleet of 16 
vehicles in E-94-2 showed no statistically significant effect of E10 
match blends \110\ relative to E0 for total hydrocarbons (THC), 
NOX, or CO, while PM increased by 19% for the regular-grade 
(87 AKI) test fuels. The E-94-3 study tested a four-vehicle subset on 
four E10 splash blends made from the E0 fuels in E-94-2, and found a PM 
increase of 21% on average, consistent with the effect found in the 
larger E94-2 study. Assuming this PM effect is linear over small fuel 
changes, we would expect around 10% higher PM when moving from E10 to 
E15. Comparing these results to the EPAct study and DOE study above 
suggests that later-technology vehicles with direct injection have 
equal or lower

[[Page 10599]]

sensitivity to ethanol blending for gaseous emissions, but may be more 
sensitive for PM.
---------------------------------------------------------------------------

    \108\ Morgan, Peter; Smith, Ian; Premnath, Vinay; Kroll, 
Svitlana; Crawford, Robert. ``Evaluation and Investigation of Fuel 
Effects on Gaseous and Particulate Emissions on SIDI In-Use 
Vehicles''. SwRI 03.20955. Southwest Research Institute, San 
Antonio, TX. CRC E-94-2. Coordinating Research Council, Alpharetta, 
GA. March 2017.
    \109\ Morgan, Peter; Lobato, Peter; Premnath, Vinay; Kroll, 
Svitlana; Brunner, Kevin; Crawford, Robert. ``Impacts of Splash-
Blending on Particulate Emissions for SIDI Engines''. SwRI 03.20955-
1. Southwest Research Institute, San Antonio, TX. CRC E-94-3. 
Coordinating Research Council, Alpharetta, GA. June 2018.
    \110\ Matched blended fuels are fuels that have been crafted to 
control fuel parameters (e.g., distillation parameters and RVP) 
after the blending of ethanol typically for research and testing 
purposes. This is contrasted with splash blended fuels, which are 
not controlled to specifically account for the blending of ethanol.
---------------------------------------------------------------------------

    Another study published in 2018 by the University of California, 
Riverside Center for Environmental Research and Technology (``CE-
CERT'') looked at the effects of ethanol and aromatics on emissions 
from five vehicles spanning model years 2016 to 2017, all with GDI 
engines and certified to either Tier 3 or LEV III standards.\111\ The 
test fuels included E0, E10, and E15 blends that were closely matched 
on aromatic content (at two levels, 21% and 29% volume) but the mid-
point distillation temperature (T40-T50) was uncontrolled, and varied 
significantly.\112\ Results of this study showed no statistically 
significant difference in NOX, non-methane hydrocarbons 
(NMHC), or PM when comparing E15 to E10 blends at either aromatics 
level.
---------------------------------------------------------------------------

    \111\ Karavalakis, G; Durbin, T; Yang, J; Roth, P., ``Impacts of 
Aromatics and Ethanol Content on Exhaust Emissions from Gasoline 
Direct Injection (GDI) Vehicles''. University of California, CE-
CERT, April 2018.
    \112\ The EPAct study found T50 to have a meaningful and 
statistically significant impact on NMOG, NMHC, NOX, and 
PM emissions.
---------------------------------------------------------------------------

    While there are limited data on Tier 3 vehicles, the results of the 
Tier 2 and Tier 3 vehicle studies cited above are nevertheless largely 
consistent with each other given that ethanol blending also affects 
many other fuel properties, and given that ethanol is blended into 
gasolines in different ways that affect the collateral property changes 
differently. This makes it difficult to interpret trends across the 
body of literature without detailed information on multiple fuel 
properties. However, since the early 1990s, a number of programs have 
studied the effects of ethanol on emissions from earlier vintage 
vehicles, and based on these studies, emissions models have been 
published, including the Complex Model,\113\ Predictive Model,\114\ and 
MOVES simulator,\115\ and the results from the more recent studies are 
also largely consistent with them. Namely, ethanol blending causes 
slight increases in NOX emissions and slight decreases for 
CO emissions. Earlier studies did not evaluate PM emissions from 
ethanol blending.
---------------------------------------------------------------------------

    \113\ See ``Complex Model Used to Analyze RFG and Anti-dumping 
Emissions Performance Standards,'' available at https://www.epa.gov/fuels-registration-reporting-and-compliance-help/complex-model-used-analyze-rfg-and-anti-dumping.
    \114\ See ``California Gasoline Predictive Models, and CARBOB 
Model Development,'' available at https://www.arb.ca.gov/fuels/gasoline/premodel/pmdevelop.htm.
    \115\ See ``Moves and Other Mobile Source Emissions Models,'' 
available at: https://www.epa.gov/moves.
---------------------------------------------------------------------------

    While some criteria pollutants would have relative and real 
increases (NOX and PM) and others have similar decreases 
(VOC and CO) on E15 compared to E10, these changes are relatively 
small. In the E15 partial waivers, we determined that effects of this 
magnitude were too small to cause or contribute 2001 and newer light-
duty vehicles to exceed the vehicles' certified exhaust emissions 
standards and we expect that this would also be the case for Tier 3 
certified vehicles. While CAA sec. 211(f)(1) does not define specific 
criteria for how to determine whether an ethanol blend is substantially 
similar to certification test gasoline, we believe that the small 
changes in exhaust emissions from E15 relative to Tier 3 E10 
certification fuel used in Tier 3 certified vehicles are within the 
scope of what we have determined to be sub sim in our prior sub sim 
interpretive rulemakings. Therefore, we believe that E15 is sub sim to 
Tier 3 E10 certification fuel from the perspective of exhaust 
emissions. However, we seek comment and request any additional 
information related to the potential effects on the exhaust emissions 
of E15 compared to Tier 3 E10 certification fuel, particularly in Tier 
3 certified vehicles given the limited data currently available.
b. Evaporative Emissions
    EPA has set evaporative emission standards for motor vehicles since 
1971. During the ensuing years, these evaporative standards have 
continued to evolve, resulting in additional evaporative emissions 
reductions. Consideration of whether E15 is substantially similar to 
Tier 3 E10 certification fuel for evaporative emissions requires 
consideration of the applicable evaporative emissions standards to 
which the particular motor vehicles were certified, in this case Tier 3 
motor vehicles. There are now six main components to motor vehicle 
evaporative emissions that are important for our standards: (1) Diurnal 
(evaporative emissions that come off the fuel system as a motor vehicle 
heats up during the course of the day); (2) refueling emissions 
(evaporative emissions that come off the fuel system as the vehicle is 
refueled); (3) hot soak (evaporative emissions that come off a hot 
motor vehicle as it cools down after the engine is shut off); (4) 
running loss (evaporative emissions that come off the fuel system 
during motor vehicle operation); (5) permeation (evaporative emissions 
that come through the walls of elastomers in the fuel system and are 
measured as part of the diurnal test); and (6) unintended leaks due to 
deterioration/damage that is now largely monitored through onboard 
diagnostic standards.
    For hot soak, permeation, and unintended leak evaporative 
emissions, we expect that E15 would have a similar effect as Tier 3 E10 
certification fuel. In the E15 partial waivers, we stated that we did 
not expect that E15 would have an effect on hot soak, permeation, and 
unintended leak evaporative emissions based on a review of the data and 
on the fact that auto manufacturers have been required to age vehicles 
on E10 for evaporative emissions durability testing since MY 2004. We 
are not aware of any information suggesting that Tier 3 vehicles would 
behave differently since they are aged for evaporative emissions 
durability on E15 and certified on Tier 3 E10 certification fuel. 
Furthermore, in our review of the testing of permeation on pre-Tier 3 
vehicles (i.e., prior to changes made to address permeation) in the E15 
partial waiver decisions, while ethanol was shown to significantly 
worsen permeation emissions, there was no discernable worsening of the 
impacts at higher ethanol concentrations.\116\ Consequently, we do not 
anticipate permeation emissions with E15 to be any higher than with 
E10.
---------------------------------------------------------------------------

    \116\ See 75 FR 68115-68120 (November 4, 2010) and 76 FR 4675-
4681 (January 26, 2011).
---------------------------------------------------------------------------

    We are proposing two alternative approaches to assessing the 
evaporative emissions impacts of E15 with regard to the volatility of 
the fuel. First, we compare E15 at 10.0 psi to Tier 3 E10 certification 
fuel at 9.0 psi to evaluate differences in evaporative emissions from 
refueling, diurnal, and running loss emissions sources. Alternatively, 
we compare E15 at 9.0 psi, the fuel without a 1-psi waiver under CAA 
sec. 211(h)(4), to Tier 3 E10 certification fuel at 9.0 psi.
    Refueling, diurnal, and running loss evaporative emissions increase 
as fuel volatility increases, with gasoline with an RVP of 10.0 psi 
producing significantly more vapor for the evaporative emission control 
system to capture and purge through the engine than gasoline with an 
RVP of 9.0 psi.\117\ However, because we specifically addressed 
gasoline volatility in our prior 1981, 1991, and 2008 sub sim 
reinterpretations,\118\ we are not proposing to modify our long-
standing

[[Page 10600]]

approach to controlling volatility in this action, and because there 
are not refueling, diurnal, or running loss evaporative emission 
impacts of E15 relative to Tier 3 E10 certification fuel apart from 
RVP, we do not believe these evaporative emission impacts are relevant 
to our proposed interpretation of sub sim. Furthermore, our existing 
regulations promulgated under CAA sec. 211(c) and 211(h) are a 
sufficient mechanism to control the RVP of gasoline. Since this 
interpretation primarily responds to the fact that we have now changed 
Tier 3 certification fuel to include 10 percent ethanol, we do not 
believe modification of our sub sim interpretation to set a specific 
RVP level would be appropriate.
---------------------------------------------------------------------------

    \117\ These effects are discussed more in Section II.E.
    \118\ See 46 FR 38582 (July 28, 1981), 56 FR 5352 (February 11, 
1991), and 73 FR 22277 (April 25, 2008), respectively. Historically, 
we have defined sub sim with regards to volatility as being anything 
within the general ASTM specifications for volatility for any 
location and time of year.
---------------------------------------------------------------------------

    Historically, the primary purpose of the requirement under the 
definition of substantially similar that gasoline must meet a 
volatility class under the ASTM specification for gasoline was to 
ensure that the fuel was physically and chemically similar to gasoline 
as to be used in a gasoline-fueled motor vehicle. For example, in the 
1980 sub sim interpretative rulemaking, we allowed gasoline-ethanol 
blends containing up to 2.0 weight percent oxygen (about 5.5 volume 
percent ethanol); such fuel would experience a similar 1-psi increase 
to E10 or E15 if produced using the same base gasoline. Even during 
1980, certification fuel used for gasoline-fueled motor vehicles was 
expected to have an RVP of 9.0 psi.\119\ Therefore, we have not 
generally considered the expected increase in RVP resulting from the 
addition of RVP when determining whether a fuel is sub sim to gasoline 
certification fuel.
---------------------------------------------------------------------------

    \119\ See 40 CFR 86.113-78 (1977).
---------------------------------------------------------------------------

    We determined that such a change was unnecessary and declined to 
impose such a limitation when we reinterpreted sub sim in 1991 and in 
2008. In 1991, we maintained the view that sub sim fuels need only meet 
general ASTM specifications (i.e., any volatility class in ASTM D 4814-
88) for volatility. This was after we promulgated the Phase I and Phase 
II RVP standards for gasoline under CAA sec. 211(c) and Congress 
enacted CAA sec. 211(h) in 1990, which, as discussed above, we have 
interpreted as essentially codifying our regulatory approach to fuel 
volatility as it existed prior to 1990. In 2008, when we provided 
flexibility for testing gasoline used only in Alaska to meet sub sim 
volatility requirements, we chose to maintain the existing volatility 
language for gasoline for the rest of the U.S.
    We are also proposing that E15 at 9.0 psi RVP is sub sim to Tier 3 
E10 certification fuel at 9.0 psi RVP during the summer. This would 
allow us, from a technical standpoint, to consider the impacts of RVP 
on evaporative emissions, and in particular on refueling, diurnal, and 
running loss evaporative emissions under CAA sec. 211(f)(1). Refueling, 
diurnal, and running loss evaporative emissions are mostly a function 
of volatility of the fuel. Therefore, if two fuels have the same RVP, 
the expected evaporative emissions from the two fuels would be similar. 
In this situation, since there is no difference in RVP, E15 at 9.0 psi 
RVP would have nearly identical evaporative emissions to E10 at 9.0 psi 
RVP from refueling, diurnal, and running loss emissions sources.
    We believe that under CAA sec. 211(f)(1) we only need to determine 
that E15 at 9.0 psi RVP is sub sim to Tier 3 E10 certification fuel at 
9.0 psi RVP in order for fuel manufacturers and downstream parties to 
take advantage of the CAA sec. 211(h)(4) waiver. Congress intended for 
gasoline-ethanol blends to have a 1-psi waiver in order to promote 
ethanol blending in gasoline. In other words, given the existence of 
CAA sec. 211(h)(4), we believe it is appropriate when interpreting sub 
sim for CAA sec. 211(f)(1) to compare E15 at 9.0 psi RVP to E10 
certification test fuel at 9.0 psi RVP. CAA sec. 211(h)(4) then 
provides the 1-psi waiver to E15. Therefore, under this alternative we 
would propose to interpret sub sim to apply to gasoline with a maximum 
of 9.0 psi RVP during the summer.
    In summary, we expect that E15 would have similar evaporative 
emissions effects as Tier 3 E10 certification fuel for Tier 3 light-
duty vehicles with regard to evaporative emissions from permeation, hot 
soak, and other unintended evaporative emissions. For refueling, 
diurnal and running loss evaporative emissions, we are not proposing to 
alter the existing interpretation of substantially similar. As 
explained above in our proposed interpretation of CAA sec. 211(h)(4), 
we believe it was Congress' intent to allow for gasoline-ethanol 
blended fuels containing at least 10 percent ethanol to receive the 1-
psi waiver and we have interpreted sub sim under 211(f)(1) to be 
consistent with Congress' intent. Therefore, we are proposing that E15 
at 10.0 psi RVP is sub sim to Tier 3 E10 certification test fuel at 9.0 
psi RVP when used in Tier 3 vehicles. Alternatively, we propose that 
E15 at 9.0 psi RVP is sub sim to Tier 3 E10 certification fuel at 9.0 
psi RVP when used in Tier 3 vehicles.
c. Materials Compatibility
    Materials compatibility is a key factor in considering what fuels 
or fuel additives are sub sim to certification fuel, insofar as poor 
materials compatibility can lead to serious exhaust and evaporative 
emission compliance problems not only immediately upon use, but 
especially over the full useful life of vehicles and engines. In the 
E15 partial waivers, we determined that the use of E15 in MY2001 and 
newer light-duty motor vehicles ``will not [result in] materials 
compatibility issues that lead to exhaust or evaporative emissions 
exceedances.'' \120\ We argued that ``[n]ewer motor vehicles, such as 
Tier 2 and NLEV vehicles (MY2001 and newer), on the other hand, were 
designed to encounter more regular ethanol exposure compared to earlier 
model year motor vehicles'' since EPA's in-use verification program 
would require auto manufacturers to place more ``emphasis on real world 
motor vehicle testing'' prompting manufacturers to consider 
commercially available fuels containing ethanol when developing and 
testing their emissions systems.\121\ Based on this assessment plus 
confirmatory data from DOE's extensive test program that aged MY2001 
and newer vehicles up to 120,000 miles on E15, we concluded that MY2001 
and newer vehicles would not have materials compatibility issues with 
E15. We expect that Tier 3 certified vehicles would have similar, if 
not better, materials compatibility with E15 compared to MY2001 and 
newer vehicles since Tier 3 certified vehicles should be designed to 
encounter E15 in-use and manufacturers are required to use E15 as an 
aging fuel for evaporative durability testing.
---------------------------------------------------------------------------

    \120\ See 75 FR 68122-68123 (November 4, 2010); 76 FR 4681 
(January 26, 2011).
    \121\ See 75 FR 68122 (November 4, 2010).
---------------------------------------------------------------------------

    As required under the vehicle and certification regulations,\122\ 
since granting the E15 partial waivers, E15 is now used as an aging 
fuel for service accumulation for evaporative durability testing. Auto 
manufacturers have used E15 for service accumulation for evaporative 
durability testing since at least MY2014. This means that many Tier 2 
certified vehicles since MY2014 and all Tier 3 certified vehicles have 
been aged on E15 and have been designed with materials capable of 
handling E15 for extended periods of time.
---------------------------------------------------------------------------

    \122\ See 40 CFR 86.1824-08(f)(1).
---------------------------------------------------------------------------

    Therefore, we would not expect any materials compatibility issues 
from E15 in Tier 3 vehicles and we expect that

[[Page 10601]]

E15 would have substantially similar or identical materials 
compatibility with Tier 3 E10 certification fuel.
d. Driveability
    A change in the driveability of a motor vehicle that results in 
significant deviation from normal operation (e.g., stalling, 
hesitation, etc.) would result in increased emissions. These increases 
may not be demonstrated in the emission certification test cycles but 
instead are present during in-use operation. In addition to consumer 
dissatisfaction, a motor vehicle stall and subsequent restart can 
result in a significant increase in emissions because HC and CO 
emission rates are typically highest during vehicle starts, especially 
cold starts. Further, concerns exist if the consumer or operator 
tampers with the motor vehicle in an attempt to correct the 
driveability issue since consumers may attempt to modify a motor 
vehicle from its original certified configuration. Thus, we have 
considered whether fuels or fuel additives have an adverse effect on 
driveability relative to certification fuel to define what is 
substantially similar.
    We concluded in the E15 partial waivers that we did not believe 
that E15 would cause driveability concerns for MY2001 and newer light-
duty vehicles. We reviewed the data and information from the over 30 
different test programs evaluated to grant the E15 partial waivers and 
we found ``no specific reports of driveability, operability or on-board 
diagnostics (OBD) issues across many different vehicles and duty cycles 
including lab testing and in-use operation.'' \123\
---------------------------------------------------------------------------

    \123\ See 76 FR 4681-82 (January 26, 2011).
---------------------------------------------------------------------------

    After having granted the partial E15 waivers, we believe that Tier 
2 and Tier 3 vehicles also have better capability of operating on E15, 
since as mentioned above, auto manufacturers have been required to use 
E15 as an aging fuel for evaporative durability aging since at least 
MY2014.
    We also believe that the producers and distributors of gasoline 
adhere to ASTM specifications for gasoline (i.e., ASTM D 4814),\124\ 
which helps address the driveability of gasoline that contains up to 15 
volume percent ethanol. As E15 has been in the market since at least 
2012, industry, through ASTM International, has worked to develop 
voluntary consensus-based standards to help ensure the quality of E15 
made and used in the marketplace. For example, ASTM D4814-18c has 
language to ensure that gasoline-ethanol blends have certain physical 
and chemical characteristics, like the gasoline-ethanol blend having 
distillation parameters falling within specified ranges, to ensure that 
when the gasoline-ethanol blended fuel is used, driveability issues 
will not arise.\125\
---------------------------------------------------------------------------

    \124\ ASTM Standard D4814, 2019, ``Standard Specification for 
Automotive Spark-Ignition Engine Fuel,'' ASTM International, West 
Conshohocken, PA, 2003, DOI: 10.1520/C0033-03, www.astm.org.
    \125\ Id.
---------------------------------------------------------------------------

    For these reasons, we believe that E15 would have similar 
driveability characteristics to Tier 3 E10 certification fuel.
e. Conclusion
    For reasons described above, we are proposing that E15 is 
substantially similar to Tier 3 E10 certification fuel. As discussed 
above, when interpreting which fuels and fuel additives are sub sum to 
certification fuel under CAA sec. 211(f)(1), we consider those 
potential effects of relevance under CAA sec. 211(f)(1) of fuels and 
fuel additives on certified motor vehicles' emissions (exhaust and 
evaporative), materials compatibility, and driveability. Regarding 
emissions, while E15 compared with Tier 3 E10 certification test fuel 
would have small emissions changes in Tier 3 vehicles, we expect that 
E15 would exhibit similar exhaust and evaporative emissions for Tier 3 
vehicles certified on Tier 3 E10 certification fuel. For materials 
compatibility and driveability, we expect that due to E15 being used as 
a service accumulation fuel for evaporative emissions aging, as well as 
our conclusions for MY2001 and newer light-duty motor vehicles 
regarding materials compatibility and driveability in the E15 partial 
waivers, E15 would be sub sim to Tier 3 E10 certification fuel.
    Our proposed interpretation is limited to gasoline that contains 
only ethanol content up to 15 percent as this is the only oxygenate 
that we have sufficient data and information to support at this 
time.\126\ Other oxygenates (notably isobutanol) may have similar 
emissions effects to Tier 3 E10 certification fuel, but we lack the 
data and information on emissions, materials compatibility, and 
driveability as established for ethanol as part of the E15 partial 
waiver decisions and the Tier 3 rulemaking. Therefore, our proposed 
interpretation of sub sim for gasoline would interpret gasoline-ethanol 
blends containing up to 15 percent ethanol as sub sim, while keeping 
the oxygen content limit of 2.7 weight percent for other oxygenates. We 
seek comment on whether we should interpret sub sim to encompass other 
oxygenates and request any supporting data on the potential effects of 
other oxygenates on emissions, materials compatibility, and 
driveability of Tier 3 vehicles.
---------------------------------------------------------------------------

    \126\ It should also be noted that we chose to express the 
proposed increase in gasoline-ethanol content in terms of volume 
percentage versus converting to weight percent oxygenate. We did 
this for two reasons. First, as stated, we believe we only have data 
and information to support an interpretation for gasoline containing 
only ethanol up to 15 volume percent. Second, this avoids the issues 
associated with the variability in the density of gasoline.
---------------------------------------------------------------------------

6. Other Aspects of the Proposed Interpretative Rulemaking
a. Effects of Proposed Interpretation of CAA sec. 211(h)(4)
    The proposed new interpretation of ``substantially similar'' 
interpreting E15 to be sub sim to Tier 3 E10 certification fuel 
discussed in this section would make it lawful for refiners and 
importers to make and introduce into commerce E15 without the use of 
the E15 partial waivers. This proposed interpretation of 
``substantially similar'' in conjunction with the proposed 
interpretation of CAA sec. 211(h)(4) would also extend the exemption 
from the CAA sec. 211(h)(1) upper RVP limit from 9.0 psi to 10.0 psi 
for fuels containing 9-15 percent ethanol.
    As previously explained, the deemed to comply provision was 
promulgated at the inception of the RVP program when industry had just 
begun blending ethanol in gasoline and reflects the highest permissible 
ethanol content under the waiver under CAA sec. 211(f)(4). 
Specifically, the deemed to comply provision applies where ``the 
ethanol portion of the blend does not exceed its waiver condition under 
subsection (f)(4) of this section.'' \127\ A plain reading of this 
provision therefore, would suggest that it could not apply where the 
agency concludes that a fuel is substantially similar to certification 
fuels, under CAA sec. 211(f)(1). However, we seek comment on the 
continued use of the deemed to comply provision to ease the 
demonstration burdens for fuels that do not have a CAA sec. 211(f)(4) 
waiver, but nonetheless can be introduced into commerce because they 
are substantially similar to Tier 3 E10 certification fuel.
---------------------------------------------------------------------------

    \127\ CAA sec. 211(h)(4)(B).
---------------------------------------------------------------------------

    If we finalize our interpretation of substantially similar proposed 
in Section II.C, the 1-psi waiver would be available to fuel 
manufacturers, refiners, and importers, in contrast to the approach 
discussed in Section II.B, which would only allow downstream parties to 
take advantage of the 1-psi waiver. However, retailers that produce E15 
via a blender pump would still have

[[Page 10602]]

issues complying with EPA fuels regulations at 40 CFR parts 79 and 80 
unless they made the E15 solely from DFE and certified gasoline (or 
CBOB).
b. Regulatory Amendments
    The technical amendments to our regulations discussed in Section 
II.B.2, in the context of our first approach to allow the 1-psi waiver 
for E15 during the summer, would also be necessary were EPA to finalize 
a new interpretation of ``substantially similar'' that finds that E15 
is sub sim to Tier 3 E10 certification fuel. The regulatory changes 
would be identical to those discussed in Section II.B.2, as those 
regulatory changes would be promulgated to effectuate our new 
interpretation of CAA sec. 211(h)(4). In short, we would promulgate 
regulatory amendments modifying the ethanol content at 40 CFR 80.27 to 
blends of gasoline containing 9-15 percent ethanol. We would also 
promulgate regulations removing requirements implemented in the MMR 
relating to (1) comingling of E10 and E15; and (2) PTD requirements for 
E15 that would no longer be necessary were E15 to receive the 1-psi 
waiver. As discussed in Section II.B.2, all other regulations 
promulgated as part of the MMR would remain in place.
c. Potential Conditions As Part of CAA sec. 211(f)(1) Interpretative 
Rulemaking
    CAA sec. 211(f)(1)(A) prohibits fuel or fuel additive manufacturers 
from first introducing into commerce, or increasing the concentration 
in use of, any fuel or fuel additive for general use in light-duty 
motor vehicles which is not substantially similar to that utilized in 
the certification of motor vehicles or engines under CAA sec. 206. As 
explained above, we have interpreted the ``substantially similar'' 
provision several times to allow the introduction into commerce of 
certain fuel blends. The language of CAA sec. 211(f)(1) does not 
address whether and how EPA can restrict its determination that a 
particular fuel is ``substantially similar'' to a certification fuel. 
Given the fact that there have now been multiple certification fuels 
since 1977, when CAA sec. 211(f)(1) was first enacted, we believe it is 
reasonable to interpret this provision as allowing EPA to apply 
restrictions on a sub sim determination, where the restrictions are 
intended to avoid the kinds of problems that prompted the prohibition 
against introduction into commerce. We solicit comment on this 
approach, including comments on the specific conditions we should 
impose.
    One implication of a sub sim interpretation that includes E15 under 
CAA sec. 211(f)(1) would be that a waiver under CAA sec. 211(f)(4) will 
no longer be necessary for E15 to be introduced into commerce. This 
would in effect remove the conditions of the E15 partial waivers 
imposed on fuel and fuel additive manufacturers, in the absence of any 
limitations on the sub sim interpretation. This would mean that the 
conditions in the E15 partial waivers designed to limit the 
introduction into commerce of E15 to only MY2001 and newer light-duty 
motor vehicles would not apply. The need for the conditions on the E15 
partial waivers may be partially mitigated because we have already put 
in place parallel restrictions in our regulations in the E15 MMR 
rulemaking at 40 CFR part 80, subpart N.\128\ However, some conditions 
in the E15 partial waivers are not part of the MMR. One such condition 
is the requirement that fuel and fuel additive manufacturers have an 
EPA-approved misfueling mitigation plan (MMP) prior to introducing E15 
into commerce. While MMPs generally commit fuel and fuel additive 
manufacturers to adhere to regulatory requirements of the MMR, MMPs 
also commit these manufacturers to participate in public outreach on 
the appropriate use of E15 and allow for specific, additional 
misfueling mitigation measures that may apply in a manufacturers 
specific situation. Another condition in the E15 partial waivers is 
that ethanol producers must manufacture denatured fuel ethanol that 
meets industry established quality standards if used to make E15. This 
requirement is not currently part of EPA's fuels regulations.
---------------------------------------------------------------------------

    \128\ As noted above, these restrictions remain necessary, and 
we are not proposing to lift the prohibition at 40 CFR 80.1504(a)(1) 
on the sale, introduction, or use of E15 into MY2000 and older 
light-duty motor vehicles, heavy-duty motor vehicles, or nonroad 
engines, vehicles, and equipment, nor are we proposing to remove any 
of the misfueling mitigation requirements in the E15 MMR. 
Consequently, those marketplace protections will be unaffected by 
this proposed action.
---------------------------------------------------------------------------

    Furthermore, as discussed, the technical basis to deny the E15 
waiver request for MY2000 and older motor vehicles and nonroad products 
and promulgate the MMR is unchanged and removing the conditions in the 
E15 partial waivers removes a layer of protection against the 
misfueling of these vehicles, engines, and equipment.\129\ We denied 
the E15 waiver request for MY2000 and older motor vehicles, nonroad 
vehicles, engines, and equipment (including motorcycles, and heavy-duty 
motor vehicles) due to our engineering assessment that these vehicles, 
engines, and equipment may experience emissions failures over these 
vehicles, engines, and equipments' full useful lives. Also, as 
discussed above, in the MMR we concluded that under CAA sec. 
211(c)(1)(A), the likely result would be increased VOC, CO, and 
NOX emissions were these particular engines, vehicles and 
equipment to use E15. The prohibitions and regulatory requirements were 
designed to help mitigate the misfueling of E15 in these vehicles.
---------------------------------------------------------------------------

    \129\ See 75 FR 68127-68138 (November 4, 2010).
---------------------------------------------------------------------------

    There are still millions of MY2000 and older motor vehicles on the 
road (although they will over time make a smaller contribution to 
vehicle miles travelled) and hundreds of millions of pieces of nonroad 
equipment not designed for and prohibited from E15 use. The existing 
conditions on the E15 partial waivers under CAA sec. 211(f)(4) help 
ensure E15 fuel quality and mitigate the misfueling of vehicles, 
engines, and equipment and we believe it is appropriate to continue to 
impose the same conditions on parties that introduce E15 into commerce 
under a CAA sec. 211(f)(1) sub sim interpretative rulemaking. 
Therefore, we are proposing and seek comment on certain limitations, 
including those contained in the current CAA sec. 211(f)(4) waiver, as 
part of an interpretative rulemaking which defines E15 as substantially 
similar to Tier 3 E10 certification fuel under CAA sec. 211(f)(1).
    Additionally, we seek comment on whether this proposed sub sim 
interpretation for E15 should be limited to the subset of the national 
vehicle and engine fleet to which the current E15 waivers apply (MY2001 
and newer light-duty motor vehicles) or on which our assessment in 
Section II.C is based (i.e., only to vehicles and engines certified 
using Tier 3 E10 certification fuel). While we have not previously 
imposed conditions in substantially similar interpretative rulemakings 
designed to limit the applicability to certain classes of vehicles, 
engines, and equipment, for the reasons explained above, we are seeking 
comment in this case. The record has not changed with respect to the 
inability of older vehicles, nonroad equipment, motorcycles, or heavy-
duty trucks to use E15, which formed the basis of our denial of the E15 
waiver request for such vehicles, engines, and equipment.
    Furthermore, our assessment in Section II.C was limited to only 
Tier 3 E10 certification fuel used to certify MY2020 (some earlier) 
light-duty vehicles, not all in-use vehicles and

[[Page 10603]]

engines that run on gasoline. Such a condition would be in recognition 
of the fact that, in contrast to the date when CAA sec. 211(f)(1) was 
enacted, not all gasoline vehicles and equipment are certified on the 
same gasoline. All other vehicles, engines, and equipment prior to Tier 
3 used certification fuel without ethanol, and some nonroad vehicles, 
engines, and equipment are still certified using E0. A condition 
limiting the applicability of the sub sim interpretative rulemaking to 
vehicles certified on Tier 3 certification fuel would recognize the 
fact that most vehicles, engines, and equipment were not certified on 
E10, and prevent emission exceedances by limiting which vehicles, 
engines, and equipment could use E15 under the proposed sub sim 
interpretative rulemaking.
    Finally, we seek comment on whether we can impose the existing 
waiver conditions in the E15 partial waivers, in their entirety, as 
conditions in the proposed substantially similar interpretative 
rulemaking. The conditions on the E15 partial waivers provide 
additional misfueling mitigation and fuel quality protections, which as 
mentioned above some stakeholders believe may need to be bolstered in 
the future as E15 becomes more available to consumers.

D. E15 Misfueling Mitigation

    Some stakeholders have raised concerns since the President's 
announcement over whether the remaining E15 misfueling mitigation 
measures would be sufficient in light of this proposed action.\130\ 
These stakeholders suggested that a possible consequence of this 
proposed action would be an increase in the availability of E15 in the 
market resulting in an increase in the potential misfueling of E15 in 
nonroad vehicles, engines, and equipment and MY2000 and older light-
duty vehicles. These stakeholders suggested that, in light of their 
concerns and advancements in technology since our MMR rule, we seek 
comment on a wide range of additional misfueling mitigation measures to 
help avoid the misfueling of E15.
---------------------------------------------------------------------------

    \130\ See ``Joint Comments on E15 Education and Outreach'' from 
the Outdoor Power Equipment Institute and the National Marine 
Manufacturers Association to EPA, January 29, 2019.
---------------------------------------------------------------------------

    While we believe additional misfueling measures are unnecessary at 
this time and outside the scope of this proposed action, we recognize 
that as E15 and other higher-level ethanol blends become more prevalent 
in the marketplace, the use of additional misfueling mitigation 
measures may be appropriate. We also recognize that additional 
misfueling mitigation measures would most likely place a significant 
burden on retailers, many of whom are small businesses, to upgrade fuel 
dispensers to implement physical barriers to E15 use or employ radio-
frequency identification (RFID) technology. Therefore, we seek comment 
on whether additional misfueling mitigation measures would be 
appropriate and we specifically seek comment on the costs and benefits 
of such measures on affected parties.

E. E15 Criteria Pollutant and Air Toxics Emission Impacts

    As discussed above, we expect the emissions of E15 to be 
substantially similar to those of E10 Tier 3 certification fuel when 
used in Tier 3 light-duty vehicles. This section describes expected 
emissions effects of the proposed action on evaporative and exhaust 
emissions of E15 relative to E10 typically available in the 
marketplace.
    Evaporative emissions from vehicles comprise approximately 60 
percent of the VOC emissions during summertime conditions from the 
current vehicle fleet based on results produced by MOVES2014b, and such 
VOC emissions contribute to ambient levels of ozone, PM, and air 
toxics, all of which endanger public health and welfare. Today's 
vehicles are equipped with charcoal cannisters to capture vapors 
generated during refueling as well as daily diurnal temperature 
fluctuations. This stored vapor is then drawn into the engine and 
combusted during vehicle operation.
    Currently and historically, vehicle manufacturers have been 
required to certify their vehicles on test gasoline with a volatility 
of 9.0 psi RVP under severe operating conditions similar to what might 
be expected on high ozone days. The evaporative emission standards have 
been progressively made more stringent over time, such that under the 
Tier 3 standards they require essentially zero vapor loss during normal 
operation on 9.0-psi fuel. Increasing fuel RVP from 9.0 psi to 10.0 psi 
increases fuel vapor generation significantly under summertime 
conditions, which can overwhelm a vehicle's evaporative control system 
and push it out of compliance. Consequently, controlling the volatility 
of gasoline during the summer is important in order to control the 
evaporative VOC emissions produced by vehicles and engines in-use.
    This proposal changes the volatility standard that applies to E15 
in-use from 9.0 psi to 10.0 psi RVP. Viewing this change in isolation, 
one might expect a significant increase in evaporative emissions. To 
accurately assess emission impacts in this case, however, we need to 
examine current real-world circumstances. Namely, we expect any E15 
introduced into the market to displace E10 that is already being sold 
and that carries the 1-psi waiver in conventional gasoline areas (E10 
has nearly 100 percent market share for gasoline sold in the U.S.). E15 
has a slightly lower RVP than E10 when made from the same BOB, a 
situation we believe will be the case unless E15 use becomes 
widespread.\131\ Thus, to the extent that E15 displaces E10 in the 
short term, E15 is expected to lower the volatility of in-use gasoline 
by as much as 0.1 psi.\132\
---------------------------------------------------------------------------

    \131\ We believe it would be unlikely for refiners to produce an 
E15 CBOB for such a small difference in RVP. However, refiners may 
want to create a CBOB with a slightly lower octane level to account 
for the increased octane from the additional ethanol in E15 versus 
E10. We believe this would only occur if E15 comprised a large part 
of a conventional gasoline area's market.
    \132\ ``Determination of the Potential Property Ranges of Mid-
Level Ethanol Blends.'' American Petroleum Institute, Washington, 
DC. April 2010.
---------------------------------------------------------------------------

    Use of E15 blends will have other criteria pollutant emission 
impacts beyond those related to volatility described above. Assuming 
E15 is made from the same BOB as E10, we expect the additional 5 volume 
percent ethanol to further dilute hydrocarbon fuel components such as 
aromatics, producing changes in several exhaust emissions such as 
NOX, NMOG, and benzene.133 134 Ethanol also 
causes changes in the volatility profile of the blended fuel, typically 
lowering the mid-point distillation temperature (T50) significantly, 
and the 90 percent temperature (T90) slightly.\135\ Table II.E-1 shows 
predicted fuel property and exhaust emission changes for Tier 2 
vehicles using both E10 certification gasoline and a typical market E10 
as baselines for comparison. Results using the EPAct model developed 
from the EPAct/V2/E-89 study described in Section II.C.5.a suggest E15 
blends are expected to produce slightly lower CO, and slightly higher 
NOX and PM

[[Page 10604]]

compared to their E10 blending base. Changes in NMOG (or VOC) vary in 
direction depending on the T50 of the blending base.
---------------------------------------------------------------------------

    \133\ For the effects of sulfur on emissions see Table ES-3 in 
``The Effects of Ultra-Low Sulfur Gasoline on Emissions from Tier 2 
Vehicles in the In-Use Fleet.'' U.S. EPA Office of Transportation 
and Air Quality, Ann Arbor MI. EPA-420-R-14-002, March 2014.
    \134\ For the effects of ethanol and aromatics on emissions see 
Tables ES-1 through ES-4 in ``Assessing the Effect of Five Gasoline 
Properties on Exhaust Emissions from Light-Duty Vehicles Certified 
to Tier 2 Standards: Analysis of Data from EPAct Phase 3 (EPAct/V2/
E-89): Final Report.'' U.S. EPA Office of Transportation and Air 
Quality, Ann Arbor MI. EPA-420-R-13-002, March 2013.
    \135\ ``Determination of the Potential Property Ranges of Mid-
Level Ethanol Blends.'' American Petroleum Institute, Washington, 
DC. April 2010.

                                        Table II.E-1--Example Emission Impacts of E15 Blends Based on EPAct Model
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Fuel properties used in analysis             E15 emissions impact relative to indicated
                                                      -------------------------------------------------------                  baseline
                                                                                                             -------------------------------------------
                                                        Eth. vol  Arom. vol     RVP        T50        T90                            NOX  (%)
                                                          (%)        (%)       (psi)     ([deg]F)   ([deg]F)    CO (%)    NMOG (%)               PM (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Baseline: E10 certification fuel at 9 psi............       10.0       23.0        9.0        200        325  .........  .........  .........  .........
E15 at 9 psi (splash)................................       15.0       21.9        9.0        163        321       -2.5       -5.6        1.8        2.7
E15 at 10 psi (splash)...............................       15.0       21.9       10.0        163        321       -1.3       -8.0        1.8        2.7
Baseline: E10 market fuel at 10 psi..................       10.0       23.0       10.0        180        320  .........  .........  .........  .........
E15 at 10 psi (splash)...............................       15.0       21.9       10.0        160        316       -2.0        2.2        2.5        4.0
E15 at 10 psi (MOVES Fuel Wizard) *..................       15.0       21.7       10.0        167        318       -2.6        1.4        2.7        4.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The MOVES Fuel Wizard attempts to estimate how properties would change in a widespread blending scenario.

    If E15 use becomes widespread in the longer term, refiners may 
adjust the base blendstock to accommodate the additional ethanol. 
During the rapid expansion of E10 blending between 2007-2012, aromatics 
levels were observed to decline by a few volume percent while pump 
octane levels stayed constant, and octane match-blending is understood 
to have been a contributing factor.136 137 For other fuel 
properties, such as sulfur and benzene content, refiner control could 
be relaxed slightly for E15 blendstocks with the finished market E15 
blend still meeting with the regulatory limits. Moving from E15 splash 
blends to match blends may then undo some small emission reductions 
occurring when E15 is made from refinery blendstocks designed for E10.
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    \136\ See Figure 3-4 of the Regulatory Impact Analysis for 
``Control of Air Pollution from Motor Vehicles: Tier 3 Motor Vehicle 
Emission and Fuel Standards.'' EPA-420-R-14-005, February 2014.
    \137\ See Figure 65 of ``Fuel Trends Report: Gasoline 2006-
2016.'' EPA-420-R-17-005. October 2017.
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F. E15 Economic Impacts

1. Benefits for E15 RVP
    We anticipate that providing the flexibility to use E15 at 10.0 psi 
RVP in the summer could help incentivize retailers to introduce E15 
into the marketplace. In situations where denatured fuel ethanol is 
cheaper than gasoline, parties may elect to make E15 more widely 
available, which may result in a modest decrease in fuel prices at the 
pump. This could help to further the use of increased volumes of 
renewable fuels under the RFS program, which in turn could provide 
energy security benefits.
2. Costs for E15 RVP
    Our proposal to allow E15 to take advantage of the 1-psi waiver in 
the summer may help open new market opportunities for E15. However, 
fuel manufacturers and distributors of E15 would not be compelled to 
make or offer E15 and could choose to offer E15 as dictated by market 
demands and individual business decisions.
    Overall, we anticipate very little change in costs regarding the 
proposed regulatory provisions to allow E15 to receive the 1-psi waiver 
in the summer. This action places no new regulatory burdens on any 
party in the gasoline or denatured fuel ethanol distribution system and 
modifies, but does not remove, PTD requirements for E15. Hence, we 
expect that these proposed provisions would not substantially alter the 
cost of compliance for parties that produce and distribute E15.

III. RIN Market Reforms

A. Overview of RFS Compliance

    The RFS program began in 2006, pursuant to the requirements in CAA 
sec. 211(o) that were added through the Energy Policy Act of 2005 
(EPAct). The statutory requirements for the RFS program were 
subsequently modified through the Energy Independence and Security Act 
of 2007 (EISA), leading to the publication of major revisions to the 
regulatory requirements on March 26, 2010.\138\
---------------------------------------------------------------------------

    \138\ See 75 FR 14670 (March 26, 2010).
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    Under CAA sec. 211(o), EPA is required to set renewable fuel 
percentage standards every year.\139\ To comply, obligated parties 
\140\ can purchase and blend the requisite volumes of renewable fuels 
into the petroleum-derived transportation fuels they produce or import. 
However, to allow the market to function more efficiently and avoid 
market disruption, in implementing the statutorily-required credit 
program, and to assist obligated parties in meeting their individual 
RVOs, Congress directed EPA to establish, through a transparent public 
rulemaking process, a system for the generation and use of renewable 
fuel program credits.\141\ The credits created under this program are 
known as RINs. RINs are credits that are generated upon production of 
qualifying renewable fuel and ultimately used by obligated parties to 
demonstrate compliance. Renewable fuel producers and importers generate 
and assign RINs to the renewable fuel they produce or import. These 
RINs are then transferred with the renewable fuel to the downstream 
parties that blend the renewable fuel into transportation fuel. In lieu 
of blending the renewable fuels themselves to demonstrate compliance, 
obligated parties have the option to instead purchase RINs from other 
parties that blend renewable fuels.
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    \139\ See, e.g., final rule establishing the RFS standards for 
2019 and biomass-based diesel volume for 2020 (83 FR 63704, December 
11, 2018).
    \140\ Obligated parties are refiners and importers of gasoline 
and diesel fuel. See 40 CFR 80.1406.
    \141\ See CAA sec. 211(o)(5).
---------------------------------------------------------------------------

    The assigned RINs that accompany the renewable fuel can primarily 
be separated from the fuel if the fuel is purchased by an obligated 
party or blended into transportation fuel. Once separated, RINs can be 
traded as a separate commodity from the renewable fuel. Obligated 
parties accumulate RINs over the course of the year, either by buying 
renewable fuel with assigned RINs that they separate and retain for 
compliance (and either blend the fuel themselves or rely on others to 
do on their behalf), or by purchasing separated RINs on the open 
market. All RIN

[[Page 10605]]

transactions, including the generation of RINs, RIN trades, and the 
retirement of RINs to satisfy an obligated party's RVOs, are reported 
to EPA using the EPA Moderated Transaction System (EMTS).\142\
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    \142\ Public EMTS data can be found on EPA's website at https://www.epa.gov/fuels-registration-reporting-and-compliance-help/public-data-renewable-fuel-standard.
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    The annual RVOs for a given obligated party are calculated by 
multiplying the obligated party's total annual production and import of 
gasoline and diesel fuel by four annual percent standards corresponding 
to the four renewable fuel categories established by Congress.\143\ 
Each obligated party must obtain sufficient RINs of each category to 
demonstrate compliance with its individual RVOs for the four annual 
percentage standards. Obligated parties comply on an annual average 
basis, through their annual compliance report to EPA that identifies 
their obligation based on gasoline and diesel production/import and 
identifies the RINs acquired and retired for that year's compliance. 
Thus, compliance under the RFS program requires obligated parties to 
understand how to calculate their individual obligations based on the 
four percentage standards, and then to plan for their annual compliance 
demonstration through RIN acquisition, either through blending or 
through trading, over the course of the year. There are also associated 
registration, reporting, and recordkeeping requirements.
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    \143\ The 2019 percentage standards for cellulosic biofuel, 
biomass-based diesel, advanced biofuel, and total renewable fuel are 
0.230%, 1.73%, 2.71%, and 10.97%, respectively. The cellulosic and 
biomass-based diesel standards are nested within the advanced 
biofuel standard, which is itself nested in the total renewable fuel 
standard. This implies a conventional renewable fuel percentage 
standard of 8.26%. See 83 FR 63704 (December 11, 2018).
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B. RIN Market Assessment

    Renewable fuel producers and importers generate RINs by entering 
their renewable fuel production or import information into EMTS. When a 
renewable fuel producer or importer transfers ownership of the fuel to 
another party, the assigned RINs usually transfer as well. Both parties 
must report information about the RIN transaction to EMTS within five 
days of the transfer. Parties must also report in EMTS when they 
separate RINs from fuel, when they trade separated RINs with another 
party, and when they retire RINs for compliance or other reasons. EMTS 
effectively acts as an electronic platform that records RIN 
transactions, conducts RIN title transfers between parties, and 
maintains a RIN account balance for each registered party.
    RINs are transacted through contracts or on the spot market, in 
bilateral trades directly between buyers and sellers, or facilitated by 
third-party brokers. EPA designed the RIN system to operate as a 
relatively ``open'' trading market in order to maximize liquidity and 
ensure a robust marketplace for RINs. For example, in establishing the 
original trading program, EPA attempted to provide as much compliance 
flexibility as possible and did not place limits on the number of 
allowable RIN trades, nor restrict the types of parties that could 
acquire and trade RINs. Several stakeholders from across the fuels 
industries supported the trading system we finalized in 2007.\144\ In 
the RFS1 final rule preamble, we summarized the comments of several 
parties as saying ``that unlimited trading among all interested parties 
would increase liquidity and transparency in the RIN market,'' and 
``that increasing the number of participants would facilitate the 
acquisition of RINs by obligated parties and promote economic 
efficiency.'' \145\
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    \144\ See Chapter 5.4.3 of ``Regulation of Fuels and Fuel 
Additives: Renewable Fuel Standard Program--Summary and Analysis of 
Comments.'' EPA 420-R-07-006, April 2007, available at https://www.epa.gov/sites/production/files/2015-08/documents/420r07006.pdf.
    \145\ See 72 FR 23944 (May 1, 2007).
---------------------------------------------------------------------------

    Individual transaction prices are generally not made public, but 
some services, such as OPIS and Argus, offer daily price information on 
commodities such as RINs from a subset of parties that trade in the RIN 
market. The public can access this information for a fee paid to these 
service providers. Recently, EPA began posting aggregated weekly RIN 
price information reported to EPA through EMTS on our public website, 
which is updated monthly.\146\ RIN prices are a function of multiple 
factors, including but not limited to changes in petroleum prices, 
agricultural feedstock (e.g., corn, soy) prices, and expectations of 
future market shifts and standards. RIN prices may also fluctuate as 
the market responds to RFS standards and expectations of future EPA 
policy decisions.
---------------------------------------------------------------------------

    \146\ See https://www.epa.gov/fuels-registration-reporting-and-compliance-help/rin-trades-and-price-information. The RIN Price 
dataset shows historical, weekly, volume-weighted average RIN price 
data for separated RINs as reported to EPA through EMTS. Price 
filters are applied to the data set to remove outliers and data is 
aggregated to protect confidential business information.

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[[Page 10606]]

[GRAPHIC] [TIFF OMITTED] TP21MR19.000

    While there are many different factors that impact RIN prices, a 
review of the historical RIN price data demonstrates that RIN prices 
generally follow expected market principles. For example, in the early 
years of the RFS program (2010-2012) D6 RIN prices (for mostly corn 
ethanol) were generally only a few cents. During this time, the implied 
conventional biofuel volume (the difference between the total renewable 
fuel volume and the advanced biofuel volume and the only volume to 
which D6 RINs can be applied) could be met by blending ethanol as E10. 
The blending of ethanol up to E10 was driven by economic factors rather 
than financial incentives provided by the RFS program.\147\ First, 
ethanol has a relatively high octane value, and thus is attractive as a 
gasoline blendstock component. Second, ethanol was cheaper on a 
volumetric (per gallon) basis than gasoline during this time period, 
and it was therefore economic to blend at levels up to 10 percent. 
Third, though ethanol contains about one-third less energy than 
gasoline on a per-gallon basis, that fuel economy difference between 
E10 and gasoline without ethanol (E0) is relatively small 
(approximately 3 percent) and is largely unnoticed by consumers. In 
light of these factors, the blending of ethanol up to E10 was 
economically viable for blenders in these years. The D6 RIN price was 
therefore very low, approximately equal to the transaction costs of 
trading RINs between parties.
---------------------------------------------------------------------------

    \147\ Until 2013, the price for D6 (conventional biofuel) RINs, 
the vast majority of which were generated for ethanol produced from 
corn starch, was negligible (See Figure III.B-1). The Volumetric 
Ethanol Excise Tax Credit was also available to ethanol blenders 
through 2011.
---------------------------------------------------------------------------

    In 2013, however, the implied conventional biofuel volume 
established by the RFS program exceeded the volume of ethanol that 
could be blended into gasoline at a rate of up to 10 percent (the E10 
blendwall). To meet the aggregate RVOs, obligated parties now needed to 
acquire RINs beyond those that were available from blending ethanol as 
E10. These additional RINs had to come from either blending ethanol 
into higher-level ethanol blends (e.g., E85) or blending non-ethanol 
biofuels (such as biodiesel or renewable diesel beyond what was needed 
to satisfy the biomass-based diesel (BBD) and advanced biofuel volume 
standards). Blending ethanol into higher level blends, unlike the 
blending of ethanol into E10 blends, was not an economically viable 
practice in 2013 (nor is it currently) absent the incentives provided 
by the RFS program (i.e., the RIN price). Although ethanol has a higher 
octane value than gasoline, the existing vehicle fleet in the United 
States does not realize an additional benefit from the higher octane 
level of high ethanol blends such as E85. Further, consumers notice the 
decrease in fuel economy (between 15 and 27 percent) in such blends. 
This is because ethanol contains about one-third less energy than 
gasoline on a per-gallon basis. The sale of higher-level ethanol blends 
is also limited to flexible fuel vehicles, and relatively few retail 
stations offer these higher-level ethanol blends due to the combination 
of the high cost of the infrastructure upgrades to enable most existing 
stations to sell E85 and the low demand for E85, even among FFV 
owners.\148\ The relatively low number of stations selling E85 has also 
hindered the competitiveness of the pricing of the few retail stations 
that do sell these blends. As a result, in most cases obligated parties 
have turned to additional volumes of biodiesel and renewable diesel 
instead of E85 or other higher level ethanol blends to meet their 
implied conventional biofuel volume obligation and therefore their 
total renewable fuel obligation.\149\ D4 (BBD) RINs, generated for 
biodiesel and renewable diesel, have in effect served as a ceiling for 
D6 RIN prices since excess D4 RINs can be used to satisfy an obligated 
party's total renewable fuel obligation. As a result, the D6 RIN price 
rose to just slightly below the D4 RIN price. With a few exceptions 
(such as in the first half of 2017) when the total renewable fuel 
obligation has been at or below the E10 blendwall, the D6 RIN price has 
generally moved in

[[Page 10607]]

conjunction with the D4 RIN price since 2013.
---------------------------------------------------------------------------

    \148\ Pouliot, S., Liao, K.A., Babcock, B.A.; ``Estimating 
Willingness to Pay for E85 in the United States Using an Intercept 
Survey of Flex Motorists.'' Working Paper 16-WP 562, Center for 
Agricultural and Rural Development, Iowa State University, June 
2018.
    \149\ While biodiesel and renewable diesel remain considerably 
more expensive than diesel fuel, the recently expired tax subsidy 
for them, coupled with a lesser infrastructure hurdle enabled them 
to be a more economical option than higher level ethanol blends in 
recent years.
---------------------------------------------------------------------------

    D5 RIN prices similarly followed distinct pricing patterns prior to 
reaching the E10 blendwall in 2013 and in the years since 2013. Prior 
to reaching the blendwall, a significant volume of the D5 RINs were 
generated for imported sugarcane ethanol. Since sugarcane ethanol was 
generally more expensive to produce than corn ethanol (driven by high 
world sugar prices), the D5 RIN price generally reflected the price 
difference between corn ethanol and sugarcane ethanol during this time 
period. When the E10 blendwall was reached in 2013 it became much more 
expensive to blend additional volumes of ethanol (both for corn ethanol 
and sugarcane ethanol) since additional ethanol had to be sold in 
higher-level ethanol blends. As a result, the primary fuels used to 
satisfy the implied volume of ``other advanced'' biofuels (the 
remaining advanced biofuel volume after subtracting the required 
volumes of BBD and cellulosic biofuel) in 2013 and the following years 
have been biodiesel and renewable diesel. The D5 RIN price in these 
years has followed the D4 RIN price, with the few cents difference 
between the two RIN prices reflecting the fact that, unlike D4 RINs, D5 
RINs can only be used towards an obligated party's advanced biofuel and 
total renewable fuel obligations (and not the BBD obligation).
    As with D6 and D5 RIN prices, D4 RIN prices generally follow 
expected market fundamentals. D4 RIN prices are generally equal to the 
difference between the market prices of biodiesel and petroleum diesel, 
after accounting for the biodiesel tax credit. For each year from 2010 
through 2017, a $1 per gallon biodiesel blenders tax credit from the 
Internal Revenue Service has also been available. In some years, such 
as 2013 and 2016, this tax credit was available prospectively (i.e., 
the tax credit was in place throughout the year). In other cases, such 
as in 2012 and 2017, the tax credit was only available retroactively 
(i.e., the tax credit was not extended until near the end of the year 
or after the year had ended but applied to all qualifying biodiesel and 
renewable diesel blended in that year). The biodiesel blenders tax 
credit has not yet been extended to 2018 or 2019 by Congress.\150\ For 
years in which the biodiesel tax credit was not in place prospectively, 
the D4 RIN prices generally reflected the market's confidence that the 
tax credit would ultimately be applicable. A recent paper investigating 
the price of D4 RINs and economic fundamentals further supports this 
view of the D4 RIN market stating that ``movements in the D4 RIN price 
at frequencies of a month or longer are well explained by two economic 
fundamentals: the spread between the biodiesel and Ultra Low Sulfur 
Diesel prices and whether the biodiesel tax credit is in effect.'' 
\151\
---------------------------------------------------------------------------

    \150\ As of February 28, 2019.
    \151\ Irwin, S.H., K. McCormack, and J.H. Stock (2018). ``The 
Price of Biodiesel RINs and Economic Fundamentals,'' NBER Working 
Paper Series, Working Paper 25341.
---------------------------------------------------------------------------

    Finally, the D3 RIN price has generally followed the combined 
prices of the cellulosic waiver credit (CWC) and the D4/D5 RIN price. 
Each year since 2010, we have reduced the required volume of cellulosic 
biofuel from the statutory volumes using the cellulosic waiver 
authority set forth in CAA sec. 211(o)(7)(D). When EPA takes this 
action, the statute requires that we make CWCs available for purchase 
to obligated parties at a price determined using a formula given in the 
statute. CWCs can be used to satisfy an obligated party's cellulosic 
biofuel obligation, but unlike a D3 (or D7) RIN, a CWC cannot be used 
towards satisfying an obligated party's advanced biofuel or total 
renewable fuel obligations. Thus, a D3 RIN has the ``compliance 
equivalency'' of a CWC plus a D5 (or D4) RIN. As expected, the D3 RIN 
price has generally been slightly less than the sum of the CWC price 
and the D4/D5 RIN price. This price point reflects the compliance 
certainty that the CWC offers (CWCs cannot later be determined to be 
invalid) as well as the fact that CWCs can simply be purchased directly 
from EPA at the compliance deadline rather than purchased in relatively 
small quantities from biofuel producers or blenders.
    Obligated parties that purchased RINs on the market for compliance 
in 2013 saw their D6 RIN prices substantially increase from the year 
prior (see Figure III.B.1). Though this increase in D6 RIN prices was 
the result of structural changes in the market, as described above, 
increasing D6 RIN prices did raise concerns regarding whether market 
manipulation played some role in elevated prices. Some RFS stakeholders 
petitioned EPA to change the definition of obligated party, arguing in 
part that the current point of obligation facilitates price 
manipulation. In response to those petitions, EPA conducted an 
extensive analysis of RIN prices and market dynamics. After studying 
the data, we concluded that RIN prices generally reflected market 
fundamentals and that obligated parties (including parties that 
purchase separated RINs) recover the cost of RINs in the market price 
of the gasoline and diesel fuel they sell.\152\
---------------------------------------------------------------------------

    \152\ See ``Denial of Petitions for Rulemaking to Change the RFS 
Point of Obligation'' (2017), available at https://nepis.epa.gov/Exe/ZyPDF.cgi?Dockey=P100TBGV.pdf.
---------------------------------------------------------------------------

C. President's Directive

    Some RFS stakeholders have voiced concerns regarding whether 
elevated RIN prices and excessive RIN price volatility are being caused 
at least in part by some type of market manipulation. In comments to 
proposed EPA rulemakings, litigation filings and arguments, and via 
meetings with EPA staff, some stakeholders have described conditions 
that they believe make the RIN market vulnerable to anti-competitive 
behavior. For example, commenters have described a thin market volume, 
opaque price signals, and inelastic demand and supply curves and have 
provided specific examples of behavior they find manipulative, such as 
phantom RIN offers that suddenly vanish and reappear at higher prices 
after a party attempts to buy them at the purported asking price.\153\ 
These stakeholders also speculate that, as a result of market 
conditions and price volatility, anti-competitive behavior is taking 
place. For example, commenters have argued that a small number of 
sophisticated market participants control a large number of ``surplus'' 
RINs that they hoard and use to squeeze the market.
---------------------------------------------------------------------------

    \153\ See, e.g., comments from Monroe Energy (Docket Item No. 
EPA-HQ-OAR-2018-0167-0622).
---------------------------------------------------------------------------

    We take these claims of market manipulation seriously and have 
taken formal action previously to investigate claims of manipulation. 
In March 2016, EPA entered into a Memorandum of Understanding (MOU) 
with the Commodity Futures Trading Commission (CFTC).\154\ Under the 
MOU, we provided CFTC with certain RIN data for analysis in order to 
facilitate an EPA investigation.
---------------------------------------------------------------------------

    \154\ See ``Memorandum of Understanding Between the 
Environmental Protection Agency and the Commodity Futures Trading 
Commission on the Sharing of Information Available to EPA Related to 
the Functioning of Renewable Fuel and Related Markets'' (2016), 
available at https://www.epa.gov/sites/production/files/2016-03/documents/epa-cftc-mou-2016-03-16.pdf.
---------------------------------------------------------------------------

    Although we have yet to see data-based evidence of RIN market 
manipulation, the potential for such behavior is a concern, and we have 
already formally solicited comment from stakeholders on potential 
changes that might address such issues. In the 2018 RVO proposal, we 
broadly sought input on potential regulatory changes related to RIN 
trading as well as on ways to increase program

[[Page 10608]]

transparency.\155\ We received comments from stakeholders suggesting a 
number of regulatory changes related to who may purchase RINs, the 
duration for which RINs could be held, and other potential requirements 
related to the buying, selling, or holding of RINs. We also received a 
number of suggestions for increasing the amount of data related to the 
RIN market that we make publicly available. We evaluated these ideas, 
and in the 2019 RVO proposal, we listed those that were under 
consideration for implementation at that time, including: Prohibiting 
parties other than obligated parties from purchasing separated RINs; 
requiring public disclosure if a party holds a certain percentage of 
the RIN market; requiring obligated parties to retire RINs for 
compliance purposes on a more frequent basis; and publicly posting 
information on RIN prices, small refinery exemptions, and RIN holdings 
by different categories of entities.\156\ We requested comment on the 
expected impact that these specific changes could have on the RIN 
market, either positively or negatively.
---------------------------------------------------------------------------

    \155\ See 82 FR 34206 (July 21, 2017).
    \156\ See 83 FR 32024 (July 10, 2018).
---------------------------------------------------------------------------

    We received many comments in support of publicly posting more RFS 
program data. In response, in September 2018, we began publishing 
weekly aggregated RIN prices, as reported in EMTS by sellers and 
buyers, as well as weekly aggregated transaction volumes. We believe 
publishing as much data and information on the RIN market as possible, 
while still protecting confidential business information, improves 
market transparency and helps obligated parties and other market 
participants make informed decisions. We also believe that these data 
can reduce information asymmetry among market participants increasing 
confidence in the market. In addition, we began publishing information 
on small refinery exemption requests received and granted by EPA and 
the volumes of gasoline and diesel fuel exempted. This helped all 
obligated parties account for the potential volume exempted under these 
provisions and make adjustments to their compliance strategies 
accordingly.
    We also received a wide variety of comments regarding the other 
ideas we put forth for comment in the 2019 RVO: prohibiting parties 
other than obligated parties from purchasing separated RINs, requiring 
public disclosure if a party holds a certain percentage of the RIN 
market, and requiring obligated parties to retire RINs for compliance 
purposes on a more frequent basis. Some commenters expressed support 
for these ideas and offered others for our consideration while some 
commenters opposed both the specific reform proposals and the general 
concept of interfering with the open RIN market in any way. Summaries 
of, and responses to, those comments are included throughout this 
action as we explain the rationale behind the proposals we are making 
today.
    On October 11, 2018, President Trump issued a White House statement 
\157\ explaining that EPA was being directed to initiate a rulemaking 
to address RIN price manipulation claims and increase transparency in 
the RIN market. Specifically, the memorandum directs EPA to consider 
potential reforms to the RIN regulations, including but not limited to 
the following proposals:
---------------------------------------------------------------------------

    \157\ See ``President Donald J. Trump is Expanding Waivers for 
E15 and Increasing Transparency in the RIN Market'' Fact Sheet, 
available at: https://www.whitehouse.gov/briefings-statements/president-donald-j-trump-expanding-waivers-e15-increasing-transparency-rin-market.
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     Prohibiting entities other than obligated parties from 
purchasing separated RINs.
     Requiring public disclosure when RIN holdings held by an 
individual actor exceed specified limits.
     Limiting the length of time a non-obligated party can hold 
RINs.
     Requiring the retirement of RINs for the purpose of 
compliance be made in real time.
    Pursuant to this directive, we are proposing these reforms.

D. Objectives

    We are interested in ensuring that the RIN market works efficiently 
and is free of anti-competitive behavior. We affirm that price 
manipulation through anti-competitive behavior, similar to what is 
referred to as cornering or squeezing the market, and false or 
misleading representations in transactions, is antithetical to 
effective market operation and should be discouraged.\158\ Were such 
anti-competitive behaviors to occur, it could undermine the confidence 
of market participants in the RIN market and undermine the RFS program 
itself. Consequently, in this action, we are proposing regulatory 
changes based upon the President's Directive that could help prevent 
anti-competitive behavior. For each reform, we evaluated comments 
already submitted to EPA describing its advantages and disadvantages. 
We also evaluated how a reform could be designed and implemented, 
whether a reform could be gamed or have unintended consequences, and 
what potential burden and cost it could place on regulated parties and 
on EPA. In Section III.E, we describe our evaluation in detail for each 
reform, including sharing comments received from stakeholders on 
similar market reform ideas solicited in prior rulemakings.
---------------------------------------------------------------------------

    \158\ Such behaviors may also violate the anti-fraud and anti-
manipulation provisions of the Commodity Exchange Act. See, e.g., 
Section 9(a)(2) of the CEA, 7 U.S.C. 13(a)(2) (2012), states that it 
is a felony for ``Any person to manipulate or attempt to manipulate 
the price of any commodity in interstate commerce . . . or to corner 
or attempt to corner any such commodity or knowingly to deliver or 
cause to be delivered for transmission through the mails or 
interstate commerce by telegraph, telephone, wireless, or other 
means of communication false or misleading or knowingly inaccurate 
reports concerning crop or market information or conditions that 
affect or tend to affect the price of any commodity in interstate 
commerce.'' Section 6(c)(1) of the CEA, 7 U.S.C. 9(1) (2012), titled 
Prohibition against manipulation, states that ``it shall be unlawful 
for any person, directly or indirectly, to use or employ, or attempt 
to use or employ, in connection with . . . a contract of sale of any 
commodity in interstate commerce . . . any manipulative or deceptive 
device or contrivance. . . .''
---------------------------------------------------------------------------

    EPA designed the RIN system and regulations to maximize compliance 
flexibility and market liquidity. We realize that new market 
restrictions could impact that flexibility and liquidity. For example, 
we note the numerous comments received on the 2019 RVO rule stating 
that changes to the RIN market structure could reduce liquidity, 
increase volatility, and make the RIN market function less efficiently, 
increasing costs to obligated parties and consumers.\159\ In addition, 
a white paper on the President's Directive recently released by the 
American Petroleum Institute (API) cautions that ``the proposed 
regulatory changes are likely to create additional significant problems 
of their own'' and that ``history suggests that regulatory agencies 
should be extremely cautious in changing established rules in regulated 
markets.'' \160\ Interested stakeholders have also suggested that some 
reforms could impact the ability of small, less recognized, or new 
renewable fuel producers and blenders to enter the market. Finally, we 
understand that some reforms could inadvertently affect otherwise 
legitimate market behavior. For example, parties that make a profit on 
the RIN market are not necessarily conducting

[[Page 10609]]

manipulative or anti-competitive behavior and may very well be 
increasing market efficiency and liquidity with their actions. 
Therefore, we have taken into consideration the potential for reforms 
to harm the RIN market in this proposed action.
---------------------------------------------------------------------------

    \159\ See, e.g., comments to the 2019 RVO rule from Steptoe & 
Johnson LLP on behalf of the National Association of Convenience 
Stores (NACS) and the Society of Independent Gasoline Marketers of 
America (SIGMA), BP, and American Petroleum Institute (API) in 
Docket No. EPA-HQ-OAR-2018-0167.
    \160\ See ``An Analysis of the Renewable Fuel Standard's RIN 
Market'', Covington & Burling LLP, February 15, 2019, available at 
https://www.api.org/~/media/Files/Policy/Fuels-and-Renewables/2019/
RIN-market-paper.pdf.
---------------------------------------------------------------------------

    We are proposing regulatory changes in this action for all four 
reforms identified in the President's Directive and request comments on 
both the positive and negative consequences of each reform. We intend 
to finalize the reforms that we conclude are beneficial for the RFS 
program, the RIN market, and the RFS stakeholders, and do not impose 
unnecessary burden. For all four reforms outlined in this action, we 
focus on separated RINs only; we believe the physical storage 
limitations faced by renewable fuel already reduce the opportunity for 
price manipulation of assigned RINs and that the existing regulations 
at 40 CFR 80.1428 already include anti-hoarding provisions for RINs 
attached to renewable fuel. Furthermore, for each of the four reforms, 
we evaluate whether we should limit the proposed regulatory provision 
to D6 RINs only. Stakeholder concerns over market manipulation focused 
mainly on D6 RINs because, as described in Section III.B, in 2013 the 
overall demand for RINs increased due to the increased RVO set in the 
statute while the supply of D6 RINs remained nearly flat due to the E10 
blendwall.\161\ D6 RINs are also the predominant RIN type generated, 
and therefore impacts on D6 RIN prices have much larger consequences 
for obligated parties than impacts on the prices of other RIN 
types.\162\ For each reform discussed in Section III.E, we explain 
whether it is feasible to propose that the reform apply to D6 RINs only 
and our rationale. We seek comment on narrowing the scope of the 
proposals in this action to D6 RINs only.
---------------------------------------------------------------------------

    \161\ We acknowledge that the stock of D6 RINs has fluctuated 
over time due to market shifts, EPA actions, and other factors, and 
that a larger stock of RINs puts downward pressure on RIN prices.
    \162\ According to data from EMTS approximately 78 percent of 
all RINs generated in 2018 were D6 RINs.
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E. Proposed Approach to Individual Regulatory Reforms

    For each potential reform, we discuss the basic concept, its 
implications for the program and marketplace, the scope and design of 
the specific regulatory modification in question, and other relevant 
details. Broadly speaking, EPA is interested not only in comments on 
specific individual reforms, but also on how the various reforms might 
work in combination, and the degree to which the reforms provide, or 
detract from, symmetry in the marketplace, so that one set of actors is 
not advantaged at the expense of another set operating in the same 
market.
1. Reform One: Public Disclosure if RIN Holdings Exceed Certain 
Threshold
    The first potential reform from the President's Directive that we 
address in this action is a requirement for public disclosure when a 
party's RIN holdings exceed a certain threshold. The fundamental 
concept underpinning this reform is that increased transparency can 
help deter market actors from amassing an excess of separated RINs, 
which due to the concentration in ownership of available supplies could 
result in undue influence or market power. This reform could also let 
market participants know the underlying status of the market. A 
concentration of separated RINs, if sufficiently large in scope, could 
be used by a party to manipulate the market by artificially affecting 
prices in any direction. The most extreme examples of market power are 
monopolies, but concentration can be a concern even for markets with 
many participants when only a few control the majority of available 
supply at any given point in time.
    In this action, we are proposing to set two thresholds that would 
work in tandem to identify parties that have amassed RINs in excess of 
normal business practices, which could indicate an intent to assert an 
inappropriate influence on the market. These thresholds would apply to 
holdings of separated D6 RINs only. The first threshold would be 
triggered if a party's end-of-day separated D6 RIN holdings exceeded 
three percent of the total implied conventional biofuel volume 
requirement (e.g., 15 billion gallons for compliance year 2018) set for 
that year by EPA in the RVO rule, which is the total renewable fuel 
volume requirement minus the advanced fuel volume requirement. A party 
without an RVO (a non-obligated party) that triggered the first 
threshold would notify EPA of an exceedance at the end of the quarter. 
An obligated party that triggered the first threshold would apply the 
second threshold by comparing its end-of-day separated D6 RIN holdings 
with 130 percent of its individual implied conventional RVO. Only 
obligated parties that triggered both the first and second thresholds 
would notify EPA of an exceedance at the end of the quarter. In this 
action, we are proposing to publish on our website on a quarterly basis 
the names of any parties that report exceeding the thresholds. We are 
also proposing that the RIN holdings of corporate affiliates be 
included in a party's calculations to determine if they trigger a 
threshold. The definition of corporate affiliate, calculation of the 
thresholds and specifics of the reporting requirements are discussed in 
more detail below.
    The purpose of putting into place a disclosure requirement is 
twofold: first, to provide transparency in the market regarding how 
often certain RIN position thresholds are reached and exceeded, and 
second, to disincentivize such behavior by requiring public disclosure. 
If the threshold were ever exceeded, public disclosure would alert 
market participants and where appropriate prompt a closer review of the 
circumstances by EPA. Were the threshold to be exceeded, we could then 
consider further actions to investigate for anti-competitive behavior 
and help prevent similar behavior in the future. We seek comment on 
what those further actions might entail, including actions to address 
concerns within the broader RIN market generally.
    It is important to emphasize that we use the term ``threshold'' in 
this proposed regulatory modification to mean a level that may be 
exceeded, with only a disclosure consequence if exceeded. We use the 
term ``limit'' in this action to mean a level that may not be exceeded, 
with a potential enforcement consequence if exceeded. As an alternative 
to the RIN holding thresholds we are proposing, we seek comment on 
establishing a RIN holdings limit, whereby we would prohibit parties 
from holding more than a certain level of RINs. Other marketplaces have 
established such limits, and we discuss the distinction, as well as the 
reasons for pursuing the threshold/disclosure approach, below. We seek 
comment on this alternative proposal and on the issue generally.
    Regulatory bodies supervising markets regularly take measures to 
prevent excessive market power, and it is useful when considering new 
regulations in the RIN market to assess the tools used in other 
comparable areas. Tools used in other markets to accomplish similar 
market power-limiting objectives include collecting market participant 
data, conducting market surveillance, publicly disclosing market 
information, and restricting the activity of certain market 
participants. Physical commodity markets are not typically regulated 
with holdings thresholds or limits, however, because the physical 
restrictions to hoarding, like limited physical storage space, obviate 
the need for regulatory restriction and oversight. Rather,

[[Page 10610]]

holding thresholds and limits are usually reserved for futures and 
derivative markets where such physical constraints do not serve as a 
check on market concentration. For example, the CFTC currently 
maintains limits on the number of open positions \163\ that parties can 
take at a given time in nine agricultural markets.\164\ Other entities 
registered with the CFTC, called Exchanges, impose and enforce position 
limits on a large number of remaining futures and options.
---------------------------------------------------------------------------

    \163\ An open position refers to a contract for the purchase or 
sale of a commodity fur future delivery. See CFTC Regulation 150.2, 
17 CFR 150.2 (2012), available at https://ecfr.io/Title-17/se17.2.150_12.
    \164\ See CFTC Regulation 150.2, 17 CFR 150.2 (2012), available 
at https://ecfr.io/Title-17/se17.2.150_12.
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    RINs do not fall neatly into either category; they are neither 
limited by physical storage space nor a derivative. In looking for 
analogs in other regulated markets, it is therefore helpful to see how 
other environmental allowance markets operate for purposes of 
comparison. For this action, we looked at other environmental credit 
programs and their markets to better understand options for the RIN 
market and found that different markets operate with different 
approaches. For example, the California Air Resources Board (CARB) 
enforces an allowance holding limit in the California Cap-and-Trade 
Program for greenhouse gas emissions; \165\ the Regional Greenhouse Gas 
Initiative (RGGI) \166\ enforces a credit purchasing limit in the RGGI 
cap-and-trade program credit auctions; and the Government of Canada 
enforced a limit in its Federal Renewable Fuels Regulations on the 
number of compliance credits a primary supplier can own at the end of 
each month.\167\ On the other hand, neither EPA's Acid Rain 
Program\168\ nor California's Low Carbon Fuel Standard (LCFS) \169\ has 
limits or thresholds on allowance or credit holdings, and we are 
unaware of any state Renewable Portfolio Standard (RPS) program \170\ 
that enforces a renewable energy credit holding threshold or limit.
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    \165\ More information on California's Cap and Trade program can 
be found at https://www.arb.ca.gov/cc/capandtrade/capandtrade.htm. 
Information about the allowance holding limit can be found in 
``Facts About Cap and Trade: Market Oversight and Enforcement'' 
(2011), available at https://www.arb.ca.gov/cc/capandtrade/market_oversight.pdf.
    \166\ The Regional Greenhouse Gas Initiative (RGGI) is a 
cooperative effort among the states of Connecticut, Delaware, Maine, 
Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and 
Vermont to cap and reduce CO2 emissions from the power 
sector. More information on RGGI can be found at https://www.rggi.org. Information about the credit purchasing limit can be 
found in ``CO2 Allowance Auctions Frequently Asked 
Questions'' (2017), available at https://www.rggi.org/sites/default/files/Uploads/Auction-Materials/38/RGGI_CO2_Allowance_Auction_FAQs_Jan_10_2017.pdf.
    \167\ More information on Canada's Federal Renewable Fuel 
Regulations, including about the credit limit, can be found in 
``Questions & Answers on the Federal Renewable Fuels Regulations'' 
(2012), available at https://www.canada.ca/en/environment-climate-change/services/canadian-environmental-protection-act-registry/publications/revised-questions-answers-renewable-fuels.html.
    \168\ More information on EPA's Acid Rain Program can be found 
at https://www.epa.gov/airmarkets/acid-rain-program.
    \169\ More information on California's LCFS Program can be found 
at https://www.arb.ca.gov/fuels/lcfs/lcfs.htm.
    \170\ An RPS is a regulatory method mandating utility companies 
operating within a certain jurisdiction to increase production of 
energy from renewable resources. More information on RPS programs 
can be found in ``Chapter 5. Renewable Portfolio Standards'' of 
``EPA Energy and Environment Guide to Action'' (2015), available at 
https://www.epa.gov/sites/production/files/2017-06/documents/guide_action_full.pdf.
---------------------------------------------------------------------------

a. Implications and Discussion
    We believe that requiring public disclosure by parties that exceed 
a certain RIN holding threshold could prove beneficial for the market 
as a whole. It could disincentivize parties from gaining market power, 
signal potentially harmful behavior to competitors, regulators, and 
policy makers, and be used to justify stronger preventative actions. 
However, this reform could also have detrimental effects, especially if 
not designed properly. Excess market power is very difficult to 
quantify in any given market, even if regulators have perfect knowledge 
of all market conditions. A real risk exists of setting a RIN holding 
threshold in this rulemaking incorrectly. If a threshold is set too 
low, it could unnecessarily compromise market efficiency and liquidity 
and interfere with obligated parties' ability to comply with 
regulations by disincentivizing them from holding the necessary 
quantity of RINs to meet their RVO. We therefore believe that a 
threshold with a consequence of public disclosure is appropriate rather 
than a holding limit with an enforcement consequence. A threshold 
serves as a deterrent and warning bell without the risk of 
unnecessarily causing harm. We also believe that, in the face of 
insufficient evidence of any identified parties currently exhibiting 
what might be considered excessive market power, public disclosure is 
an appropriate first action. EPA could follow up with more restrictive 
measures later if warranted and seeks comment on what follow-up actions 
might be appropriate.
    The following sections outline the various considerations we made 
in designing this proposed measure.
b. Scope
    As discussed in Section III.D, for each of the four potential 
reforms, we evaluated whether we could limit the scope of the measure 
to D6 RINs. For this provision of publicly disclosing when a party 
exceeds a RIN holding threshold, we concluded that we could limit its 
scope to D6 RINs without compromising its intended effect. Also, we 
believe that we can practically design and propose a maximum D6 RIN 
holding threshold without setting one for D3, D4, or D5 RINs. Not only 
have D6 RINs raised the most stakeholder concern, as discussed above, 
but the nested nature of the RVOs and the unique characteristics of 
other RIN markets (e.g., D3) would make covering all RIN categories 
considerably more complicated. As also discussed in Section III.D, we 
are further limiting our proposal of this measure to separated RINs 
because we believe the physical storage limitations faced by renewable 
fuel already reduce the opportunity for price manipulation of assigned 
RINs and that the existing regulations at 40 CFR 80.1428 already 
include anti-hoarding provisions for RINs attached to renewable fuel. 
Finally, we are proposing that this threshold cover any vintage D6 RINs 
that are available for compliance with the current year RVO. We seek 
comment on these proposed aspects of this reform.
c. Methodology for the RIN Holding Threshold \171\
---------------------------------------------------------------------------

    \171\ We refer to the threshold in the singular in the title to 
describe the overall policy, but as described in this section, we 
are actually proposing a dual threshold approach.
---------------------------------------------------------------------------

    In this action, we are proposing to set two holding thresholds. As 
stated above, it is extremely difficult to pinpoint a specific market 
share that would equate to concerning market power. Therefore, we 
approach this reform by instead estimating the holding level that we 
believe would be consistent with legitimate market needs. We recognize 
that legitimate holdings for obligated parties relate to the number of 
RINs they need for compliance with their RVO, so we logically conclude 
that an obligated party threshold should relate to its RVO. We also 
recognize that non-obligated parties have no RVO and require a 
different threshold methodology. Non-obligated parties have less need 
to hold RINs than obligated parties because they have no compliance use 
for them, so we believe their threshold should generally be set lower. 
Thus, we believe one lower threshold that covers everybody and a second 
higher threshold that adjusts to the compliance needs of obligated

[[Page 10611]]

parties together would adequately constrain a market with a very wide 
range of participants. Both non-obligated parties and obligated parties 
would be held to similar incentives.
    We are proposing a primary D6 RIN holding threshold for all RIN-
holding parties relative to the implied conventional biofuel volume 
requirement finalized by EPA each year. We determine the implied 
conventional biofuel volume requirement by subtracting the advanced 
fuel volume requirement from the total renewable fuel volume 
requirement because D6 RINs can only be used to meet the implied 
conventional biofuel portion of the total RVO. For example, if the 
implied conventional biofuel volume requirement were 15 billion in a 
given year, a certain percentage of 15 billion would be the primary 
threshold for that year. A threshold relative to the volume requirement 
adjusts over time to the size of the annual standard rather than to the 
number of RINs in the market. The benefit of this approach is that the 
volume requirement does not change, so parties know exactly what level 
to avoid at all times. This approach is similar to the calculation of 
the allowance holding limit used in the linked cap-and-trade programs 
implemented by California and Quebec.\172\
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    \172\ See ``Facts About Holding Limit for Linked Cap-and-Trade 
Programs'' (September 14, 2018), available at https://www.arb.ca.gov/cc/capandtrade/holding_limit.pdf.
---------------------------------------------------------------------------

    In this action, we are proposing to set a secondary threshold for 
obligated parties. We recognize that larger obligated parties with 
large RVOs have valid reasons to accumulate and hold a volume of RINs 
that might exceed the primary threshold, not only to meet their next 
annual compliance obligation but also to bank additional RINs for 
compliance with the following year's obligation. As explained in 
Section III.D, many instances of RIN accumulation are legitimate and 
are not related to price manipulation, making it that much harder for 
regulators to pinpoint the instances of RIN accumulation that are not 
based on legitimate commercial or compliance needs. For example, 
parties that anticipate an increase in the price of RINs and/or the 
quantity of RINs they will need for compliance purposes in future years 
may choose to acquire RINs beyond their needs for the current year for 
use in the following year. Therefore, we recognize that the threshold 
would have to somehow account for and allow RINs held to meet 
compliance obligations. For example, exemptions to position limits in 
futures and options markets are granted by the CFTC or Exchanges on a 
case-by-case basis to parties that demonstrate valid commercial stakes 
in the underlying physical market.\173\ In addition, parties that are 
covered by the cap and have an emissions compliance obligation under 
the California Cap-and-Trade Program are allowed to hold more 
allowances than parties not covered by the cap. While all parties 
participating in the California Cap-and-Trade Program are subject to 
the same fixed annual holding limit, parties with a compliance 
obligation qualify for a limited exemption from the holding limit. 
Allowances placed in a covered entity's compliance account (from which 
the entity can no longer remove or trade allowances) up to the limited 
exemption do not count against the holding limit. The limited exemption 
is based on lagged values of the entity's reported emissions and is 
large enough to cover the entity's cumulative emissions obligations. 
This ensures that entities with compliance obligations greater than the 
holding limit can still acquire and hold compliance instruments to 
comply with their obligations.\174\ We seek comment on the general 
concept of a secondary threshold for obligated parties in the RFS 
program.
---------------------------------------------------------------------------

    \173\ A position limit refers to a limit on the number of 
contracts for the purchase or sale of a commodity for future 
delivery a party can hold. See CFTC Regulation 150.2, 17 CFR 150.2 
(2012) at https://ecfr.io/Title-17/se17.2.150_12.
    \174\ See ``Facts About Limited Exemption from the Holding 
Limit'' (December 1, 2017), available at https://www.arb.ca.gov/cc/capandtrade/limited_exemption.pdf.
---------------------------------------------------------------------------

d. Setting the Primary Threshold
    We are proposing that all RIN-holding parties would be subject to a 
primary threshold for disclosure. We are proposing one approach to 
calculating the primary threshold that adjusts depending on how many 
RVOs are in effect. For anytime between April 1 and December 31, when 
only one set of annual RVOs is in effect, we are proposing that the 
primary threshold would equal three percent of the annual implied 
conventional biofuel volume requirement established by EPA in a rule 
promulgated each year to set the annual renewable fuel standards. In 
our hypothetical example, this would amount to three percent of 15 
billion D6 RINs, or 450 million D6 RINs. For anytime between January 1 
and March 31, when two sets of annual RVOS are in effect, we are 
proposing that the primary threshold would be three percent of 125 
percent of the annual implied conventional biofuel volume requirement. 
We are proposing that the threshold in the first quarter of the year 
should be 125 percent of the other months because parties may need to 
hold RINs for two overlapping RVOs in that quarter rather than just 
one. In our hypothetical example, this would amount to three percent of 
18.75 billion D6 RINs, or 562.5 million D6 RINs. We propose that a 
party's RIN balance at the end of each day in EMTS would be combined 
with any RINs in pending trades at the end of the day. We seek comment 
on this approach.
    To determine the primary threshold of three percent, we considered 
thresholds in other programs as well as an analysis of RFS RIN 
holdings. We looked at the linked cap-and-trade programs implemented by 
California and Quebec as examples. They use a formula that calculates a 
holding limit of about three percent of their combined annual allowance 
budgets every year.\175\ Based on our discussions with CARB concerning 
the implementation and effectiveness of that threshold, we are 
proposing a similar level. We therefore conclude that a holding limit 
or threshold of three percent of an allowance or credit standard can 
identify parties which have acquired RIN holdings larger than necessary 
for normal business operations and which may indicate an effort to 
assert inappropriate market power. To help inform our assessment of a 
three-percent threshold, we conducted a screening analysis using 
individual-level data to evaluate historical market shares. 
Specifically, we looked at daily D6 RIN holdings aggregated by company 
between April 1, 2017 and April 1, 2018, compared to the overall 
market. For simplicity, we looked at D6 RINs of all vintages. Using our 
proposed equations for the primary threshold, we found that in that 
one-year period, 13 out of 126 obligated parties would have exceeded 
the three percent primary threshold. None of the 280 non-obligated 
parties that held separated D6 RINs in that time period exceeded the 
three percent primary threshold.\176\
---------------------------------------------------------------------------

    \175\ See calculation in the memorandum, ``California and Quebec 
Holding Limit Percentages,'' available in the docket for this 
action.
    \176\ See calculation in the memorandum, ``Threshold 
Calculations for D6 RIN Holding Parties,'' available in the docket 
for this action.
---------------------------------------------------------------------------

    We seek comment on the general approach of setting the primary D6 
RIN holding threshold relative to the implied conventional biofuel 
volume requirement and the specific application of a three-percent 
threshold. We also seek comment on the actual thresholds that this 
calculation generates, whether it is appropriate, and whether it could 
harm any market participants and, if so,

[[Page 10612]]

how. We also considered setting two primary thresholds, one for 
obligated parties set at three percent and a lower one for non-
obligated parties set at one percent (an obligated party would still 
apply the secondary threshold if it exceeded its primary threshold). In 
our hypothetical example, a one percent threshold would amount to 150 
million RINs from April 1 to December 31 and 188 million RINs from 
January 1 to March 31. We considered this approach because a one 
percent primary threshold for non-obligated parties could potentially 
meet the objectives outlined in Sections III.E.3 and III.E.4 in a 
simplified and more streamlined way than the various reforms proposed 
in those sections. In our screening analysis, we found that two non-
obligated parties would have exceeded the one percent threshold during 
the time period analyzed, though we did not consider whether the 
parties were affiliated with an obligated party, as described 
below.\177\ We seek comment on this considered approach of limiting 
non-obligated parties using just one reform, a lower primary threshold 
of one percent.
---------------------------------------------------------------------------

    \177\ See calculation in the memorandum, ``Threshold 
Calculations for D6 RIN Holding Parties,'' available in the docket 
for this action.
---------------------------------------------------------------------------

    We considered but are not proposing setting a threshold relative to 
total separated D6 RINs available in the market. The downside of this 
approach is that the quantity of total available RINs changes 
continuously, and it is not possible for market participants to know 
what it is at every moment. This makes it difficult to calculate the 
threshold at any given time. Another downside of this approach is that 
it uses all unretired, separated D6 RINs as a proxy for available D6 
RINs because that is the best information that either the market or EPA 
has. If a party were to keep D6 RINs off the market, as is alleged by 
some parties, then our proxy would become an overestimate of the actual 
number of D6 RINs available. Thus, this approach would underestimate a 
party's market share. In considering this approach, we also could not 
find a universal standard for the level of market share that 
constitutes an inappropriate or concerning level of market power. The 
only example we could find of another environmental credit program that 
implements a market share limit is the RGGI program, which applies a 
25-percent limit to the number of credits a party can purchase at a 
single credit auction.\178\ Though this is not a holding limit or 
threshold per se, it is a limit that relates to preventing a party from 
establishing undue market power. Therefore, if we were to choose this 
approach to setting a threshold in the final rule, we would consider a 
D6 RIN holding threshold at or around 25 percent of total available D6 
RINs. In our screening analysis, we compared maximum individual end-of-
day D6 RIN holdings in every quarter between 2013 and 2018 to total 
available D6 RINs in that quarter. We looked at all, non-expired D6 
RINs regardless of the year in which they were generated.\179\ We found 
that the maximum market share over that entire time period, by any 
individual RIN holder, was 18 percent. In other words, on one day, one 
party held 18 percent of the 9.9 billion D6 separated RINs available on 
that day. In that particular case, an obligated party hit the 18-
percent level in the first quarter of 2017, at a time when other 
obligated parties were retiring hundreds of millions of RINs in single 
EMTS transactions for the upcoming compliance deadline. This activity 
dropped the total available RINs in the market suddenly and 
drastically. Setting aside those periods of time where significant and 
sudden RIN retirements were occurring, the maximum level of D6 RINs 
that any one party held at a time was between 10 and 14 percent of all 
D6 RINs.\180\ These figures are commensurate with the gasoline and 
diesel production market share of the largest refiners. We seek comment 
on our proposal to set the primary threshold relative to the annual 
implied conventional biofuel volume requirement and on the alternative 
approach considered but not proposed.
---------------------------------------------------------------------------

    \178\ See ``CO2 Allowance Auctions Frequently Asked 
Questions'' (January 10, 2017), available at https://www.rggi.org/sites/default/files/Uploads/Auction-Materials/38/RGGI_CO2_Allowance_Auction_FAQs_Jan_10_2017.pdf.
    \179\ CAA sec. 211(o)(5) requires that EPA establish a credit 
program as part of its RFS regulations, and that the credits be 
valid to show compliance for 12 months as of the date of generation. 
EPA implemented this requirement through the use of RINs, which can 
be used to demonstrate compliance for the year in which they are 
generated or the subsequent compliance year. Obligated parties can 
obtain more RINs than they need in a given compliance year, allowing 
them to ``carry over'' these excess RINs for use in the subsequent 
compliance year, although use of these carryover RINs is limited to 
20 percent of the obligated party's RVO.
    \180\ The full analysis is detailed in the memorandum, ``Daily 
Comparison of Individual RIN Holdings to Total Available RINs,'' 
available in the docket for this action.
---------------------------------------------------------------------------

e. The Secondary Threshold
    If a RIN-holding party exceeded the primary threshold, it would 
indicate that its D6 RIN holdings were a sizeable share of the market. 
For parties with no RVO, this would signal a position that could 
potentially command market power with the potential to artificially 
influence price. For obligated parties, however, a second test would be 
needed to evaluate their holdings against their compliance obligation 
because that could explain their sizeable holdings. For the secondary 
threshold, we are proposing that an obligated party would compare its 
implied conventional biofuel RVO to its D6 RIN holdings of all 
vintages, on a daily basis. If the D6 RIN holdings are more than 130 
percent of the implied conventional biofuel RVO on any day, the 
obligated party would trigger the public disclosure requirement. We are 
proposing one approach to calculating the secondary threshold that 
adjusts depending on how many RVOs are in effect. We want to account 
for the fact that, generally, an obligated party holds more D6 RINs in 
the first three months of the year when it is preparing to retire for 
the prior year's obligation while also accumulating RINs for the 
current year's obligation.
    For days between April 1 and December 31, an obligated party would 
multiply its gasoline and diesel production and import volume from the 
prior year by the difference between the renewable fuel percentage 
standard from the prior year and the advanced fuel percentage standard 
from the prior year. It would also account for any deficit volume it 
carried over from the prior year. See the proposed equations at 40 CFR 
80.1435 for more detail on this proposed approach.
    For days between January 1 and March 31, an obligated party would 
multiply its gasoline and diesel production and import volume from the 
prior year by 125 percent of the difference between the renewable fuel 
percentage standard from the prior year and the advanced fuel 
percentage standard from the prior year. It would also account for any 
deficit volume it carried over two years ago to the prior year. See the 
proposed equations at 40 CFR 80.1435 for more detail on this proposed 
approach. We are proposing that obligated parties who triggered the 
primary threshold would conduct this secondary threshold calculation at 
least quarterly using daily RIN holding levels and implied conventional 
biofuel RVOs.
    We also considered requiring the calculations at the end of the 
compliance year when the actual annual RVO becomes known. For example, 
on March 31, when a large obligated party reports to EPA its actual 
gasoline and diesel production and import volume and its RVOs for the 
prior year, it could also evaluate its daily D6 RIN holdings against 
the implied conventional biofuel

[[Page 10613]]

RVO for the year. The downside to this approach is that the red flag 
for potentially problematic market power could come long after the 
excessive RIN holding level occurs, in some cases over a year later. 
This delay between the RIN holding level and public disclosure of the 
exceedance would decrease the effectiveness of the reform and hamper 
its intended purpose of deterrence and market notification. Therefore, 
we are not proposing such an option. We seek comment on the quarterly 
interval proposed. We chose 130 percent because it allows for holdings 
of 100 percent of their implied conventional biofuel RVO, 20 percent 
for banking, and 10 percent for additional flexibility and uncertainty. 
This flexibility would, for example, cover potentially invalid D6 RINs 
that may not be sold or retired according to the existing part 80 
regulations. With the secondary threshold in place, an obligated party 
with end-of-day D6 RIN holdings in a given quarter below the primary 
threshold would not trigger public disclosure, while an obligated party 
with D6 RIN holdings above the primary threshold would conduct a second 
test against 130 percent of their implied conventional biofuel RVO to 
date to determine whether public disclosure would be triggered.
    In our screening analysis, we found that in the 2017 compliance 
year, thirteen obligated parties would have exceeded a three-percent 
primary threshold and would have applied the secondary threshold. We 
found that three would have also exceeded the 130-percent threshold at 
least once.\181\ We note that we were unable to fully aggregate 
holdings and RVOs by corporate affiliates, as described further below, 
or account for RINs that an obligated party was holding for a small 
refinery with an exemption approval from EPA.\182\ Nonetheless, this 
analysis suggests that a few obligated parties might have to report 
triggering the proposed D6 RIN holding threshold in the future. We seek 
comment on proposing to set the secondary threshold at 130 percent of 
the implied conventional biofuel RVO to date for obligated parties and 
the 125 percent factor that would be applied in the first quarter of 
the year.
---------------------------------------------------------------------------

    \181\ We aggregated all facilities by their company ID in EMTS 
to get a company total for both RIN holdings and thresholds. See 
calculations in the memorandum, ``Threshold Calculations for D6 RIN 
Holding Parties,'' available in the docket for this action.
    \182\ While our analysis could not account for this, our 
proposed regulations do.
---------------------------------------------------------------------------

f. Aggregating RIN Holdings
    Market power can be applied in an anti-competitive way when a party 
controls a sufficiently large share of available supply, in this case 
separated D6 RINs. As already described, we are proposing in this 
action to require a RIN holding reporting threshold on at least each 
individual entity registered to transact RINs in EMTS. However, two 
individual entities with independent registration profiles in EMTS may 
be affiliated and may have control over each other's RIN holdings and 
each other's actions. For example, two entities may be subsidiaries of 
the same parent company or one entity may be the official financial 
asset trading arm of the other. In each of these cases, each entity may 
have control over a larger RIN holding than its individual EMTS account 
would suggest.
    In addition, we note that a RIN holding threshold applied to 
individual parties, without regard to their affiliations, would create 
a large gaming opportunity. One party that wanted to gain market power 
but evade the RIN holding reporting threshold provision could spin-off 
various subsidiaries that would each hold RINs below the reporting 
threshold. It is our intent to design this reform to prevent such 
gaming.
    As a result, we are proposing in this action that a party would 
aggregate its RIN holdings with the holdings of all other parties with 
overlapping ownership or corporate control for evaluation against the 
thresholds. This methodology is similarly applied by CARB for the 
California cap-and-trade credit holding limit and by RGGI for the RGGI 
program auction purchasing limit. We provide a few examples to 
illustrate this proposed concept. If an obligated party were owned by a 
non-obligated party, then the combined D6 RIN holdings would first be 
applied against the primary threshold. If the primary threshold were 
triggered, then the combined D6 RIN holdings would be applied against 
the secondary threshold using the obligated party's implied 
conventional biofuel RVO. If two non-obligated parties were affiliated 
by corporate ownership, then their combined D6 RIN holdings would be 
applied against the primary threshold only. If two obligated parties 
were affiliated by corporate ownership, then their combined D6 RIN 
holdings would be applied against the primary threshold first and then, 
if necessary, against the secondary threshold using the obligated 
parties' implied combined conventional biofuel RVO. Were we to finalize 
any other approaches to establishing RIN holding thresholds for 
reporting, we would intend to require that the RIN holdings of all 
parties affiliated by corporate ownership would nevertheless still be 
aggregated together.
    In order to propose a definition for the term ``corporate 
affiliate,'' we reviewed how other environmental credit programs define 
and apply this concept. California's Cap-and-Trade Program applies a 
shared, single allowance holding limit to entities and their direct 
corporate associations, which they generally define as when one entity 
has more than 50-percent ownership in another entity or when two 
entities share a common parent (i.e., when there is a common entity of 
which the two entities are subsidiaries). In addition, the California 
Cap-and-Trade Program requires that entities report, when requested, 
information related to indirect corporate associations, which they 
define as ownership of more than 20 percent but less than or equal to 
50 percent.\183\ For the RGGI program auction purchase limit, corporate 
association occurs when one applicant has more than 20-percent 
ownership in another applicant or when one party has 20-percent 
ownership in two applicants (parent company).\184\
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    \183\ See ``Chapter 3.1.A: Disclosure of Corporate Associations, 
Consultants or Advisors, and Knowledgeable Employees'' of ``Cap-and-
Trade Regulation Instructional Guidance'' (February 2015), available 
at https://www.arb.ca.gov/cc/capandtrade/guidance/guidance.htm.
    \184\ See ``Auction Notice for CO2 Allowance Auction 
42 on December 05, 2018'' (October 9, 2018), available at https://www.rggi.org/sites/default/files/Uploads/Auction-Materials/42/Auction_Notice_Oct_09_2018.pdf.
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    In this action, we are proposing that two parties are corporate 
affiliates if one has more than 20-percent ownership in the other or if 
both parties are owned more than 20 percent by the same parent company. 
We are proposing a ``more than 20'' percent ownership level because it 
is consistent with the value that the other programs apply. For this 
proposed provision on a D6 RIN holding threshold, we are proposing that 
only corporate affiliates registered to own RINs in EMTS would be 
included in the RIN holding aggregation. Corporate affiliates that are 
not registered in EMTS to own RINs would not need to be included in the 
threshold calculations as these affiliates cannot hold RINs.\185\
---------------------------------------------------------------------------

    \185\ For diagrams and examples of different types of 
affiliates, see the memorandum, ``Affiliates and Groups Definitional 
Relationship and Requirements,'' available in the docket for this 
action.
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    We considered but are not proposing to require aggregation of RIN 
holdings for comparison to the threshold among parties with a 
contractual relationship, for example if there is an implicit or

[[Page 10614]]

explicit agreement in place for one to purchase RINs for the other. As 
such, an obligated party that has a contract in place with a trader or 
a blender for delivery of D6 RINs would not add those D6 RINs to its 
holdings for comparison to the threshold until delivery occurred. We 
realize that this proposed approach would omit some RINs from the 
threshold comparison that could be under a party's control. However, we 
believe that a methodology for including such contractual relationships 
in the aggregation would be too complex and could result in double-
counting RINs. We seek comment on our proposed approach to defining 
corporate affiliate and on omitting contractual affiliates from the RIN 
holding aggregation.
g. CBI Determination
    We are proposing to require public disclosure of the name of a 
party that reported exceeding the EPA-set RIN holding threshold. We are 
not proposing to publicly disclose the actual RIN holding level, the 
amount by which it exceeded the threshold, when it exceeded the 
threshold, how many times it did so, or which threshold was applied. As 
such, we are proposing to determine that a yes/no answer to this 
threshold question does not qualify as CBI under the CAA. We find that 
whether a party exceeded a RIN-holding threshold provides very little 
insight into its actual RIN holding level, its gasoline or diesel 
production or import volume, or any other information that competitors 
could use to discern sensitive information.
    In responding to a Freedom of Information Act (FOIA) request in 
2013, we determined that certain data collected and stored by EMTS at 
that time were CBI, including a party's RIN holdings at the end of the 
quarter.\186\ We recognize that in our evaluation of disclosing whether 
an entity exceeded a RIN holding threshold, we therefore need to 
carefully consider whether the underlying RIN holding level is 
sufficiently masked. In other words, we need to ensure that we do not 
disclose underlying CBI data or allow the CBI to be computed, back-
calculated, or otherwise discerned using other publicly available data. 
Since the actual RIN level cannot be discerned or back-calculated by 
knowing whether the threshold was exceeded, we believe our proposed 
public disclosure accomplishes this objective.
---------------------------------------------------------------------------

    \186\ See EPA's FOIA Request Confidentiality Determination 
document (Docket Item No. EPA-HQ-OAR-2016-0041-0023).
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    Under the approach proposed in this action, a large obligated party 
that triggers the primary threshold would apply the secondary threshold 
of 130 percent of its implied conventional fuel RVO to date, which in 
turn is calculated by multiplying a publicly known percentage standard 
with its annual gasoline and diesel production or import volume. We 
recognize that fuel production volume and import volume are closely 
protected by refiners and importers as sensitive information that could 
potentially harm competitiveness if disclosed. Therefore, in our 
evaluation of public disclosure, we also need to consider whether fuel 
volume could be computed, back-calculated, or otherwise discerned by 
publishing whether a party exceeded an RVO-relative threshold. We find 
that it could not, since neither the threshold nor any numbers above it 
relates to or requires a specific fuel volume. The threshold and the 
figure of comparison are ratios and do not disclose or make discernable 
information about the actual fuel production or import volume.
    We also considered whether any information related to this proposed 
disclosure could warrant CBI treatment, such as information that has 
not yet gone through a formal CBI determination process by EPA. We do 
not believe the information we propose to disclose constitutes CBI 
because, as previously discussed, the underlying RIN holding level is 
sufficiently masked. We believe it is in the interest of the market and 
the program to publicly disclose exceedances of the proposed threshold. 
We are proposing a threshold in this action that is sufficiently high 
to only be exceeded by volume of RINs that is likely more than a party 
would need for compliance or for any other legitimate business need. We 
believe that our proposed threshold is consistent with the level of RIN 
holdings that could cause excessive market power, and we want to 
protect the integrity and functioning of the RIN market by deterring 
potentially anti-competitive behavior through public disclosure. We 
also note that the disclosure would come after the sale were completed 
and would not be associated with a date or dates, so disclosing the 
threshold-related information could not interfere with a sale 
negotiated in the past. Finally, we note that a company can control 
whether it exceeds the threshold and therefore whether its exceedance 
will be publicly disclosed by ensuring that its RIN holdings never 
exceed the threshold. In this way, a company has the power to control 
whether this information is released.
    We seek comment on whether publication of whether the parties in a 
corporate affiliate group exceeded the RIN holding threshold would 
disclose underlying CBI or otherwise would likely result in substantial 
competitive harm to a particular company. Please identify the specific 
data element and explain how the public release of that particular 
value would or would not be likely to result in disclosure of 
underlying CBI or otherwise cause substantial competitive harm. If the 
concern is that the release of being above a threshold would allow 
competitors to derive a CBI value for an individual facility or 
company, specifically describe the mechanism by which this could occur. 
Describe any unique process or aspect of a facility or company that 
would be revealed if the data were made publicly available. If the 
value would disclose underlying CBI only when used in combination with 
other publicly available data, then identify the information that could 
be revealed, describe how it would be calculated or otherwise 
discerned, explain why the information is sensitive, describe the 
competitive harm that its disclosure would be likely to cause, and 
identify the source of the other data. If the data are physically 
published, such as in a book, industry trade publication, or federal 
agency publication, provide the title, volume number (if applicable), 
author(s), publisher, publication date, frequency of publication, and 
International Standard Book Number (ISBN), or other identifier. For 
data published on a website, provide the address of the website, the 
date the website was last visited, and identify the website publisher 
and content author. Avoid conclusory and unsubstantiated statements or 
general assertions regarding potential harm.
    In summary, we have found that the information described in this 
section for public disclosure is clearly not entitled to CBI treatment. 
We are describing our finding and the rationale behind it in this 
notice of proposed rulemaking because we expect this finding to be of 
high interest to stakeholders. We encourage those with CBI concerns to 
submit comments, which we will take into consideration in the 
finalization of this rulemaking.
h. Reporting and Recordkeeping Requirements
    In this action, we are proposing that parties would calculate the 
threshold for each day, and parties that triggered the threshold for a 
day would be required

[[Page 10615]]

to report the event to EPA by the quarterly reporting deadlines 
specified in Table 1 to 40 CFR 80.1452. We seek comment on the proposed 
quarterly frequency and whether quarterly notice allows for too much 
lag between an exceedance and disclosure . For a corporate affiliate 
group that triggered the threshold together, each registered party 
would be required to separately notify EPA of the event. We are 
proposing to add a yes/no question on triggering the threshold to the 
RIN Activity Report that all RIN-holding parties are already required 
to submit to EPA quarterly. The party would select ``no'' if the 
threshold was never triggered during the given quarter or ``yes'' if it 
was triggered at least once in the quarter. The submitting official 
would be required to certify the completeness and accuracy of that 
answer upon report submission. We are also proposing that independent 
auditors would need to review all daily threshold calculations during 
the attest engagement process and would need to include in their attest 
engagement report to EPA confirmation that the party notified EPA as 
required of all instances of the threshold being triggered. This would 
include confirmation that the D6 RIN holdings and RVOs, if applicable, 
of all corporate affiliates were fully and properly accounted for in 
the calculations. We therefore are proposing that parties registered to 
hold RINs be required to keep as records all threshold calculations, 
including corporate affiliate values, and provide those records to the 
auditor for review.
    The proposed calculation would use gasoline and diesel production 
and import volumes from the prior compliance year as a proxy for 
volumes in the current year. We recognize that the calculations could 
be an inaccurate representation of current year volumes in some cases, 
such as mergers or big changes in import volumes from year to year. 
However, in most situations we envision that these year-to-year changes 
may not impact the necessity to report. We seek comment on ways to 
fairly account for these limited situations.
    In this action, we are proposing that EPA would be responsible for 
publicly disclosing that a party notified us of exceeding the 
threshold. We already maintain and regularly update a centralized 
website for RFS data \187\ that has become the hub for up-to-date 
program information and transparency. Stakeholders, as well as the 
public at large, who want to know the identity of those that hold RINs 
in excess of the amount that flags potential market power concerns 
would only need to go to one place, EPA's website, to find all publicly 
available information on the topic. We seek comment on our proposal to 
publish the names of parties that exceed the RIN holding disclosure 
threshold on the EPA website.
---------------------------------------------------------------------------

    \187\ Public EMTS data can be found on EPA's website at https://www.epa.gov/fuels-registration-reporting-and-compliance-help/public-data-renewable-fuel-standard.
---------------------------------------------------------------------------

2. Reform Two: Increase RFS Compliance Frequency
    The second potential reform we address in this action is 
establishing a requirement for more frequent retirement of RINs for 
purposes of program compliance. The fundamental concept underpinning 
this reform is that, if it were finalized, obligated parties would be 
required to retire RINs in their accounts gradually over the year 
rather than all at once at the end of the year. We believe that 
requiring RINs to be retired for compliance on a more frequent basis 
could potentially help minimize opportunities for hoarding or other 
behavior that could negatively impact the RIN market. Further, we 
believe this regulatory modification would have the added benefit of 
helping obligated parties reduce the risk of non-compliance at the end 
of the year since they would be required to obtain RINs to meet a 
portion of their individual RVO on a quarterly basis.
    Under this reform, we are proposing to establish RIN retirement 
requirements for the first three quarters of the compliance year, 
calculated as the gasoline and diesel production and import volume 
through the end of the quarter multiplied by 80 percent of the current 
year renewable fuel standard. We are proposing to include the 80 
percent factor for these interim RIN retirements to address the 
inherent uncertainty of projecting an obligated party's obligation 
without full information. Obligated parties would submit reports to EPA 
60 days after the end of the quarter to demonstrate compliance with 
these requirements and could use any D-code RINs to do so. This reform 
would not impact the current annual RVO calculations or compliance, 
including the two-year RIN life, the annual deficit carryover, or the 
20 percent carryover provisions. Specifics on the calculations, 
reporting requirements and schedules are discussed in more detail 
below.
    Some stakeholders have voiced concern about asymmetry in the market 
if EPA were to establish a more frequent compliance period for 
obligated parties without requiring RIN holders to make RINs available 
more frequently, and vice versa. Taking this concern under 
consideration, we have tried to balance this reform with our proposed 
reform that would limit the duration that a non-obligated party could 
hold separated RINs (discussed in Section III.E.4). Namely, this 
proposal would establish that both program compliance and the 
requirement for non-obligated parties to sell their separated RINs 
apply at quarterly intervals. We believe this symmetry will help to 
facilitate more frequent compliance and reduce the risk of one party 
having an unfair advantage over the other since both sides would face 
similar obligations to buy and sell RINs within the required 
timeframes.
    We believe that more frequent RIN retirement could help smooth 
demand for RINs across the year. However, under this proposed reform, 
RIN demand could still increase at certain times of the year due to 
circumstances beyond EPA's control, which could make purchasers 
particularly vulnerable to manipulative terms from sellers at those 
times. Even though the magnitude of the obligation would be roughly 
decreased by a factor of four, sellers with excess RINs beyond their 
quarterly retirement requirements could still exercise power over the 
RIN market--now several times throughout the year before each quarterly 
deadline instead of just once annually. Market power is relative, and 
we recognize that a smaller stockpile of RINs in a party's account 
relative to a smaller pool of available RINs can still result in market 
power. Therefore, the ultimate benefit of this reform on the RIN market 
and on parties' behavior is unclear.
a. Implications on the Annual RVO
    In this action, we are not proposing to change the timeframe of the 
annual RVO or the annual RVO compliance obligation. Rather, we are 
proposing to maintain the annual RVO and annual RVO compliance 
obligation and to add requirements for periodic RIN retirement 
throughout the year. This is similar to personal tax requirements 
imposed by the IRS and states; money is generally withheld from an 
individual's paycheck throughout the year based on an estimate of their 
annual tax burden, but the actual annual tax burden is only calculated 
and due for full payment once the tax year is over. By proposing a 
requirement for obligated parties to retire RINs periodically through 
the year, we are able to leave intact the many elements of the RFS 
program that are based on an annual program (e.g., the annual deficit 
provision, the annual 20 percent carryover provision, and the two-year 
life of a RIN). We believe that these annual program components, as

[[Page 10616]]

described further below, are functioning effectively and that changing 
these annual program components could create harmful unintended 
consequences. We believe we can leave these annual elements of the 
program unchanged while still accomplishing the objective of this 
reform.
    The current RFS program is designed around an annual RVO. As 
specified in 40 CFR 80.1407(a), obligated parties wait until the 
compliance year has passed to calculate their annual RVOs using their 
actual annual gasoline and diesel production and import volume. The RVO 
equations also account for deficits on an annual basis, such that a 
deficit incurred in the prior year is carried over into the current 
year. 40 CFR 80.1427(a) specifies how obligated parties demonstrate 
compliance with this annual RVO. These equations were designed so that 
an obligated party has an entire year to collect enough RINs to address 
any deficit carried over from the prior year. We believe that this 
annual approach to satisfying prior year deficits should continue 
unchanged. Therefore, we are not proposing any edits to 40 CFR 
80.1407(a) or 80.1427(a).
    The deficit provision comes from direction in the CAA for EPA to 
include provisions allowing any person to carry forward a renewable 
fuel deficit from one calendar year to the next when certain conditions 
are met. The conditions outlined in the CAA are ``that the person, in 
the calendar year following the year in which the renewable fuel 
deficit is created (i) achieve compliance with the renewable fuel 
requirements under paragraph (2); and (ii) generates or purchases 
additional renewable fuel credits to offset the renewable fuel deficit 
of the previous year.'' \188\ Since the statute specifies that an 
obligated party can create a deficit on an annual basis, we are 
proposing in this action to maintain that annual flexibility. 
Therefore, an obligated party would be allowed to fall short of its RIN 
retirement requirements in any or all periods of one compliance year as 
long as it retired RINs at some point in the following compliance year 
to offset the following year's obligation, which includes the current 
year deficit. See Section III.E.2.e for further discussion on such RIN 
retirement shortfalls.
---------------------------------------------------------------------------

    \188\ See CAA sec. 211(o)(5)(D).
---------------------------------------------------------------------------

    Finally, 40 CFR 80.1427(a)(5) specifies that no more than 20 
percent of an obligated party's current year RVO can be satisfied with 
prior year RINs. In this action, we are not proposing any amendments to 
this part of the regulation. We propose that this carryover provision 
continue to only apply to the annual RVO. We are not proposing to apply 
this provision to any interval other than annually. Therefore, an 
obligated party that retired RINs periodically during the year, 
pursuant to this action, could use any amount of prior year RINs to do 
so, subject to the requirements that the final annual RVO compliance 
demonstration is consistent with the 20-percent carryover provision.
b. Compliance Frequency
    During the development of this proposed rule, we considered 
establishing compliance frequencies other than quarterly. Ultimately, 
however, we chose to propose a quarterly compliance frequency for 
obligated parties; a quarterly requirement appears to balance the 
objectives of a more frequent compliance requirement without being 
overly burdensome or introducing excessive complexity. As such, 
obligated parties would be required to use new equations proposed at 40 
CFR 80.1427(d) for the first, second, and third quarters of a year. 
Obligated parties would not have a separate RIN retirement requirement 
for the fourth quarter and would instead continue to use the existing 
RVO equations at 40 CFR 80.1427(a) to demonstrate compliance with the 
annual RVO. We seek comment on a quarterly frequency and on whether 
obligated parties that reporting gasoline and diesel production and 
import volumes to the Energy Information Agency (EIA) weekly and 
monthly would prefer a frequency greater than quarterly that aligns 
with the EIA survey frequency.
    We considered a provision that would require RIN retirement for 
every batch of gasoline or diesel immediately or shortly after it is 
produced or imported, but we do not believe a practical implementation 
framework for this concept exists. It would be virtually impossible for 
the market to instantaneously meet such tight demand for RINs by 
obligated parties. The generation of RINs and the production and import 
of transportation fuel are not time aligned over the course of the 
year. We believe that a quarterly RIN retirement requirement is close 
enough to ``real time'' compliance to meet the objectives of this 
reform while still providing enough flexibility for obligated parties 
to feasibly comply.
    As part of our analysis, we reviewed the historic pace of RIN 
generation throughout a calendar year. We observed that RIN generation 
is not consistent throughout the year and varies depending on the month 
or season. For example, in calendar year 2017, the monthly generation 
of biomass-based diesel (D4) RINs is lowest in January because 
biodiesel blending drops in the winter months when gelling of biodiesel 
can occur in some regions. The monthly D4 generation rate increased 
gradually until July when it began to decrease again. Finally, 
generation spiked higher in December than in any other month as parties 
worked to meet the RFS requirement that renewable fuel must be 
generated and blended in the same calendar year (and in some years 
rushed to take advantage of expiring tax credits). In fact, generation 
of all four D-code RINs peaked in December. When we compared these 
monthly generation rates to a potential monthly RIN retirement 
requirement based on estimated monthly gasoline and diesel 
volumes,\189\ we saw that in many months, the demand for RINs exceeded 
the generation of new RINs. In addition, when we compared the monthly 
generation of all D-code RINs with potential monthly RIN retirement 
requirement, we found that cumulative RIN generation would not catch up 
to the cumulative RIN retirement requirement until December. This lack 
of alignment in time between RIN generation and gasoline/diesel fuel 
demand renders ``real time'' RIN retirement infeasible. We concluded 
from this analysis that it is important to provide some margin of time-
flexibility to allow obligated parties to acquire RINs for compliance 
and that too-frequent retirement requirements would be too restrictive 
and counterproductive.
---------------------------------------------------------------------------

    \189\ See calculation in the memorandum, ``Comparison of Monthly 
RIN Generation Rates to a Potential Monthly RVO,'' available in the 
docket for this action.
---------------------------------------------------------------------------

    We seek comment on the appropriateness of a quarterly frequency 
requirement and on other potential frequencies, such as monthly or bi-
annually. Because of the need for flexibility, we also considered 
several compliance deadlines, by which obligated parties would need to 
achieve the quarterly compliance requirements. See Section III.E.2.f 
for a discussion of deadline options considered and the deadlines we 
are proposing in this action.
c. Scope
    As discussed earlier in this preamble, for each reform we 
considered whether we could limit its scope to reduce the risk of 
unintended negative consequences while still meeting the objective of 
the reform. In particular, we considered whether we could limit the

[[Page 10617]]

reforms to just D6 RINs since D6 RINs are the main source of market 
manipulation concern.
    For the compliance frequency reform outlined here in Section 
III.E.2, we concluded that, because of the nested nature of the RIN 
system, we could not require retirement of only D6 RINs. For example, 
an obligated party could choose to retire only D3, D4, and D5 RINs, 
which are nested in the renewable fuel obligation, to comply with its 
renewable fuel RVO. Therefore, we are proposing a quarterly RIN 
retirement requirement based on only the renewable fuel RVO in this 
action and allowing obligated parties to retire any D-code of RINs to 
meet it.
d. Incurring a Shortfall
    In this action, we are proposing that an obligated party would be 
allowed to fall short of a quarterly RIN retirement requirement if it 
met certain conditions. This shortfall provision would mirror the 
flexibility provided by the annual deficit provision described above. 
Under one set of conditions, a party would be allowed to incur a 
shortfall in a quarter of a given year as long as in the following year 
it satisfied all three quarterly RIN retirement obligations. Under a 
second set of conditions, a party would be allowed to incur a shortfall 
in a quarter of a given year and in a quarter of the following year if 
its annual RVO for the current year were equal to zero (e.g., as the 
result of an approved small refinery exemption). Under this proposal, a 
shortfall in one quarter would have the same effect as a shortfall in 
all three quarters of the year on a party's ability to incur shortfalls 
in the following year. We are proposing amendments to 40 CFR 80.1427(b) 
to reflect this provision.
    We considered an alternative approach under which a party's 
shortfall in one or more quarters of a year would not affect a party's 
ability to incur a shortfall in one or more quarters of the following 
year. However, we believe this alternative would create a loophole to 
this reform that could be exploited by obligated parties to circumvent 
the proposed quarterly RIN retirement requirements. By way of example, 
consider an obligated party that retired no RINs in the first three 
quarters of a given year and then fully complied with its annual RVOs 
at the end of the year by retiring all required RINs. Under the 
alternative approach, the obligated party would be allowed to incur 
shortfalls in all three quarters of the following year and could repeat 
this compliance strategy again and again. This would amount to a 
circumvention of the proposed quarterly compliance reform altogether. 
Considering this example under the proposed approach instead, the 
obligated party that retired no RINs in the first three quarters of a 
given year would be required to meet the quarterly RIN retirement 
requirements of the following year. We seek comment on allowing 
shortfalls under certain conditions and on our approach to preventing 
shortfalls over multiple years. We seek comment on the alternative we 
considered as well as other alternative approaches commenters 
recommend.
e. Calculating the RIN Retirement Requirement
    We are proposing in this action that the RIN retirement 
requirements for the first three quarters of a compliance year would be 
calculated as 80 percent of an obligated party's cumulative gasoline 
and diesel production and import volume multiplied by the renewable 
fuel percentage standard for the current year. As explained above, the 
quarterly RIN retirement equations would not include an input for any 
prior year deficit carried over or a limitation on the year of the RINs 
used. We believe that an 80-percent flexibility would address the 
seasonal variability in RIN generation that could impede a party's 
ability to acquire 100 percent of its required RINs. We also believe 
that an 80-percent flexibility would provide some leeway for volume 
errors identified at the end of the year through the attest engagement 
process. We seek comment on this approach to providing obligated 
parties with this flexibility and on the value of 80 percent that we 
chose to propose and whether a different value would be more 
appropriate.
    We considered, but are not proposing, setting a RIN holding 
requirement rather than a RIN retirement requirement. Under this 
approach, obligated parties would need to demonstrate that they owned 
at least 80 percent of their cumulative volumes multiplied by the 
renewable fuel percentage standard. One reason for this approach is 
that it could better align with the RIN holding threshold calculations 
proposed in Section III.E.1, which would not adjust the threshold as 
RINs were retired every quarter. As such, an obligated party that had 
retired 60 percent of its annual renewable fuel obligation after three 
quarters would only have a legitimate need to hold the 40 percent of 
its annual obligation remaining plus 30-percent headroom, but it would 
be allowed under our proposal to hold 130 percent. We proposed these 
calculations in Section III.E.1 to keep them simple, but we realize 
that some commenters may find it unbalanced and unfair. We seek comment 
on adjusting this reform to a holding rather than retirement 
requirement to address concerns with the threshold calculations.
f. Compliance Deadline
    Under the existing regulations, the deadline by which obligated 
parties must demonstrate compliance with their annual RVOs is March 31 
of the year following the compliance year. As such, parties have three 
months after the last day of the compliance period to compile their 
gasoline and diesel production and import volumes, calculate their 
RVOs, acquire the necessary number of RINs, and submit their annual 
compliance reporting forms. This three-month administrative period is 
necessary for obligated parties to complete all of the required 
compliance steps properly.
    In this action, we are proposing that an administrative period be 
added to the end of the first, second, and third quarters for 
demonstration of compliance with the periodic RIN retirement 
requirements. We are proposing a two-month administrative period such 
that the compliance demonstration deadlines would be June 1, September 
1, and December 1 of the compliance year. This delayed schedule would 
provide obligated parties with additional time to gather production and 
import volumes, acquire RINs, and complete the reporting forms and 
would align with existing quarterly reporting deadlines. RINs generated 
during the administrative period could be used for compliance in the 
previous quarter. We are proposing that a three-month administrative 
period and the March 31 compliance demonstration deadline continue to 
apply to the annual RVO. We seek comment on these proposed deadlines 
and on whether a different administrative period or periods would be 
more appropriate.
g. Reporting and Recordkeeping
    In this action, we are proposing that compliance with the quarterly 
RIN retirement requirements would be demonstrated to EPA through 
reporting. The quarterly deadlines described above would be reporting 
deadlines and would align with the existing deadlines for RIN 
generation, transaction, and activity reports. We believe that aligning 
our proposed quarterly deadlines with deadlines for existing reporting 
requirements would be an easier adjustment for parties. To implement 
this reporting requirement, we are proposing that obligated parties 
would report cumulative gasoline and diesel production and import 
volumes and demonstration of compliance with

[[Page 10618]]

requirements in the first three quarters. We are also proposing to 
update recordkeeping requirements to include all applicable quarterly 
values and calculations. We are not proposing to amend the attest 
engagement due date, so it would continue to be required once at the 
end of each compliance year. The RIN generation, transaction, and 
activity reports would continue to be required quarterly.
    We are proposing that any minor adjustments that an obligated party 
would need to make to a prior quarter's reported volumes due to an EPA-
reported remedial action would be required to be accounted for in the 
next RIN retirement calculation and demonstration. Since the obligated 
party would be certifying that their reported values were accurate to 
the best of their knowledge, we believe that the risk of gaming the 
regulations by consistently under-calculating a quarterly RIN 
retirement requirement is low. A continued pattern of under-calculating 
by one party could potentially result in an enforcement action. We seek 
comment to this approach to remedial action volume adjustments and on 
alternatives to account for them in this action.
h. Small Refinery Exemptions
    Under this reform, we are proposing that all obligated parties 
would be required to meet RIN retirement requirements on a quarterly 
basis. This means that small refineries that submit a petition for an 
extension of the small refinery exemption would typically face 
reporting and RIN retirement requirements before EPA issues a decision 
on the petition. Even under the current annual reporting requirements, 
many small refineries already choose to retire RINs before EPA acts on 
their petitions, understanding that EPA will later ``unretire'' those 
RINs should EPA ultimately decide exemption is warranted for that 
refinery in that compliance year. However, we recognize that quarterly 
RIN retirement obligations for small refineries that may receive an 
exemption would not necessarily be efficient. As described below, small 
refineries that expect to receive hardship relief can alternatively 
defer quarterly reporting under the retirement shortfall provisions 
proposed in this action provided they did not carry a deficit from the 
previous compliance year (e.g., if they received hardship relief in the 
previous year).
    Under this proposal, all refineries including small refineries 
would be able to incur a full RIN requirement shortfall in the first 
three quarters as long as they had not incurred a deficit in the prior 
year. When EPA grants an RFS exemption, the exempt refinery has no RFS 
obligation during the compliance year for which an exemption has been 
granted. For small refineries that received RFS hardship exemptions, 
their annual RVO would be zeroed out. Since the small refineries 
wouldn't trigger the annual deficit provision in that year, they could 
repeat the same steps in the next year if they still faced hardship. We 
note that an obligated party reporting at an aggregated level for 
multiple refineries, including at least one small refinery, would not 
zero out its total annual RVO. Rather, when EPA approved its small 
refinery exemption(s), it would exclude the small refinery volumes from 
its annual RVO calculations but still include volumes from the other 
refineries. As such, we believe that a small refinery that would like 
to take the compliance path outlined above would have to report on a 
facility-by-facility basis, rather than on an aggregated basis. An 
obligated party that wished to report at an aggregated level would have 
to account for any small refinery volumes when calculating and 
complying with its quarterly RIN retirement requirement.
    If the small refinery chose to comply with the proposed quarterly 
RIN retirement requirements and then received an RFS exemption from 
EPA, then we would work with the small refinery to unretire its RINs as 
we do now under the current annual reporting requirements. We are not 
seeking comment on whether EPA can unretire RINs after granting a small 
refinery exemption. If the small refinery chose to incur a RIN 
retirement shortfall in the first three quarters but did not receive an 
exemption from EPA, then it would be required to comply with the annual 
RVO by March 31 as they also do under the current annual reporting 
requirement by either obtaining the appropriate number of RINs or by 
taking a deficit. In that case, whether they met the annual obligation 
or carried a deficit into the following year, they would be prohibited 
from incurring a shortfall in any quarter of the following year.
3. Reform Three: Limiting Who Can Purchase Separated RINs
    The third potential reform from the President's Directive that we 
address in this action is limiting the purchasing of separated RINs to 
obligated parties only. Canada structured its Federal Renewable Fuels 
Regulations this way by only permitting primary suppliers, the 
regulated parties under those regulations, to acquire compliance units 
from others.\190\ This is also how the credit provisions in our 
gasoline sulfur and benzene programs are structured. In those EPA 
programs, the obligated parties are both the generators of the credits 
and the users of the credits and are the only parties that need to take 
any action. Conversely, in the RFS program, obligated parties are 
typically dependent on the action of other parties, such as renewable 
fuel producers and blenders, to actually introduce the renewable fuel 
and the RINs into the marketplace. Consequently, the RFS program was 
set up differently.
---------------------------------------------------------------------------

    \190\ See ``Questions & Answers on the Federal Renewable Fuels 
Regulations'' (2012), available at https://www.canada.ca/en/environment-climate-change/services/canadian-environmental-protection-act-registry/publications/revised-questions-answers-renewable-fuels.html.
---------------------------------------------------------------------------

    Supporters of this regulatory change argue that, since obligated 
parties are the only parties who need to purchase RINs for the purpose 
of compliance, obligated parties should be the only parties allowed to 
purchase separated RINs. The goal of this reform is to minimize the 
number of parties trading RINs so as to reduce the risk of hoarding or 
other actions by non-obligated parties that could improperly impact the 
prices of RINs and thus impact the cost of compliance for obligated 
parties. In developing this proposed reform, EPA is taking into 
consideration the concerns that limiting the parties that can trade in 
the RIN market could have negative unintended consequences, as 
discussed below.
    Under this reform, we are proposing that only obligated parties, 
exporters and certain non-obligated parties be allowed to purchase 
separated D6 RINs. Non-obligated parties would be exempt from this 
proposed provision if they were a corporate affiliate or a contractual 
affiliate of an obligate party.
    As explained in Section III.B of this action, RINs are generated 
with the generation of renewable fuel and move downstream of the 
producer attached to the renewable fuel. When a blender acquires the 
renewable fuel and blends it with conventional fuel, the blender is 
required to separate the RIN from the renewable fuel. The separated RIN 
becomes its own commodity separate from the renewable fuel that can be 
traded and used separately. By the very nature of the blender's role in 
the fuel distribution system and the requirements of the RFS program, 
blenders must become owners of separated RINs. Therefore, this reform 
is limited to only the purchase of separated RINs.

[[Page 10619]]

a. Implications and Discussion
    As described above, this reform would limit the purchasing of 
separated D6 RINs to obligated parties and certain non-obligated 
parties. Some stakeholders have commented that this reform would be 
beneficial because it would specifically block market traders and 
brokers whose only intention is to make a profit in the RIN market and 
may have an incentive to engage in manipulative or anti-competitive 
behavior to boost their profits.\191\ (We note, however, that simply 
making a profit on the RIN market is not manipulative or anti-
competitive behavior.) Limiting non-obligated parties from purchasing 
separated D6 RINs could help deter or prevent that potential behavior 
from occurring in the future. Conversely, some have claimed that 
limiting the number of parties participating could harm the RIN market 
and have other unintended consequences. In fact, this specific reform 
was explicitly raised for consideration in the 2019 RVO proposal, and 
we received multiple comments in opposition, citing the harm this 
reform would likely cause. For example, many parties commented that the 
liquidity of the RIN market would decline if RIN market participation 
were curtailed. These comments stated that some parties without a 
compliance obligation alleviate the burden on the seller of finding a 
counterpart willing to buy the exact amount of RINs for sale at that 
exact time. They do so by aggregating small RIN bundles for large 
buyers, disaggregating large RIN parcels for sale to multiple buyers, 
and holding RINs until the parties are ready to buy. Some commenters 
also stated that, especially in a market as sensitive to policy 
announcements as the RIN market, higher participation can reduce 
volatility and help the market adjust to a policy or other shock more 
quickly than curtailed participation. As such, these comments warned 
that restricting participation in the RIN market would reduce 
liquidity, increase volatility, and ultimately increase RIN 
prices.\192\
---------------------------------------------------------------------------

    \191\ See, e.g., comments from HollyFrontier (Docket Item No. 
EPA-HQ-OAR-2018-0167-1198), Monroe Energy (Docket Item No. EPA-HQ-
OAR-2018-0167-0622), and Valero (Docket Item No. EPA-HQ-OAR-2018-
0167-1041).
    \192\ See, e.g., comments from ACT Commodities (Docket Item No. 
EPA-HQ-OAR-2018-0167-0615), Phillips 66 (Docket Item No. EPA-HQ-OAR-
2018-0167-1267), and Shell (Docket Item No. EPA-HQ-OAR-2018-0167-
0513).
---------------------------------------------------------------------------

    Some commenters explained that a RIN price reflecting higher 
transaction costs would not be representative of the fundamentals of 
the market and thus would weaken the market signal function of RIN 
prices. For example, the RIN price is used by obligated parties to 
estimate the compliance cost they need to recover through their fuel 
pricing, by biofuel producers to gauge supply and demand of the biofuel 
market, and by downstream parties to decide whether to build out more 
blending infrastructure. Curtailed market liquidity could weaken 
everyone's ability to react to the market effectively.
    Some stakeholders have also provided comment to EPA outside of the 
2019 RVO rulemaking about how this reform would harm them and their 
business operations directly. Specifically, we heard from some non-
obligated parties who play a large role in the existing fuel market by 
blending biofuel with petroleum-based fuel and moving the blended fuel 
downstream to retailers. These blenders enter into term contracts with 
obligated parties for delivery of a specific quantity of RINs at the 
end of the contract period. Blenders base their commitment on expected 
fuel blending volumes, which relate to expected fuel production and 
fuel demand. However, if fuel production or demand fell shorter than 
expected, RIN separation by the blender would also fall short. In order 
to meet its contractual obligation in this situation, the blender would 
have to buy separated RINs on the RIN market. A reform that prohibited 
blenders from buying separated RINs would require blenders and their 
obligated party counter-parties to restructure the RIN delivery 
guarantees in the current contracts. Therefore, some of these blenders 
have expressed concern with the harm to them and the operation of the 
RFS program that this reform could cause. They've also highlighted the 
asymmetry this would create in the fuels system between refineries and 
blenders; blenders who fall short of their RIN supply contracts with 
refineries would not be able to fill the gap while refineries who fall 
short of their petroleum-based fuel contracts with blenders would be 
able to fill the gap by purchasing gasoline, diesel, or blendstock on 
the market as needed. Therefore, they characterize a reform that 
prohibits them from purchasing separated RINs as creating an uneven 
playing field in the fuels industry.
    For all of the reasons listed above, we are not proposing to 
prohibit all but obligated parties from purchasing separated D6 RINs 
because we recognize that doing so could cause harm to parties, the D6 
RIN market, and to the RFS program. Thus, our proposal to limit this 
reform reflects a weighing of the beneficial aspects of deterring 
potential market manipulation against the potential negative 
consequences on the RFS program. We seek comment on these potential 
consequences as well as comments on alternative approaches to implement 
this reform.
b. Scope
    We are proposing to limit the scope of this reform to D6 RINs only. 
D6 RINs are the D-code about which we have heard concerns related to 
hoarding and market manipulation. In order to limit any unintended 
consequences of this action, we believe it is sensible to limit this 
action to D6 RINs. For example, we believe that it would be very 
challenging to restrict the purchasing of separated D3 RINs because D3 
RINs generated from biogas to fuel natural gas vehicles are generated 
at the same time as they are separated; it would not be possible to 
distinguish parties who own a D3 RIN from parties who separated it. We 
seek comment on our narrow application of this reform to D6 RINs only 
and on concerns of anti-competitive behavior related to the purchasing 
of other D-code RINs.
    In this action, we are proposing that obligated parties as well as 
a limited set of non-obligated parties would be allowed to purchase 
separated D6 RINs freely. We considered a firm prohibition on all 
transactions of all parties other than obligated parties from 
purchasing D6 RINs, but we believe that certain limited situations 
involving non-obligated parties should continue to be allowed for the 
RFS to function properly. We outline those situations and allowances 
below.
    First, we are proposing that a party that is a corporate affiliate 
or a contractual affiliate, as proposed at 40 CFR 80.1401, to an 
obligated party would be allowed to execute a separated D6 RIN purchase 
transaction. This would include a party that is owned more than 20 
percent by an obligated party or that owns more than 20 percent of an 
obligated party. This would also include a party that has an agreement 
to deliver RINs to an obligated party. Based on discussions with some 
obligated parties, we believe that they routinely contract with third-
parties, such as traders, to deliver separated D6 RINs. We have also 
learned, as described in Section III.E.3.a, that some non-obligated 
parties routinely commit under contract to deliver D6 RINs to obligated 
parties based on their anticipated future blending volumes and must 
purchase separated D6 RINs on the market to satisfy the contract if 
their blending volumes fall short. We believe all of these contractual 
transactions are helpful to obligated parties and that obligated 
parties, the

[[Page 10620]]

very parties this reform is attempting to protect, would be harmed if 
these types of contractual transactions were prohibited.
    Second, we are proposing that non-obligated parties needing to 
replace invalid RINs would also be allowed to purchase separated RINs 
for that purpose. Parties that generate renewable fuel with RINs 
attached sometimes make errors in their renewable fuel and RIN 
calculations, and blenders that purchase RINs attached to renewable 
fuel sometimes learn too late that the RINs they've acquired are 
fraudulent or erroneous. We believe that the most straightforward and 
practical way to allow these parties to stay compliant with the RFS 
program is to continue to allow them to replace invalid RINs by 
purchasing new separated RINs from the market.
    Third, we are proposing that exporters of renewable fuel that 
needed D6 RINs to satisfy their exporter RVOs according to 40 CFR 
80.1430 would be allowed to purchase separated D6 RINs in these limited 
situations. Parties that export conventional fuel blended with 
renewable fuel must acquire and retire RINs to account for the portion 
of their exported product that is renewable fuel. These exporters do 
not necessarily receive, generate or separate RINs, so they need 
another way to acquire RINs in order to comply with the program.
    Ultimately, we believe that our proposal would successfully exclude 
from the RIN market those parties that serve no function in the fuels 
market and that may enter the RIN market for speculative or 
manipulative reasons only. We seek comment on providing allowances in 
this reform, including whether doing so would create any gaming 
opportunities and, if so, how that could be avoided. For example, a 
non-obligated party could create a contract with an obligated party at 
a minimum level as a way to game this reform. We seek comment on how we 
could tighten this reform but still allow enough compliance flexibility 
for obligated parties with contractual relationships with non-obligated 
parties. We also seek comment on the appropriateness of these 
allowances and on any other limited situations, in which non-obligated 
parties should be allowed to purchase separated D6 RINs.
    We recognize that a reform prohibiting non-obligated parties from 
certain activities could create strong incentives for non-obligated 
parties to become obligated parties. This can be done relatively easily 
by importing a small volume of fuel or blending small volumes of 
blendstock to produce fuel. This type of gaming could circumvent the 
entire purpose of this reform and create a sizable implementation 
burden on EPA to no avail. We seek comment on ways this gaming could be 
prevented should we finalize this reform, including limiting the number 
of separated D6 RINs that importers, blender refiners, and non-
obligated parties exempted from this prohibition can purchase. This is 
similar to the limitation we placed on the ability of certain obligated 
parties to separate RINs under 40 CFR 80.1429(b)(9).
c. Reporting and Recordkeeping
    As described in Section III.E.1.h, we are proposing to add a yes/no 
field on the D6 RIN holding threshold to the RIN Activity Report that 
all RIN holding parties already submit to EPA quarterly. Since all RIN 
holding parties already submit these reports quarterly, we believe the 
incremental reporting burden of filling out a new threshold field would 
be minimal. In order to maintain compliance oversight of this RIN 
purchasing restriction on non-obligated parties, we are proposing to 
also add a field to the quarterly RIN Activity Report on whether a non-
obligated party purchased D6 RINs in the quarter. If the non-obligated 
party reported purchasing any amount of separated D6 RINs, it would 
then have to report whether a valid reason (e.g., invalid RINs, 
exports, contract with obligated party) applied. As with the threshold 
field, we believe it would be important for parties to certify that 
they were in compliance with this proposed provision. We are also 
proposing that non-obligated parties would be required to keep all 
applicable records related to this restriction, such as actual 
contracts with obligated parties or evidence of invalid RINs and make 
those records available to their attest engagement auditor. The auditor 
would review the records and confirm that the party made the proper 
calculations and reported accurately to EPA on compliance with the 
proposed provision. We seek comment on this proposed approach to 
compliance oversight.
d. Alternative Approaches Considered
    In addition to the specific reform we are proposing to restrict to 
certain parties the ability to purchase separated D6 RINs, we seek 
comment on alternatives that also meet the objective of this reform in 
the President's Directive but in a more simple and direct way. We 
recognize that prohibiting a class of parties from taking an action but 
then carving out a list of exceptions to that prohibition has the 
potential to be confusing and unwieldy. Instead of the reform that we 
are proposing, an alternative approach to accomplishing the intended 
goals of this reform objective could be to rely only on the first 
reform discussed in Section III.E.1. Rather than restricting who could 
purchase and who could sell to whom, we could address the concern that 
non-obligated parties might hoard RINs only by imposing a limit on 
their D6 RIN holding. The holding limit specifically on non-obligated 
parties could be lower than the three percent of the annual 
conventional biofuel volume requirement proposed. We seek comment on 
these alternatives and on any other alternatives commenters recommend.
4. Reform Four: Limiting Duration of RIN Holdings by Non-Obligated 
Parties
    The fourth potential reform from the President's Directive that we 
address in this action is limiting the duration a non-obligated party 
can hold RINs. In Section III.E.3, we describe our proposal to restrict 
certain non-obligated parties from purchasing separated RINs but still 
allowing them to own separated RINs that they acquire by blending 
renewable fuel into petroleum-based fuel. This fourth reform would 
restrict non-obligated parties further by limiting how long they could 
hold the separated RINs acquired at blending. The concept behind this 
reform is to require non-obligated parties to inject their RINs into 
the market soon after acquiring them to maximize liquidity for 
obligated parties who need the RINs for compliance.
    Under this reform, we are proposing a limit on the duration that a 
non-obligated party can hold separated D6 RINs. Specifically, we are 
proposing that a non-obligated party must sell or retire as many RINs 
as it obtained in a quarter by the quarter's end. For example, both a 
RIN separated on January 1 and a RIN separated on March 31 would each 
need to be offset by a RIN sale in the first quarter. The proposed 
provision would not apply to potentially invalid D6 RINs that are 
required to be held and prohibited from being sold. This proposed 
provision would not apply to obligated parties. Additional information 
on calculations and reporting are discussed in more detail in Section 
III.E.4.e.
    The potential anti-competitive behavior related to non-obligated 
parties holding RINs that would be avoided with this action is the 
potential to accumulate enough RINs to gain market power and then use 
that market power to manipulate the price of RINs. We note that such 
market power is also addressed by the public disclosure reform outlined 
in Section III.E.1. However, we are additionally proposing

[[Page 10621]]

to limit the duration that non-obligated parties can hold separated 
RINs in this action as an alternative or additional method to address 
this concern. We seek comment on the value of limiting the duration 
that a non-obligated party can hold separated RINs, and specifically on 
whether it adds any safeguards against manipulative behavior beyond the 
public disclosure reform.
    Some obligated parties have complained that blenders routinely 
withhold separated RINs from the market until the price is high enough 
to secure a large profit. We note that such actions are not necessarily 
price manipulation or evidence of anti-competitive behavior.
a. Implications and Discussion
    As described above, this reform would limit the duration that a 
non-obligated party could hold a D6 RIN and would therefore interfere 
with attempts at increasing its market power. This reform could also 
increase the availability of D6 RINs on the market for obligated 
parties who want or need to acquire RINs for quarterly retirement. A 
final benefit of this reform is that it provides symmetry to the 
quarterly RIN retirement requirement for obligated parties as discussed 
in Section III.E.2; that reform would increase the frequency of D6 RIN 
demand and this reform would increase the frequency of D6 RIN supply.
    This reform could also have harmful consequences for some parties 
in the market. At an even more basic level, a fuel blender with 
separated RINs to sell may not be able to find a party willing to buy 
those RINs at the time of blending. Therefore, a duration limit that is 
set too short could take too much flexibility away from non-obligated 
parties and make it difficult for them to participate in the RIN 
system. As such, we have proposed a duration limit of a quarter that we 
believe minimizes the risk of causing harm to parties in the RIN 
system.
    Finally, we note that non-obligated parties who want to evade the 
duration limit for holding separated RINs could easily take the minimal 
action necessary to become an obligated party. For example, a blender 
could easily blend a small volume of blending stocks to produce 
gasoline or diesel or import a small volume of petroleum-based fuel in 
order to become an obligated party. As an obligated party, the blender 
would no longer be subject to a restriction on how long it could hold 
its RINs. While such gaming would not directly harm any party or the 
RIN market, it could harm the integrity of the program if done widely 
and could increase the implementation and oversight burden on EPA. We 
seek comment on the implications of such gaming and on any ideas to 
prevent it, including imposing the duration limit on RINs held by 
importers and blender refiners that are in excess of their RVO 
requirements. This is similar to the limitations we placed on the 
ability of these obligated parties to separate RINs under 40 CFR 
80.1429(b)(9).
b. Scope
    We are proposing to limit the scope of this reform to D6 RINs only. 
D6 RINs are the only D-code about which we have heard concerns related 
to hoarding and market manipulation. In order to limit any unintended 
consequences of this action, we believe it is sensible to limit the 
type of RIN it applies to while still meeting the objective of the 
reform. For example, since most D3 RINs are generated only once a 
month, we believe parties might need more flexibility on the time 
between RIN generation and RIN sale than other D-codes. Furthermore, D4 
RINs attached to biodiesel produced by a small or unknown company may 
not be well received on the market, so a non-obligated party that 
blends such biodiesel into petroleum-based diesel and separates such D4 
RINs might need time to find a willing buyer. A restriction on how long 
they can hold such D4 RINs before selling could upset the balance in 
purchase negotiations and force non-obligated parties to sell these D4 
RINs at significantly discounted prices to stay in compliance with this 
proposed regulation. We seek comment on our narrow application of this 
reform to D6 RINs only and on concerns of anti-competitive behavior 
related to the purchasing of other D-code RINs.
    We are also proposing that separated D6 RINs that are potentially 
invalid would not be accounted for by a non-obligated party in its 
count of D6 RINs separated in a quarter. A party would leave those D6 
RINs out of the count of D6 RINs it would have to sell or retire. The 
non-obligated party would continue to be subject to the requirements at 
40 CFR 80.1431.
c. Duration
    Although we did not identify this reform concept in the list of 
reforms under EPA consideration in the 2019 RVO proposal, several 
parties proactively commented on this concept. Some commenters 
suggested a 30-day duration, others suggested 60 days, and still others 
suggested 90 days. We considered each of these potential durations and 
decided to propose in this action a 90-day cycle, whereby the number of 
separated D6 RINs that a non-obligated party would be required to sell 
or retire in a quarter would be number of separated D6 RINs that the 
party separated or purchased in that same quarter. Requiring non-
obligated parties to sell RINs by the end of the quarter would have the 
significant benefit of matching the quarterly RIN retirement cycle that 
would be required of obligated parties under this Section III.E.2 of 
this action. Coordinating these two frequencies may help maintain 
equilibrium in the RIN market and create equity among all RIN system 
participants. We seek comment on the appropriateness of this duration 
and of any other potential durations. We note that the reform proposed 
under Section III.E.2 would require RIN retirement of only 80 percent 
of the renewable fuel standard, so we seek comment on whether the RIN 
holding duration should only apply to 80 percent of RINs separated or 
purchased in order to better align the two reforms.
d. Implementation
    In this action, we are proposing that a non-obligated party would 
be required to count the total number of RINs it separated or purchased 
each quarter and sell or retire that many total RINs by the end of the 
same quarter. For example, a non-obligated party would count the total 
number of RINs it separated or purchased between January 1 and March 31 
of a given year and then would sell or retire that many RINs between 
January 1 and March 31 of that year. This approach would meet the 
intention of this reform to prevent RIN hoarding and increase liquidity 
without getting stuck needlessly in the details of which specific RIN 
is being sold. It would also allow non-obligated parties the 
flexibility to hold onto some D6 RINs that may be more difficult to 
sell for a longer period of time, provided they are selling an equal 
number of D6 RINs by the established deadline. We are also proposing 
that, for a non-obligated party, any D6 RINs acquired in one quarter 
through a remedial action with an EPA-generated separation date in the 
previous quarter would add the D6 separated RINs to its separated total 
for the current quarter.
    We also considered a slightly longer period between RIN separation 
and sale in which a non-obligated party would be required to count the 
number of RINs it separated each quarter and sell at least that many 
RINs in that quarter and the following quarter. For example, a non-
obligated party that sold 100 RINs between January 1 and March 31 would

[[Page 10622]]

have to sell at least 100 RINs between January 1 and June 30. RINs 
separated on January 1 would need to be sold within 180 days and RINs 
separated on March 31 would need to be sold within 90 days. Such a 
scheme would create overlapping periods, however, in which the same RIN 
sale could be counted towards two different quarterly requirements. We 
ultimately decided to propose a quarterly requirement, but we seek 
comment on this alternative approach.
    We also considered an approach that would initiate a 90-day 
expiration timer for each separated RIN batch on the day it is 
separated by a non-obligated party. Under this design, a blender would 
need to sell each RIN or batch of RINs within 90 days of separating it 
from the underlying renewable fuel. However, such an implementation 
scheme would place a large burden on non-obligated parties to keep 
track of multiple expiration timers, possibly dozens or hundreds at a 
time. It would also be very costly, if not infeasible, for EPA to 
update EMTS to track so many individual expiration deadlines, which 
across the entire system could total in the thousands or millions at 
any given time. A slightly more manageable version that we considered 
but are not proposing would be to require that an individual RIN 
separated in one quarter by a blender be sold by that blender by that 
quarter's compliance deadline for obligated parties. This approach 
would still tag each RIN or RIN batch with an expiration date, but the 
same expiration date would be applied to all RINs generated in the 
quarter. This approach would result in a total of four expiration dates 
a year across the whole RIN system for EPA to keep track of rather than 
thousands or millions. However, we believe that any approach that 
requires EMTS to tag individual RINs or RIN batches with a specific 
date would be technically infeasible. We seek comment on the proposed 
approach and on any other alternative approaches that commenters 
recommend.
    The approach we are proposing, if finalized, as well as all of the 
other approaches considered, would allow a non-obligated party to 
maintain the RIN holdings it would have on the day before the effective 
date of this reform. This aspect of the reform could incentivize non-
obligated parties to build up their RIN holdings in advance of the 
final rule effective date, which would be counter to the goal of this 
reform. We seek comment on an approach to addressing this concern.
    We are proposing that all non-obligated parties would be subject to 
this D6 RIN holding duration limit, with no exception. For the third 
reform discussed in Section E.III.3, we are proposing situations that 
should be excluded from its restriction, namely situations in which 
exporters would need to satisfy export RVOs, non-obligated parties 
would need to replace invalid RINs, and non-obligated parties would 
need to satisfy contract terms with obligated parties. We believe those 
exceptions are warranted because they either allow parties to meet the 
RFS requirements or because they help the RFS program run smoothly for 
obligated parties. For the reform discussed in this section, however, 
we do not believe that any exceptions are necessary. For example, a 
non-obligated party that needs D6 RINs to satisfy a contract with an 
obligated party could still do so while meeting the holding duration 
limit. We seek comment on whether any exceptions to this reform would 
be warranted, and if so which exceptions and why.
e. Reporting and Recordkeeping
    In order to maintain compliance oversight of this RIN holding 
duration reform on non-obligated parties, we propose in this action to 
add a field to the quarterly RIN Activity Report on whether the 
proposed D6 RIN holding duration limit was exceeded in the quarter. We 
are also proposing that the attest engagement auditor would review the 
D6 RIN separation and sales numbers and confirm that the parties made 
the proper calculations and reported accurately to EPA on compliance 
with the proposed provision. This proposed approach to reporting, 
recordkeeping, and compliance oversight is similar to our proposals for 
the first and third reforms discussed in this action. We seek comment 
on this proposed approach to compliance oversight.
5. Enhancing EPA's Market Monitoring Capabilities
    In addition to the four reforms proposed in this action, we are 
considering taking additional steps to enhance our market monitoring 
capabilities in order to better detect potential market manipulation. 
The items listed below represent options we are currently considering, 
and we welcome public input on any aspects related to enhancing our 
data collections, enhancing our data systems, and/or seeking third-
party RIN market surveillance assistance. We are also seeking comment 
on how these options could work in conjunction with the four reforms 
outlined in Sections III.E.1-4.
a. Enhance Data Collection
    Monitoring a commodities market as large and complex as the RIN 
market requires a substantial amount of market data. We currently 
require parties to submit some data under the RFS related to RIN 
trades. These data include trade prices, RIN volumes traded, and the 
parties involved in the transaction. These current data collections can 
be used to assess the RIN market for manipulative activities, but we 
recognize that we have an opportunity in this action to diversify the 
data we collect to enhance our ability to monitor the market. We also 
recognize the importance of balancing the benefits of additional data 
with the burden imposed both on the regulated industry and EPA of 
reporting and handling the data. Considering these factors, we are 
requesting comment on additional data collections that would enhance 
our ability to monitor the RIN market for instances of manipulation.
    As described in Section III.E.1, we are proposing that parties 
would be required to report to EPA when their aggregate RIN holdings, 
including holdings of corporate affiliates, exceed a specified 
threshold. In order to provide meaning to this proposed reform and to 
enhance our market monitoring capabilities, we are proposing in this 
section that auditors would include in their annual attest engagements 
submitted to EPA by June 1 following the compliance year the names of 
the party's corporate and contractual affiliates in the compliance 
year. Parties that meet both definitions would need to be identified in 
both categories.\193\ Given the complexity of contracts and RIN 
transactions, it is very challenging for EPA to confirm whether parties 
have common ownership and whether any group of corporate affiliates 
reached a level of aggregated D6 RIN holdings in a compliance year that 
would trigger the thresholds established in Section III.E.1 of this 
action. Therefore, we believe we need to collect information on 
corporate affiliates to allow us to properly conduct oversight of the 
RIN market. We are also proposing that this list would contain the 
names of contractual affiliates so that we could maintain some insight 
into any additional market share parties could have control over. We 
note that this list would include parties that are not registered with 
EMTS to hold RINs. While only registered affiliates are included in the 
threshold equations in

[[Page 10623]]

Section III.E.1 for simplicity, we believe we need a wider picture of 
affiliations to, for example, monitor for a non-registered party that 
has established contracts with multiple parties to purchase and own a 
large number of aggregated RINs on its behalf. We would treat these 
lists as CBI and would not make them publicly available. We recognize 
that there may be challenges that we may not be aware of for parties to 
disclose this information to auditors and for auditors to pass it along 
to EPA, and therefore we are seeking comment on any potential concerns 
and how these concerns may outweigh the benefits of adding this data to 
market oversight.
---------------------------------------------------------------------------

    \193\ For diagrams and examples of different types of 
affiliates, see the memorandum, ``Affiliates and Groups Definitional 
Relationship and Requirements,'' available in the docket for this 
action.
---------------------------------------------------------------------------

    We are also proposing amendments to 40 CFR 80.1452(c)(12) to 
specify how parties report prices of RIN transactions to EPA. 
Currently, some RIN prices reported are illogical numbers, so we are 
providing further instruction on how to report the true price 
correctly. Specifically, we are proposing that a per gallon RIN price 
would be required for a separated RIN transaction and that a price of 
$0.00 would only be allowed for intracompany and tolling agreement 
transactions. We are also seeking comment on any other legitimate 
reasons for reporting a $0.00 RIN price besides the reasons identified 
above.
    We are also planning to update business rules in EMTS to require 
that both parties in a RIN transaction enter the same RIN price. EMTS 
already has a business rule that requires both parties in a RIN 
transaction to enter the same RIN volume, and this business rule has 
been very helpful in maintaining high quality volume data that we can 
reliably publish and use for compliance oversight. These and other 
business rules prevent data entry errors and prompt parties that 
haven't properly followed the instructions in the regulations to 
correct their numbers. By adding a similar business rule to EMTS on 
prices, we believe we can prevent reporting errors and improve the 
quality and reliability of our price data.
    Finally, we are proposing to update the transaction type options at 
40 CFR 80.1452(c)(6) to capture whether a RIN transaction is the result 
of a spot trade or of delivery from a term contract. We believe that 
collecting this additional information will improve our understanding 
of the RIN price reported because we will know whether the price was 
established on the transaction date or sometime prior. With this 
information in hand, we could filter term contract prices out of the 
RIN price dataset that we publish and analyze internally for compliance 
oversight. Thus, the published price would be a better reflection of 
market prices on a given day. We seek comment on this updated reporting 
requirement.
b. Third-Party Market Monitoring
    We are considering whether we should employ third-party monitoring 
of the RIN market. We are aware of other environmental commodity 
markets that employ third-party market monitoring services to conduct 
analysis of the market, including screening for potential anti-
competitive behavior or market manipulation. For example, the Western 
Climate Initiative, Inc. provides administrative services to the linked 
cap and trade programs in Quebec and California, including managing a 
contract with a company that provides independent marketing monitoring 
for the jurisdictions.\194\ Quebec and California each maintain market 
monitoring capabilities to oversee the joint market. In addition, RGGI 
contracts with a third-party to monitor its CO2 allowance 
trading market and produce and publish quarterly and annual reports 
summarizing their findings.\195\ We believe additional RIN market 
oversight and monitoring from an independent third-party could serve as 
a deterrent to manipulative behavior and increase market transparency, 
enabling the market to more easily function as designed. However, we 
also recognize this added feature would come at a cost that may or may 
not outweigh the benefits. For example, there would be additional 
financial and staff time costs to manage the contracts and system with 
the third party, including ensuring proper data security, transfer, and 
training that would divert EPA's already limited resources away from 
the many high priority areas under the RFS program. Therefore, we are 
seeking comment on whether we should consider employing third-party 
monitoring of the RIN market, including production of market analysis 
reports and how to share findings in these reports and still protect 
confidential business information.
---------------------------------------------------------------------------

    \194\ See ``Annual Report 2017 Activities and Accomplishments'' 
(May 1, 2018), available at http://www.wci-inc.org/docs/Attachment%206a.%20WCI_Inc_2017_Annual_Report_Final.pdf.
    \195\ See ``Annual Report on the Market for RGGI CO2 
Allowances: 2017'' (May 2018), available at https://www.rggi.org/auctions/market-monitor-reports.
---------------------------------------------------------------------------

F. RIN Market Reform Economic Impacts

1. Benefits of RIN Market Reform
    The goal of the proposed reforms is to discourage or help prevent 
anti-competitive market practices that may introduce uncertainty or 
volatility into the RIN market. If these anti-competitive behaviors 
were to occur in the RIN market, then it comes at a cost to both 
obligated parties and biofuel producers if the prices are artificially 
inflated or deflated. Therefore, if the proposed reforms deliver on 
their intended goal, we believe the net benefit of this should help 
reduce undue costs and lower the risks for both obligated parties and 
renewable fuel producers. These proposed reforms also provide the added 
benefit of increasing transparency into the RIN market. In general, 
true commodities markets function optimally when all participants have 
access to as much information possible, without infringing on 
confidential business information, and this information is disseminated 
or shared with all parties at the same time. This helps create a level 
playing field and minimize any potential advantage one party may have 
over the another. The net benefit of greater transparency helps market 
participants, such as obligated parties, plan short- and long-term 
strategies to manage their compliance costs.
2. Costs of RIN Market Reform
    As detailed in Sections III.E.1-4, we are proposing to require 
additional reporting and recordkeeping for obligated parties under the 
RFS program and non-obligated parties that participate in the RIN 
market. As a result, we expect modest costs associated with these new 
requirements.\196\ Specifically, we anticipate new costs associated 
with reporting and recordkeeping requirements related to RIN holdings, 
affiliated parties, increased compliance frequency, and any other data 
elements EPA collects as informed by Section III.E.5.a. We also 
anticipate some costs associated with prohibiting certain non-obligated 
parties from purchasing separated D6 RINs. Many of these parties have 
developed business models and enter into contracts that may require 
them to leverage the ability to purchase separated D6 RINs on spot 
markets. Prohibiting this practice would require that these parties 
adjust their business models.
---------------------------------------------------------------------------

    \196\ For a quantitative breakdown of new recordkeeping and 
reporting burden imposed by this action, see ``ICR _Detailed Burden 
Tables'' and ``E15 RVP RIN Market Reform Rule ICR _Supporting 
Statement'' materials in the docket for this action.
---------------------------------------------------------------------------

G. Conclusion

    On October 11, 2018, President Trump issued a White House statement 
explaining that EPA was being directed to initiate a rulemaking. 
Consequently, in this action, we are proposing

[[Page 10624]]

regulatory changes in line with the President's Directive that could 
serve to prevent anti-competitive behavior from potentially taking root 
in the future.
    In Section III.E.1, we are proposing to set two thresholds that 
would work in tandem to identify parties with separated D6 RIN holdings 
significantly larger than needed for normal business functions and 
which may indicate an attempt to assert inappropriate market power. 
Although we are not proposing that exceeding the threshold would be a 
prohibited act, we are proposing that we would publish on our website 
the names of any parties that reported exceeding the thresholds. We are 
also proposing that the RIN holdings of corporate affiliates be 
included in a party's threshold calculations. In Section III.E.2, we 
are proposing to establish RIN retirement requirements for the first 
three quarters of the compliance year. Obligated parties could use any 
D-code RINs to do so. This reform would not impact the current annual 
RVO calculations or compliance. In Section III.E.3, we are proposing 
that only obligated parties, exporter, and certain non-obligated 
parties be allowed to purchase separated D6 RINs. Non-obligated parties 
would be exempt from this proposed restriction if they were a corporate 
or contractual affiliate to an obligated party. In Section III.E.4, we 
are proposing a limit on the duration that a non-obligated party could 
hold separated D6 RINs. Specifically, we are proposing that a non-
obligated party would be required to sell or retire as many RINs as it 
obtained in a quarter by the end of that quarter. In Section III.E.5, 
we outline our consideration of taking additional steps to enhance our 
market monitoring capabilities. We discuss the possibility of employing 
a third-party market monitor to conduct analysis of the RIN market, 
including screening for potential anti-competitive behavior.
    Overall, we are proposing to amend existing reports to collect 
quarterly RIN retirement information and information on whether the 
proposed D6 RIN holding thresholds were exceeded and whether the 
proposed requirements on purchasing and holding separated D6 RINs were 
met. We are proposing that parties would keep all records related to 
these reporting requirements and would submit them to auditors for the 
attest engagement process. In particular, we are proposing that each 
party would submit a complete list of its corporate and contractual 
affiliates to the auditor for review and that the auditor would submit 
that list to EPA with its attest engagement report. Finally, we are 
proposing enhancements to existing reporting fields in EMTS to improve 
our RIN price data for analysis.
    We are seeking comment on all of the reform details proposed in 
this action, including the proposed reporting and recordkeeping 
requirements. We also seek comment on means to reduce the burden of 
implementation of these reforms, including on small entities. We are 
not seeking comment on the many elements of the RFS program that are 
not proposed for amendment in this action, and those program elements 
and regulatory provisions are outside the scope of this action.

IV. Statutory and Executive Order Reviews

A. Executive Order 12866: Regulatory Planning and Review and Executive 
Order 13563: Improving Regulation and Regulatory Review

    This action is a significant regulatory action that was submitted 
to the Office of Management and Budget (OMB) for review. Any changes 
made in response to OMB recommendations have been documented in the 
docket.

B. Executive Order 13771: Reducing Regulations and Controlling 
Regulatory Costs

    This action is not expected to be an Executive Order 13771 
regulatory action. Details on the estimated costs of this proposed rule 
can be found in EPA's analysis of the potential costs and benefits 
associated with this action.

C. Paperwork Reduction Act (PRA)

    With respect to the E15 1-psi waiver portion of this action, no new 
information collection burden is imposed under the PRA. OMB has 
previously approved the information collection activities contained in 
the existing regulations and has assigned OMB control number 2060-0675. 
The proposed changes to the regulations would remove a small segment of 
language on PTDs required to be generated and kept as records by 
parties that make and distribute gasoline under the regulations at 40 
CFR part 80, subpart N. These proposed changes would not require any 
additional information from regulated parties nor do we believe that 
these proposed changes would substantively alter practices used by 
regulated parties to satisfy the PTD regulatory requirements.
    The information collection activities related to the RIN market 
reform portion of this proposed rule have been submitted for approval 
to OMB under the PRA. The Information Collection Request (ICR) document 
that EPA prepared has been assigned EPA ICR number 2592.01. You can 
find a copy of the ICR in the docket for this rule, and it is briefly 
summarized here.
    This ICR includes all additional RFS related information collection 
activities resulting from the Modifications to Fuel Regulations to 
Provide Flexibility for E15; Modifications to RFS RIN Market 
Regulations proposed rulemaking. These information collection 
activities include new recordkeeping and reporting requirements 
proposed under 40 CFR part 80, subpart M.
    Respondents/affected entities: The respondents to this information 
collection fall into the following general industry categories: 
Petroleum refineries, ethyl alcohol manufacturers, other basic organic 
chemical manufacturing, chemical and allied products merchant 
wholesalers, petroleum bulk stations and terminals, petroleum and 
petroleum products merchant wholesalers, gasoline service stations, and 
marine service stations.
    Respondent's obligation to respond: Mandatory.
    Estimated number of respondents: 22,119.
    Frequency of response: Quarterly, annually.
    Total estimated burden: 216,891 hours (per year). Burden is defined 
at 5 CFR 1320.3(b).
    Total estimated cost: $20,445,451 (per year).
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a 
currently valid OMB control number. The OMB control numbers for EPA's 
regulations in 40 CFR are listed in 40 CFR part 9.
    Submit your comments on the Agency's need for this information, the 
accuracy of the provided burden estimates and any suggested methods for 
minimizing respondent burden to EPA using the docket identified at the 
beginning of this rule. You may also send your ICR-related comments to 
OMB's Office of Information and Regulatory Affairs via email to 
OIRA_submission@omb.eop.gov, Attention: Desk Officer for EPA. Since OMB 
is required to make a decision concerning the ICR between 30 and 60 
days after receipt, OMB must receive comments no later than April 22, 
2019. EPA will respond to any ICR-related comments in the final rule.

D. Regulatory Flexibility Act (RFA)

    I certify that this action will not have a significant economic 
impact on a substantial number of small entities under the RFA. In 
making this determination, the impact of concern is

[[Page 10625]]

any significant adverse economic impact on small entities. An agency 
may certify that a rule will not have a significant economic impact on 
a substantial number of small entities if the rule relieves regulatory 
burden, has no net burden or otherwise has a positive economic effect 
on the small entities subject to the rule.
    With respect to the E15 1-psi waiver portion of this action, the 
proposed regulatory changes do not substantively alter the regulatory 
requirements on parties that make and distribute gasoline. 
Additionally, the proposed interpretation to allow E15 to receive the 
1-psi waiver would allow parties that make and distribute E15, 
including small entities, more flexibility in the summer to satisfy 
market demands.
    With respect to the proposed RIN market reform provisions of this 
action, we have conducted a screening analysis to assess whether we 
should make a finding that this action will not have a significant 
economic impact on a substantial number of small entities.\197\ As 
detailed in that analysis, we believe that the existing flexibilities 
for small entities provide sufficient compliance flexibility and no 
additional flexibilities are necessary.
---------------------------------------------------------------------------

    \197\ See ``Screening Analysis for the Proposed Modifications to 
RFS RIN Market Regulations,'' available in the docket for this 
action.
---------------------------------------------------------------------------

    We have therefore concluded that this action will have no net 
regulatory burden for all directly regulated small entities.

E. Unfunded Mandates Reform Act (UMRA)

    This action does not contain an unfunded mandate of $100 million or 
more as described in UMRA, 2 U.S.C. 1531-1538, and does not 
significantly or uniquely affect small governments. This action 
implements mandates specifically and explicitly set forth in CAA sec. 
211 and we believe that this action represents the least costly, most 
cost-effective approach to achieve the statutory requirements.

F. Executive Order 13132: Federalism

    This action does not have federalism implications. It will not have 
substantial direct effects on the states, on the relationship between 
the national government and the states, or on the distribution of power 
and responsibilities among the various levels of government.

G. Executive Order 13175: Consultation and Coordination With Indian 
Tribal Governments

    This action does not have tribal implications as specified in 
Executive Order 13175.

H. Executive Order 13045: Protection of Children From Environmental 
Health Risks and Safety Risks

    EPA interprets Executive Order 13045 as applying only to those 
regulatory actions that concern environmental health or safety risks 
that EPA has reason to believe may disproportionately affect children, 
per the definition of ``covered regulatory action'' in section 2-202 of 
the Executive Order. This action is not subject to Executive Order 
13045 because it does not concern an environmental health risk or 
safety risk.

I. Executive Order 13211: Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use

    This action is not a ``significant energy action'' because it is 
not likely to have a significant adverse effect on the supply, 
distribution or use of energy. The flexibility provided to E15 blends 
by this action will enable additional supply of energy but are not 
expected to have an immediate significant effect on supply, 
distribution, or use of energy. The modifications to the RFS compliance 
system are not expected to have a significant effect on supply, 
distribution, or use of energy.

J. National Technology Transfer and Advancement Act (NTTAA)

    This rulemaking does not involve technical standards.

K. Executive Order 12898: Federal Actions To Address Environmental 
Justice in Minority Populations and Low-Income Populations

    EPA believes that this action does not have disproportionately high 
and adverse human health or environmental effects on minority 
populations, low income populations, and/or indigenous peoples, as 
specified in Executive Order 12898 (59 FR 7629, February 16, 1994). 
This proposed rule does not affect the level of protection provided to 
human health or the environment by applicable air quality standards. 
This action does not substantially relax the control measures on 
sources regulated by EPA fuels programs and therefore will not cause 
emissions increases from these sources.

V. Statutory Authority

    Statutory authority for this action comes from section 211 of the 
Clean Air Act, 42 U.S.C. 7545. Additional support for the procedural 
and compliance related aspects of this proposed rule comes from 
sections 114, 208, and 301(a) of the Clean Air Act, 42 U.S.C. 7414, 
7542, and 7601(a).

List of Subjects in 40 CFR Part 80

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

    Dated: March 12, 2019.
Andrew Wheeler,
Administrator.

    For the reasons set forth in the preamble, EPA proposes to amend 40 
CFR part 80 as follows:

PART 80--REGULATION OF FUEL AND FUEL ADDITIVES

0
1. The authority citation for part 80 continues to read as follows:

    Authority: 42 U.S.C. 7414, 7521, 7542, 7545, and 7601(a).

Subpart B--Controls and Prohibitions

0
2. Section 80.27 is amended by revising paragraph (d)(2) to read as 
follows:

Sec.  80.27  Controls and prohibitions on gasoline volatility.

* * * * *
    (d) * * *
    (2) In order to qualify for the special regulatory treatment 
specified in paragraph (d)(1) of this section, gasoline must contain 
denatured, anhydrous ethanol. The concentration of the ethanol, 
excluding the required denaturing agent, must be at least 9% and no 
more than 15% (by volume) of the gasoline. The ethanol content of the 
gasoline shall be determined by the use of one of the testing 
methodologies specified in Sec.  80.47. The maximum ethanol content 
shall not exceed any applicable waiver conditions under section 211(f) 
of the Clean Air Act.
* * * * *
0
3. Section 80.28 is amended by revising paragraphs (g)(6)(iii), (g)(8) 
introductory text, and (g)(8)(ii) as follows:

Sec.  80.28  Liability for violations of gasoline volatility controls 
and prohibitions.

* * * * *
    (g) * * *
    (6) * * *
    (iii) That the gasoline determined to be in violation contained no 
more than 15% ethanol (by volume) when it was

[[Page 10626]]

delivered to the next party in the distribution system.
* * * * *
    (8) In addition to the defenses provided in paragraphs (g)(1) 
through (g)(6) of this section, in any case in which an ethanol 
blender, distributor, reseller, carrier, retailer, or wholesale 
purchaser-consumer would be in violation under paragraphs (b), (c), 
(d), (e) or (f), of this section, as a result of gasoline which 
contains between 9 and 15 percent ethanol (by volume) but exceeds the 
applicable standard by more than one pound per square inch (1.0 psi), 
the ethanol blender, distributor, reseller, carrier, retailer or 
wholesale purchaser-consumer shall not be deemed in violation if such 
person can demonstrate, by showing receipt of a certification from the 
facility from which the gasoline was received or other evidence 
acceptable to the Administrator, that:
* * * * *
    (ii) The ethanol portion of the blend does not exceed 15 percent 
(by volume); and
* * * * *

Subpart M--Renewable Fuel Standard

0
4. Section 80.1401 is amended by adding in alphabetical order 
definitions for ``Contractual affiliate,'' ``Corporate affiliate,'' 
``Corporate affiliate group,'' ``DX RIN,'' and ``End of Day'' to read 
as follows:

Sec.  80.1401  Definitions.

* * * * *
    Contractual affiliate means one of the following:
    (1) Two parties are contractual affiliates if they have an explicit 
or implicit agreement in place for one to purchase or hold RINs on 
behalf of the other or to deliver RINs to the other. This other party 
may or may not be registered under the RFS program.
    (2) Two parties are contractual affiliates if one RIN-owning party 
purchases or holds RINs on behalf of the other. This other party may or 
may not be registered under the RFS program.
* * * * *
    Corporate affiliate means one of the following:
    (1) Two parties are corporate affiliates if one owns or controls 
ownership of more than 20 percent of the other.
    (2) Two parties are corporate affiliates if one parent company owns 
or controls ownership of more than 20 percent of both.
    Corporate affiliate group means a group of parties in which each 
party is a corporate affiliate to at least one other party in the 
group.
* * * * *
    DX RIN means a RIN with a D code of X, where X is the D code of the 
renewable fuel as identified under Sec.  80.1425, generated under Sec.  
80.1426, and submitted to EMTS under Sec.  80.1452. For example, a D6 
RIN is a RIN with a D code of 6.
* * * * *
    End of day means 7:00 a.m. Coordinated Universal Time (UTC).
* * * * *
0
5. Section 80.1427 is amended by:
0
a. Revising paragraph (b)(1) introductory text;
0
b. Redesignating paragraphs (b)(1)(ii) through (iv) as paragraphs 
(b)(1)(iii) through (v);
0
c. Adding new paragraph (b)(1)(ii);
0
d. Revising newly redesignated paragraph b(1)(iii); and
0
e. Adding paragraph (d).
    The revisions and additions read as follows:

Sec.  80.1427   How are RINs used to demonstrate compliance?

* * * * *
    (b) * * *
    (1) An obligated party that fails to meet the requirements of 
paragraph (a)(1) or (a)(7) of this section for calendar year i or fails 
to meet the requirements of paragraph (d)(1) of this section for any 
quarter in calendar year i is permitted to carry a deficit into year i 
+ 1 under the following conditions:
* * * * *
    (ii) The party met the requirements of paragraph (d)(1) of this 
section in each quarter in calendar year i-1 for the same RVO.
    (iii) The party subsequently meets the requirements of paragraphs 
(a)(1) and (d)(1) of this section for calendar year i + 1 and carries 
no deficit into year i + 2 for the same RVO.
* * * * *
    (d) Installment requirement. (1) In addition to the annual 
demonstration pursuant to Sec.  80.1451(a)(1) that an obligated party 
has met its Renewable Volume Obligations under Sec. Sec.  80.1407 and 
80.1430, each obligated party must meet an installment requirement by 
retiring a sufficient number of RINs for the first three quarters of 
the compliance year by the reporting deadlines specified in Table 1 to 
Sec.  80.1451, except as specified in paragraph (d)(3) of this section.
    (2) Obligated parties must determine their installment requirements 
as follows:

IRi,q = [RFStdRF,i * (GVi,q + 
DVi,q) * 0.80] + SHORTi,q-OVERi,q

Where:

IRi,q = The installment requirement is the number of RINs 
an obligated party needs to retire for quarter q in compliance 
period i, in RINs.
RFStdRF,i = The Renewable Volume Obligation for renewable 
fuel for compliance period i, determined by EPA pursuant to Sec.  
80.1405, in percent.
GVi,q = The cumulative non-renewable gasoline volume, 
determined in accordance with Sec.  80.1407(b), (c), and (f), which 
is produced in or imported into the 48 contiguous states or Hawaii 
by an obligated party in compliance period i through quarter q, in 
gallons.
DVi,q = The cumulative non-renewable diesel volume, 
determined in accordance with Sec.  80.1407(d), (e), and (f), 
produced in or imported into the 48 contiguous states or Hawaii by 
an obligated party in compliance period i through quarter q, in 
gallons.
i = The compliance period, typically expressed as a calendar year.
q = The quarter, as defined in Table 1 to Sec.  80.1451, in 
compliance period i.
SHORTi.q = Cumulative shortfall from prior quarters in 
compliance period i through quarter q, which includes the amount of 
additional RINs an obligated party needed to retire to meet the 
installment requirement in the prior quarter(s), in RINs. For 
quarter one, this term is zero.
OVERi,q = Cumulative overage from the prior quarter(s) in 
compliance period i through quarter q, which includes the amount of 
excess RINs retired more than the installment requirement in the 
prior quarter(s), in RINs. For quarter one, this term is zero.

    (3) An obligated party must satisfy the installment in compliance 
period i as required by paragraph (d)(2) of this section unless the 
obligated party satisfies all installments in compliance period i + 1 
or has no RVO in compliance period i.
0
6. Section 80.1428 is amended by revising paragraph (b)(2) to read as 
follows:

Sec.  80.1428   General Requirements for RIN distribution.

* * * * *
    (b) * * *
    (2) Separated RIN ownership. (i) Any person that has registered 
pursuant to Sec.  80.1450 can own a separated RIN, except as specified 
in paragraph (b)(2)(ii) of this section.
    (ii) Only a person that has registered as an obligated party or 
exporter of renewable fuel pursuant to Sec.  80.1450, and who must 
satisfy an RVO, may purchase a separated D6 RIN, unless the person 
meets one of the following conditions:
    (A) The person meets the definition of contractual affiliate or 
corporate affiliate in Sec.  80.1401.
    (B) The person is replacing an invalid D6 RIN under this subpart.

[[Page 10627]]

    (iii) Any person who owns a separated D6 RIN under paragraph 
(b)(2)(i) of this section and is not an obligated party must either 
sell or retire at least the total number of D6 RINs separated or 
purchased in a quarter by the quarterly report deadline specified in 
Table 1 in Sec.  80.1451.
    (iv) Any person who owns a separated D6 RIN to replace an invalid 
D6 RIN, as allowed under paragraph (b)(2)(ii)(B) of this section, may 
not sell the separated or purchased D6 RIN and must retire the 
separated or purchased D6 RIN within 60 days of the date of separating 
or purchasing the RIN pursuant to the applicable provisions of 
Sec. Sec.  80.1431 and 80.1474.
* * * * *
0
7. Section 80.1435 is added to read as follows:

Sec.  80.1435  How are RIN holdings and RIN holding thresholds 
calculated?

    (a) RIN holdings calculation. (1) Each party must calculate daily 
end-of-day separated D6 RIN holdings by aggregating its end-of-day 
separated D6 RIN holdings with the end-of-day separated D6 RIN holdings 
of all corporate affiliates in a corporate affiliate group and use the 
end-of-day separated D6 RIN holdings as specified in paragraph (b) of 
this section.
    (2) Each party must calculate, as applicable, the holdings-to-
market percentage under paragraph (b)(1) of the section and the 
holdings-to-obligation percentage under paragraph (b)(2) of this 
section quarterly in accordance with the schedule specified in Table 1 
to Sec.  80.1451.
    (3) Each obligated party that is part of a corporate affiliate 
group that has a holdings-to-market percentage, as calculated under 
paragraph (b)(1) of this section, greater than 3.00 percent for any 
calendar day in a compliance period must calculate their holdings-to-
obligation percentage as specified in paragraph (b)(2) of this section.
    (4) Each party must individually keep copies of all calculations 
and supporting information for separated D6 RIN holding threshold 
calculations required under this section as specified in Sec.  
80.1454(u).
    (b) RIN holding thresholds calculations.--(1) Primary test 
calculations. For each day in a compliance period, each party that owns 
RINs must calculate the holdings-to-market percentage for their 
corporate affiliate group using the method specified in paragraph 
(b)(1)(i) or (b)(1)(ii) of this section, as applicable.
    (i) For each day beginning January 1 through March 31, calculate 
the holdings-to-market percentage for a corporate affiliate group as 
follows:

HTMPd = [([sum]D6RINd)a/
(CNV_VOLTOT,i * 1.25)] * 100

Where:

HTMPd = The holdings-to-market percentage is the 
percentage of separated D6 RINs a corporate affiliate group holds on 
calendar day d relative to the total expected number of separated D6 
RINs in the market in compliance period i, in percent.
d = A given calendar day.
i = The compliance period, typically expressed as a calendar year.
a = Individual corporate affiliate in a corporate affiliate group.
([sum]D6RINd)a = Sum of the number of 
separated D6 RINs each individual corporate affiliate a holds at the 
end of calendar day d, in RIN-gallons.
CNV_VOLTOT,i = The total expected annual volume of 
conventional renewable fuels for the compliance period i, in 
gallons. Unless otherwise specified, this number is 15 billion 
gallons.

    (ii) For each day beginning April 1 through December 31, calculate 
the holdings-to-market percentage for a corporate affiliate group as 
follows:

HTMPd = [([sum]D6RINd)a/
(CNV_VOLTOT,i)] * 100

Where:

HTMPd = The holdings-to-market percentage is the 
percentage of separated D6 RINs a corporate affiliate group holds on 
calendar day d relative to the total expected number of separated D6 
RINs in the market in compliance period i, in percent.
d = A given calendar day.
i = The compliance period, typically expressed as a calendar year.
a = Individual corporate affiliate in a corporate affiliate group.
([sum]D6RINd)a = Sum of the number of 
separated D6 RINs each individual corporate affiliate a holds at the 
end of calendar day d, in RIN-gallons.
CNV_VOLTOT,i = The total expected annual volume of 
conventional renewable fuels for compliance period i, in gallons. 
Unless otherwise specified, this number is 15 billion gallons.

    (2) Secondary threshold calculations. For each day in a 
compliance period where a corporate affiliate group is required to 
calculate with the secondary threshold requirement under Sec.  
80.1435(a)(4), each obligated party must calculate the holdings-to-
obligation percentage for their corporate affiliate group using the 
methods at paragraph (b)(2)(i) or (b)(2)(ii) of this section, as 
applicable.
    (i) For each day beginning January 1 through March 31, calculate 
the holdings-to-obligation percentage as follows:

HTOPd = [([sum]D6RINd)a/
{[([sum]CNV_RVOi-1)a + 
([sum]CNV_DEFi-1)a + 
([sum]CNV_DEFi-2)a] * 1.25{time} ] * 100

Where:

HTOPd = The holdings-to-obligation percentage is the 
percentage of separated D6 RINs a corporate affiliate group holds on 
calendar day d relative to their expected separated D6 RIN holdings 
based on the corporate affiliate group's conventional RVO for 
compliance period i-1, in percent.
d = A given calendar day.
i = The compliance period, typically expressed as a calendar year.
a = Individual corporate affiliate in a corporate affiliate group.
([sum]D6RINd)a = Sum of the number of 
separated D6 RINs each individual corporate affiliate a holds on 
calendar day d, in RIN-gallons.
([sum]CNV_RVOi-1)a = Sum of the conventional 
RVOs for each individual corporate affiliate a for compliance period 
i-1 as calculated in paragraph (b)(2)(iii) of this section, in RIN-
gallons.
([sum]CNV_DEFi-1)a = Sum of the conventional 
deficits for each individual corporate affiliate a as calculated in 
paragraph (b)(2)(iv) of this section for compliance period i-1, in 
RIN-gallons.
([sum]CNV_DEFi-2)a = Sum of the conventional 
deficits for each individual corporate affiliate a as calculated in 
paragraph (b)(2)(iv) of this section for compliance period i-2, in 
RIN-gallons.

    (ii) For each day beginning April 1 through December 31, calculate 
the holdings-to-obligation percentage as follows:

HTOPd = {([sum]D6RINd)a/
[([sum]CNV_RVOi-1)a + 
([sum]CNV_DEFi-1)a]{time}  * 100

Where:

HTOPd = The holdings-to-obligation percentage is the 
percentage of separated D6 RINs a corporate affiliate group holds on 
calendar day d relative to their expected separated D6 RIN holdings 
based on the corporate affiliate group's conventional RVO for 
compliance period i-1, in percent.
d = A given calendar day.
i = The compliance period, typically expressed as a calendar year.
a = Individual corporate affiliate in a corporate affiliate group.
([sum]D6RINd)a = Sum of the number of 
separated D6 RINs each individual corporate affiliate a holds on 
calendar day d, in RIN gallons.
([sum]CNV_RVOi-1)a = Sum of the conventional 
RVOs for each individual corporate affiliate a for compliance period 
i-1 as calculated in paragraph (b)(2)(iii) of this section, in RIN-
gallons.
([sum]CNV_DEFi-1)a = Sum of the conventional 
deficits for each individual corporate affiliate a as calculated in 
paragraph (b)(2)(iv) of this section for compliance period i-1, in 
RIN-gallons.

    (iii) As needed to calculate the holdings-to-obligation percentage 
in paragraphs (b)(2)(i) and (b)(2)(ii) of this section, calculate the 
conventional RVO for an individual corporate affiliate as follows:

[[Page 10628]]

CNV_RVOi = {[RFStdRF,i * (GVi + 
DVi)]-[RFStdAB,i * (GVi + 
DVi)]{time}  + ERVORF,i

Where:

CNV_RVOi = The conventional RVO for an individual 
corporate affiliate for compliance period i without deficits, in 
RIN-gallons.
i = The compliance period, typically expressed as a calendar year.
RFStdRF,i = The standard for renewable fuel for 
compliance period i determined by EPA pursuant to Sec.  80.1405, in 
percent.
RFStdAB,i = The standard for advanced biofuel for 
compliance period i determined by EPA pursuant to Sec.  80.1405, in 
percent.
GVi = The non-renewable gasoline volume, determined in 
accordance with Sec.  80.1407(b), (c), and (f), which is produced in 
or imported into the 48 contiguous states or Hawaii by an obligated 
party for compliance period i, in gallons.
DVi = The non-renewable diesel volume, determined in 
accordance with Sec.  80.1407(b), (c), and (f), which is produced in 
or imported into the 48 contiguous states or Hawaii by an obligated 
party for compliance period i, in gallons.
ERVORF,i = The sum of all renewable volume obligations 
from exporting renewable fuels, as calculated under Sec.  80.1430, 
by an obligated party for compliance period i, in RIN-gallons.

    (iv) As needed to calculate the holdings-to-obligation percentage 
in paragraphs (b)(2)(i) and (b)(2)(ii) of this section, calculate the 
conventional deficit for an individual corporate affiliate as follows:

CNV_DEFi = DRF,i-DAB,i

Where:

CNV_DEFi = The conventional deficit for an individual 
corporate affiliate for compliance period i, in RIN-gallons. If a 
conventional deficit is less than zero, use zero for conventional 
deficits in paragraphs (b)(2)(i) and (b)(2)(ii) of this section.
i = The compliance period, typically expressed as a calendar year.
DRF,i = Deficit carryover from compliance period i for 
renewable fuel, in RIN-gallons.
DAB,i = Deficit carryover from compliance period i for 
advanced biofuel, in RIN-gallons.

    (c) Exceeding the D6 RIN holding thresholds. (1) Primary threshold 
test. If a party or corporate affiliate group has a holdings-to-market 
percentage greater than three percent for any calendar day in a 
compliance period, as determined under paragraph (b)(1) of this 
section, and the corporate affiliate group does not contain an 
obligated party, each party in the corporate affiliate group must 
separately submit a report to EPA as specified in Sec.  80.1451(c).
    (2) Secondary threshold test. If an obligated party or a corporate 
affiliate group required to calculate a holdings-to-obligation 
percentage under paragraph (a)(3) of this section has a holdings-to-
obligation percentage greater than 130.00 percent for any calendar day 
in a compliance period, as determined under paragraph (b)(2) of this 
section, each party in the corporate affiliate group must separately 
report to EPA as specified in Sec.  80.1451(c).
    (3) Reporting deadline. Parties required to report to EPA under 
this section as specified under Sec.  80.1451(c), must report to EPA by 
the deadlines specified in Table 1 to Sec.  80.1451.
0
8. Section 80.1451 is amended by revising paragraphs (a)(3) and (c)(2) 
to read as follows:

Sec.  80.1451   What are the reporting requirements under the RFS 
program?

    (a) * * *
    (3) The quarterly RIN activity reports required under paragraph 
(c)(2) of this section to also include:
    (i) For obligated parties, all of the following information:
    (A) The installment requirement calculated using the procedures in 
Sec.  80.1427(d) for the applicable quarterly reporting period.
    (B) The cumulative shortfall from prior quarters as calculated in 
Sec.  80.1427(d).
    (C) The cumulative overage from the prior quarters as calculated in 
Sec.  80.1427(d).
    (D) The resulting balance after applying total RINs retired for 
compliance as calculated in Sec.  80.1427(d).
    (ii) Any additional information that the Administrator may require.
* * * * *
    (c) * * *
    (2) Reports related to a person's RIN activity must be submitted to 
EPA according to the schedule specified in paragraph (f)(2) of this 
section. Each report must summarize RIN activities for the reporting 
period and must include all of the following information:
    (i) The submitting party's name.
    (ii) The submitting party's EPA-issued company identification 
number.
    (iii) Primary registration designation or compliance level for 
compliance year (e.g., ``Aggregated Refiner,'' ``Exporter,'' 
``Renewable Fuel Producer,'' ``RIN Owner Only,'' etc.).
    (iv) Number of prior-year and current-year separated D3, D4, D5, 
D6, and D7 RINs owned at the end of the quarter.
    (v) Indicate if the submitting party exceeded the separated D6 RIN 
holding threshold in the quarter, as determined by the applicable 
calculation specified in Sec.  80.1435. If the answer is yes, then EPA 
may publish the name and EPA-issued company identification number of 
the party.
    (vi) For non-obligated parties who purchased separated D6 RINs 
during the reporting period, the reason(s) for the purchase consistent 
with Sec.  80.1428(b)(2)(ii).
    (vii) Total number of assigned D6 RINs separated during the 
reporting period.
    (viii) Total number of separated D6 RINs purchased during the 
reporting period.
    (ix) Total number of separated D6 RINs sold during the reporting 
period.
    (x) Total number of separated D6 RINs retired during the reporting 
period.
    (xi) For non-obligated parties, total number of separated D6 RINs 
subject to the requirement in Sec.  80.1428(b)(2)(iii) held past the 
stated RIN distribution deadline.
    (xii) The volume of renewable fuel (in gallons) owned at the end of 
the quarter.
    (xiii) The total number of assigned RINs owned at the end of the 
quarter.
    (xiv) Any additional information that the Administrator may 
require.
* * * * *
0
9. Section 80.1452 is amended by:
0
a. Revising paragraph (c)(12); and
0
b. Adding paragraph (c)(15).
    The revision and addition read as follows:

Sec.  80.1452   What are the requirements related to the EPA Moderated 
Transaction System (EMTS)?

* * * * *
    (c) * * *
    (12)(i) For RIN buy or sell transaction types including assigned 
RINs, the per-gallon RIN price or the per-gallon price of renewable 
fuel with RINs included.
    (ii) For RIN buy or sell transaction types including separated 
RINs, the per-gallon RIN price.
* * * * *
    (15) For buy or sell transactions of separated RINs, the mechanism 
used to purchase the RINs (e.g., spot market or fulfilling a term 
contract).
* * * * *
0
10. Section 80.1454 is amended by adding paragraphs (i)(1) and (2) and 
paragraphs (u) through (y) to read as follows:

Sec.  80.1454   What are the recordkeeping requirements under the RFS 
program?

* * * * *
    (i) * * *
    (1) For buy or sell transactions of separated RINs, parties must 
retain records substantiating the price reported to EPA under Sec.  
80.1452.
    (2) For buy or sell transactions of separated RINs, parties must 
retain

[[Page 10629]]

records demonstrating the transaction mechanism (e.g., spot market or 
fulfilling a term contract).
* * * * *
    (u) Requirements for recordkeeping of RIN holdings for all parties 
transacting or owning RINs. (1) Parties must retain records related to 
end-of-day separated D6 RIN holdings, conventional RVO calculations, 
and any associated calculations recorded in order to meet the RIN 
holdings requirements described in Sec.  80.1435. Such records must 
include information related to any corporate affiliates and their RIN 
holdings and calculations.
    (2) Parties must retain records related to their reports to EPA 
regarding threshold compliance under Sec. Sec.  80.1435 and 80.1451.
    (v) Requirements for recordkeeping for installment requirement. (1) 
Obligated parties must retain records related to gasoline and diesel 
production levels used for RVO calculation in Sec. Sec.  80.1427 and 
80.1451.
    (2) Obligated parties must retain records related to the RVO 
calculation inputs as listed in Sec. Sec.  80.1427 and 80.1451.
    (3) Obligated parties must retain records related to any remedial 
actions submitted after the quarterly compliance deadline.
    (w) Recordkeeping requirements for parties prohibited from 
purchasing separated D6 RINs. (1) Non-obligated parties must retain all 
records pertaining to why they purchased separated D6 RINs. This may 
include, but is not limited to, legal contracts with obligated parties 
or documents indicating the need to replace invalid D6 RINs.
    (2) [Reserved]
    (x) Requirements for recordkeeping of D6 RIN holdings by non-
obligated parties. (1) Non-obligated parties must retain all records 
related to the number of D6 RINs separated in a given quarter, 
purchased in a given quarter, and sold in a given quarter to 
demonstrate compliance with the requirements in Sec.  80.1428.
    (2) [Reserved]
    (y) Requirements for recordkeeping of contractual and corporate 
affiliates. (1) Parties must retain records including, but not limited 
to, the name, address, business location, contact information, and 
description of relationship, for each corporate affiliate. For the 
corporate affiliate group, a relational diagram.
    (2) Parties must retain records including, but not limited to, the 
name, address, business location, contact information, and contract or 
other agreement for each contractual affiliate.
0
11. Section 80.1460 is amended by revising paragraphs (c)(1) and (d) to 
read as follows:

Sec.  80.1460   What acts are prohibited under the RFS program?

* * * * *
    (c) * * *
    (1) Fail to acquire sufficient RINs, fail to retire sufficient 
RINs, or use invalid RINs to meet the person's RVOs or quarterly 
compliance requirements under Sec.  80.1427.
* * * * *
    (d) RIN retention violation. No person may do any of the following:
    (1) Retain RINs in violation of the requirements in Sec.  
80.1428(a)(5).
    (2) Purchase separated RINs in violation of the requirements in 
Sec.  80.1428(b)(2).
* * * * *
0
12. Section 80.1464 is amended by:
0
a. Revising paragraph (a)(3)(ii);
0
b. Adding paragraphs (a)(4) through (5);
0
c. Revising paragraph (b)(3)(ii);
0
d. Adding paragraph (b)(5);
0
e. Revising paragraph (c)(2)(ii); and
0
f. Adding paragraph (c)(3).
    The revisions and additions read as follows:

Sec.  80.1464  What are the attest engagement requirements under the 
RFS program?

    (a) * * *
    (3) * * *
    (ii) Obtain the database, spreadsheet, or other documentation used 
to generate the information in the RIN activity reports; compare the 
RIN transaction samples reviewed under paragraph (a)(2) of this section 
with the corresponding entries in the database or spreadsheet and 
report as a finding any discrepancies; compute the total number of 
current-year and prior-year RINs owned at the start and end of each 
quarter, purchased, separated, sold, retired and reinstated, and for 
parties that reported RIN activity for RINs assigned to a volume of 
renewable fuel, the volume and type of renewable fuel (as defined in 
Sec.  80.1401) owned at the end of each quarter; as represented in 
these documents; obtain a list of all corporate affiliates and a list 
of all contractual affiliates and review the information regarding 
their documented relationship to the submitter (e.g., contracts, or 
other legal documents); and identify any contractual affiliates that 
had a contract with the party that did not result in transfer of RINs 
to the party during the calendar year; report a separate list for all 
corporate affiliates and all contractual affiliates including 
identification information for each corporate or contractual affiliate 
(e.g., company ID, company name, corporate address, etc) and any 
findings to EPA.
    (4) Quarterly installment requirement for obligated parties. (i) 
Compare the volumes of products listed in Sec.  80.1407(c) and (e) 
reported to EPA in the report required under Sec.  80.1451(a)(3) with 
the volumes, excluding any renewable fuel volumes, contained in the 
inventory reconciliation analysis under Sec.  80.133 and the volume of 
non-renewable diesel produced or imported. Verify that the volumes 
reported to EPA agree with the volumes in the inventory reconciliation 
analysis and the volumes of non-renewable diesel produced or imported, 
and report as a finding any exception.
    (ii) Compare the calculated installment requirement for each 
quarter using the required steps found in 80.1427(d) with any RINs 
retired for compliance. Verify that any cumulative shortfall or 
cumulative overage is carried through as applicable into any subsequent 
quarter.
    (5) RIN holdings. (i) Obtain and read copies of the RIN holdings 
calculations kept under Sec.  80.1454(u) for the obligated party and 
any corporate affiliates.
    (ii) Report as a finding any date where the aggregated calculation 
exceeded the RIN holding threshold(s) specified in Sec.  80.1435. State 
whether this information agrees with the party's reports (notification 
of threshold exceedance) to EPA.
    (b) * * *
    (3) * * *
    (ii) Obtain the database, spreadsheet, or other documentation used 
to generate the information in the RIN activity reports; compare the 
RIN transaction samples reviewed under paragraph (b)(2) of this section 
with the corresponding entries in the database or spreadsheet and 
report as a finding any discrepancies; report the total number of each 
RIN generated during each quarter and compute and report the total 
number of current-year and prior-year RINs owned at the start and end 
of each quarter, purchased, separated, sold, retired and reinstated, 
and for parties that reported RIN activity for RINs assigned to a 
volume of renewable fuel, the volume of renewable fuel owned at the end 
of each quarter, as represented in these documents; review the 
information regarding contractual affiliates and corporate affiliates 
(as defined in Sec.  80.1401) and their documented relationship to the 
submitter; identify any contractual affiliates that had a contract with 
the party that did not result in transfer of RINs to the party during 
the calendar year; report a separate list for all corporate affiliates 
and all contractual

[[Page 10630]]

affiliates including identification information for each corporate or 
contractual affiliate (e.g., company ID, company name, corporate 
address, etc) and any findings to EPA.
* * * * *
    (5) RIN holdings. (i) Obtain and read copies of the RIN holdings 
calculations for the renewable fuel producers and RIN-generating 
importers and any corporate affiliates.
    (ii) Report as a finding any date where the aggregated calculation 
exceeded the RIN holding threshold(s) specified in Sec.  80.1435.
    (c) * * *
    (2) * * *
    (ii) Obtain the database, spreadsheet, or other documentation used 
to generate the information in the RIN activity reports; compare the 
RIN transaction samples reviewed under paragraph (c)(1) of this section 
with the corresponding entries in the database or spreadsheet and 
report as a finding any discrepancies; compute the total number of 
current-year and prior-year RINs owned at the start and end of each 
quarter, purchased, sold, retired, separated, and reinstated and for 
parties that reported RIN activity for RINs assigned to a volume of 
renewable fuel, the volume of renewable fuel owned at the end of each 
quarter, as represented in these documents; review the information 
regarding corporate affiliates and contractual affiliates (as defined 
in Sec.  80.1401) and their documented relationship to the submitter 
(e.g., contract); identify any contractual affiliates that had a 
contract with the party that did not result in transfer of RINs to the 
party during the calendar year; report a separate list for all 
corporate affiliates and all contractual affiliates including 
identification information for each corporate or contractual affiliate 
(e.g., company ID, company name, corporate address, etc) and any 
findings to EPA.
    (3) RIN holdings. (i) Obtain and read copies of the RIN holdings 
calculations for the renewable fuel producers and RIN-generating 
importers and any corporate affiliates.
    (ii) Report as a finding any date where the aggregated calculation 
exceeded the RIN holding threshold specified in Sec.  80.1435. State 
whether this information agrees with the party's reports (notification 
of threshold exceedance) to EPA.
* * * * *

Subpart N--Additional Requirements for Gasoline-Ethanol Blends

0
13. Section 80.1503 is amended by:
0
a. Revising paragraph (a)(1)(vi)(B);
0
b. Removing and reserving paragraph (a)(1)(vi)(C);
0
c. Revising paragraph (b)(1)(vi)(B); and
0
d. Removing and reserving paragraphs (b)(1)(vi)(C) through (E).
    The revisions read as follows:

Sec.  80.1503  What are the product transfer document requirements for 
gasoline-ethanol blends, gasolines, and conventional blendstocks for 
oxygenate blending subject to this subpart?

    (a) * * *
    (1) * * *
    (vi) * * *
    (B) The conspicuous statement that the gasoline being shipped 
contains ethanol and the percentage concentration of ethanol as 
described in Sec.  80.27(d)(3).
* * * * *
    (b) * * *
    (1) * * *
    (vi) * * *
    (B)(1) For gasoline containing less than 9 volume percent ethanol, 
the following statement: ``EX--Contains up to X% ethanol. The RVP does 
not exceed [fill in appropriate value] psi.'' The term X refers to the 
maximum volume percent ethanol present in the gasoline.
    (2) The conspicuous statement that the gasoline being shipped 
contains ethanol and the percentage concentration of ethanol as 
described in Sec.  80.27(d)(3) may be used in lieu of the statement 
required under paragraph (b)(1)(vi)(B)(1) of this section.
* * * * *
0
14. Section 80.1504 is amended by removing and reserving paragraphs (f) 
and (g).

[FR Doc. 2019-05030 Filed 3-20-19; 8:45 am]
 BILLING CODE 6560-50-P