------------------------------------------------------------------------------- on 02/26/93 [L-S document 449994, 58 FR 11722, 4406 lines] ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 80 [AMS-FRL-4556-7] RIN 2060-AD27 Regulation of Fuels and Fuel Additives: Standards for Reformulated Gasoline; Proposed Rule AGENCY: Environmental Protection Agency. ACTION: Notice of proposed rulemaking. ----------------------------------------------------------------------------- SUMMARY: This document proposes revisions to the simple model and the contents of a complex model to be used in the certification of reformulated gasoline, and associated procedures to assure compliance with the reformulated gasoline and antidumping programs. This notice additionally proposes "Phase II" reformulated gasoline emission performance standards which will take effect in the year 2000, as prescribed by section 211(k)(3) and authorized by section 211(c) of the Clean Air Act (CAA). The detailed proposed regulations described herein may be obtained from Public Docket No. A-92-12 or from the contacts listed in the ADDRESSES section. DATES: The comment period will close April 27, 1993. EPA will issue a subsequent notice indicating when and where the public hearing will be held. ADDRESSES: Comments may be submitted to U.S. EPA (RDSD-12) 2565 Plymouth Road, Ann Arbor, MI 48105. Materials relevant to this NPRM are contained in Public Docket No. A-92-12, located at room M-1500, Waterside Mall (ground floor), U.S. Environmental Protection Agency, 401 M Street SW., Washington, DC, 20460. Additional materials relevant to earlier related proposals are contained in Public Docket No. A-91-02 at the same location. The docket may be inspected from 8 a.m. until 12 noon and from 1:30 p.m. until 3 p.m. Monday through Friday. A reasonable fee may be charged by EPA for copying docket materials. EPA will provide a copy of the proposed regulations for this NPRM upon request. FOR FURTHER INFORMATION CONTACT: Michael Sklar (complex model), U.S. EPA (RDSD-12), 2565 Plymouth Road, Ann Arbor, MI 48105, Fuel Studies and Standards Branch, Telephone: (313) 741- 7817. Christine Brunner (Phase II performance standards), U.S. EPA (RDSD-12), 2565 Plymouth Road, Ann Arbor, MI 48105, Fuel Studies and Standards Branch, Telephone: (313) 668-4287. George Lawrence (enforcement and certification), U.S. EPA (6406J), 401 M Street, Washington, DC 20460, Eastern Field Office I, Telephone: (202) 233- 9307. To Request Copies of This Notice or the Proposed Regulations Contact: Marie Tolonen, U.S. EPA (RDSD-12), 2565 Plymouth Road, Ann Arbor, MI 48105, Fuel Studies and Standards Branch, Telephone: (313) 668-4295. SUPPLEMENTARY INFORMATION: I. Background The purpose of these proposed regulations is to improve air quality by requiring that gasoline be reformulated to reduce motor vehicle emissions of toxic and tropospheric ozone-forming compounds, as prescribed by section 211(k) of the Clean Air Act (CAA or the Act). This section of the Act mandates that reformulated gasoline be sold in the nine largest metropolitan areas with the most severe summertime ozone levels and other ozone nonattainment areas that opt into the program. It also prohibits conventional gasoline sold in the rest of the country from becoming any more polluting than it was in 1990, to ensure that refiners do not "dump" into conventional gasoline what they can no longer use in reformulated gasoline. Shortly after passage of the Clean Air Act Amendments of 1990, EPA entered into a regulatory negotiation with interested parties to develop specific proposals for implementing both the reformulated gasoline and related anti- dumping programs. These parties included representatives of the oil and automobile industries, vehicle owners, state air pollution control officials, oxygenate suppliers, gasoline retailers, environmental organizations, and citizens' groups. During the regulatory negotiation, EPA agreed to propose a two-step approach to reformulated gasoline. The first step would take effect in 1995 and utilize a "simple model" to certify that a gasoline meets applicable emission reduction standards. Under the second step, EPA would propose a "complex model" to supplant the simple model for certifying compliance with these standards, which would take effect on March 1, 1997 or 4 years after it is promulgated, whichever is later. EPA also agreed to propose the more stringent emission performance standards that the Act provides to take effect in the year 2000. Regulations to implement this first step were initially proposed on July 9, 1991 in a notice of proposed rulemaking (NPRM) (56 FR 13416). Today's notice includes approaches different from the previously proposed regulations related to the simple model as well as to the anti-dumping provisions. This proposal is supplemental to the previous proposals and is not intended to withdraw from consideration the various elements previously proposed, but provides additional proposals for public review and comment. (The reader may refer to the NPRM and SNPRM mentioned above, the Draft Regulatory Impact Analysis (DRIA), and Public Docket Numbers A-91-02 and A-92-12 for a thorough description of the goals and regulatory development of the reformulated and anti-dumping programs and discussions of a number of associated technical issues.) In this notice, the Agency is also proposing the complex model and associated revised enforcement provisions, as well as the year 2000 performance standards. In addition, EPA is proposing a range of NOX performance standards under section 211(c) of the Act as a complement to the VOC and toxics performance standards proposed under section 211(k). In a recent report on the chemistry of tropospheric ozone formation, the National Academy of Sciences emphasized the importance of NOX reductions in addressing this problem. The remainder of this preamble is organized into the following sections: II. Proposed Revisions to the Simple Model Proposal III. Complex Model IV. Vehicle Testing V. Phase I Performance Standards Using the Complex Model VI. Phase II Reformulated Gasoline Performance Standards VII. Enforcement Provisions VIII. Anti-Dumping Compliance and Enforcement Requirements for Conventional Gasoline IX. Anti-Dumping Requirements for Conventional Gasoline X. Environmental and Economic Impacts XI. Public Participation XII. Compliance With the Regulatory Flexibility Act XIII. Statutory Authority XIV. Administrative Designation and Regulatory Analysis XV. Reporting and Recordkeeping Requirements II. Proposed Revisions to the Simple Model Proposal A. Background 1. SNPRM As noted above, The Agency's SNPRM reflected the agreement reached in the regulatory negotiation that had been conducted to develop reformulated gasoline regulations under section 211(k) (as well as oxygenated fuels guidelines under section 211(m)). Added by the 1990 Clean Air Act Amendments, section 211(k)(1) directs EPA to issue regulations that, beginning in 1995, require the greatest reduction in emissions of ozone-forming [VOCs] and toxic pollutants achievable through the reformulation of conventional gasoline, taking into consideration the cost of achieving such emission reductions, any non air-quality and other air-quality related health and environmental impacts and energy requirements. Section 211(k)(3) specifies that the performance standards for 1995 to 2000 must require emission reductions, measured on a mass basis, equal to that achieved by a specified formula fuel or 15 percent of baseline emissions (the emissions of 1990 model year vehicles operated on a specified baseline gasoline), whichever is more stringent. For 2000 and beyond, the standard must be no less than the formula fuel or a 25 percent reduction from baseline emissions, whichever is more stringent. EPA can adjust this standard taking into account feasibility and cost, but in no case can it be less than 20 percent. Taken together, sections 211(k)(1) and 211(k)(3) call for the Agency to set standards that achieve the most stringent level of control, taking into account the specified factors, but no less stringent than those described by section 211(k)(3). For purposes of today's notice, it is useful to review the background of the SNPRM's proposed VOC and toxic standards. Given the short amount of time provided by the statute for promulgation of the reformulated gasoline standards, the regulatory negotiation committee agreed on the twostep approach noted above. The first step would utilize then-available information to construct a model that would determine a fuel's VOC and toxic emissions. Because the available information for quantifying the effects of fuel parameters on VOC emissions was limited in large part to the effects of Reid Vapor Pressure (RVP) and oxygen content, the so-called "simple model" took those fuel parameters into account in predicting a fuel's VOC emissions for purposes of compliance under the VOC performance standard. At the same time, it was understood that certain other fuel parameters affected a fuel's emissions, and that directionally higher levels of these other parameters were likely to increase VOC emissions. Until the effects of these parameters could be accurately quantified, the committee agreed that the average level of these parameters in each refiner's fuel should remain capped at 1990 levels. The second step was intended to take advantage of data then being developed to characterize the emissions effects of other fuel parameters. That data would be used to construct a "complex model" that would better predict a specific fuel's emissions based on these parameters. The complex model would thus also provide refiners with more options for reducing those emissions by changing the levels of these parameters in their gasoline formulations. The simple model would be available for at least the first two years of the program and would be replaced by the complex model four years after the complex model's promulgation. The Agency agreed to propose the four-year period to allow refiners lead-time in order to recoup investments made to comply with the simple model and to make any refinery changes necessary to comply with the standards under the complex model. However, under the agreement, the complex model could be used on a voluntary basis as soon as it was promulgated, so long as any fuel certified using the complex model achieved emission reductions as great as those it would have to achieve to be certified using the simple model. In developing the proposed VOC standards, it became clear that the formula fuel specified by section 211(k)(3) did not yield emissions reductions greater than the statutory minimum of 15 percent. To achieve the statutory minimum under the simple model, the regulatory negotiation committee members agreed that a fuel's RVP (measure of volatility) could not be greater than 8.1 pounds per square inch (psi) and its oxygen content had to comply with the 2.0 weight percent requirement prescribed by section 211(k)(2)(B). The more volatile a fuel, the more VOCs it emits, mostly through evaporation. The more oxygen in the fuel the lower the exhaust VOC emissions (up to a maximum of 2.7 weight percent oxygen per the simple model). Committee members considered the need for further emission reductions and the cost of obtaining them in deciding whether and to what extent VOC performance standards more stringent than the statutory minimum were achievable. For the reasons laid out in the SNPRM, EPA and the other committee members concluded that reformulated gasoline with 2.0 weight percent oxygen, 8.1 psi RVP in northern cities, and 7.2 psi RVP in southern cities represented the greatest emission reductions that could be achieved by reformulating gasoline, taking into account the specified factors. The committee sought the more stringent VOC reduction requirement for the South in order to assure that southern nonattainment areas obtained emission reductions beyond what those cities would obtain from the volatility reduction requirements separately required by section 211(h). (Due to higher temperatures in the South, emissions from a gasoline with a specified RVP are greater in the South than in the North. Under section 211(h), the volatility limits for southern areas were set lower than those applicable in northern areas in order to achieve comparable per vehicle emissions levels in the two regions). As explained in the SNPRM, however, the additional cost of achieving the more stringent standard in the South would be significant and made it difficult to impose a more stringent standard in the North, as well. In effect, the committee decided to allocate the greatest reductions from the 8.7 RVP baseline gasoline that reformulating gasoline could reasonably achieve in such a way as to roughly equalize the actual emission benefits of the program between northern and southern nonattainment areas. 2. Ethanol Issues Following the release of the SNPRM, supporters of ethanol, an agriculturally derived oxygenate added to gasoline in some parts of the country, again raised the concern that the simple model's RVP requirement would effectively preclude ethanol from the RFG market during the summer months (VOC control season). Ethanol, when added to gasoline in the amount needed to satisfy the oxygen content requirement of the Act raises the volatility of the resulting blend by about 1 psi. Consequently, for the ethanol to be blended with the RFG under the simple model, a blendstock gasoline with an RVP low enough to offset the increase resulting from adding ethanol would have to be obtained. Ethanol representatives commented that obtaining such blendstocks would be both difficult and expensive, because "sub-RVP" blendstocks would be more costly to refine and because blendstock production would be controlled by petroleum refiners. Methyl tertiary butyl ether (MTBE), an oxygenate which does not boost a fuel's RVP, which is derived from natural gas and the petroleum product isobutylene and can readily be put through petroleum pipelines, was thought to be the oxygenate of choice for most refiners. Ethanol's representatives theorized that the oil industry would have a desire to use MTBE over ethanol and thus little incentive to make the sub-RVP blendstock necessary for ethanol blending. The ethanol industry contended that a reformulated gasoline program which they argued would effectively preclude ethanol was contrary to Congress' intent that ethanol have a role in the program. They argued that the oxygen content requirement of section 211(k)(2) was motivated in large part by a desire to expand markets for ethanol. They noted the strong support afforded the RFG legislative initiative by Members of Congress from agricultural states. They also cited statements in the legislative history indicating some members' expectation that the RFG program would provide an increasing market for ethanol. Ethanol representatives contended that the benefits of ethanol use justify its inclusion in the RFG program. Specifically, they explained that ethanol is currently made in the United States from domestically-grown grains, primarily corn, and thus represents an important domestic and renewable source of energy. They further explained that to the extent ethanol is used in place of imported petroleum products, it promotes the nation's energy independence and improves its balance of trade, and that ethanol use also strengthens the market for corn, consequently reducing the need for price supports. Moreover, as a biomass-based product, ethanol is potentially a renewable fuel to the extent the energy derived exceeds any fossil fuel energy consumed in producing the ethanol. In view of ethanol's importance to the nation's energy security and agricultural economy, ethanol representatives urged that the simple model proposal be revised to allow ethanol to effectively participate in the RFG market. They suggested several possible revisions. For example, they argued that the 1 psi waiver granted to certain ethanol blends by section 211(h) of the CAA be applied to ethanol-blended RFG under section 211(k). They reasoned that since Congress recognized in the provision requiring nationwide reductions in fuel RVP that ethanol required such a waiver, ethanol should receive a similar waiver if the VOC performance standard for RFG sold in the smoggiest cities were defined in terms of a required reduction in RVP. If the section 211(h) waiver were not available to RFG ethanol blends, the ethanol industry suggested that the VOC reduction requirement take into account that the variety of VOCs from gasoline differ in their ozone formation potential. While ethanol raises a fuel's volatility and thus its VOC emissions, they argued that the resulting VOCs are less ozone-forming than those that would otherwise occur. They urged that the 15 percent reduction requirement should thus be interpreted to require a 15 percent reduction in ozone-forming potential, not simply ozone-forming VOCs. Ethanol supporters suggested additional ways of encouraging or even requiring ethanol use in RFG. The Governors Ethanol Coalition, for instance, suggested that EPA require the RFG market to satisfy its oxygenate requirements through a minimum percentage of domestically produced renewable fuel. 3. October 1st Announcement EPA, the Department of Agriculture, the Department of Energy and other parts of federal government engaged in an extensive dialogue with all interested groups to address the ethanol industry's concerns with the RFG program. In response to the ethanol industry's suggestion, the applicability of the section 211(h) waiver to the RFG program under 211(k) was closely considered. For the reasons set forth in a memorandum available in the docket, the Acting General Counsel of EPA determined that it did not apply. Also explored was the ability to take reactivity into account in determining compliance with the requirement that "ozone-forming VOCs" be reduced by 15 percent. Section 211(k)(3), however, explicitly requires that reductions in ozone-forming VOCs be measured on a "mass basis." Although any reactivity benefits of emissions from ethanol blends, should they exist, could be taken into account in defining which VOCs are "ozone-forming," the statute does not appear to permit ozone-forming VOCs to be weighted on the basis of their ozone formation potential for purposes of determining compliance with the 15 percent reduction requirement. Based on ethanol's importance to the nation's energy and agricultural policy, President Bush on October 1, 1992 announced a plan to allow ethanol to effectively compete in the RFG program, with the expectation that, with barriers removed, ethanol use would grow. This plan is based upon provisions of section 211(k)(1) allowing the Administrator to take into consideration cost, energy requirements, and other specified factors in setting RFG performance standards. The most significant part of this plan called for EPA to "establish rules for reformulated gasoline in all northern cities that will have the effect of granting a one-pound waiver for the first 30 percent market share of ethanol blends, while achieving environmental benefits comparable to those provided for in EPA's proposed rule and regulatory negotiation." The environmental benefits of the proposed RFG program would be maintained by offsetting any increase in volatility of RFG containing ethanol with reductions in the volatility of the rest of the reformulated gasoline pool. Also pursuant of the plan, EPA is proposing to propose to establish rules allowing governors of southern states to extend the provisions made for ethanol in northern RFG-covered cities to covered southern cities as well. Other aspects of the plan include the establishment of an RVP trading program, the unrestricted optional early use of the complex model and oxygenate neutral NOX and toxics performance standards. Through today's notice the Administrator proposes these as well as a variety of other provisions relevant to his determination of section 211(k) factors. B. Reid Vapor Pressure Allowance 1. Overview EPA proposes that the RVP performance standard under the simple model provisions of the SNPRM and VOC performance requirements under the complex model be based upon the extent of use of renewable oxygenates such as ethanol. For northern areas under the simple model, EPA proposes that the RVP performance standard as proposed in the SNPRM of 8.1 psi (8.0 psi under the averaging provisions of the SNPRM) be reduced to 7.8 psi (7.7 psi under averaging) when no renewable oxygenates are used in reformulated gasoline, but be permitted to increase to 8.1 psi (8.0 psi under averaging) through the use of renewable oxygenates in 30% of the reformulated gasoline produced. For example, taking advantage of the proposal's averaging provisions, this would allow ethanol to be splash blended into 30% of reformulated gasoline and have a 1.0 psi greater RVP than other reformulated gasoline blends while still maintaining the in-use volatility and, thus, comparable environmental benefits proposed in the SNPRM. EPA is also proposing to permit a governor of a southern state to have applied in that state's ozone nonattainment areas provisions similar to those described above for northern areas. Specifically, under the simple model, EPA proposes that the 7.2 psi RVP standard proposed in the SNPRM for southern areas be reduced to 7.0 psi, but that refiners may meet an RVP standard of up to 7.2 psi if they use ethanol or other renewable oxygenates in up to 20 percent of the market covered in those areas. In addition, the Agency proposes a similar approach to standard setting under the complex model. It should be noted that this program in no way limits the ability of a refiner to use ethanol or any other renewable oxygenate in its gasoline to only 30 percent of its production (20 percent in the South). A refiner may blend as much ethanol into its gasoline as it desires, provided it meets its RVP (VOC) performance standards. It should also be noted that the ability of refiners to average RVP performance under the provisions of the SNPRM is not changed as a result of this program. RVP averaging can still be used to meet a refiner's RVP (VOC) performance requirements. In fact, as discussed below, EPA is proposing to expand the RVP averaging provisions of the SNPRM to include RVP trading as well. In order to provide greater flexibility for the use of renewable oxygenates, EPA proposes that refiners be permitted to either blend the renewable oxygenate themselves to raise their performance standard, or obtain commitments from other refiners to do so. This flexibility in connection with the RVP trading provisions will allow greater renewable oxygenate use by the refiners who can benefit from their use, and allow its use in those areas where it is most economical to do so. Today's action does not mandate the use of ethanol. Taking into account the statutorily specified factors, EPA is proposing these provisions for ethanol on the theory that allowing ethanol to effectively participate in the RFG market is important to the nation's energy security. While EPA is continuing to gather the relevant data and perform the requisite analyses, it appears that the use of renewable oxygenates such as ethanol as a motor vehicle fuel may reduce the nation's dependence on foreign oil, improve our balance of trade with other nations, and enhance our energy security./1/ At 2.7 wt% oxygen, use of ethanol (or ethanol in the form of ETBE) in 30 percent of RFG) would displace 2.3 percent of the volume of reformulated gasoline with ethanol. This is the equivalent of 360 million gallons of ethanol used (gasoline displaced) during the summer months alone in the areas currently covered by the reformulated gasoline program (including those areas that have already opted in), and could rise to as much as 510 million gallons if all eligible areas opted into the program. In addition to energy related benefits, the use of oxygenates made from renewable sources provides the potential for reducing emissions which contribute to global warming. NOTE /1/ The Final Report of the Interagency Commission on Alternative Fuels written for DOE and published in September, 1992 estimates that the displacement of crude oil with all oxygenate use under the reformulated gasoline and oxygenated fuels provisions of the CAA could reach roughly 200,000 barrels per day. In a private conversation on 1/8/92, Margaret Singh of Argonne National Laboratory, one of the authors of the Interagency Commission report, stated that roughly 10 percent of the crude oil displacement in that analysis was due to ethanol alone (this estimate does not take into account any changes which may result from today's proposal). As explained above, the statute prescribes for the near term a minimum 15 percent reduction in VOCs, and in the SNPRM EPA proposed RVP and oxygen requirements that it believed achieved this requirement. Under today's proposal, the simple model RVP standards for refiners or importers that use 30% renewable oxygenate is 8.1 psi, if compliance is met on a per gallon basis. Both the renewable and nonrenewable blends produced by those refiners or importers would have to meet this per gallon standard. If compliance is met on average, however, the RVP standard would be 8.0 psi. This could be met, for example, by two-thirds of a refiner's or importer's gasoline meeting 7.7 psi (nonrenewable blends) and one-third meeting 8.7 psi (renewable blend such as ethanol splash blended into a 7.7 psi blendstock). The effect of today's proposal on the cost of reformulated gasoline is expected to be small. The cost of reducing the RVP of gasoline by 0.3 psi in northern (VOC control region 2 as defined in the SNPRM) areas to offset the allowance for splash blended ethanol in 30% of the fuel is approximately 0.3 to 0.5 cents per gallon. However, the overall cost of the RVP performance allowance of 0.3 psi for the use of ethanol is expected to be less than 0.3 cents per gallon since ethanol is likely to be less costly than MTBE per gallon of reformulated gasoline produced./2/ NOTE /2/ "Evaluation of the Use of Ethanol and MTBE in Reformulated Gasoline," by Sobotka & Co., Inc., for USEPA, September 30, 1992. In addition, the cost of ethanol may decrease beginning in 1995 as a result of the proposed provisions. Under a program like that set forth in the SNPRM, ethanol would be expected to capture a sizeable portion of the RFG and oxygenated fuels markets during the winter months. (The oxygenated fuels program established by section 211(m) requires that gasoline sold in many carbon monoxide nonattainment areas include 2.7 percent oxygen during the winter months, beginning in 1992.) However, since the market during the summer was potentially small, ethanol production facilities could not operate year-round at a steady production level without storing vast quantities of ethanol during the summer for use during the winter. To the extent ethanol was also used during the summer months, more steady production could be achieved, with reduced capital expenditures for storage and peak production equipment. This would likely result in a reduction in the cost of producing ethanol. Year-round and increased use of ethanol may also increase the incentives to develop an established infrastructure for ethanol distribution and use, making it even more feasible and cost effective. In addition, expanded use of renewable oxygenates may encourage further research and development associated with their production and use, which could further reduce their cost and expand their market both as blends with gasoline and separately as alternative fuels. Expanded use of renewable oxygenates would further result in economic growth not only in the ethanol industry, but also in agriculture and related industries. Finally, since the consumption of grain to produce ethanol may raise the prices farmers receive for their crops, additional ethanol use may reduce the amount the government must pay in agricultural price supports. While the cost per gallon of reformulated gasoline of the RVP adjustment for the use of renewable oxygenates is small, the incentive per gallon of ethanol is substantial. An economic incentive for renewable oxygenate containing blends such as ethanol blends of 0.3 cents per gallon adds roughly 13.7 cents per gallon to the value of ethanol (assuming a base requirement of 2.7 wt% oxygen as described in section 4)./3/ NOTE /3/ The derivation of the value of the incentive is shown in Section VIII of the DRIA. In sum, section 211(k)(1) requires that gasoline be reformulated to achieve the greatest reductions in VOC emissions considering cost, energy, and the other specified factors, but not less than a 15% reduction during Phase I of the program and 25% (20%) during Phase II of the program. In determining how these statutory requirements can be met, EPA must balance the cost of RVP reductions in non-ethanol blended gasoline and the extent to which energy or other considerations warrant that the volatility associated with ethanol use be offset. Today, EPA is proposing that the volatility associated with a potential ethanol market share as high as 30 percent be offset through reductions for nonrenewable oxygenate blended gasoline such that the reformulated gasoline market achieve overall reductions meeting the minimum 15% reduction requirement. EPA requests comment on whether this proposal represents the proper balance. EPA believes that, in addition to the factors described previously concerning the energy and other benefits of renewable oxygenate use, the following are relevant to the issue: The cost to reduce the RVP of nonrenewable oxygenate blends below the previously proposed levels; the leadtime available for such reductions; and the market share ethanol and other renewable oxygenates could expect absent any such provisions. The expected market share absent these provisions is hard to predict, and at best 30% would allow ethanol and other renewable oxygenates to effectively participate in the reformulated gasoline program, including the opportunity to expand that participation beyond what would otherwise be possible. 2. Performance Standard Setting Process The RVP performance standards proposed today are intended to provide the same level of RVP and comparable environmental control as would be achieved by the SNPRM, while allowing ethanol and other renewable oxygenates to effectively participate in the reformulated gasoline program. This can be accomplished by adjusting the RVP performance standard with the use of renewable oxygenates while preventing the standard from going any higher than that proposed in the SNPRM. As such, EPA proposes to establish a performance standard for RFG not containing renewable oxygenates that is more stringent than that which was proposed in the SNPRM. EPA further proposes that if refiners commit to the use of renewable oxygenates in their fuel or purchase commitments from other refiners for the use of renewable oxygenates (if that proves more cost effective) their RVP performance standard would be relaxed accordingly (up to 8.1 psi). Finally, a refiner's performance standard could be relaxed even further through a process by which EPA provides RVP performance standard adjustments based on the refiner's commitment to use renewable oxygenate that other refiners might have used to take advantage of a less stringent RVP (VOC) performance standard, but chose not to. This RVP (and VOC) performance standard setting process is described in the following sections and shown in figure II.1. BILLING CODE 6560-50-M Figure II.1 RVP PERFORMANCE STANDARD SETTING PROCESS [INSERT: Flow diagram] BILLING CODE 6560-50-C a. Southern Performance Standards. The proposed approach taken in the North would not be required for southern areas covered by the RFG program. There are several reasons for this distinction. First, most of the RFG areas are in the North, so that removing barriers to ethanol use in the North will have a larger impact than removing these barriers in the South on the policies associated with ethanol use. Second, production of grain feedstocks and ethanol production are concentrated in the North. The higher tax benefits these northern areas offer ethanol together with lower transportation costs account for ethanol's greater use in the North. For these same reasons, EPA expects that the potential for growth in ethanol use is expected to be greater in the North. Third, the lower RVP standards applicable under the simple model in the South are likely to make additional RVP reductions to offset volatility increases associated with ethanol use more expensive for southern RFG areas. In sum, in striking the balance between achievable RVP reductions and the policy benefits associated with ethanol, EPA has reason to believe that for the South generally, the RVP costs may be higher and the resulting ethanol policy benefits may be lower. Thus, striking the balance somewhat differently for southern areas, President Bush's announcement did provide, nonetheless, that a modified version of the northern approach be available to governors of southern states to have applied at their discretion. A governor who believes that ethanol has a potentially strong market in his or her state could request that this modified approach, explained in more detail below, be applied in the state's RFG-covered areas. As summarized above while EPA believes that ethanol participation in southern RFG areas would advance the same policy concerns as ethanol participation in northern areas, EPA is not certain that ethanol would participate sufficiently even if the barriers are removed to justify the higher costs of offsetting the volatility increase in southern areas. However, southern governors may be in a good position to judge on a case-by- case basis the likely participation of ethanol in the market and the cost of removing the barriers. The modification of the northern approach for optional application in the South is as follows. EPA is proposing that the RVP standard for RFG not containing renewable oxygenates be reduced from 7.2 psi to 7.0 psi (6.9 psi under the averaging provisions of the SNPRM). The 0.2 psi reduction would permit 20 percent of the RFG market in an area to be splash-blended with ethanol without raising the average RVP of the RFG in the area. EPA further proposes as one option that the effective date for inclusion of a southern covered area be the beginning of the first VOC control season three years following receipt of the governor's letter requesting application of this approach in his or her state. EPA believes three years is the appropriate amount of time to provide adequate lead-time for refiners to prepare to make the necessary additional RVP reductions, and requests comment on the validity of this belief. While having the program automatically take effect three years after the request from the governor is a relatively straightforward approach, it does raise serious questions about whether section 211(k) authorizes a state to determine which federal standard applies in its area. At the same time, EPA is concerned whether receipt or non-receipt of a request from a governor is an adequate basis to support a different performance standard in that area. In light of these concerns, EPA is proposing a second option whereby the ethanol provisions described above would be implemented in a southern area through a rulemaking conducted subsequent to receipt of a request from the Governor. Upon receipt of any such request from a governor, EPA would promptly prepare a notice proposing extension of the ethanol-related provisions to the area or areas covered by the request. This would allow for full exploration of all the relevant issues, and would avoid the legal concerns mentioned above. This option is similar to the approach taken in the federal RVP regulations under section 211 (c) and (h), where RVP standards were set on a national basis with allowance for subsequent rulemaking to fine tune the regulations for specific localities. EPA requests comment on the relative merits of these two options. The energy related benefits of renewable oxygenates are not unique to the use of the simple model. Under the SNPRM, refiners will have the option of using the complex model in the first years of the program when the simple model is also available. After a specified period of time following the complex model's promulgation, only the complex model will be available for certification. In keeping with the proposal under the simple model, EPA proposes that the VOC performance standard stringency under the complex model be increased by the equivalent of 0.3 psi RVP. For Phase I of the reformulated gasoline program EPA proposes to determine the VOC equivalent of 0.3 psi RVP using as a baseline a fuel meeting the performance standards of the simple model (8.0 RVP, 2.1 wt% oxygen, 0.95 volume percent benzene, 26.3 percent aromatics, and CAA baseline values for all other fuel parameters), and under Phase II of the reformulated gasoline program one baseline fuel consistent with the VOC performance standard described in section VI of this notice (for purposes here, 2.0% oxygen, 105 ppm sulfur, 6.9 RVP, 202 deg.F T50, 316 deg.F T90, 23.0% aromatics, 6.5% olefins, and 1.0% benzene). As calculated from the complex model, EPA thus proposes that the Phase I and Phase II VOC performance standards be increased by 7.1 and 2.8 percentage points, respectively, in northern areas. If any southern areas are included in the program, the Phase I and Phase II VOC performance standards would be increased by 5.9, and 2.0 percentage points, respectively (for Phase I, the equivalent of 0.2 RVP determined using a baseline fuel of 7.1 RVP, 2.1 wt% oxygen, 0.95 volume percent benzene, 26.2 percent aromatics, and CAA baseline values for all other fuel parameters and, for Phase II, the equivalent of 0.2 RVP using as a baseline fuel a fuel with 2.0 wt% oxygen, 143 ppm sulfur, 6.5 RVP, 202 deg.F T50, 316 deg.F T90, 23.0% aromatics, 6.5% olefins, and 1.0% benzene). EPA requests comment on this methodology for setting the performance standards under the complex model, on the fuel assumptions used, on whether and to what extent the methodology unfairly disadvantages any refiner relative to another, and on whether there are any other methodologies or fuel assumptions which might be more appropriate. b. Performance Standard Adjustment Through Commitments for Renewable Oxygenate Use. EPA's proposed RVP and VOC standards are based on its estimate of the greatest reductions the market as a whole can achieve, taking into account the statutory factors. However, the ability and desire of refiners to take full advantage of today's proposed standards varies from refiner to refiner. To ensure that the policy objectives related to this proposal are fully served, it is important that the market be permitted to work as efficiently as possible. EPA is therefore proposing that a system of commitments be created to allow the greatest flexibility for the use of ethanol and other renewable oxygenates consistent with the applicable performance standards. In fulfilling their commitments, refiners could either blend renewable oxygenate themselves during the forthcoming VOC control season or, if meeting the VOC standards on average, also purchase commitments from other refiners. As long as refiners meet their RVP (VOC) performance standards in each area covered by the RFG program, the use of renewable oxygenate could easily be shifted from a refiner serving one area to a refiner serving another area where it is more economically advantageous to do so (based on state tax subsidies, distribution costs, etc.). Whether or not a refiner chose to fulfill its commitment through its own use of renewable oxygenate or through contracting for its use with another refiner, however, the refiner would nevertheless be liable for its commitment. Since various refiners produce vastly different amounts of gasoline, in order to maintain the same level of renewable oxygenate use under this program, trading of renewable oxygenates from one refiner to another must be performed on a volume basis. Under the simple model, refiners could elect to meet an RVP performance standard as high as 8.1 psi (8.0 under averaging) in the North and 7.2 psi (7.0 under averaging) in the South in proportion to their commitment to use renewable oxygenate in 30 percent and 20 percent of their fuel, respectively. Under the complex model refiners could lower the otherwise applicable VOC performance standard by as much as 7.1 percentage points in the North and 5.9 in the South under Phase I of the reformulated gasoline program, and 2.8 percentage points in the North and 2.0 percentage points in the South under Phase II, through the use of renewable oxygenates in 30 and 20 percent of their fuel, respectively. It is entirely up to each refiner to decide what amount of renewable oxygenate to use and, thus, which performance standard would be applicable to it. Refiners could utilize as much renewable oxygenates in producing their reformulated gasoline as they desire, but the ability to adjust the applicable performance standard in proportion to the amount used would be limited to 30 percent of their production in the North and 20 percent in the South. In order to provide refiners with the necessary flexibility to blend renewable oxygenates, EPA proposes to raise the maximum RVP allowed under the averaging provisions of the SNPRM to 8.7 psi for renewable oxygenate blends in the North and 7.9 in the South. Similarly, the minimum VOC performance standard under the complex model is proposed to be relaxed by 21.2 percentage points in the North and 24.6 percentage points in the South below the averaging standard under Phase I of the reformulated gasoline program. Under Phase II, EPA proposes that the minimum performance level be set at 8.5 and 8.3 percentage points in the North and South, respectively, below the performance standard described in section VI (taking into account a 1.5% increase in the standard under averaging). These levels are sufficient to provide a 1.0 psi margin for splash blending ethanol into 30 percent of reformulated gasoline downstream of the refiner. EPA proposes, however, that for reformulated gasoline not containing renewable oxygenates the maximum RVP remain at the already proposed level for the simple model of 8.3 RVP in the North and 7.4 in the South, and that the minimum VOC performance under the complex model remain at the levels proposed later in today's notice. The performance standard adjustment for blending renewable oxygenates has value only if the RVP or other parameters of gasoline are adjusted. Since these are determined by the refiner, EPA proposes that the refiners continue to be the party responsible for meeting the RVP performance standard, which is now a function of the amount of renewable oxygenate used. Since this is fully consistent with the provisions of the SNPRM, changes to the enforcement provisions proposed in the SNPRM are minimized. EPA considered various other options which would also place requirements on terminal operators (ethanol blenders), but considered such options as being too restrictive and burdensome. At the same time, unless refiners chose to comply with the per gallon performance standards, some blends (e.g., those splash blended with ethanol) would be likely to have an RVP that is higher than that of other blends by as much as 1.0 psi. (Under the per gallon standards, all of a refiner's fuel must meet its per gallon standard (e.g., 8.1 RVP if renewable oxygenate is used in 30 percent of its fuel) including any ethanol splash blends.) Therefore, in order to ensure that the RVP (and VOC) standard is met in each area covered by the reformulated gasoline program, it would be essential for the refiner to track and control the fraction of fuel with a higher RVP which is distributed to each area. Similarly, it would be essential for refiners to maintain a constant fraction of fuel with a higher RVP (lower VOC performance) over the course of the VOC control season. Otherwise, there could be temporal increases and decreases in the average emission performance of in-use fuels. As under the averaging provisions of the SNPRM, should temporal increases occur, the refiners run the risk of in-use compliance survey violations and thus, a more stringent performance standard the following year. c. Performance Standard Adjustment Through EPA Allocation of Uncommitted Renewable Oxygenate Use. Some refiners may decide not to use renewable oxygenates and forego the opportunity to meet a less stringent RVP (VOC) performance standard. So that other refiners might take advantage of that opportunity and thereby further advance the policy goals of today's notice, EPA proposes that a refiner's opportunity to elect a less stringent RVP (VOC) performance standard be forfeited for the following ozone control season if it does not commit to the use of renewable oxygenates (by themselves or through the purchase of commitments from other refiners). EPA would then adjust the RVP performance standard of other refiners in exchange for their commitment to use the amount of renewable oxygenate which had been left uncommitted. For example, a refiner which commits to use renewable oxygenate in 60 percent of its fuel and receives the associated RVP performance standard adjustment could raise its average RVP performance standard in the North under the simple model from 8.0 to 8.3 psi. This allocation system would also provide the means of effectively combining offsetting fuels in slates for the purpose of certifying them as RFG. Section 211(k)(4) permits gasoline to be certified as RFG as part of a "slate" of fuels that on average meet RFG requirements. While the proposed system of allocating RVP performance standard incentives would result in one refiner's fuel having an average RVP above the minimum 8.1 psi standard, by effectively combining in a slate that refiner's fuel with another refiner's fuel having an average RVP sufficiently below the standard, both refiner's fuels could still be certified as reformulated gasoline. In order to permit EPA to adjust the RVP (VOC) performance standards, information on reformulated gasoline and renewable oxygenate use must be made available on an area-specific basis. If RVP performance standard adjustments for renewable oxygenate use were forfeited by a refiner in one covered area and subsequently allocated to refiners serving another covered area, greater environmental control would be achieved in one area and less in another. To avoid such an outcome, EPA proposes that by November 1 prior to each ozone control season each refiner (and importer) report to EPA its commitment to use renewable oxygenates (and in what form), the amount of renewable oxygenate other refiners have committed to use for it, the amount of renewable oxygenate it has committed to use for other refiners, the amount of renewable oxygenate use eligible for making performance standard adjustments which is not committed to be used in each area covered by the reformulated gasoline program, its total reformulated gasoline production which was distributed for use in each covered area for the previous year, and the VOC performance characteristics (RVP under the simple model, all fuel parameters that affects VOC under the complex model) of the fuel which it distributes for use in each covered area. If and only if a refiner chooses to meet the VOC performance standards on a per gallon basis, commits to the use of a minimum of 30 percent of renewable oxygenate in the North and 20 percent in the South (if applicable), and is not committing to use renewable oxygenates for any other refiner, would its reporting requirements be simplified. In such a case the refiner would be required to report only its commitment to use at minimum 30 percent, and the volume of reformulated gasoline produced and renewable oxygenate used each year nationwide. By January 1 prior to each ozone control season, any uncommitted RVP (VOC) performance standard adjustments would be provided at no cost to other refiners for use in the same covered area for their commitment to use additional renewable oxygenate, and their performance standard would be adjusted accordingly. EPA proposes to allocate these adjustments among the refiners wishing to use them in the covered area where the adjustments are forfeited prorated based on the volume of reformulated gasoline produced by the various refiners requesting additional adjustments, and beginning with the category of refiners who fulfilled their commitment to use renewable oxygenates in previous years. The final RVP performance standard applicable for these refiners for the coming season would then be recalculated based upon the total amount of renewable oxygenate committed to be used. EPA's adjustment of RVP (VOC) performance standards, as proposed, would be specific to each area covered by the reformulated gasoline program in order to maintain each area's environmental benefits from the reformulated gasoline program. As such it would require that refiners track their fuel from the point of production to the point of its ultimate use and report to EPA the amount of reformulated gasoline and renewable oxygenates distributed for consumption in each area (except as described above under certain conditions for per gallon compliance). EPA recognizes that such a requirement changes current industry operating practices and as such may impose additional costs. However, EPA is unaware of any alternatives which would provide comparable environmental neutrality. EPA requests comment on any alternative means by which the environmental neutrality of the program can be maintained while minimizing the cost and burden on refiners. EPA also requests comment on the ability of the in-use compliance surveys to be revised to provide adequate certainty that the full environmental control is achieved in each area without requiring refiners to track their fuel. Despite the precautions described above, EPA is still seeking design improvements to fully assure that the program proposed today preserves the environmental control that would be achieved under the program proposed in the SNPRM. The program described above does not fully protect environmental neutrality if changes occur in the amount of fuel distributed to a given city by various refiners over time. Since the standards adjustment process is based on fuel volumes for the previous year, increases in the performance standard granted to some refiners following EPA adjustments would only be only offset if the refiners forfeiting RVP performance standard adjustments distribute the same or greater volume of reformulated gasoline to a given area as the year before. It is not until the following year that the adjustment would be made to offset this disparity. Despite this concern, EPA does not expect that there will be significant increases in RVP (decreases in VOC performance) in-use since decreases are just as likely as increases and not all refiners that opted to forfeit the performance standard adjustments would be expected to dramatically reduce the amount of fuel they distributed to a given area in the same year. Nevertheless, EPA requests comment on the this issue and on any means by which the environmental neutrality of the program can be more fully ensured. If during the course of the ensuing VOC control season a refiner uses less renewable oxygenates than it had committed to EPA, no enforcement action would be taken as long as that refiner achieves an RVP or VOC performance standard commensurate with its actual renewable oxygenate use. However, if a refiner uses less renewable oxygenates than it has committed to use, EPA requests comment on what remedy would be appropriate. One possible remedy would be that the refiner forfeit the ability to raise its performance standard through renewable oxygenate use in the future (to the extent the commitment was not reached). EPA would make these RVP (VOC) performance standard adjustments available to other refiners willing to commit to use the corresponding amount of renewable oxygenate as described above. If such a forfeiting refiner wanted to raise its performance standard through renewable oxygenate use in the future, it could do so only if unallocated RVP (VOC) performance standard adjustments were still available for the covered area(s) in question. Such refiners would have their RVP (VOC) performance standard adjusted only after all refiners who fulfilled their commitments the previous year have received any desired adjustments. EPA is concerned that the performance standard adjustment process described above does not grant refiners desiring to use additional renewable oxygenate adequate certainty of the availability of additional RVP (VOC) performance standard adjustments to fully take advantage of them. Furthermore, EPA is concerned that the refiners described in the previous paragraph who forfeited their opportunity to take advantage of RVP (VOC) performance standard adjustments for future years would be limited to receiving year to year adjustments from EPA if any are available and would never have any certainty of using any performance standard adjustments. As a result, EPA is also considering an approach whereby performance standard adjustments which are either given to EPA for subsequent distribution be permanent (instead of year to year) and whereby adjustments distributed by EPA would be permanent. Under such an approach, refiners would have the necessary certainty of being able to utilize the performance standard adjustments and be permitted to make refinery changes in accordance with such performance standard adjustments. Such an approach, however, prevents the year-to-year adjustments in reformulated gasoline volume necessary to ensure that any loss in environmental neutrality described above is limited to only one year. Another approach might be to maintain the year to year allocation but allow refiners who fell short of their commitments in previous years to regain their original opportunity to use renewable oxygenates for RVP (VOC) performance standard adjustments by making up their earlier shortfall without any RVP (VOC) adjustment. EPA requests comments on the above approaches, on the need for an allocation program given its potential limitations, and on any other approaches that would provide refiners with the necessary certainty while still preserving the environmental neutrality of the program. 3. RVP Trading Program Based on the performance standard adjustment process described above, if a refiner wishes to blend more than 30% of its production with renewable oxygenate, it would still be required to meet an 8.1 RVP standard. With regard to ethanol, this would require producing an ever lower RVP gasoline blendstock. In order to provide greater flexibility to refiners desiring to blend additional renewable oxygenates, EPA proposes to establish an RVP credit trading program (in addition to the averaging program proposed in the SNPRM) whereby refiners could obtain RVP credits from other refiners in lieu of reducing the RVP of their fuel. Under this program a refiner in Chicago could commit to use renewable oxygenate on behalf of a refiner in New York and then obtain RVP credits (from other refiners distributing fuel in Chicago) sufficient to compensate for any increase in RVP caused by increasing its use of renewable oxygenates. For the program to remain environmentally neutral the RVP credits could only be traded within a given area covered by the reformulated gasoline program. Otherwise, one area would have an average in-use RVP of less than 8.1 RVP, while the other area would have an average RVP of greater than 8.1 RVP. Such an RVP trading program could be conducted totally separate from any exchange in commitments for renewable oxygenate use or in conjunction with it. An example of the latter would be the sale of renewable oxygenate usage commitments and the purchase of RVP credits by a refiner wishing to use more than 30% renewable oxygenates and vice versa by a refiner wishing to use less than 30% renewable oxygenates. The former could potentially adjust its average RVP standard to as high as 8.7, while the average RVP standard of the latter refiner would be lower than 8.0. The fuels being marketed by both refiners would have to be in the same area, as mentioned above. Furthermore, if the program is to be environmentally neutral, RVP credits must be traded based on the relative volume of reformulated gasoline produced at any given RVP. Since RVP trading is a means by which refiners can choose to meet their RVP performance standard and is not used to determine the performance standard, EPA proposes that RVP trading be permitted to take place throughout the course of the control period and as such be based on the actual gallons of reformulated gasoline produced. EPA proposes that to the extent refiners take advantage of RVP trading, they be required to report to EPA at the end of the ozone control season the average RVP of the reformulated gasoline they produced and the number of RVP credits traded to and received from other refiners for each of the reformulated gasoline areas. EPA does not believe that the added flexibility resulting from a trading program allows for a more stringent performance standard, but requests comment on the Agency's legal authority it implement RVP trading absent a tighter performance standard for those refiners who trade. A more stringent performance standard was proposed in the SNPRM in connection with averaging, and this is merely an extension of that program. Furthermore, this trading program is intended to provide greater flexibility to refiners for the purpose of making it easier to blend renewable oxygenates. If the performance standard were made more stringent, it could eliminate any incentive for blending renewable oxygenates provided by a trading program. Since there is no RVP performance standard under the complex model, the RVP trading program described above cannot be used directly. However, the same motivation exists under the complex model as under the simple model to provide a trading program. Thus, under the complex model EPA proposes that refiners be permitted to trade VOC performance. EPA requests comment on this provision. As discussed above in regard to EPA's allocation process for performance standard adjustments with renewable oxygenate use, EPA is concerned that the requirement that refiners track and report to EPA the volume of reformulated gasoline and its RVP (VOC performance) on a covered area specific basis may represent a significant additional burden. In the interest of minimizing the cost and burden on refiners of the reformulated gasoline program, EPA would prefer to avoid, if possible, requiring refiners to track their fuel from the refinery to its ultimate use. However, to ensure the environmental neutrality of the RVP (VOC) trading program knowledge of the actual distribution to each area is needed. EPA requests comment on any methods other than tracking of fuel by which the environmental neutrality of the program can be ensured in all covered areas and on whether the cost of tracking would be greater than any economic incentive created by the flexibility of the trading program. 4. Definition of Renewable Oxygenate Use While the performance standards described above are adjustable based upon the amount of renewable oxygenates used in the reformulated gasoline produced, some constraints need to be placed on what constitutes the use of renewable oxygenates if both the environmental and other policy benefits of today's proposal are to be achieved. EPA proposes that renewable oxygenate be defined for the purposes of this program as those oxygenates that are derived from renewable resources such as agricultural products and waste products such as sewage sludge or waste cellulose and does not include oxygenates produced from non-renewable resources such as petroleum, natural gas, coal, or peat. Furthermore, since some oxygenates such as ethers are currently made from both renewable and non-renewable resources, EPA proposes that only the portion of oxygenates derived from renewable resources be considered as renewable oxygenate. At the present time, the only oxygenate EPA is aware of that is produced in significant quantities that meets the definition of renewable oxygenate is ethanol. However, the definition is not meant to be restricted to ethanol, and is intended to encompass numerous other oxygenates, particularly the ethanol portion of ethers such as ETBE and ETAE which in the future may be produced in significant quantities. EPA further proposes that the use of renewable oxygenates to meet the 30 percent market share described above for northern areas and 20 percent for southern areas be based upon an assumed base oxygen content in the reformulated gasoline of 2.7 wt%. A 30 percent market share would, thus, represent 0.81 wt% oxygen in the form of renewable oxygenates in a refiner's reformulated gasoline production in the North, and 0.54 wt% oxygen in the South. In order to allow the greatest degree of flexibility for refiners, EPA proposes that the use of any renewable oxygenate in any concentration be prorated on the basis of weight percent oxygen for credit toward the 0.81 wt% oxygen base. The reformulated gasoline provisions require only 2.0 wt% oxygen in reformulated gasoline, but a base oxygen content of 2.7 wt% would better advance the energy related policies of today's proposal, and is still consistent with the maximum oxygen content for which no NOX emission increase is assumed under the simple model in section D below (as well as under both the negotiated agreement and SNPRM). Going beyond 2.7 wt% to as high as 3.5 wt% would provide a disincentive for the use of renewable oxygenates other than ethanol since they are currently limited to a maximum of 2.7 wt% and, thus, would be required to be used in more than 30 percent of the market to achieve the same level of renewable oxygenate use. Furthermore, setting a base oxygen content greater than 2.7 wt% oxygen would require the use of the complex model pursuant to the provisions of section D. This would represent a disincentive for certain refiners to use renewable oxygenates and, thus could potentially result in less renewable oxygenate use than setting the baseline at 2.7 wt%. EPA invites comment on setting the baseline oxygenate content at 2.7 wt% and on what level would best ensure that the energy related goals of today's proposal are achieved in a manner consistent with section 211(k) of the CAA. If oxygenates are used that are derived from both renewable and nonrenewable resources, EPA proposes as one option that such oxygenates be prorated in direct proportion to the amount of their oxygen content derived from renewable resources (e.g., ETBE derived from ethanol which is produced from biomass would achieve the same credit as the amount of ethanol used to make it). Not all renewable oxygenates, however, are identical with respect to their environmental benefits. One significant difference between oxygenates is their potential to cause vapor pressure increases when mixed with other fuels in the distribution system and vehicle fuel tanks, a phenomenon referred to as commingling. ETBE does not exhibit a commingling effect, nor does it produce the dramatic rise in blend vapor pressure above 100 deg.F that ethanol does. As a result, from an environmental standpoint, the use of ethanol in the form of ETBE is preferable to direct ethanol blending. The value added per gallon of ethanol from the RVP incentive proposed in this section would be roughly 13.7 cents, assuming an RVP control cost of one cent per RVP-gallon. This economic incentive would be constant regardless of the concentration of ethanol added or the form (splash blended ethanol or ETBE) since it is based on RVP. However, independent from today's proposal there is an inherent added incentive for blending ethanol at 3.5 wt% instead of 2.7 wt% oxygen since the former causes less of an RVP increase per gallon of ethanol used (ethanol blended to both 2.7 wt% and 3.5 wt% oxygen cause roughly a 1.0 psi RVP increase). Because of this inherent incentive EPA expects most ethanol blends would be at 3.5 wt% oxygen through the use of the complex model and oxygen credit trading. As a result, ETBE would always be forced to compete with ethanol at 3.5 wt% oxygen instead of ethanol at 2.7 wt% oxygen where ETBE would be at less of a disadvantage. In order to offset this disadvantage, EPA is also requesting comment on an option that renewable oxygenates such as ETBE that do not exhibit commingling effects be given the same credit at 2.0 wt% oxygen that is given to ethanol (or other renewable oxygenates which exhibit commingling effects) at 2.7 wt% oxygen. ETBE use in 30 percent of the market would, under this option, represent 0.60 wt% oxygen in the form of renewable oxygenates in a refiner's reformulated gasoline production. This approach would provide ETBE blends with an additional incentive of roughly the same magnitude as exists for blending ethanol at 3.5 wt% oxygen relative to 2.7 wt% oxygen. Commingling itself is an issue which is not unique to this proposal. It was not addressed in the context of the SNPRM but, nevertheless, represents an environmental impact whenever oxygenates such as ethanol which exhibit commingling effects are blended into gasoline. Today's proposal is not expected to dramatically change the magnitude of any commingling effects inherent under the SNPRM. While today's proposal may increase the market share of ethanol, it also contains incentives for ETBE and other ethers which do not exhibit commingling effects. As such there could be no increase or even a decrease in the amount of ethanol used to meet the reformulated gasoline program requirements resulting from today's proposal. Furthermore, even if there were an increase in the use of ethanol blends, today's proposal allows for its use to be shifted to those areas where it is most economical. As a result, it is possible that some areas would have virtually 100 percent ethanol blended reformulated gasoline while others may have virtually no ethanol blended reformulated gasoline. Such a scenario would reduce concerns over commingling. Finally, even if both ethanol use and commingling do rise, the increase may be small. At present EPA has not been able to adequately quantify the commingling effects resulting from the use of ethanol blends, but requests comment on how significant such effects may be both under the provisions of the SNPRM and under the provisions of today's proposal. C. NOX Neutrality A second element of President Bush's announcement was for EPA to establish a NOX performance standard which was neutral with respect to the type of oxygenate being used. Under the simple model proposed in the SNPRM, and in keeping with the agreement reached through regulatory negotiation, EPA proposed that "MTBE in concentrations up to 2.7 weight percent oxygen and other oxygenates in concentrations up to 2.1 weight percent oxygen be assumed not to increase NOX emissions." While "based on data available during the regulatory negotiations, it appeared that fuel oxygen content and the type of oxygenate used may have an impact on NOX emissions," the data did "not allow for quantifying relationships between oxygenate type and concentration and NOX emissions." Thus, based on the available information, caps were placed on oxygen content in order to permit the sale of reformulated gasoline and limit any potential NOX emission increase until the complex model could be developed and implemented. Since the time the SNPRM was developed a great deal of additional data has become available which has gone into the development of the complex model (to be discussed later). Under the complex model, all oxygenates are treated the same, i.e., based on oxygen content. There does not appear to be a significant difference between various oxygenates in their NOX forming tendency. Also, under the complex model, other fuel changes that accompany the blending of oxygenates into the fuel (reductions in the concentrations of aromatics, olefins, sulfur, etc.) have been found to offset the NOX increases caused by increasing the oxygen concentration. The results, which are described in the DRIA, show that on average 4-5 percent reductions in NOX emissions are expected. Thus, the complex model is directionally consistent with the data used for the simple model. However, refiners would not be prohibited from adjusting their base gasoline in anticipation of dilution so that a NOX increase could occur. EPA does not anticipate that refiners will have an economic incentive to do this. At most, as described in section V.C. below, a one percent increase in NOX emissions from certain fuels might occur. Given the much larger reductions projected on average, it is highly unlikely that a net NOX increase could result under the simple model with oxygenate up to 2.7 wt% oxygen. As a result, EPA proposes that in keeping with the provisions of the SNPRM and the more recent data, all oxygenates be assumed to yield a no NOX emission increase up to 2.7 wt% oxygen under the simple model. EPA requests comment on this view and the resulting proposal, and on the legal adequacy of relying on this expectation that no NOX increase will occur. EPA also requests comment on whether any NOX increase associated with oxygenates at or below 2.7 weight percent oxygen (should one be found to occur) may be considered de minimis and on whether EPA has legal authority to disregard such a NOX increase as de minimis. The one option available to prevent a NOX increase from every batch of fuel would be to require refiners to use the complex model in 1995 (under the early use provisions described in section E. below) solely to certify that their fuels did not increase NOX emissions. Given the effect of oxygenate on the other parameters of gasoline and the lack of economic incentive to worsen fuel quality via other means, this option should not pose a leadtime concern. EPA requests comment on this additional option as well. D. Toxics Neutrality In addition to NOX neutrality, President Bush also requested that the toxics standards be set in such a manner as to be neutral with respect to the type of oxygenate used. EPA based the toxics performance standard in the SNPRM on the use of MTBE as the oxygenate in the fuel on the assumption that this would be the predominant oxygenate used to produce reformulated gasoline. Due to a characteristic of MTBE unique among oxygenates, evaporative benzene emissions are suppressed, and MTBE achieves a greater toxics performance on a weight percent oxygen basis than the other oxygenates. As a result, the toxics performance standard was proposed in the SNPRM in a manner which disadvantaged the other oxygenates by making it more costly for them to be utilized in reformulated gasoline. As is discussed in section VI, control of toxics emissions in reformulated gasoline is a very costly means of reducing cancer incidences. For this reason, basing the toxics standard on the sole oxygenate which achieves the greatest toxics control is not appropriate. Thus, EPA proposes that the toxics emission performance standard under the simple model be based upon the non-MTBE oxygenates. Applying this approach, the toxics performance standard required by the act is the greater of a 15 percent reduction or the performance of the formula fuel containing 2.0 wt% oxygen in the form of a non-MTBE oxygenate. Since a formula fuel containing non-MTBE oxygenates does not achieve the 15 percent minimum, EPA proposes that the air toxics performance standard under the simple model be 15 percent. In accordance with the provisions proposed in the SNPRM, EPA also proposes that the year-round averaging standard be 16.5 percent. E. Unrestricted Early Use of the Complex Model The CAA requires all refiners to reduce the VOC and air toxics emission forming tendency of their fuels by a minimum 15 percent below that of the 1990 average in-use fuel as defined in section 211(k)(10)(B) (referred to here as the CAA baseline). Due to the limited data available at the time of the regulatory negotiation (and SNPRM development), however, few of the effects of fuel parameters on emissions could be quantified and placed in the simple model even though they were known qualitatively to exist. As a result, EPA proposed in the SNPRM that all refiners hold such fuel parameters (sulfur, olefins, and T90) at or below their 1990 baseline levels. Because different refiners have significantly different 1990 baselines of sulfur, olefins, and T90, this proposal required some refiners to produce reformulated gasoline which was significantly less polluting than that produced by other refiners. In order to maintain the same overall level of environmental control if refiners opted to use the complex model prior to its required use in 1997, EPA further proposed in the SNPRM that refiners who opted to use the complex model early would be required to maintain whatever emission performance they would otherwise have achieved using the simple model through the use of their own 1990 baselines. This was viewed by some refiners, however, as an impediment to early use of the complex model since they could be required to achieve greater environmental control in 1995-96 than in 1997. In response, EPA also proposed that since in the southern areas covered by a reformulated gasoline program, refiners would be required under the proposal to achieve greater than the minimum VOC control required by the Act, they be permitted the option to use the CAA baseline instead of their own individual baselines. In northern areas covered by the reformulated gasoline program refiners would still be required to use their own 1990 baselines. In President Bush's announcement, he requested EPA to provide refiners with the broadest range of options possible in "meeting the pollution reduction requirements of the Act," and called for the "unrestricted" early use of the complex model. EPA today proposes that all refiners be permitted to utilize the complex model before its required use in 1997 to certify reformulated gasoline to be sold in all parts of the country with their performance measured against either their own 1990 baseline or the CAA baseline. Not only does this proposal grant refiners greater flexibility, but it also makes it easier for refiners to use renewable oxygenates such as ethanol in producing their fuel. III. Complex Model A. Baseline Emissions Under the Complex Model In the SNPRM, EPA proposed that the emission baseline for the simple model would be based on light-duty vehicle emissions using a July 11, 1991 version of MOBILE4.1 with an assumption for enhanced I/M that is now more representative of EPA's requirements for basic I/M (57 FR 52950). This proposal was based on the best information available at the time. Since that time, a new version of the MOBILE model, MOBILE5.0, has been developed and both the basic and enhanced I/M requirements have been promulgated. These changes affect the baseline calculations and raise the issue as to whether and when to require the revised baseline. The choice of MOBILE model and I/M program determines the level of baseline emissions established for baseline vehicles. The primary impact of this choice on baseline emissions is through changes in the ratio of baseline exhaust to non-exhaust VOC emissions. Since various reformulations will reduce exhaust and non-exhaust VOC emissions to varying degrees, changing the ratio of baseline exhaust and non-exhaust VOC emissions can affect the overall VOC emission reduction expected from a specific fuel reformulation. NOX emission performance is unaffected since NOX is only emitted via the exhaust. Toxics performance is only slightly affected (much less than VOC), since non-exhaust toxics comprise only a small fraction of total toxics emissions. As described in section V.C., the proposed complex model projects that typical simple model fuels will substantially reduce both exhaust and nonexhaust VOC emissions. The result is that the overall effectiveness of various Phase I reformulations is expected to be relatively insensitive to the baseline exhaust to non-exhaust VOC ratio. Also, given the no NOX increase requirement and the effect of oxygenate on other fuel parameters, EPA expects fuels produced under the complex model to produce even greater reductions in exhaust VOC than those shown in section V.C., making their performance even less sensitive to the choice of MOBILE model. Thus, EPA is confident that fuels certified using a MOBILE4.1 baseline would meet at least the minimum 15 percent VOC reduction requirement even with a MOBILE5.0 baseline. Thus, there would appear to be little or no air quality or other impact of delaying implementation of a revised baseline based on MOBILE5.0. The assumptions made in the SNPRM with respect to the appropriate enhanced I/M program to assume for Phase I may also be reasonable through the end Phase I. While enhanced I/M is required in many ozone nonattainment areas starting January 1, 1995, its full implementation may be later than this in several important ways including a phase-in of emission cut points and a phase-in of the percentage of the fleet being tested. It is therefore possible that areas will not realize the full in use benefits of those programs until near the end of the Phase I period. The complex model, however, will be available as an option as early as 1995, and as proposed would not be mandated for use in certifying VOC controlled fuel until the 1997 ozone season at the earliest. At the same time, changing the baseline in 1997 could potentially change the overall stringency of the VOC performance standard for some refiners and require them to invest additional capital to further control RVP or other fuel parameters. The statutory structure established by Congress creates a two-phase program (beginning in 1995 and 2000, respectively), and maintaining a consistent level of emission performance through the first five years of the program is consistent with this structure. Therefore, EPA proposes to retain the baseline proposed in the SNPRM for use with the complex model prior to 2000. This is based on the lack of adverse air quality impact, EPA's confidence that the required statutory minimum reductions are not at risk, and the potential disruption in the latter years of Phase I for at least some refiners. EPA requests comment on all of these points, including comment on utilizing an emissions baseline based on either the official version of MOBILE4.1 or MOBILE5.0 beginning in 1997. EPA also requests comment on the appropriateness of the I/M program assumptions discussed above and the appropriateness of other I/M program assumptions. The Agency specifically requests comment from the States on the type of enhanced I/M program they plan on implementing (e.g., annual, biennial, emission cut-points, etc.), their projected schedules for implementation, and the timetable for any expected phase-ins. EPA invites comment on the degree of change in fuel formulation which might occur and their environmental, energy, cost and leadtime consequences. Changes in the baseline modeling assumptions, if appropriate, would also lead to corresponding changes in the Phase I complex model standards. With the onset of the Phase II performance standards in 2000, the overall stringency of the standards is already changing and a new baseline based on MOBILE5.0 will not, by itself, be the cause of new investment by refiners. Also, by this time, enhanced I/M programs should be fully operational in nearly all reformulated gasoline areas. Therefore, for Phase II EPA proposes that the baseline for the complex model be based on light-duty vehicle and light-duty truck emissions using MOBILE5.0 with enhanced I/M. B. Complex Model for Exhaust Emissions 1. Data Sources The relationship between fuel properties and exhaust emissions is complex and the theory behind such relationships continues to be developed. As a result, EPA has asked industry, state regulatory agencies, and other organizations with relevant test data to make their data available to the Agency to ensure that this rule is based on as much relevant information as possible. The complex model described in the following section is based on data generated from a number of exhaust emissions testing programs. These programs, their design intent, and their limitations are discussed in the Draft RIA. Data from these programs were excluded from EPA's analysis if the data were not based on a valid FTP measurement cycle, if the vehicle in question did not employ 1990-equivalent emission control technology, or if nonmethane hydrocarbon measurements were not taken. The Agency believes its analysis considered all available, valid, and relevant data on the exhaust emissions effect of fuel modifications when used in 1990 model year and equivalent vehicles. Since these test programs generally involved different vehicles, different fuels, and in some cases different test procedures, the analysis required to determine the relationship between fuel properties and emissions is complex. However, EPA believes that the model proposed below appropriately considers and addresses these complexities. 2. Analysis Method Exhaust emissions are affected by both vehicle and fuel characteristics, which makes identification of fuel effects on emissions difficult. EPA has considered and in some cases tested a number of analysis methods, many of which were presented during a series of public workshops held by EPA over the past year. Information regarding these methods can be found in Docket A-92- 12. The approach chosen by EPA to analyze the data described in section III.B.1 is summarized below and is discussed more fully in the Draft RIA. EPA utilized statistical analysis techniques to determine the effects of fuel modifications on exhaust emissions of VOC, NOX, and toxics. At a series of five public workshops held over the past year, the Agency has presented its data sources, proposed analysis methods, and preliminary emissions models for public review and comment. The Agency has also requested other organizations to share their data, analysis expertise, and emissions models at these workshops. The Agency believes that today's proposal appropriately incorporates the comments and suggestions regarding the analysis process received at the workshops and during the course of the past year from industry, state and federal government authorities, and other interested parties. The resulting exhaust emission models have been validated through confirmatory testing and analysis. EPA's analysis separated exhaust emissions into fuel components and vehicle components. In all test programs analyzed by EPA, the single most significant determinant of the level of emissions from a given vehicle on a given fuel was the vehicle itself. Fuel properties exert a much smaller influence on exhaust emissions than do vehicle characteristics such as emission control system technology, vehicle mileage, catalyst efficiency, oxygen sensor efficiency, engine size, engine design, vehicle size, fuel efficiency, and vehicle maintenance. To identify the effects of fuel property modifications on emissions, EPA found it necessary to identify the effect of each vehicle on emissions and separate this effect from the fuel effects. The fuel components of exhaust emissions were separated into two main categories. The first category consisted of the effects of individual fuel parameters. For example, the effect of sulfur on hydrocarbon emissions was best modeled by a relationship containing a linear sulfur term and a second- order sulfur term (a term of the form c1S /2/, where c1 is a constant and S is the sulfur level). The second category of fuel terms consisted of interactive effects between two fuel parameters. EPA's analysis of NOX emissions, for example, found that oxygen's effect on NOX is related to the aromatics level of the fuel. This effect cannot be represented as an oxygen or aromatics effect alone but must be represented as an interactive term of the form c2XA, where c2 is a constant, X is the oxygen level, and A is the aromatics level. The effect of each fuel term was determined separately for each technology group within each emitter class for NOX and VOC emissions. Technology groups and emitter classes, their importance in determining the effects of fuel modifications on emissions, and their definitions are discussed more fully in the Draft RIA and simple model SNPRM. The linear terms for all fuel parameters were retained, while only those second-order and interactive terms that were statistically significant at the 85 percent level were retained. Retention of non-significant linear terms reflects the general consensus of public workshop participants regarding appropriate analysis and modeling methods and a desire to keep this potentially very complex model as simple, yet as accurate, as possible. EPA requests comment on the appropriateness of the significance level used to exclude terms from the model and the inclusion of non-significant linear terms. Because vehicles can have different emission control systems, the Agency anticipated that fuel modifications would have different emission effects on different types of cars. EPA has found it necessary to develop terms unique to technology groups to assure the predictive power of the complex model. EPA also has found that vehicles classified as "high emitters" respond very differently to fuel modifications than do normal emitting vehicles. Hence the terms described above were defined and determined separately for each technology group within each emitter class for VOC and NOX emissions. EPA chose a different approach when modeling emissions of exhaust toxics. Many of the studies available to EPA did not measure exhaust toxics, so the data on exhaust toxics emissions is less complete than the data on exhaust VOC and NOX emissions. This problem is particularly acute for high emitters. In addition, baseline estimates of toxics emissions are not available from the MOBILE models, so a different source of baseline toxics estimates had to be found. To overcome the limited amount of data on high emitters, the Agency chose to combine normal and high emitters into a single emitter class while retaining the technology group distinction. To overcome the absence of baseline toxics data from the MOBILE models, the resulting toxics model was then adjusted to compensate for differences between the average VOC exhaust emission levels for those vehicles for which toxics data were available and the 1990 model year, in-use emission levels projected by the MOBILE models. This process is discussed in more detail in the DRIA. Since the proposed models for normal and high emitter VOC emissions differ substantially, and since the compounds classified as toxic in section 211(k) are VOCs, the Agency is concerned that this approach based on absolute mass emissions may not accurately represent the effects of fuel changes on toxics emissions from high emitters. The Agency has considered modeling toxics emissions as mass fractions of total VOC emissions (as was proposed in the simple model NPRM and SNPRM) but has found models of toxics in terms of absolute mass to have very high predictive power. However, this conclusion could be the result of limited high emitter toxics data. In addition, the mass fraction approach can be more readily extrapolated to winter conditions than can the absolute mass emissions approach. EPA requests comment on the appropriateness of the mass fraction and absolute mass emissions approaches. EPA focused its modeling efforts on those fuel parameters thought to affect vehicle emissions based on available test results. Oxygen, RVP, aromatics, olefins, T90, sulfur, and benzene were identified as relevant fuel parameters in the negotiated agreement. T50 was identified as a potentially significant parameter by a number of testing programs and at several public workshops. EPA anticipates that further refinements to the model will be made prior to finalization of this rule. First, the Agency expects to convert its fuel distillation curve data to a percent evaporated basis, thereby replacing T50 and T90 with terms such as E200 and E300 (the volume percentage of the fuel evaporated at 200 deg.F and 300 deg.F, respectively). The percent evaporated terms are thought to be more directly relevant to the generation of exhaust emissions than the distillation parameters. In addition, the percent evaporated values for a mixture of fuels can be calculated directly from the percent evaporated values of each component of the mixture, while the distillation values for a mixture must be measured separately. This characteristic has important implications for certification and enforcement. Second, the Agency will attempt to determine the influence of the type of aromatic compounds in fuels, specifically heavy aromatics, on exhaust emissions, since preliminary test data suggests that both the level and type of aromatic compounds may affect emissions. Third, EPA expects to include additional emission testing data as they become available, and such data may affect the results of the modeling process discussed above. Specific test programs expected to provide additional data include the second half of Auto/ Oil's T50/T90 study and EPA's Phase II reformulated gasoline test program. EPA's Phase II test program data is available and has been used to confirm the validity of the model presented in Sec. 80.45. After using either the EPA Phase II or Auto/Oil T50/T90 studies to confirm the revised model, EPA expects to include the data used in this confirmation in its database to develop a final model. Fourth, EPA anticipates changing the confidence level required to allow additional terms into the model to 90 percent, in keeping with past EPA practice. Finally, EPA expects to complete its analysis of the importance of technology group and emitter class distinctions prior to finalization of this rule. Preliminary analyses confirm that the original classification scheme does capture significant differences in the emissions performance of fuels, as can be seen by examining the differences in the exhaust emission equations for specific technology group/emitter class categories as presented in the Draft RIA. These distinctions may be changed if further analysis indicates that changes are necessary to adequately estimate the effects of fuel modifications on vehicle emissions. At the present time, EPA is considering reducing the number of technology group categories for normal emitters by eliminating technology groups which contribute a very small proportion of total mobile source emissions or combining such groups with other, similar technology groups. EPA is also considering subdividing high emitters by their emission characteristics, particularly their exhaust hydrocarbon to NOX ratio, rather than by vehicle technology. This modification reflects EPA's belief, supported by preliminary field information, that one or more emission control components on high emitters tend to be malfunctioning, which renders a classification scheme based on vehicle equipment potentially suspect. EPA requests comment on these potential changes in its technology group definitions and on the other potential changes in its analysis approach discussed above. EPA will place its revised version of the complex model for exhaust emissions (referred to as "Iteration 4" of the model), which incorporates the changes discussed above, and its supporting materials in the docket for review and comment as soon as it is completed. The American Petroleum Institute (API) has also developed its own version of a complex model, which has been placed in the docket for this rulemaking. EPA requests comment on the various aspects of API's statistical and engineering approach and on its overall suitability for use in EPA's complex exhaust emission model. 3. Complex Exhaust Emissions Model Equations As was discussed in the SNPRM, EPA believes that the exhaust emission effects of fuel modifications are different when applied to vehicles with different emission control and fuel distribution technologies. In addition, EPA believes that the emissions effects of fuel modifications also depends on the level of emissions from the vehicle. During development of the complex model, preliminary investigation of these assumptions have supported the approach described above. The complex model incorporates these effects on an emissions-weighted basis, i.e., fuel effects on each technology group/emitter class category were weighted according to the contribution to in-use emissions of 1990 vehicles from that category. To determine the contribution of each technology group to in-use emissions, EPA calculated the fraction of 1990 model year sales of light duty vehicles and trucks from each technology group. EPA used non-California sales figures for this analysis since vehicles certified as "California-only" vehicles are required to meet a different set of emission standards than other cars sold in the U.S., and since California will have established its own reformulated gasoline program by 1996 that is expected to exceed the stringency of the federal program. EPA requests comment on the exclusion of California vehicles from its calculation of 1990 sales fractions. EPA then adjusted this fraction to reflect the differences in average emissions among technology groups where such information was available. This adjusted fraction is represented by the "W" constants in the model proposed in Sec. 80.45. Because the equations are in the form of exponential equations, it is necessary to normalize each equation to a known emission value on a known fuel for each technology group. The resulting proportionality constant is represented by the "k" constants in the model proposed in Sec. 80.45. In effect, the "k" constant transforms a percentage increase or decrease into a gram per mile figure corresponding to that percentage change from baseline emissions. The rationale for and derivation of the "k" and "W" constants are discussed in more detail in the DRIA. Since the effects of fuel modifications on emissions differ across technology groups and emitter classes, EPA has developed separate models for each technology group-emitter class combination for which sufficient data were available. The emissions performance of a given fuel reformulation for a specific pollutant can be determined by taking the following steps. First, each technology group-emitter class model for the pollutant in question would be evaluated for the specific fuel formulation being evaluated. Second, the resulting predicted emissions for each technology group-emitter class combination would be weighted by the estimated contribution of that combination to total miles traveled and these weighted emissions would be added together. Third, the total predicted emissions would be compared to the baseline emissions level for the pollutant in question. The emissions performance of the fuel reformulation would be defined as the percentage change in total emissions from baseline emission levels, which are discussed below in section B. The specific equations that comprise the complex model can be found in Sec. 80.45 of the regulations proposed for this rule. For the most part, their derivation is straightforward and can be found in the Draft RIA. In some cases, available data were insufficient to develop models for every technology group-emitter class category. In such cases, the weighting factors for the categories which could be modeled were renormalized to adjust for the absence of data. This process is discussed more fully in the Draft RIA. The Draft RIA and the proposed regulations also discusses the range of parameter values for which these equations are valid. As discussed in the SNPRM, refiners are required to submit data to augment the model if they wish to certify fuels with properties that fall outside this range. EPA requests comment on deviations between the model's predictions and the data used to develop the model, on the model equations themselves, on their derivation, and on the ranges over which these equations are considered valid. The model presented in Sec. 80.45 is based on emissions data generated under summer conditions. While the VOC performance standard for reformulated fuels applies only in the summer, the toxics and NOX requirements apply year- round. Hence, the complex model must cover typical winter, as well as summer, fuels. However, the model presented in Sec. 80.45 is based on data generated under summer conditions and cannot be used directly for fuels with typical winter RVP levels. EPA proposes to use a modified version of the complex model as presented in Sec. 80.45 to evaluate winter fuels. This modified version would assign an RVP value equal to that of summer baseline gasoline, i.e., 8.7 psi, for all non-VOC controlled fuels when evaluating the toxics and NOX emissions performance of such fuels (including winter baseline fuels). RVP's impact on canister loading and subsequent purging is thought to be the primary cause of its effects on exhaust emissions. Since data do not exist on the effects of winter fuels on canister loading under winter conditions, the Agency believes it is not appropriate to attempt to model the effects of winter RVP levels on emissions. Fixing the RVP value of winter fuels at baseline levels for modeling purposes effectively removes the influence of RVP on winter exhaust toxics and NOX emissions. EPA requests comment on this approach, particularly on the ability of the non-RVP factors in the complex model to accurately predict winter toxic and NOX emissions. C. Complex Model for Nonexhaust Emissions The model for nonexhaust emissions is based on data generated by EPA to develop its MOBILE emission inventory models. The Agency believes that the relationship between fuel properties and nonexhaust emissions is less complex and better understood than for exhaust emissions. Data from EPA's ongoing evaporative emissions testing has been used to develop MOBILE4.1 and MOBILE5.0. EPA believes this data to be sufficient to model the relationship between fuel properties and nonexhaust emissions. Additional information about MOBILE4.1 and MOBILE5.0 can be found in Dockets A-91-02 and A-92-12. Non-exhaust emissions are less affected by vehicle design and are influenced by fewer fuel characteristics than are exhaust emissions. In addition, the theoretical principles involved in evaporative emissions are better understood, and evaporative emission control technologies are more consistent across vehicles than are exhaust emission controls. EPA is in the process of developing an evaporative emissions model based on fundamental theoretical principles and actual test data that are expected to be more accurate and more widely applicable to oxygenated fuels than MOBILE4.1. A preliminary version of this model was discussed at a public workshop held on August 25, 1992, and materials related to this model have been placed in the docket for this rulemaking. At this time, however, the enhanced evaporative emissions model is not complete and is not expected to be completed prior to publication of the final rule. As a result, the Agency is proposing correlations relating RVP to nonexhaust emissions derived from the MOBILE4.1 emissions model issued November 1991. To develop the correlations shown below, MOBILE4.1 was used with temperatures of 69 to 94 degrees Fahrenheit for Class B areas and 72 to 92 degrees Fahrenheit for Class C areas, assuming the existence of an enhanced inspection and maintenance program. In addition, the presence of Stage II evaporative emissions recovery systems with an overall vapor recovery efficiency of 86 percent was assumed (as discussed in the SNPRM and NPRM). Should the enhanced evaporative emissions model not be developed in time for inclusion in the final rulemaking, EPA proposes to utilize the July 11, 1991 version of MOBILE4.1 to determine the effect of RVP on nonexhaust VOC emissions under the Phase I performance standards (i.e., 1995-1999) and to utilize MOBILE5.0 to do the same under the Phase II performance standards (i.e., 2000 and beyond). This would be in keeping with the proposed baseline emissions described in section A above and, again, minimize the changes refiners have to undergo in the transition from the simple to the complex model. The Agency requests comment on this proposed basis for determining non-exhaust VOC emissions, including comment on the appropriate MOBILE model and I/M assumption. As discussed in the SNPRM, the Agency's correlation between fuel benzene content and non-exhaust benzene emissions is based on General Motors' proprietary model of tank vapors, and its independent confirmation by data generated by EPA using a number of fuels. Both the derivation and verification of the non-exhaust benzene emissions model is discussed more fully in the Draft RIA. EPA requests comment on the use of the correlation between fuel benzene content and non-exhaust benzene emissions derived from the General Motors model and the sufficiency of EPA's independent confirmation of its results. As was also discussed in the SNPRM, EPA believes that nonexhaust VOC and toxics emissions (including running loss, hot soak, diurnal, and refueling emissions) depend primarily on the RVP of the fuel. The Agency proposes that the nonexhaust VOC and toxics equations found in Sec. 80.45 of the proposed regulations be used to determine nonexhaust VOC and toxics emissions, respectively. These equations relate VOC emissions to the RVP of the fuel. Nonexhaust benzene emissions are determined by the level of benzene in the fuel and the level of nonexhaust VOC emissions. EPA requests comment on this approach and on the equations proposed in Sec. 80.45, the derivation of which is discussed more fully in the Draft RIA. IV. Vehicle Testing As was discussed in the simple model SNPRM, the complex model may be augmented based on the results of vehicle testing. EPA considers the testing program discussed in the SNPRM to be appropriate in terms of the fuels, number of vehicles, and test procedures specified. However, the Agency now believes the analysis process described in the SNPRM to be inconsistent with the process used to develop the complex model and may be overly complex. As a result, EPA proposes that the data generated during vehicle testing be analyzed statistically as described in Sec. 80.48. This analysis would fit a stepwise regression model to the data that includes the following terms: A vehicle term, a linear term for the parameter being tested, and squared and interactive terms involving the parameter being tested if significant at the 90 percent confidence level. The analysis would treat normal emitters and high emitters as separate populations but would not subdivide the emitter categories into technology groups for analysis purposes, since the test fleet compositions specified in Sec. 80.60 assure that the normal and high emitter test fleets include technology groups that reflect their contribution to in- use emissions. In addition, the statistical power of the test program would be compromised by subdividing each emitter class test fleet into technology groups since the number of vehicles in each technology group would be small. EPA believes that this approach is more consistent with the process used to develop the complex model, is less susceptible to manipulation and gaming by testing organizations, and is capable of extracting the maximum amount of information from the test data. In today's proposal, EPA has deleted Sec. 80.57 and Sec. 80.58 from its proposed regulations. These sections specified procedures for determining the presence and significance of nonlinear and interactive emission effects of fuel parameters being tested. EPA believes the regression-based analysis approach described in Sec. 80.48 to be more accurate and less complex than the procedures described in Sec. 80.57 and Sec. 80.58 of the April 16, 1992 proposal. Since the regression-based approach explicitly determines nonlinear and interactive effects, the Agency considers the deleted sections to be unnecessary and burdensome. EPA requests comment on these proposed deletions and on the proposed modification to the testing proposal outlined in the SNPRM. V. Phase I Performance Standards Using the Complex Model A. Baseline Emission Estimates The following table summarizes the Agency's proposed estimates of VOC and NOX emissions from in-use, 1990 technology vehicles when fueled with Clean Air Act baseline gasoline. All VOC emission estimates are given in terms of non-methane, non-ethane hydrocarbon emissions. In today's notice, EPA further proposes to redefine "ozone forming VOCs" as used in section 211(k) to exclude ethane. This redefinition is consistent with the Agency's most recent definition of VOC as "any compound of carbon * * * which participates in atmospheric photochemical reactions * * * other than the following, which have been determined to have negligible photochemical reactivity: Methane, ethane, * * *." (See 40 CFR 51.100(s) February 3, 1992), which excludes both ethane and methane from its definition of ozone forming VOCs (57 FR 3941). Ethane comprises approximately three percent of total hydrocarbon emissions but, like methane, is far less reactive in the atmosphere than other hydrocarbons. Table V-1.--Baseline VOC and NOX Emissions (MOBILE4.1 with SNPRM I/M), g/mi Class Class B C Summer: Exhaust VOC emissions 0.446 0.446 Hot soak VOC emissions .265 .230 Diurnal VOC emissions .125 .109 Running loss VOC emissions .431 .390 Refueling VOC emissions .040 .040 Total summer VOC emissions 1.307 1.215 Winter exhaust VOC emissions .660 .660 NOX emissions .66 .66 The following table summarizes the Agency's estimates of toxics emissions from in-use, 1990 technology vehicles when fueled with Clean Air Act baseline gasoline. These estimates were derived from the complex emission models described in section III and were based on the July 11, 1991 pre-release version of MOBILE4.1 emission inventory model with the I/M program assumptions described in the SNPRM. As discussed in the SNPRM, separate estimates were made for nonexhaust toxics emissions from Class B and C areas and for summer and winter emissions. Table V-2.--Baseline Toxics Emissions (MOBILE4.1 with SNPRM I/M), mg/mi Winter Summer /1/ Class Class Class B C B & C Exhaust benzene emissions 25.37 25.37 22.04 Formaldehyde emissions 3.80 3.80 3.79 Acetaldehyde emissions 2.06 2.06 1.81 1,3-butadiene emissions 3.28 3.28 3.00 POM emissions 1.50 1.50 1.45 Diurnal benzene emissions 1.30 1.13 Hot soak benzene emissions 3.02 2.63 Running loss benzene emissions 4.92 4.46 Refueling benzene emissions 0.42 0.42 Total baseline toxics emissions 45.67 44.64 32.05 /1/ Based on EPA's proposed complex model evaluated for winter baseline gasoline and assuming that wintertime evaporative emissions are negligible, as is discussed in the SNPRM (57 FR 13416). B. Complex Model Performance of the "Formula Fuel" The proposed complex model equations predict that the formula fuel would produce a reduction in exhaust VOC emissions of 12.3 percent and no reduction in nonexhaust VOC emissions when measured relative to the Clean Air Act baseline fuel. The resulting overall VOC emissions reduction of the formula fuel is 6.1 percent in Class B areas and 6.5 percent in Class C areas. The proposed complex model further indicates that the annual average toxics performance of an MTBE-based formula fuel would be an 11.7 percent reduction in Class B areas and an 11.2 percent reduction in Class C areas. The annual average toxics performance of the ethanol-based formula fuel would be an 11.5 percent reduction in Class B areas and an 11.0 percent reduction in Class C areas. These are lower reductions than those discussed in the SNPRM. The current estimate are believed to be more accurate given they are based on the proposed complex model rather than on the simple model. The Agency estimates that formula fuels using other oxygenates, such as ETBE or TAME, would result in VOC and toxics performance similar to that of ethanol-based formula fuels. C. Complex Model Performance of Simple Model Fuels The simple model specifies a number of fuel parameters to assure satisfactory emissions performance under the simple model. Many of the complex model relationships between these fuel parameters and emissions performance are different than the corresponding relationships in the simple model. As a result, the complex model predicts different emission performance levels than does the simple model for a given fuel formulation. The following tables summarize the predicted simple model and complex model performance levels for four different fuels relative to two specified baseline fuels. The first baseline fuel is the CAA baseline fuel as specified in the Act. The second baseline fuel is identical to CAA baseline fuel except for its RVP, which is set at the level required by Phase II volatility controls in Class B areas. This second baseline fuel is referred to as "Class B baseline fuel." The four summer fuels described in Table V-3 would meet the proposed VOC requirements for Class C and Class B areas, respectively, under averaging standards, and assuming that winter fuels are reformulated to a similar extent, would meet the toxics requirements. Under the simple model, the toxic emission effects of different oxygenates vary, so two different fuels with aromatics levels sufficient to assure compliance with the simple model toxic emission performance standards are shown for each area. Tables V-4 and V-5 summarize the summer performance of the fuels described in Table V-3 relative to the CAA baseline fuel according to both the simple and complex emission models. Table V-6 summarizes the emissions performance of Fuels 3 and 4 relative the Class B baseline fuel using both models. Tables V-4, V-5, and V-6 use baseline emissions derived using the July 11, 1991 pre- release version of MOBILE4.1 with essentially a basic I/M program. Table V-3.--Sample Fuel Compositions Class C Class B Fuel Fuel Fuel Fuel 1 2 3 4 Fuel characteristics: Oxygenate MTBE EtOH MTBE EtOH Oxygen, weight percent 2.1 2.1 2.1 2.1 Aromatics, volume percent 26.3 24.3 26.2 23.9 Olefins, volume percent 9.2 9.2 9.2 9.2 Benzene, volume percent 0.95 0.95 0.95 0.95 Sulfur, parts per million weight 339 339 339 339 T50, degrees Fahrenheit 218 218 218 218 T90, degrees Fahrenheit 330 330 330 330 RVP, pounds per square inch 8.0 8.0 7.1 7.1 Table V-4.--Simple and Phase I Complex Model Summer Emissions Reductions of Fuels 1 and 2 in Class C Areas Relative to CAA Baseline Gasoline [In percent] Simple Complex model model reductions reductions Fuel Fuel Fuel Fuel 1 2 1 2 Exhaust VOC 9.9 9.9 13.0 15.4 Nonexhaust VOC 23.9 23.9 23.9 23.9 Total VOC 18.8 18.8 19.9 20.8 NOX 0.0 0.0 -0.8 0.1 Toxics 22.4 23.4 22.4 23.1 Table V-5.--Simple and Phase I Complex Model Summer Emissions Reductions of Fuels 3 and 4 in Class B Areas Relative to CAA Baseline Gasoline [In percent] Simple Complex model model reductions reductions Fuel Fuel Fuel Fuel 3 4 3 4 Exhaust VOC 9.9 9.9 14.3 17.0 Nonexhaust VOC 51.4 51.4 51.4 51.4 Total VOC 37.2 37.2 38.7 39.6 NOX 0.0 0.0 -2.5 -2.0 Toxics 25.7 27.1 26.7 27.9 Table V-6.--Simple and Phase I Complex Model Summer Emissions Reductions of Fuels 3 and 4 in Class B Areas Relative to Class B Baseline Gasoline [In percent] Simple Complex model model reductions reductions Fuel Fuel Fuel Fuel 3 4 3 4 Exhaust VOC 9.9 9.9 13.2 15.9 Nonexhaust VOC 29.8 29.8 29.8 29.8 Total VOC 21.3 21.3 22.7 23.8 NOX 0.0 0.0 -2.5 -2.0 Toxics 22.2 23.7 17.3 18.7 It should be noted that the above fuels show slight NOX emission increases when using the complex model. This occurs because Fuels 1-4 assume no effect of oxygenate on fuel sulfur, T50, and T90, and a minimal effect on fuel aromatics. As discussed in the Draft RIA, when oxygenates typical effect on these fuel parameters are taken into account, which EPA expects will happen on average under the simple model, these NOX emission increases disappear and NOX emissions should actually decrease slightly at both 2.1 and 2.7 weight percent oxygen, regardless of the oxygenate used. The same holds true for the results shown in Tables V-7 through V-10 below. For comparison, Tables V-7 through V-10 summarize the summer performance of the fuels described in Table V-3 relative to the CAA baseline fuel according to two alternative Phase I complex models. The complex model used to derive the results in Tables V-7 and V-8 utilized baseline emissions from MOBILE5.0, while the complex model used to derive the results in Tables V-9 and V-10 utilized baseline emissions from the official version of MOBILE4.1. Both alternative Phase I complex models assumed basic I/M. A discussion of both of these alternative models can be found in the Draft RIA. Table V-7.--Summer Emissions Reductions of Fuels 1 and 2 in Class C Areas Relative to CAA Baseline Gasoline Using a Complex Model Based on the Official Version of MOBILE5.0 [In percent] Complex model reductions Fuel Fuel 1 2 Exhaust VOC 13.1 15.4 Nonexhaust VOC 24.8 24.8 Total VOC 17.6 19.1 NOX -0.8 0.1 Toxics 23.2 23.8 Table V-8.--Summer Emissions Reductions of Fuels 3 and 4 in Class B Areas Relative to CAA Baseline Gasoline Using a Complex Model Based on the Official Version of MOBILE5.0 [In percent] Complex model reductions Fuel Fuel 3 4 Exhaust VOC 14.3 17.0 Nonexhaust VOC 49.2 49.2 Total VOC 28.9 30.5 NOX -2.5 -2.0 Toxics 27.4 28.5 Table V-9.--Summer Emissions Reductions of Fuels 1 and 2 in Class C Areas Relative to CAA Baseline Gasoline Using a Complex Model Based on the Official Version of MOBILE4.1 [In percent] Complex model reductions Fuel Fuel 1 2 Exhaust VOC 13.0 15.4 Nonexhaust VOC 25.8 25.8 Total VOC 21.3 22.1 NOX -0.8 0.1 Toxics 22.9 23.6 Table V-10.--Summer Emissions Reductions of Fuels 3 and 4 in Class B Areas Relative to CAA Baseline Gasoline Using a Complex Model Based on the Official Version of MOBILE4.1 [In percent] Complex model reductions Fuel Fuel 3 4 Exhaust VOC 14.3 17.0 Nonexhaust VOC 51.3 51.3 Total VOC 39.1 40.0 NOX -2.5 -2.0 Toxics 27.0 28.3 D. Phase I Complex Model Performance Standards 1. Phase I Complex Model Toxics Standards Under CAA section 211(k)(3), during 1995 through 1999, a reformulated gasoline's toxic emissions performance must meet or exceed that of a specified formula fuel or a 15 percent reduction from that of baseline gasoline, whichever is greater. As discussed in the SNPRM, the simple model predicts that the formula fuel achieves an average annual toxic emissions reduction of 16.5 percent, thus setting the toxic emissions standard for refiners certifying their reformulated gasolines under the simple model. The complex model for toxics emissions proposed above, however, predicts a different toxics emissions performance for the formula fuel. The complex model indicates that the annual average toxics performance of an MTBE-based formula fuel would be an 11.7 percent reduction in Class B areas and an 11.2 percent reduction in Class C areas. The annual average toxics performance of the ethanol-based formula fuel would be an 11.5 percent reduction in Class B areas and an 11.0 percent reduction in Class C areas. The Agency estimates that formula fuels using other oxygenates, such as ETBE or TAME, would result in VOC and toxics performance similar to that of ethanol-based formula fuels. Since these emission reductions are smaller than the 15 percent minimum reduction specified in the Act, EPA proposes that the toxics performance standard under the complex model be set 15 percent below the toxics emission level of baseline gasoline. EPA has considered basing its toxics performance standard on the performance of simple model fuels rather than the statutory requirements. The Agency is not proposing such an approach in today's notice for the reasons outlined in the SNPRM. In particular, the Agency is concerned that such standards would have an adverse impact on refiners whose 1990 baseline levels of sulfur, aromatics, T50, and T90 are higher than CAA baseline levels of these parameters. Since the simple model does not include these parameters while the complex model does, such refiners may face additional expenditures in 1997 to comply with the statutory requirements. A more stringent set of standards in 1997 would raise the cost of the program substantially. As discussed in the Draft RIA, EPA does not believe that more stringent controls are cost effective in the case of toxics. EPA requests comment on the proposed toxics standards. 2. Phase I Complex Model VOC Standards Both the simple model and the complex model predict that the VOC emission performance of the formula fuel would be less stringent than the 15 percent standard specified in the Act. As a result, Phase I VOC performance standards will not be determined by the performance of the formula fuel. As discussed in the NPRM and SNPRM, the Agency believes that Fuels 3 and 4 are producible, with Fuel 3 considered more representative of typical Class B simple model fuels. Since such fuels (which will be required in Class B under the simple model) would achieve VOC emissions reductions of 38.7 to 39.6 percent relative to the CAA baseline fuel under the complex model, EPA proposes that the Phase I performance standard for VOC emissions in Class B areas be set by the performance of Fuel 3, as predicted by the complex model. This performance standard amounts to a 38.7 percent reduction in VOC emissions relative to CAA baseline levels and a 22.7 percent reduction from the VOC emission level of Class B baseline gasoline. The above VOC reductions were based on fuels just complying with the 0.95 volume percent benzene standard (with averaging) and aromatic content adjusted accordingly. Simple model fuels with lower benzene levels could have higher levels of aromatics. Due to beneficial effect of reduced aromatics on VOC emissions, Fuels 3 and 4 described above produce slightly greater VOC reductions than simple model fuels with lower benzene and higher aromatic levels. For example, with benzene levels at 0.80 volume percent, the VOC reduction decreases to 37.5-38.4 percent relative to CAA baseline gasoline and 21.1-22.3 percent relative to Class B baseline gasoline (see DRIA). EPA requests comment on setting the Class B VOC performance standard based on the performance of simple model fuels. EPA also requests comment on utilizing Fuel 3 to set this performance and, if Fuel 3 was not used, which particular simple model fuel should be used to set the performance standard. EPA is also considering setting the Class C VOC standard on the performance of simple model fuels. As shown above, Fuels 1 and 2 achieve greater than the 15 percent minimum statutory requirement. However, with a lower benzene level of 0.8 volume percent is considered, the VOC performance of Class C fuels decrease slightly to 18.3-19.1 percent (see DRIA). EPA requests comments on setting the VOC performance standard based on the performance of simple model fuels and on where in the range of this performance. In both cases, the Agency invites comment on the air quality and cost impacts which would result. E. Dilution and Interactive Effects In the SNPRM and at a number of public workshops, EPA has indicated its concern over the possibility that mixtures of reformulated fuels may not achieve the emissions reductions of either fuel in isolation. The Agency has investigated the possibility of unfavorable dilution or interactive effects occurring between reformulated fuels. Since EPA has not been able to resolve these concerns, today's notice does not propose any measures to control such effects. EPA requests comment on whether and how it should account for and control such effects and refers the reader to Docket A-92-12 for additional information on this issue. VI. Phase II Reformulated Gasoline Performance Standards A. Legislative Requirements Section 211(k)(3)(B) of the Clean Air Act requires, in the year 2000 and beyond, that aggregate emissions of ozone forming volatile organic compounds (VOCs) and toxic air pollutants from baseline vehicles using reformulated gasoline be 25 percent below emissions from baseline vehicles using baseline gasoline during the high ozone season. The Act also specifies that the 25 percent reduction level may be adjusted to provide for a greater or lesser reduction based on technological feasibility, including consideration of the cost of achieving the reductions. However, in no case can the required reductions be less than 20 percent. The required emission reductions are called, hereafter, the Phase II standards. The Phase II requirements would apply to gasoline which is sold in those ozone nonattainment areas required to receive reformulated gasoline and in those areas which have already opted into the program or which opt in at a later date. However, EPA is considering and requesting comment on an option that would permit states to opt-in to only Phase I and maintain the Phase I requirements beyond the year 2000. Compliance with the Phase II standards (and all reformulated gasoline certification) would not change relative to that with the Phase I standards for 1997 and beyond. Section 211(k)(1) of the Act specifies that the Administrator shall consider, in addition to cost, non-air quality and other air quality-related health and environmental impacts, and energy requirements associated with achieving the required emissions reductions. Summaries of the cost, health and environmental impacts of achieving the proposed emissions reductions are presented below and are more thoroughly discussed in the Draft RIA associated with this proposal. In addition to the VOC and toxic emissions reductions, section 211(k)(2)(A) of the Act specifies that there be no net increase in NOX emissions (over baseline NOX levels) resulting from the use of reformulated gasoline. The Act further specifies that if increases in NOX emissions are unavoidable due to the control of other fuel components, other requirements may be waived or adjusted. As will be shown below, NOX emission increases due to the use of reformulated gasoline are unlikely, and are definitely avoidable. Furthermore, the Agency believes that NOX emission control via reformulated gasoline may be a technologically feasible and cost-effective option. EPA /4/ has reviewed a National Research Council study /5/ and other ambient ozone analyses and found that additional NOX reductions would significantly reduce ozone formation in some areas. Section 211(c) of the Act gives the Agency broad regulatory authority to regulate fuel quality if the emission products of such fuels contributes to air pollution. NOTE /4/ Lindhjem, C. TBA, 1992. NOTE /5/ "Rethinking the Ozone Problem in Urban and Regional Air Pollution," National Research Council, December 18, 1991. Under section 211(c), the Agency must consider the effects of the emissions on public health, considering scientific data and other factors, including technological feasibility. Additionally, the fuels which may be used as substitutes may not endanger the public health or welfare more than the original fuel. Because any fuel producing a net reduction in NOX emissions would also have to meet the above performance standards for VOC and toxics emissions (i.e., will qualify as a reformulated gasoline), EPA does not expect that a reformulated fuel subject to NOX control could endanger the public health more than a fuel which is not subject to NOX control. Therefore, EPA is proposing a NOX emission reduction standard of 0 to 15.3 percent in connection with the Phase II standards to further reduce ozone formation during the high ozone season. EPA requests comments on the need for NOX emissions control in reformulated gasoline areas and on the use of its authority under section 211(c) to add NOX control to the reformulated gasoline program. B. Determination of Proposed Standards The proposed emission reduction standards and their development are discussed below. The proposed standards are based on EPA analyses of the costs and emission reductions, particularly the cost effectiveness, associated with changes in different fuel components. 1. Methodology The methodology for determining the cost effectiveness of fuel component changes is described in the Draft Regulatory Impact Analysis (RIA). Individual fuel component control costs and the effects of changes in one fuel component on the other fuel components are integral parts in the determination of the cost effectiveness of an emission control strategy. In this analysis, these two integral parts were estimated from the results of refinery modeling performed by Turner, Mason and Company (for the Auto-Oil Economics group) and Bonner & Moore Management Science (for EPA) and on survey results presented by the California Air Resources Board (CARB). Comments on the use of these studies for estimating individual fuel component control costs and coincident fuel component effects are requested. Individual fuel component control costs include operating costs and annualized capital costs. EPA believes it is reasonable to base the proposed Phase II standards on cost effectiveness, which EPA defines here as the ratio of the incremental cost of a control measure to the incremental benefit, e.g., tons of VOC or NOX emissions reduced or number of cancer incidences avoided. The use of cost effectiveness allows for the relative ranking of various control strategies so that a specified environmental goal can be achieved at minimum cost. EPA also evaluated the overall cost of the proposed standards to ensure they would be reasonable. All emission reductions for Class C area are calculated relative to the statutory baseline per the requirements of the Act and all emission reductions for Class B areas are calculated relative to a fuel with an RVP of 7.8 psi and statutory baseline levels for all other parameters. As for Phase I reformulated gasoline, all Phase II reformulated gasoline must have at least 2.0 weight percent oxygen and maximum 1.0 volume percent benzene. The cost of these requirements is not accounted for in the determination of the incremental cost effectiveness of the Phase II standards (though the Draft RIA does contain updated costs for each of these two mandated controls). The cost effectiveness of incremental changes in fuel components is, thus, determined relative to the statutory baseline and the mandated reformulated gasoline requirements. EPA requests comments on the methodology used in determining the cost effectiveness of fuel component changes and on the individual fuel component control costs. Additional fuel component control cost data is also welcome. 2. VOC and NOX Control a. Control Costs. The total cost (or manufacturing cost) of producing a reformulated gasoline is the sum of the capital recovery cost and the operating cost. In determining the cost of fuel changes for VOC and NOX control, EPA assumed that, because VOC control is mandated only during the high ozone season, the length of which was described in the NPRM and SNPRM, operating costs of changes made to produce reformulated gasoline would only occur in the summer and not in the winter, in effect, idling any process units built especially for the purpose of meeting the reformulated gasoline program emission requirements. However, capital costs would have to be fully recovered regardless of whether the equipment was used seasonally or not. EPA adjusted the capital costs accordingly, and used the sum of the adjusted capital cost and the original operating cost as the individual fuel component control cost in the VOC and NOX cost-effective analyses. An example of the individual fuel component costs and the associated incremental percent reduction in VOC emissions are shown for Class C areas in Table VI-1. Complete information on the development of the individual component costs for both Class B and C areas is provided in the Draft RIA. As will be discussed under the section on toxics control, in its estimate of the cost effectiveness of toxics control, EPA did not adjust the capital cost portion of the individual fuel component control costs as described above because toxics reductions are required year-round. Comments on the costs presented in Table VI-1 and on their derivation are requested, as well as additional fuel component control cost data and supporting description. Table VI-1.--Class C Component Control Costs and VOC Emission Reductions Cumulative VOC Control Incremental reduction Component level cost (c/gal) (%) Oxygen 2.0 wt% /1/ 1.67-3.36 9.0 Benzene 1.0 vol% 0.69 9.0 RVP 8.1 psi 0.57 17.6 RVP 7.4 psi 1.67 25.3 Sulfur 160 ppm 0.35-0.57 26.4 Oxygen 2.7 wt% /1/ 0.59-1.18 28.5 Olefins 5.0 vol% 1.81-2.44 30.2 Sulfur 50 ppm 1.45-1.86 31.2 Aromatics 20 vol% 0.61-0.98 31.4 /1/ Based on MTBE. Ethanol use is expected to be less expensive under the provisions of section II. b. Cost Effectiveness. In this analysis, the incremental cost effectiveness of an emission control obtained through fuel modifications is the ratio of the cost of a fuel component change to the additional reduction in emissions that occurs because of that fuel change. In determining the emission reductions and the associated cost effectiveness of VOC and NOX standards, EPA employed a convention typically used in estimating the benefit of both mobile and stationary source VOC controls. This convention requires the determination of cost effectiveness on the basis of annual tons of VOC reduced. Thus even though VOC emission reductions reduce ozone formation only during the high ozone season, the convention is to calculate the cost of the fuel component control per ton of VOC removed as if the high ozone season emission reductions were obtained over the whole year. EPA is proposing a range of VOC standards and NOX standards based on particular combinations of fuel component controls which reduce VOC (and VOC plus NOX) emissions at a cost of less than $5,000 and less than $10,000 per ton, respectively. EPA believes that these ranges represent the upper limit of costs which will be incurred by many ozone nonattainment areas in achieving attainment. EPA requests comments on the appropriateness of these limits. The combination of fuel components on which the proposed standards are based are, however, just one of many fuel formulations which could be used to achieve the standards. It must be stressed that the proposed standards are performance standards which may be met by the refiner's choice of fuel component controls. Normally, use of these cost per ton limits would determine the depth of RVP controls projected for Class B and C fuels. However, limited RVP control cost data below 7.2 psi prevented the determination of RVP levels which exceeded the cost-effectiveness limits. Instead, EPA based the proposed Phase II standards for Class B areas on a range of RVP levels of 6.5-7.2 psi. For Class C areas, the proposed standards are based on RVPs of 6.5-7.4 psi which result in the same nonexhaust VOC emissions in Class C areas as the range of Class B RVPs do in Class B areas. Comments are requested on the level of RVP control in each class which is reasonable for use in setting the Phase II standards. c. VOC and NOX Standards. Based on the complex model and the refinery modeling studies described above, EPA has found that the VOC performance standards listed in row A of table VI-2 could be met under the various RVP and cost per ton limits. Table VI-2.--Proposed Standards for Phase II Reformulated Gasoline [Percent reduction in emissions] Cost effectiveness Cost effectiveness <$5,000 per ton <$10,000 per ton Class B Class B /1/ Class C /1/ Class C A. VOC standard 18.5-26.6 25.3-25.3 22.1-30.1 28.5-36.2 B. NOX standard 6.3- 7.5 6.3- 7.8 14.0-15.0 14.0-15.3 C. VOC standard w/NOX std 19.7-27.7 26.4-34.0 25.5-33.0 31.2-38.8 D. Toxics standard from VOC std 16.9-21.5 28.4-28.4 23.9-26.3 30.4-32.7 /1/ Class B standards relative to a Clean Air Act base fuel with RVP at 7.8 psi. EPA is also proposing a range of NOX standards for comment. The lower end of this range is a year-round zero NOX increase, as required by section 211(k)(2)(A) of the Act. In addition, under its authority provided by section 211(c) of the Act, the Agency is proposing a range of NOX reduction standards to further reduce ozone formation. The range under consideration for the stringency of the NOX standards (i.e., NOX emission reduction requirements) is zero up to those shown in row B of table VI-2. As for VOC, the NOX emission controls would apply only during the high ozone season. These NOX reductions are possible for a cost ranging from less than $1,000 per ton of NOX, to as high as $5,500 per ton of VOC plus NOX. EPA has found that the costs of other NOX control programs range from $300 to $6,000 per ton of NOX. Comments are requested on the cost-effectiveness limit to be used in determining the appropriate level of NOX control here. The additional fuel component changes which yielded the proposed NOX standards also further decreased VOC emissions. While these fuel component changes were not cost effective when based solely on VOC control, they are cost effective using the $5,000 and $10,000 per ton of VOC plus NOX targets. The VOC standards achievable within these cost-effectiveness limits when both VOC and NOX control are considered are shown in row C of table VI-2. Comments are requested regarding whether EPA should promulgate the more stringent VOC standards of row C if it also implements the NOX standards of row B or whether the slightly more relaxed standards contained in row A should be required. Regardless of whether the VOC standards are based on those of Rows A or C, the addition of a NOX performance standard would further restrict refiners' flexibility in producing qualifying fuels. EPA therefore requests comments on an option whereby the VOC performance standards shown in row A of table VI-2 would be relaxed even further if a NOX reduction standard was promulgated. This decision would be based on the premise that NOX emissions reductions were more important for ozone control than VOC reductions and that the acceptable cost of VOC reductions should be lower than those considered in table VI-2. Comments are also requested on granting refiners the option to trade off VOC and NOX control within fixed limits on either standard and on whether the trade-off should be one for one (in percentage reduction terms) or on some other basis. As an additional alternative to EPA setting a single NOx reduction standard for all reformulated gasoline, EPA requests comments on an option whereby areas covered by the reformulated gasoline program would be permitted to choose between a VOC-reducing and a VOC and NOx-reducing reformulated gasoline. This decision could be made by each state based on detailed air quality analyses of their individual ozone nonattainment problems. A potential problem with this option is that it would require the production of another type of gasoline in one or more grades. Distribution problems and complications already expected with implementation of the reformulated gasoline requirements could increase. Comments are requested regarding benefits or drawbacks to providing optional NOx emission reduction standards. 3. Toxics Control a. Control Costs. As discussed above, in determining the cost of fuel changes for VOC and NOx control, EPA adjusted the capital cost portion of the individual fuel component control costs to account for the fact that VOC and NOx control are necessary only during the high ozone season. Toxics emissions, however, must be controlled year-round and, thus, no adjustment is needed for capital costs already amortized on an annual basis. The individual fuel component costs shown in table VI-1 for VOC and NOx control are, thus, higher than those used in the determination of the cost effectiveness of toxics emissions control. b. Proposed Toxics Standard. Fuel controls for the sole purpose of reducing toxic emissions are not very cost-effective. Acceptable costs are typically between $1 and $10 million per cancer incidence reduced. However, based on the fuel component control costs used in this analysis, EPA estimates that fuel modifications for the control of toxics emissions would cost over $100 million per cancer incidence reduced. At the same time, the control of fuel components to reduce VOC emissions also results in average reductions of toxics emissions of 17-33 percent, as shown in row D of table VI-2. However, EPA believes that Congress intended this program to provide fuel producers flexibility to produce a variety of complying fuel reformulations. While these toxics reductions would presumably be free since they would result from VOC and NOx controls, in this case, they would also automatically occur with or without a regulatory standard. If it were more economical for a particular refiner to use fuel modifications to meet the VOC and NOx standards which did not produce this degree of toxics reduction, then that refiner would be faced with controlling toxics explicitly, which appears to not be cost-effective. Thus, while a toxics performance standard greater than the 25 percent level specified in section 211(k)(3)(B)(ii) of the CAA is feasible, it would not be cost effective and EPA proposes setting the standard at 25 percent. Section 211(k)(3)(B)(ii) of the CAA also permits EPA to reduce the toxics performance standard below 25 percent to as low as 20 percent considering the cost of achieving such reductions in toxic emissions. The same arguments expressed above for not requiring greater than a 25 percent reduction are equally applicable below 25 percent. Thus, EPA also proposes as a second option that the toxics performance standard be set at the 20 percent minimum level specified by section 211(k)(3)(B)(ii) of the CAA. Comments are requested on this standard and the decision to not require a greater toxics performance standard of the magnitude shown in row D of table VI-2. 4. Technological Feasibility Per the requirements of the Act, the technological feasibility of producing fuels which would meet the proposed standards must be considered in establishing the standards. EPA believes that the refinery modeling results, from which the fuel component control costs were estimated, provide the justification for the feasibility of the proposed fuel component changes. The refinery models utilized only well-developed, demonstrated, commercially available technologies, and hence will only produce fuels within the limits of these technologies. In all likelihood new technologies will be developed between now and the year 2000 which will reduce the costs for certain types of fuel component changes. Thus, EPA believes that the determination of fuel component control costs using the results of such models is reasonable and that the feasibility of producing such emission-reducing fuels is justifiable. A key exception to this is the production of fuel with RVP below 7.2. EPA is in the process of conducting refinery modeling to assess this. Upon completion, the results will be placed in the docket to this rule. Because the standards proposed today will not take effect until the year 2000, EPA does not believe that lead time issues should present problems to reformulated gasoline producers in achieving the proposed reductions, as all the processes needed to produce complying fuels are already commercially available. EPA has evaluated both driveability and safety concerns associated with the use of low RVP fuels and found no significant negative impacts. These issues are addressed in the Draft RIA. Comments are requested on potential technological barriers to achieving the proposed VOC, NOx and toxics emissions reductions. VII. Enforcement Provisions A. Introduction This section of today's proposal addresses enforcement topics that result from inclusion of the complex model in the reformulated gasoline program. In addition, it addresses several enforcement topics that were the subject of the April 16, 1992 SNPRM (57 FR 13416), but that EPA now believes merit re- proposal as a result of comments received on the SNPRM. EPA's approach has changed as a result of these comments and EPA believes an additional opportunity for comments on its current approach is warranted. The regulatory text being placed in the docket to accompany today's proposal includes new regulatory language for these re-proposed topics. These topics include: Changes to the gasoline quality survey necessitated by the possibility of gasolines that were certified under the simple model and under the complex model being present in a covered area at the same time; the inclusion of a ratchet of the minimum oxygen content standard based upon gasoline quality survey results; provisions for waiving certain enforcement mechanisms for gasoline produced under the State of California's reformulated gasoline program; and modification of the attest engagement requirements to allow use of internal auditors under certain circumstances. EPA intends to respond in the final rule to other comments made on the SNPRM, and in many cases EPA intends to make the change suggested by the commentor. Where EPA intends to make such other changes, EPA does not believe the changes are so different from the SNPRM that reproposal is necessary. These changes therefore are excluded from today's proposal, including the accompanying regulatory text. As a result, commentors to the SNPRM should not view omission from today's proposal or accompanying regulatory text of an EPA reaction to a particular SNPRM comment to be indicative of EPA's intentions regarding that comment. B. VOC Emissions Performance and Oxygen Standards Under the Simple Model Section 211(k)(2)(B) of the Clean Air Act requires that, with certain exceptions, reformulated gasoline must contain at least 2.0 weight percent oxygen. Section 211(k)(7) allows for oxygen credits for reformulated gasoline containing greater than 2.0 weight percent oxygen, and for the transfer and use of oxygen credits within the same nonattainment area to the extent such credits would not result in a lower average oxygen content than would occur in the absence of any credit use. Section 211(k)(3) sets a performance standard for VOC emissions. As a result of comments received in response to the simple model SNPRM, EPA is proposing certain changes to the approach proposed under the simple model for ensuring that the averaged standards for VOC emissions performance and oxygen content are met. These changes include a direct survey measure for VOC emissions performance, and an annual oxygen survey with adjustments for the oxygen minimum. These proposed changes are unrelated to the complex model. In the simple model SNPRM, EPA proposed a gasoline quality survey mechanism for ensuring that the average VOC emissions performance of reformulated gasoline in each covered area would at least equal the per-gallon standard. The purpose of compliance surveys is to ensure that refinery/importer averaging achieves the same compliance on average with the reformulated gasoline standards as covered area averaging, and thus does not result in poorer air quality than would have otherwise occurred with covered area-based averaging or with straight per-gallon standards. See SNPRM at 57 FR 13462. The gasoline quality survey is described in the simple model SNPRM at 57 FR 13459-13464, and certain changes to the survey are discussed later in this section of the preamble. EPA seeks comment on the burden this area-by-area averaging scheme would impose on the regulated community. At the time of the SNPRM, there was no appropriate equation for measuring VOC emissions performance directly. As a result, under the simple model survey proposal, surveys conducted during the high ozone season would monitor average levels of RVP and oxygen content, the parameters through which compliance with the VOC emissions is based./6/ Under this simple model proposal, if a survey result showed an average RVP level above (or worse than) the per-gallon standard for RVP, the averaged RVP standard and the maximum per-gallon RVP standard would each be adjusted to be more stringent. In the case of oxygen under the simple model proposal, however, there would be no adjustments to the averaged oxygen standard. Instead, in the event the survey results showed an average oxygen content of less than 2.0 weight percent, the average and maximum RVP standards would become more stringent. See discussion at 57 FR 13458-13459. NOTE /6/ Although under the simple model sulfur, T90, and olefins also were known to affect VOC emissions performance, the average standards for these parameters are each refiner's or importer's 1990 average levels. As a result, compliance with these parameters would be based upon the total reformulated gasoline produced by each refiner or imported by each importer (or, in some cases, produced at each refinery), and could not be the subject of the gasoline quality surveys. Several commenters to the simple rule SNPRM stated that it would be more appropriate to apply survey measures of RVP and oxygen to a VOC emissions performance equation, rather than to survey for RVP and oxygen separately. If the results of this equation indicate inadequate VOC emissions performance, according to these commenters, it would be appropriate to adjust the averaged and maximum simple model standards for RVP. Because a suitable equation for measuring VOC emissions performance is available now, EPA agrees that this suggestion would more directly ensure compliance with the VOC performance standard. For these reasons, EPA is proposing that each survey conducted during the high ozone season would include measurement of RVP and oxygen, and that these two parameters would be applied to a VOC emissions reduction equation for each sample collected. The average VOC emissions reduction would then be calculated for all samples collected during the survey. The standard against which this result would be measured would be calculated by applying to the same VOC emissions reduction equation. In the event the survey result is less than the calculated standard, the averaged and maximum standards for RVP would be adjusted to be more stringent for the city. This proposal for monitoring the average VOC emissions reduction standard creates the possibility that the VOC standard could be satisfied for a particular survey, with an oxygen content below 2.0 weight percent. One commenter suggested an approach to address this concern that compliance with the statutory minimum oxygen content be ensured. Under this suggestion, compliance with the statutory requirement for 2.0 weight percent oxygen would be evaluated by determining the average oxygen content of all samples collected during all surveys during a calendar year. If this average falls below 2.0 weight percent, the minimum oxygen content standard would be adjusted to be more stringent. EPA agrees with this suggestion, and is proposing that the average oxygen content of all survey samples collected in each covered area during each calendar year would be calculated. If this average oxygen content falls below 2.0 weight percent for any covered area, the minimum oxygen standard for that covered area would be adjusted to be more stringent./7/ NOTE /7/ The general standards adjustment approach proposed in the simple model SNPRM, for making standards more and less stringent (57 FR 13462), would be followed for adjustments to the oxygen minimum standard. Failure of the oxygen survey in any year would result in an increase in the oxygen standard of 0.1 percent. After five years of survey failure, the adjusted oxygen standard would be equivalent to the per-gallon oxygen standard (2.0%). Note that an area may accomplish a one-time readjustment (decreasing the standard by 0.1%) under the oxygen standard by passing all oxygen content surveys during two consecutive years. C. Compliance Survey Under the Complex Model EPA is proposing certain changes to the compliance survey requirements that were proposed in the SNPRM./8/ These changes are necessary to enable the compliance surveys to function during the period prior to the date the complex model becomes mandatory, when regulated parties have the option of certifying reformulated gasoline under the simple model or the complex model. NOTE /8/ The compliance surveys are discussed in the SNPRM at 57 FR 13458- 13464. Except to the extent described in today's proposal, the compliance survey requirements that are proposed for the SNPRM would apply under today's proposal. During the period that begins on January 1, 1995, and lasting until the date the complex model becomes mandatory, refiners and importers would be able to certify reformulated gasoline using either the simple model or the complex model. This results in the potential for both "simple model reformulated gasoline" and "complex model reformulated gasoline" to be present in any covered area at any time, up until the date that only use of the complex model will be allowed. This potential mixture of simple and complex model reformulated gasolines creates difficulties for the gasoline quality surveys. For example, under the simple model, reformulated gasoline meets the VOC emissions performance requirements based upon a VOC emissions performance equation that requires input of values for RVP and oxygen. Under the complex model, on the other hand, reformulated gasoline meets the VOC emissions performance requirements based upon the results of a more complex equation that requires inputs of several additional parameters, including sulfur, aromatics, olefins, T-50, and T-90. As a result, any particular reformulated gasoline certified under the complex model conceivably could meet the VOC emissions performance standard of the complex model, yet fail the requirements of the simple model. Conversely, any particular reformulated gasoline certified under the simple model could have RVP and oxygen levels that satisfy the simple VOC equation, yet as a result of the levels of other parameters included in the complex model VOC equation violate the VOC emissions performance standard when using the complex model. Similarly, toxics emissions performance under the simple model would be a function of a gasoline's oxygenate type and content, and its benzene content, while under the complex model toxics emissions performance would be a function of benzene, oxygen, sulfur, aromatics, olefins, T-50, T-90, and RVP. Based upon the same logic described above for VOC emissions performance, a sample of reformulated gasoline that meets the toxics standard under the simple model may not meet the toxics standard under the complex model, and vice versa. In order to avoid being confounded, therefore, for the gasoline quality surveys, EPA must use the simple model to evaluate reformulated gasoline certified under the simple model and must use the complex model to evaluate reformulated gasoline certified under the complex model. Moreover, mixtures of reformulated gasolines that are certified using the simple model and those that are certified using the complex model would not be susceptible to a survey analysis based upon either the simple or the complex models. For the foregoing reasons, EPA is proposing a mechanism that would allow the collection of samples of gasoline that are comprised only of either simple model-certified gasoline or complex model-certified gasoline. This proposed mechanism would include the designation by refiners or importers of all reformulated gasoline as being certified using either the simple or the complex model; the mandatory segregation of these two categories of reformulated gasoline at all points in the gasoline distribution system from the refinery or import facility through the terminal from which gasoline is transported to retail outlets; and the retention at retail outlets of product transfer documents for the most recent deliveries of gasoline, to enable survey sample-takers to know if the gasoline being sampled is simple model, complex model, or a mixture of the two. EPA seeks comment on whether the above-described proposed tracking requirements would obviate the need for surveys because refiners or importers would be creating an adequate paper trail for gasoline. Under EPA's proposal, the survey requirement would be satisfied if complete representative surveys are conducted of each category of reformulated gasoline being sold in each city subject to survey. That is, if both simple and complex model-certified gasoline is being sold in a city that is subject to the survey requirement, a set of representative samples must be collected of the simple model-certified gasoline, and a set of representative samples of the complex model-certified gasoline. If only simple or only complex model-certified gasoline is being sold in a city, however, a single set of representative samples would satisfy the survey requirement for that city. EPA believes that in the case of a city in which both simple and complex model-certified gasoline is being used the portion of gasoline in one of these categories may be so small that, in spite of good faith efforts to collect gasoline in both categories, collection of a set of representative samples of gasoline in that category would be infeasible. In such a case, EPA is considering whether it would be adequate to permit a regulated party (or group of parties) that is conducting the survey would be able to petition the Administrator to accept the survey as complete, even though a set of representative samples was collected only of one category of gasoline. EPA seeks comment on this issue. In the SNPRM (57 FR 13459) EPA proposed that the consequence of failure to submit a survey plan to the Administrator would be that only per-gallon standards would be allowed for all gasoline sold within the covered area for which the survey requirements were not met, and that the consequence of failure to properly carry out a survey plan would be that the surveys not properly carried out would be deemed to have been failed. These consequences also would apply for failure to submit or properly carry out the survey requirements regarding mixtures of simple and complex-model certified gasoline. D. California Enforcement Exemption On September 18, 1992, the California Air Resources Board ("CARB") adopted regulations for its Phase 2 reformulated gasoline program./9/ These regulations establish a comprehensive set of gasoline specifications designed to achieve maximum reductions in emissions of VOCs, NOX, CO, sulfur dioxide, and toxic air pollutants from gasoline-fueled vehicles. NOTE /9/ New sections 2260 through 2272 and 2298, and amended sections 2250, 2251.5, 2252 and 2296, of Title 13, California Code of Regulations. The California Phase 2 reformulated gasoline regulations establish standards for eight gasoline characteristics--sulfur, benzene, olefin, aromatic hydrocarbons, oxygen, RVP, T-90 and T-50--applicable starting March 1, 1996. The regulations also provide for the certification of alternative gasoline formulations based on vehicle emission testing. The standards for the six characteristics other than RVP and oxygen content include two tiers--an absolute limit ("cap") that will apply to gasoline throughout the distribution system (including alternative formulations), and a more stringent standard that will apply to gasoline when it is initially supplied from the producer or importer (gasoline qualifying as an alternative formulation will be exempt from this more stringent standard). For these six characteristics, producers and importers will have two options for complying with the standards applicable to their gasoline when it is first supplied-- they can choose either a "flat limit" or a more stringent limit that can be met on average through a "designated alternative limit" process. The RVP standard of 7.0 psi applies during summertime control periods /10/ to all gasoline throughout the distribution system, including gasoline certified as an alternative formulation. The oxygen content standards consist of a cap applicable to all gasoline (1.8% minimum and 2.7% maximum) and a flat limit for producers and importers (1.8% minimum and 2.2% maximum). The designated alternative limit option does not apply to the oxygen standards. Other standards apply on a year-round basis. NOTE /10/ In the federal reformulated gasoline areas, San Diego and Los Angeles (the San Diego and South Coast Air Basins), the RVP control period is April 1 through October 31. In enforcing the Phase 2 reformulated gasoline program, CARB has stated that it intends to maintain the strong enforcement presence we have developed over the more than 20-year period we have been enforcing ARB motor vehicle fuels regulations. The ARB's Compliance Division currently uses four full time persons to inspect fuel facilities, including service stations, terminals, and refineries. They presently take roughly 2300 samples a year, on a year-round inspection schedule./11/ NOTE /11/ January 14, 1993, letter from James B. Boyd, Executive Officer of CARB, to Mary T. Smith, EPA Office of Mobile Sources. CARB tests most of its fuel samples in a mobile fuels/toxics laboratory, which can be set up anywhere in the State within 12 hours, resulting in "a substantial increase in the number of gasoline samples taken by ARB inspectors and the number of analyses that have been performed." Section 43016 of the California Health and Safety Code provides a penalty of $500 per vehicle for violations of CARB reformulated gasoline and other fuels regulations by parties in the gasoline distribution network. To help assure the applicability of these "per vehicle" penalties to upstream parties, the Phase 2 reformulated gasoline regulations provide that each retail sale of gasoline for use in a motor vehicle, and each supply of gasoline into a motor vehicle fuel tank, is also deemed a sale by any person who previously sold the fuel in violation of the reformulated gasoline standards. EPA is proposing that the producers of certain gasoline that is produced and sold in the State of California under the California Phase 2 reformulated gasoline program ("California gasoline") would be exempt from certain enforcement provisions proposed in today's notice and in the SNPRM. EPA is including this exemption proposal because EPA believes that the standards for California gasoline are as stringent as, or more stringent than, the proposed content and performance standards for federal reformulated gasoline. EPA also believes that the enforcement mechanisms that will be employed by the State of California are sufficient to ensure that producers of California gasoline will in fact meet the California reformulated gasoline standards. As a result, EPA believes it is appropriate to rely on the California reformulated gasoline program to ensure compliance with the federal reformulated gasoline standards by producers of California gasoline. EPA is not proposing that producers of California gasoline would be exempt from the federal reformulated gasoline standards, only that these producers would be exempt from certain enforcement requirements designed to demonstrate compliance with the federal reformulated gasoline standards. Although, for purposes of brevity, the discussion in this section is couched in terms of "refiners" that produce gasoline in the State of California for sale in that State, the discussion applies equally to importers that import gasoline produced outside the United States into the State of California, and to oxygenate blenders in the State of California. As discussed more fully below, refiners who produce gasoline in other states and ship it into California would not be covered by the proposed exemption. California refiners who produce gasoline for sale outside the State would also not be covered by the proposed exemption for such "non-California" gasoline. 1. Comparison of California and Federal Reformulated Gasoline Standards EPA has compared the properties of California gasoline to the properties of federal reformulated gasoline, and the VOC, toxic, and NOX emissions that result from both the California and federal reformulated gasoline. Table VI.1 contains estimates of the emissions that are expected to result from California and federal reformulated gasoline (on both a per gallon and averaged basis), and a comparison of estimated emissions changes from Clean Air Act base fuel. Because some of the California standards are at, or outside, the range of the EPA model, the estimates for California gasoline are not as reliable as those for gasoline meeting federal standards. Table VII-1.--Comparison of California Gasoline With Federal Reformulated Gasoline (VOC-Control Region 1) Cal. phase 2 Fed CAA /1/ Cal phase phase 1 Fed phase base (per- 2 (per- 1 Fuel parameters fuel gallon) (averaged) gallon) (averaged) Oxygen (wt %) 0 2 2 2 2.1 Sulfur (ppmw) 339 40 30 339 339 RVP (psi) 8.7 7 7 7.2 7.1 T50 (F) 218 210 200 218 218 T90 (F) 330 300 290 330 330 Aromatics (vol%) 32 25 22 26.2 26.2 Olefins (vol%) 9.2 6 4 9.2 9.2 Benzene (vol%) 1.5 1 0.8 1 95 Absolute Emissions in mg/mile Exhaust VOC 416.8 324.9 316.3 384.5 383.3 Evap VOC (Class B) 860.5 394.7 394.7 441.8 418.0 Total VOC 1277.3 719.6 711.0 826.3 801.3 Exhaust Benzene 25.4 14.1 11.1 18.7 18.6 Evap Benzene (Class B) 9.7 3.2 2.5 3.5 3.1 Total Benzene 35.0 17.3 13.7 22.2 21.7 Exhaust ACET 2.1 2.0 1.6 1.8 1.7 Exhaust FORM 3.8 4.6 4.5 4.3 4.4 Exhaust 1,3 BUT 3.3 3.1 2.6 4.2 4.3 Exhaust POM 1.4 1.1 1.1 1.2 1.3 Total Toxics 45.6 28.1 23.4 33.7 33.5 Total NOX 660.0 568.6 549.2 674.3 677.0 Percent change (*) in Emissions from CAA Fuel (VOC-Control Region 1) Percent * in Exhaust VOC -27.3 -29.3 -14.0 -14.3 Percent * in Evap VOC -54.1 -54.1 -48.7 -51.4 Percent * in Total VOC -45.0 -45.6 -36.8 -38.7 Percent * in Exhaust Benzene -44.3 -56.1 -26.3 -26.9 Percent * in Evap Benzene -67.2 -73.8 -64.0 -67.5 Percent * in Total Benzene -50.6 -61.0 -36.2 -38.1 Percent * in Total Toxics -38.5 -48.8 -26.1 -26.7 Percent * in NOX -13.9 -16.8 -2.2 -2.5 /1/ The California Phase 2 program provides an oxygen "flat limit" of 1.8% to 2.2%, which (as explained in the text) is likely in practice to be equivalent to "per gallon" and "averaged" standards of 2.0%. There is no designated alternative limit for oxygen. This analysis compares California gasoline to the federal reformulated gasoline that would be sold in VOC-Control Region 1, because California is located within this VOC-control region. In the case of VOC, toxic, and NOX emissions performance, the California gasoline has a greater emissions performance reduction, as compared to Clean Air Act base gasoline, than the federal reformulated gasoline. This analysis thus supports the enforcement exemption that is being proposed today. In the case of the oxygen content standards, the Agency has received assurances from CARB that the oxygen "flat limit" of 1.8 to 2.2% will in practice be equivalent to the 2.0% minimum oxygen content required by section 211(k)(2)(B) of the Clean Air Act. In a January 14, 1993, letter to EPA, the Executive Officer of CARB sets forth several reasons why CARB expects refiners to target an oxygen level of 2.0% and to produce gasoline that on average will have an oxygen content at least equal to this percentage, including: ** The reproducibility of the test method used for CARB enforcement is larger than the oxygen content range, meaning that effectively the CARB standard represents "a 2.0% requirement with a testing tolerance of 0.2 weight percent;" ** New limits on other gasoline characteristics will require fundamental changes in gasoline formulations and reliance on oxygenates to maintain current octane levels, likely resulting in refiners "blending oxygenates near the maximum end of the range to maximize the octane benefits of oxygenates;" and ** Some refiners may use the vehicle testing (or predictive model, when adopted) compliance alternative in the CARB regulations "to develop gasoline formulations which may contain oxygen levels up to 2.7 weight percent oxygen." The Agency agrees with CARB's assessment concerning the likely effects of the oxygen content range in its Phase 2 regulations. In any case, EPA will still have the authority to sample and test California gasoline to assure that it meets the federal reformulated gasoline minimum standard of 2.0%, as well as the right to review company records to ensure that the federal standard has been met. The enforcement exemptions proposed in today's notice would not impact these basic EPA enforcement capabilities. The Agency also believes that California's Phase 2 program will assure that the federal reformulated gasoline standards are met in each of the two cities (Los Angeles and San Diego) /12/ subject to those standards, as required by section 211(k) of the Act. Both the "flat limit" and "designated alternative limit" standards in the California program are substantially more stringent than the federal standards, as shown in Table VI.1. In addition, the RVP "cap" of 7.0 psi that applies throughout the distribution network is more stringent than the federal standard, and averaging is not allowed to meet the California oxygen standard. For all of these reasons, it is very unlikely that one of the two cities will not meet the federal standards./13/ The Agency requests comments on this issue. NOTE /12/ In his January 14, 1993, letter, the CARB Executive Officer stated that the State does not plan to opt into the federal reformulated gasoline program for any other nonattainment areas in the State. NOTE /13/ In addition, if the overall California "caps" result in gasoline that is at least as clean as gasoline that meets the federal standards, there would not be concerns about either or the two cities meeting federal requirements. EPA has not modeled the emissions effects of the caps, however. 2. Applicability of California Enforcement Exemption Provisions EPA is proposing that the California enforcement exemption provisions would apply only to gasoline that is sold or dispensed within the State of California, and that is either produced in the State of California or is produced outside the United States and imported at an import facility located in the State of California. Gasoline that is produced at a refinery located within the United States outside California would not receive the proposed exemption, even if such gasoline is sold in the State of California. EPA believes gasoline sold in California but produced domestically outside the State of California should meet all of the proposed federal enforcement requirements because the producer of such gasoline would be required to implement all of the federal enforcement provisions for the refinery's non- California gasoline. The incremental cost of including the California-market gasoline in the refinery's compliance program would not justify excluding this gasoline from the federal enforcement mechanisms. Additional reasons for this distinction are: The ultimate market for gasoline may not be apparent when gasoline is produced, making an exclusion for only California-market gasoline difficult to apply in practice; and the California state enforcement mechanism includes refinery inspections, which may not be possible in the case of refineries located outside the California state boundary. Gasoline produced in California but shipped outside the State (e.g., to Nevada) would not be subject to the proposed enforcement exemption because it is not covered by the California reformulated gasoline program./14/ The Agency understands that California producers have developed means to differentiate between fuel that is subject to existing California fuels regulations and fuel that is not, for purposes of assuring compliance with the State's regulations. EPA is concerned about whether these practices are adequate to allow an enforcement exemption in regard to California gasoline produced at the same facility, and requests comments on this issue. NOTE /14/ Section 2260(a)(4) of the California Phase II reformulated gasoline regulations defines "California gasoline" as "gasoline sold, intended for sale, or made available for sale as a motor vehicle fuel in California." EPA is also concerned that a refiner that operates a refinery located outside the State of California that produces gasoline both for California and non-California markets could average very clean California gasoline with non-California gasoline, and produce non-California gasoline that is at the low-end of the average range of the federal standards. The non-California gasoline thus could easily be below the average federal standards, yet the refinery would be in compliance on average. In order to protect against this possibility, EPA is proposing that a refiner that operates a refinery outside the State of California would be required to separately exclude the gasoline that it sells in California from the refinery's compliance demonstration for federal reformulated gasoline and anti-dumping requirements. This would be in addition to demonstrating the overall compliance of all its gasoline with federal requirements. Under today's proposal, record keeping and reporting requirements of the proposed federal anti-dumping requirements would not apply in the case of California gasoline. EPA believes that an exemption from these provisions intended to demonstrate compliance with the proposed standards for conventional gasoline is appropriate because all gasoline sold in California is included in the California reformulated gasoline rule. In other words, there is no California corollary to the federal anti-dumping requirements. As a result, gasoline that will be sold in portions of California that are outside the federal covered areas--and that would be subject to the federal anti-dumping requirements--will be required to meet the full California reformulated gasoline requirements. This feature of the California program provides certainty that gasoline sold in California that is subject to the federal anti-dumping standards will exceed these federal standards. In addition, the proposed federal anti-dumping requirements would apply to California producers shipping conventional gasoline outside the State. There are several conditions under which the proposed California exemption would not apply, either in toto or in regard to specific parties. First, EPA believes that the exemption being proposed today should apply only so long as the California reformulated gasoline standards are at least as stringent as the federal standards for reformulated gasoline. EPA notes that the California regulations contain provisions that would allow the certification of additional, undefined gasoline formulations using a predictive model (Sec. 2265 of the California Phase II reformulated gasoline regulations) or vehicle testing (Sec. 2266 of the California regulations). EPA is concerned because it is possible that a gasoline formulation certified by the State of California under one of these alternative methods could be less stringent than the federal reformulated gasoline standards, in which case the exemption being proposed today would not be appropriate. In order to protect against this possibility, EPA is proposing that the California exemption provisions would apply only so long as each gasoline formulation that could possibly be certified under the California program is at least as stringent as the federal reformulated gasoline standards. In the event that any formulation that is less stringent than the federal reformulated gasoline standards becomes certifiable, the entire California exemption would become null and void. If at any time EPA believes a less stringent formulation has been approved by the State of California, EPA intends to publish a notice of this conclusion and the date that the California exemption would no longer be applicable. This notice would give regulated parties a reasonable opportunity to take steps to implement the federal enforcement mechanisms that had been waived. This procedure would also be followed if the State revises its regulations to otherwise provide for less stringent standards than the federal program. Second, the Agency is concerned that the variance provision contained in the California regulations (Sec. 2271 of the California Phase 2 reformulated gasoline regulations) is not entirely consistent with the federal provision dealing with the inability to produce conforming gasoline in extraordinary circumstances (Sec. 80.73 of the proposed federal regulations). In particular, the proposed federal provision is limited primarily to Acts of God, while the California provision is not so limited. In addition, the federal provision would require a party to make payment to the U.S. Treasury of the amount of economic benefit derived from the nonconformity, while the California provision does not require such a payment. As a result, the California exemption being proposed today does not include relief from the proposed extraordinary circumstances provision in the federal regulations. A party that, due to extraordinary circumstances, intends to produce gasoline that does not meet the federal reformulated gasoline standards thus would be required to comply with the federal extraordinary circumstances provisions, regardless of any variance obtained from the State of California. If a party obtains a variance from the State, EPA proposes that the enforcement exemption would cease to apply to that party unless or until EPA grants relief for extraordinary circumstances under Sec. 80.73. Third, EPA believes that the proposed California exemption provisions should apply only for parties that are in fact in substantial compliance with both the California and the federal reformulated gasoline requirements. The presumption that a refiner subject to the California requirements is also in compliance with the federal standards would not be appropriate in the case of a party that has violated the California or federal requirements. As a result, the Agency is proposing that a regulated party that is assessed a penalty for a violation of either the California or federal reformulated gasoline requirements would automatically be subject to the loss of its California exemption. Under the proposal, the exemption would be lost no matter whether the penalty assessment was the result of a judicial or administrative adjudication, consent agreement, or settlement agreement. A party subject to the loss of its exemption could petition the Administrator for relief, in whole or in part, for good cause. The Agency could also grant such relief on its own initiative. Good cause could include a showing that the violation for which a penalty was assessed was not a substantial violation of the reformulated gasoline regulations. The Agency requests comments on whether it should base the loss of the California enforcement exemption for an individual refiner or importer on the basis of a judicial or administrative determination of violation rather than on the basis of a penalty assessment. EPA also requests comments on an appropriate date (e.g., 30 days after a final penalty assessment) on which the loss of the exemption would become effective, and on whether such a loss should be stayed during the pendency of a petition for relief. Fourth, the California Phase 2 regulations allow small refiners (as defined in the California regulations) to obtain a two-year extension until March 1, 1998, to meet the specifications for sulfur, olefins, T-50, and T-90, under certain conditions. Small refiners will be subject to the same RVP, oxygen, aromatic hydrocarbon, and benzene requirements as other refiners under the California program. Because small refiners that obtain such an extension will not be required to produce gasoline that meets all the federal reformulated gasoline standards, EPA does not believe that it is appropriate to exempt such refiners from any of the federal enforcement provisions. Thus, the California gasoline exemption proposed in today's notice would not apply to gasoline produced under any small refiner extension granted by CARB. Finally, EPA believes that the proposed California exemption should apply only during the time the federal Phase I reformulated gasoline program is in effect, i.e., until the year 2000. EPA intends to reevaluate the California reformulated gasoline program before the year 2000, and to engage in a separate rulemaking if it believes that the California enforcement exemption should be extended beyond the year 2000. That rulemaking would allow the Agency the opportunity to structure any future enforcement exemption to be consistent with both the federal and the California rules that will be in effect at that time. 3. Enforcement Provisions to Which Exemption Would Apply EPA is proposing that subsequent to the date the California Phase 2 reformulated gasoline standards become effective, regulated parties that produce or import California gasoline and that meet the other criteria described in the preceding section would be exempt from meeting the proposed enforcement requirements dealing with compliance surveys (Sec. 80.69), independent sampling and testing (Sec. 80.70(c)), designation of gasoline (Sec. 80.70(d)), marking of conventional gasoline (Sec. 80.70(g)), downstream oxygenate blending (Sec. 80.72), record keeping (Sec. 80.74), reporting (Sec. 80.75), product transfer documents (Sec. 80.77), and antidumping record keeping (Sec. 80.105) and reporting (Sec. 80.106). The Agency specifically requests comments on whether California gasoline should be exempt from enforcement provisions related to the renewable oxygenate program in the proposed federal record keeping and reporting regulations (Secs. 80.74 and 80.75), should this program become applicable to the Los Angeles and/or San Diego areas. Such an exemption may not allow the Agency to adequately enforce this program if regulated parties are allowed to freely transfer renewable oxygenate units among areas subject to this program, as proposed elsewhere in today's notice. EPA believes that it is appropriate to exempt producers of California gasoline from the independent sampling and testing, record keeping, and reporting provisions in the proposed federal regulations because these provisions deal solely with demonstrating compliance with the federal reformulated gasoline standards. Because the proposed exemption is predicated upon reliance on the California reformulated gasoline program to ensure compliance with the federal standards, these provisions are duplicative and therefore unnecessary. It is appropriate to include the survey provisions in the exemption because the purpose of the surveys is to adjust the federal averaged standards if surveys reveal unequal distribution of averaged federal reformulated gasoline. As discussed above, the need for such federal standards adjustments is believed unnecessary in California because it is highly unlikely that either of the two California cities in the federal reformulated gasoline program will exceed federal standards. The gasoline designation, conventional gasoline marking and product transfer document provisions are appropriate for exemption because they deal only with informing other regulated parties of the time and place of use restrictions of federal reformulated gasoline, considerations that are inapplicable within California because only reformulated gasoline may be sold for use within that State under its program. 4. Enforcement Exemption During 1995 The State of California's regulations provide that the California gasoline requirements become effective starting on March 1, 1996, fourteen months after the proposed January 1, 1995, effective date for the federal reformulated gasoline requirements. As a result, the enforcement exemption proposal described above would apply only beginning on the effective date of the California regulations. For the period prior to this date, EPA is proposing an exemption only from a more limited set of federal enforcement requirements, i.e., the proposed compliance survey and independent sampling and testing requirements (Secs. 80.69 and 80.70(c), respectively). EPA believes that it would be appropriate to exempt producers of California gasoline from the survey requirements in 1995 because the consequence of any survey failure in California--an adjusted averaged standard--would apply only in 1996, after the California program would be in effect. The Agency is concerned, however, that there would be no regulatory mechanism to assure that federal standards are met in 1995 in each of the California areas subject to the federal program since, unlike 1996 and later years, the State's program will not be in place. EPA requests comments on whether area- by-area averaging by refiners and importers, or some other tracking mechanism, should be required in lieu of compliance surveys in 1995. In the case of the proposed independent sampling and testing requirements, EPA believes the costs associated with establishing the mechanisms and laboratory capabilities that would be necessary to implement these provisions outweigh the benefits of having these requirements in place for only one year. In addition, in 1995 California refiners and importers would still be subject to the record keeping and reporting requirements of Secs. 80.74 and 80.75, the latter of which requires batch-by-batch reporting of gasoline properties and characteristics. These properties and characteristics will have to be determined by in-house sampling and testing, and false reporting of these test results will make the reporting entity liable for both civil and criminal penalties. The Agency requests comments on the adequacy of these regulatory and statutory requirements as a substitute for independent sampling and testing during 1995. E. Attestation Engagements EPA is reproposing regulations governing the conduct of attestation engagements./15/ At the time of publication of the SNPRM, EPA's discussion of this topic with the regulated community and with the American Institute of Certified Public Accountants (AICPA) was not complete. There, EPA proposed several alternative methods for conducting attestation engagements./16/ Today, EPA proposes to adopt one of those alternatives and to expand upon the SNPRM by allowing the regulated community to use internal auditors in appropriate circumstances. NOTE /15/ Provisions pertaining to attestation engagements were originally proposed in the Supplemental Notice of Proposed Rulemaking, 57 FR 13415, at 13492 (April 16, 1992). NOTE /16/ An attestation engagement is to be distinguished from an audit. An audit refers to a review of financial records. An attestation engagement refers to a review of other than financial records to determine whether a representation by a company is supported by internal company records. An attestation engagement is "one in which a practitioner is engaged to issue or does issue a written communication that expresses a conclusion about the reliability of a written assertion that is the responsibility of another party." Statement on Standards for Attestation Engagements, Sec. 100.01 (footnotes omitted). The regulation proposed today would apply to refiners, importers and oxygenate blenders. For purposes of simplicity, these parties are referred to collectively as refiners in this portion of the preamble. Concurrent with the gasoline production reporting requirements proposed in Secs. 80.75 and 80.108 of the proposed regulations, EPA proposes today that each refiner would be required to annually engage a certified public accountant or a firm of certified public accountants, or to commission an internal auditor to perform an agreed-upon procedures attestation engagement of the information which forms the basis of the reports required by these sections. The purpose of the engagement is to corroborate the reports submitted by the regulated party to EPA. The scope of the engagement would cover the activities of the refiner relative to the reformulated gasoline and anti-dumping requirements for the previous calendar year and which are the subject of the required reports to EPA. Further, the scope of the engagement procedures would be designed not to overlap with proposed independent sampling and testing requirements. The engagements would not verify the tested properties of specific batches of gasoline. Rather, the engagements would account for the accuracy of the designation of gasoline (i.e., reformulated or conventional, VOC-controlled or not VOC-controlled, etc.) and verify that the proposed reporting requirements for downstream oxygenate blenders are being met. The engagements would also verify that the proposed reporting requirements for the renewable oxygenate program are met. EPA proposes that each refiner be required to commission such an engagement at the conclusion of each calendar year, and that reports of the engagement be filed with EPA by May 30 of the following year. Under EPA's proposal, submission of the attestor's report would be required and failure to do so would constitute a reporting violation by the refiner. The proposed attestation engagements are an outgrowth of EPA's experience with the lead phasedown program, which included averaging, banking, credits, and periodic reports, and for which EPA-conducted audits were an essential part. Because the reformulated gasoline program is significantly more complex than the lead phasedown program, EPA believes that attest engagements are correspondingly more important than in lead phasedown. These engagements are not intended as substitutes for enforcement audits conducted by EPA, but are intended to serve as a means of improving compliance with the reformulated gasoline program by identifying problem areas to the regulated parties. Such engagements would: Assure parties that the records on which they base periodic reports would be reviewed and cross-checked for accuracy by a disinterested third party, including an appropriate internal attestor (as well as possibly by EPA); lead to correction of simple arithmetic errors; aid in correcting misconceptions about regulatory requirements; and generally deter making false reports. In addition to the attestation provisions described above, EPA is today proposing additional regulations applicable to refiners and importers subject to the proposed renewable oxygenate program. Such refiners would be required to include compliance with the additional requirements as part of their annual attestation engagement. The purpose of these additional proposed requirements is to corroborate the reports submitted by the regulated party to EPA pertaining to the proposed renewable oxygenate requirements. The scope of these additional requirements would cover the activities of the refiner relative to all transactions involving the use of renewable oxygenates in reformulated gasoline and which are subject to the proposed required reports to EPA. The engagements would account for the accuracy of records reporting renewable oxygenate use and verify that the proposed requirements for such use are met. The proposed attestation requirements regarding the renewable oxygenate program would require the attestor to identify all batches of renewable oxygenate program reformulated gasoline supplied to each covered area. The attestor would be required to review a representative sample of records pertaining to those batches and verify that those products were properly transported to their point of dispensation for use; identify any changes in ownership or destination; compare laboratory analyses of the product before and after transportation for consistency; agree to the types and classifications of oxygenates used; and trace volumes of the product from refinery gate to the point of dispensation for use. The proposed requirements would culminate with the attestor including the results of inquiry in the agreed-upon procedures report described above. As with the reformulated gasoline program, the attestor would continue to be obligated to exercise independent judgment in collecting information not specified in the regulations that would otherwise form a basis for the agreed-upon procedures report. Because the renewable oxygenate program would be significantly new to the regulated community, EPA invites comment on all aspects of the proposed attest engagement requirements for this program. 1. Standards for Attest Engagements a. Third Party or Internal Attestation Engagements. In the SNPRM, 57 FR 13492, EPA proposed that "each refiner, importer and oxygenate blender commission an attestation engagement /17/ of the information which forms the basis of the reports" required by Secs. 80.75 and 80.108. The SNPRM proposed that the engagements be conducted by a certified public accountant ("CPA") and proposed the standards for conducting the engagement. The SNPRM contemplated that the CPA would be independent of the refiner commissioning the engagement. NOTE /17/ While the SNPRM discussed this proposed requirement in terms of an "audit" or "attestation engagement" interchangeably, the correct term for this procedure is an "attestation engagement." The proposed attestation standards pertained to the need for technical competence, independence of mental attitude from the regulated party's influence, due professional care, adequate planning and supervision, sufficient evidence, and appropriate reporting. The proposed standards contain a detailed description of the specific engagement requirements for each of the elements of the reformulated and anti-dumping programs which are subject to engagement review, and the records and procedures which must be included in the engagement. The records and engagement procedures which are specified are the minimum necessary for an engagement, however, and an attestor is expected to use professional judgment to devise engagement procedures to correspond with the facts of each individual engagement in light of the internal company's accounting, operating and administrative controls. The proposed regulations also provide that in the event that the specified engagement procedures are not followed for any reason, the deviation and the reason therefore must be included in the attestor's report. EPA received significant comments objecting to the proposal that regulated parties be required to engage independent CPAs. Commentors expressed concern that to require a third party CPA would impose undue costs on regulated parties which already had in-house attestation capability. Further, commentors desired to avoid such a precedent-setting requirement. Commentors were concerned lest they be subjected to the expense of engaging third party CPAs to attest to the gamut of federal, state and local regulatory activity engaged in by the commentors. Commentors asserted that EPA's interest in maintaining the integrity of reports would be adequately served by allowing appropriately qualified internal attestors to conduct the engagements. Commentors stated that because only larger regulated parties would be likely to employ internal attestors, such attestors would be sufficiently segregated from petroleum product manufacturing operations so as to avoid biasing influences from the subjects of the engagement. By contrast, smaller regulated parties in which there may be greater integration of company operations are less likely to employ in- house attestors and will need to commission independent CPAs to perform audits. EPA accepts the rationale of allowing qualified internal attestors to conduct attestation engagements. EPA's concerns with the integrity of the reformulated gasoline and anti-dumping program are well-served by the proposed requirement that an in-house attestor be a member in good standing of the Institute of Internal Auditors, Inc., and completes each engagement in accordance with the Codification of Standards for the Professional Practice of Internal Auditing, which are proposed to be incorporated into the regulations by reference. [Note: The Federal Register Document Drafting Handbook requires that each agency must submit a written request for incorporation by reference for approval from the Director of the Federal Register at least 20 days before the final rule document is submitted to the Federal Register for publication]. In recognition of the eventuality that the Codification of Standards may eventually be modified, the regulations propose that parties may petition the Agency to implement procedures through future rulemaking which are consistent with those modifications. Internal engagements are subject to EPA compliance verification review. The sampling and testing requirements assure that the data underlying the engagement will be preserved sufficiently to allow EPA to verify any internal engagement. In addition, there are numerous checks and balances throughout the program (including the potential presumptive liability of downstream purchasers) to assure that internal engagements will be accurate. Finally, internal attestors are subject to civil and criminal liability under federal statutes proscribing the filing of false reports. Accordingly, EPA proposes that the regulations permit the use of two types of attestors: (1) Internal auditors may be used in certain situations. Many large companies have internal auditors on staff who may perform the attestation engagements required under these guidelines. Internal auditors may perform these duties provided they are Certified Internal Auditors (CIAs) or members in good standing of the Institute of Internal Auditors, Inc. (IIA). As such, the internal auditors will be required to act in accordance with the IIA's Standards for the Professional Practice of Internal Auditing. This requirement is intended to guarantee a number of things: That the internal auditor is independent of the activities being audited under these regulations; that the internal auditor is objective and proficient in his or her profession; and that the internal auditor is bound by a code of professional ethics. (2) When internal attestors meeting the criteria discussed above are not available within the refiner's organization, an independent CPA or firm of independent CPAs must be used to perform the attestation engagement proposed with these regulations. Whether an internal attestor or a CPA is engaged by a refiner, attestation engagements would have to be conducted in accordance with the applicable professional standards following agreed upon procedures contained in the proposed regulations. These regulations would cover a different range of services than an audit of historical financial statements. Rather, the proposed regulations involve review of non-financial records. EPA has worked closely with the AICPA and industry in establishing procedures which will accurately and efficiently provide the intended compliance information in the most cost-effective manner. The proposed regulations would require that an attestation engagement conducted by a certified public accountant must be done in accordance with the Statement on Standards for Attestation Engagements (Am. Inst. of Certified Pub. Accountants 1991) [note: The Federal Register Document Drafting Handbook requires that each agency must submit a written request for incorporation by reference for approval from the Director of the Federal Register at least 20 days before the final rule document is submitted to the Federal Register for publication], or by an internal auditor in accordance with the Standards for the Professional Practice of Internal Auditing. The proposed regulations also include specific instructions relating to the subject areas which must be included in each attestation engagement, and the minimum records and engagement procedures which are appropriate for each subject area. Nothing in the proposed regulations would preclude a CPA from requesting assistance from a refiner's internal auditors in accordance with the Statement on Standards for Attestation Engagements. In recognition of the eventuality that the Statement on Standards may eventually be modified, the regulations propose that parties may petition the Agency to implement procedures which are consistent with those modifications. b. Definitions. EPA has amended the proposed rule by adding a new proposed section defining terms for the purpose of attest engagements. The definitions are intended to clarify the scope and content of engagement analysis. These definitions provide the minimum scope of documents to be analyzed. EPA recognizes that many engagements may need to be adjusted on a case-by-case basis depending on the specific nature of the regulated facility. EPA anticipates that attestors will exercise their professional judgment in expanding the scope of engagement inquiry to assure the integrity of the engagement. c. Attestation Guidelines. The proposed rule includes a brief section describing the method of selection of sample size required of attestors relative to the population of inquiry. The sample size is prescribed so as to provide a statistical confidence level of 95% in the representative character of the sample. d. Agreed Upon Procedures for Refiners, Importers and Oxygenate Blenders. The new rule includes a specification of the minimum data to be analyzed by an attestor to comply with the attest engagement requirements. EPA recognizes that many engagements may need to be adjusted on a case-by-case basis depending on the specific nature of the regulated facility. EPA anticipates that attestors will exercise their professional judgment in expanding the scope of engagement inquiry to assure the integrity of the engagement. e. Agreed Upon Procedures Reports. The proposed rule provides that the attestor will issue to the regulated party a certified report summarizing the procedures performed and findings in accordance with the Statement on Standards for Attestation Engagements or the Standards for the Professional Practice of Internal Auditing. In turn, the proposed rule provides that the regulated party shall provide a copy of the attestor's certified report to EPA within a specified time. EPA intends to develop standardized refiner- reporting forms as a means of enhancing uniformity and consistency in the attestation engagement and agreed-upon procedures. VIII. Anti-Dumping Compliance and Enforcement Requirements for Conventional Gasoline A. Introduction Today's proposal for the anti-dumping program represents significant changes from the Supplemental Notice of Proposed Rulemaking published on April 16, 1992 (57 FR 13415) (hereinafter "SNPRM 92"). This proposal contains a dramatically different solution to the problem of accounting for blendstocks, as well as other minor changes to the SNPRM 92. To aid EPA in its consideration of the various options proposed in today's notice, as well as in prior proposals for this rulemaking, EPA invites comments on today's proposal (hereinafter "SNPRM 93"). The following is a brief summary of those changes with respect to the major provisions of SNPRM 92 and how they have remained the same or been changed in SNPRM 93: ** Regulated Parties. Under SNPRM 92 regulated parties include refiners, blenders and importers. Under SNPRM 93, the regulated parties remain the same, except for the exclusion of oxygenate blenders. ** 1990 Baseline. Under the SNPRM 92 refiners and importers were required to account for all gasoline and gasoline blendstocks in determining their 1990 baseline. Under the SNPRM 93, these parties are no longer required to account for blendstocks in their 1990 baseline except as provided under Methods 2 and 3. ** Averaging Period. Under the SNPRM 92 refiners and importers would be required to demonstrate compliance by averaging certain properties of conventional gasoline over a year long period and demonstrating compliance with prescribed standards to be discussed more fully below. Under the SNPRM 93, the averaging period is the same, except for the year that the Complex Model becomes mandatory in which two separate averaging periods would apply. ** Compliance Standards. Under the Simple Model standards in the SNPRM 92, refiners and importers would be required to demonstrate on an annual basis that average exhaust benzene emissions of conventional gasoline do not exceed the refiner's or importer's 1990 baseline for exhaust benzene emissions, and that sulfur, olefins and T90 do not exceed 125% of their average 1990 baseline levels. Under the SNPRM 93, the Simple Model standards remain the same; under the optional use of the Complex Model (see further discussion below), annual average levels of exhaust benzene emissions would not be allowed to exceed the refiner's or importer's 1990 average exhaust benzene emissions; and under the Mandatory Complex Model standards, annual average levels of exhaust toxic emissions and NOX emissions would not be allowed to exceed the refiner's or importer's 1990 average levels for exhaust toxic emissions and NOX emissions. Under SNPRM 93, recipients of blendstocks under certain circumstances would have to adjust their compliance baseline based on the volume of such blendstocks. Under both the SNPRM 92 and SNPRM 93, refiners with more than one refinery have the option of demonstrating compliance for each individual refinery or for all their refineries in the aggregate. ** Blendstocks. Under the SNPRM 92, all gasoline blendstocks would be included in baseline determination and in subsequent compliance calculations. Under the SNPRM 93, blendstocks are accounted for in compliance calculations if the blendstock to gasoline ratio in a certain year exceeds the combined ratio for 1990 through 1994 by more than 10% and certain circumstances are met to be discussed more fully below. For the purposes of establishing the blendstock to gasoline ratio only, the SNPRM 93 provides that refiners and importers will account for nine (9) specified blendstocks. ** Other Provisions. The SNPRM 93 includes a new provision which requires that parties account for all blendstocks that are transferred for the purpose of evading a more stringent baseline. ** Registration of Regulated Parties. The SNPRM 93 remains the same as the SNPRM 92, except that refiners and importers are required to supply a statement of intent as to whether compliance will be achieved on the basis of individual or aggregate refineries; and whether they will be using the Simple Model or optional Complex Model standards prior to the date that the Complex Model becomes mandatory. ** Record Keeping. The SNPRM 93 remains the same as the SNPRM 92, except the provisions have been expanded to reflect the data necessary for determining compliance under the Simple model, Optional Complex Model, Mandatory Complex Model and blendstock accounting requirements as applicable. ** Reports. The SNPRM 93 remains the same as the SNPRM 92, except for the additional requirement for refiners and importers to report the blendstock to gasoline ratio for each averaging period, and for the years 1990 through 1994 on a one-time basis. ** Company Audits. The SNPRM 93 remains the same as the SNPRM 92, except for the additional requirement of attest engagements specific to this new proposal. Generally, the SNPRM 93 would prohibit a refiner or importer from producing or importing conventional gasoline that on average exceeds the applicable compliance standards for any averaging period. Compliance standards would be based on the properties of the refiner's or importer's 1990 gasoline. In response to the numerous comments received on the issue of blendstocks as provided in SNPRM 92, EPA has eliminated the requirement for refiners and importers to account for blendstocks in their compliance calculations except in those cases where a refiner or importer has significantly increased its production or importation of blendstocks as evidenced by an increased blendstock to gasoline ratio. This is discussed more fully in a later section of the preamble. Refiners with more than one refinery would retain the option of demonstrating compliance for each individual refinery or for all their refineries in the aggregate. Here, as in the regulations, EPA will refer to refiners and importers with respect to the anti-dumping requirements; however, the requirements will apply similarly to individual refineries in those cases where a refiner has opted to determine compliance based on each refinery separately or a refinery with limited gasoline distribution based on certain geographic considerations as provided for in the regulations. The SNPRM 93 has three separate standards of compliance for refiners and importers based on the Simple Model standards, Optional Complex Model standards or the Mandatory Complex Model standards. All three model standards would require refiners and importers to average certain properties of conventional gasoline and demonstrate compliance with prescribed standards which in some cases are actual fuel properties and for others are emissions characteristics calculated from specific fuel properties./18/ NOTE /18/ For a discussion of issues concerning which properties or pollutants are covered in the federal anti-dumping program, see the Notice of Proposed Rulemaking, published July 9, 1991, (56 FR 31219--31222). Under the Simple Model standards, refiners and importers would be required to demonstrate on an annual basis, that average exhaust benzene emissions of conventional gasoline do not exceed the refiner's or importer's 1990 compliance baseline for exhaust benzene emissions, and that average sulfur, olefins and T90 do not exceed 125% of their average 1990 baseline levels. Under the Optional Complex Model standards, annual average levels of exhaust benzene emissions, as calculated under the Complex Model, would not be allowed to exceed the refiner's or importer's 1990 average exhaust benzene emissions. Under the Mandatory Complex Model standards, annual average levels of exhaust toxic emissions and NOX emissions would not be allowed to exceed the refiner's or importer's 1990 average levels for exhaust toxic emissions and NOX emissions, respectively. These standards implement the applicable requirements regarding the use of the Simple and Complex Models as agreed to during the negotiated rulemaking for compliance under the anti-dumping provisions. EPA is proposing that the year long averaging period be retained since it would provide maximum flexibility for refiners and importers in meeting the anti-dumping requirements. EPA is also proposing this time period because NOX and toxics are not a short term spiking problem that would require a short control period. Although NOX emissions contribute to ozone, which is a seasonal problem, the anti-dumping requirements do not apply in the major ozone nonattainment areas. In addition, Phase II RVP standards provide substantial ozone reductions where required, thus mitigating any potential seasonal problem associated with a year long averaging period. Therefore, there is no significant benefit that would offset the additional compliance and reporting requirements associated with a shorter compliance period. The proposal provides that beginning in 1995 and continuing up through the date that the Complex Model becomes mandatory, refiners and importers could determine compliance based on either the Simple Model anti-dumping standards or the Optional Complex Model anti-dumping standards, at their option. However, a refiner that produces and certifies reformulated gasoline under the Simple Model would have to comply with the Simple Model anti-dumping standards, and a refiner that certifies reformulated gasoline under the complex model would have to comply with the Optional Complex Model standards. For the period beginning with the date the Complex Model standards becomes mandatory through December 31 of that year, and for each subsequent averaging period, compliance will be based on the Mandatory Complex Model Standards. This will, therefore, create two shorter averaging periods during the year that the Complex Model becomes mandatory with different compliance standards, which will consequently reduce the flexibility of refiners and importers for meeting the applicable requirements for those periods. Although the proposal presently provides for two separate compliance periods, there are two options that exist for determining compliance during the calendar year in which there is a transition to the Complex Model. The options are as follows: 1. Two separate averaging periods with different compliance standards, (i.e. determine compliance for the period before the complex model becomes mandatory under the simple model or optional complex model; and determine compliance for the period after that date under the final complex model). 2. Average that portion of the year before the complex model becomes mandatory with the prior full year, and average that portion of the year after the complex model becomes mandatory with the subsequent full year (i.e. include early 1997 with 1996 and include later 1997 with 1998). EPA is concerned about the serious nature of air toxics and, therefore, proposes regulation of this problem over a period no longer than a year. EPA is aware that this option reduces the flexibility of regulated parties, but believes there is sufficient lead time to achieve compliance within these time periods. We request comments on other options as well. The SNPRM 93 provides that the anti-dumping enforcement program would consist of a combination of the following enforcement mechanisms to monitor compliance with the regulations, including: (1) Registration of regulated parties, (2) record keeping, (3) reporting, (4) company commissioned audits, and (5) Agency audits. This program remains unchanged from the SNPRM 92 except for the changes mentioned above. The Agency believes that all the mechanisms proposed are necessary because they enable the Agency to collect and review data from regulated parties to ensure compliance with the anti- dumping requirements. This belief is based, in large part, on the Agency's experience in enforcing the lead phasedown program. In that program, compliance improved dramatically when the Agency shifted from an enforcement program based merely on the review of periodic reports to one that included compliance audits. The reports submitted under lead phasedown provided the agency the data necessary to monitor refiner and importer compliance and often provided clues to potential problems. The records retained by regulated parties provided the means for agency auditors to look behind the reports submitted and ultimately identify violations. EPA audits under lead phasedown also identified more honest mistakes or oversights by regulated parties, which would likely be uncovered through company commissioned audits. Therefore, the agency believes all the above mechanisms serve a useful purpose in assuring compliance with these requirements. B. Regulated Parties The basic anti-dumping requirement that gasoline and gasoline blendstocks must meet standards for exhaust benzene emissions, sulfur, T90, olefins, exhaust toxic emissions and/or NOX emissions, as applicable, would apply to refiners and importers. The terms "refiner" /19/ and "importer" /20/ have been defined and applied in earlier environmental regulatory programs involving gasoline /21/. EPA proposes that these definitions continue to apply for purposes of the anti-dumping requirements. NOTE /19/ "Refiner" is defined as any person who owns, leases, operates, controls or supervises a refinery," 40 CFR 80.2(i), and "refinery" is defined as "a plant at which gasoline is produced," 40 CFR 80.2(h). NOTE /20/ "Importer" is defined as "a person who imports gasoline or gasoline blending stocks or components from a foreign country into the United States * * *," 40 CFR 80.2(r). NOTE /21/ Current regulatory programs that involve gasoline include the lead phasedown program, 40 CFR 80.20, and the gasoline volatility program, 40 CFR 80.27-28. The new anti-dumping requirement regarding the volume ratio of blendstocks produced or imported and transferred to others, would also apply to any producers or importers of blendstocks. In addition, any party that adds gasoline blendstock to gasoline /22/ or who combines gasoline blendstocks to produce gasoline (i.e., a "blender") is already encompassed in the definition of a refiner, because it is producing gasoline. EPA's proposal would not reach a person who is not a refiner (i.e. a person who does not own, lease, operate, control or supervise any facility that produces gasoline) or importers of products not produced at a gasoline refinery, such as a natural gas liquid plant. Similarly, chemical products produced at a refinery or imported but not sold for gasoline blending purposes, would not be subject to these requirements. NOTE /22/ "Gasoline" is defined as "any fuel sold in any state for use in motor vehicles and motor vehicle engines, and commonly or commercially known or sold as gasoline" (footnote omitted), 40 CFR 80.2(c). The SNPRM 93 proposes exclusion of parties that operate only as oxygenate blenders. The SNPRM 92 also proposed that oxygenate blenders not be required to comply with the antidumping requirements. In the case of downstream oxygenate blending, both proposals require that producers or importers of the base gasoline account for the applicable properties under the anti-dumping program. The addition of oxygenates will only improve the final blended properties of gasoline under the Simple Model. Although the addition of certain oxygenates will increase exhaust NOX emissions under the Complex Model, these emissions will be offset by reductions in VOC, toxics and CO on a mass basis. EPA believes that the net emissions impact is not of sufficient magnitude to justify the significant disruption and complexity that would be required for oxygenate blenders to comply with these anti-dumping requirements./23/ Therefore, under today's proposal such parties would not be subject to the requirements of this subpart. NOTE /23/ The preamble to the NPRM discussed how NOX increases from oxygenates are more than offset by decreases in VOC, toxics, and CO. See 56 FR 31220-31222. C. Accounting for Gasoline Blendstocks The preamble to the SNPRM 92 discussed at great length the anticipated problem of blendstocks being "dumped" in conventional gasoline as a result of the stringent requirements placed on reformulated gasoline (57 FR 13484). The preamble set forth the economic incentives created by the differences in baselines between different refiners including those for whom the default baseline applies, and gave an example of how the goal of preventing "dumping" could be frustrated. These differences in baseline provide a mechanism for a refiner or importer to circumvent the requirements by shipping blendstocks to be used in the production of conventional gasoline to a party that was not in operation in 1990 and for whom the less stringent 1990 Clean Air Act default baseline would apply. During the negotiated rulemaking process it was recognized that certain segments of industry, such as downstream blenders or new refiners, could gain significant competitive advantage from the less stringent default baseline, however, there was no clear proposal to address this problem. Refiners will likely remove such components as benzene, aromatics, etc. from typical 1990 gasoline in order to meet the reformulated gasoline requirements. This will result in the extensive availability of such components in the marketplace which will then have a high potential of being "dumped" into conventional gasoline. If the cost of these components is less than the cost of gasoline, as it is likely to be, they will almost assuredly be used to produce conventional gasoline if there is no mechanism to prevent it. EPA's prior experience with both the lead phasedown and fuel switching programs indicates that a few cents wholesale price differential provides sufficient incentive to violate and would certainly encourage dumping without appropriate controls. Several parties have brought this to EPA's attention. In light of the above, EPA believes that appropriate controls are necessary. Today's proposal is an attempt to develop a program that effectively addresses this problem without imposing unnecessary costs and burdens on the regulated community. As contrasted to the SNPRM 92, the SNPRM 93 would not require that refiners or importers account for all gasoline blendstocks that are produced or imported, and would also remove the prohibition and defenses associated with transporting, storing or containing the chemical marker required for certain blendstocks under the earlier proposal. After further review of this issue, EPA believes that accounting for all blendstocks for antidumping compliance and requiring the addition of a chemical marker for monitoring blendstocks use may be more burdensome and disruptive than necessary, without a clear indication of the need for such regulatory requirements at this time. Therefore, EPA believes that it may be more appropriate to identify a mechanism to monitor the transfer, sale and production of blendstocks as an indicator of possible dumping of blendstocks and to trigger further controls as necessary. EPA also believes that it is appropriate to propose a regulatory program now, rather than waiting until after a problem with the dumping of blendstocks is discovered. EPA also believes that it is more appropriate to limit the controls to circumstances where it is likely to be an environmental problem. The SNPRM 93 is intended to identify potential "dumping" by a refiner or importer, and to provide a mechanism to mitigate any adverse environmental effect in such a case. Under EPA's proposal, refiners and importers would be required to determine for each averaging period: (1) The total volume of certain specified blendstocks, as defined by the proposal, produced or imported and transferred to others; (2) the total volume of conventional gasoline produced or imported; and (3) the ratio of these blendstocks to gasoline (ratio). If this blendstock to gasoline ratio for any averaging period exceeds the blendstock to gasoline ratio for the overall average of calendar years 1990 to 1994 by more than 10%, the refiner or importer would be required to exercise one of two options. The refiner or importer would be required to either: (1) Inform any blendstock recipient that they are required to adjust their compliance baseline in the subsequent averaging period based on the refiner's or importer's compliance baseline for the volume of blendstock received, or (2) account for the properties of any blendstock in its own compliance calculations for the averaging period in which the blendstocks were transferred. The recipient of blendstocks under this provision may not have notice until late in the averaging period that the supplier has exceeded the 10% trigger, and, therefore, it would be unreasonable to require the recipient to make adjustments until the subsequent averaging period. On the other hand, the supplier should be monitoring its own blendstock transfers continuously and should be able to make the necessary adjustments to achieve compliance during the same averaging period. Additional reporting and transfer documentation requirements associated with each option are discussed more fully below. Blendstocks transferred between refineries with a common baseline would be exempt from accounting under this requirement. In order to further limit the application of these additional controls to only those circumstances where it is likely to be an environmental problem, the regulations exempt those refiners and importers from further controls regarding applicable blendstocks where: (1) Their blendstock production or importation is less than 3% of conventional gasoline produced or imported during the averaging period, or (2) their 1990 baseline is less stringent than the default baseline for all regulated fuel properties. EPA believes that the burden should be eased on low volume producers of blendstock where their blendstock production is not likely to adversely impact air quality. EPA believes that 3% of production is insignificant for any refiner or importer and, therefore, it would be unnecessary to even monitor changes in the blendstock to gasoline ratio at this low level. EPA seeks comments on the appropriateness of 3% as the trigger for this exemption. In addition, where a refiner's 1990 baseline is less stringent than the default baseline, there is no economic incentive to "dump" blendstocks. Therefore, EPA believes it would not be necessary to monitor blendstocks in that situation either. Under EPA's proposal, a comparison is made between the ratio for each averaging period and the aggregate four year ratio. EPA believes that the aggregate blendstock to gasoline ratio for calendar years 1990 through 1994 would more comprehensively characterize the general use of blendstocks by a particular refiner or importer prior to the implementation of the reformulated gasoline requirements. The alternative of looking at the blendstock to gasoline ratio for any individual calendar year or, in particular, a peak ratio year, may not take into account legitimate fluctuations in the market. EPA is concerned that the use of a single peak year baseline would provide refiners and importers the opportunity to increase blendstocks in 1993 or 1994 so as to inflate the "baseline" ratio. Nevertheless, EPA invites comments on whether it is more appropriate to use an aggregate 1990 through 1994 ratio or the ratio for a single year for this purpose. Under EPA's proposal, a 10% increase in the blendstock to gasoline ratio would trigger the additional blendstock compliance requirements. EPA is currently analyzing a substantial amount of historical data regarding blendstock production, sales and transfers to determine whether this threshold is appropriate and will make this information available for review when complete. EPA may adjust the blendstock to gasoline ratio figure accordingly, based on the analysis results. EPA believes that until that process is completed, it is appropriate to take a relatively conservative approach, in order to identify refiners or importers that attempt to circumvent the anti-dumping requirements. At present, EPA believes that the 10% figure is a sufficient threshold to allow for expected or normal fluctuations in blendstock production from year to year due to implementation of the reformulated gasoline requirements. EPA also believes this amount is small enough to reasonably identify any refiner or importer that may be "dumping" dirty gasoline blendstocks. However, we are requesting the submittal of appropriate data in this area and comments on other figures that might be more appropriate for this requirement. In addition, EPA is proposing inclusion under this provision of only those refinery products that may have an adverse effect on the regulated parameters under the anti-dumping program. This should minimize the burden on industry by limiting this provision to monitoring those products where there is an adequate environmental justification. This represents a significant reduction from the extensive list of blendstocks provided in the SNPRM 92. However, for purposes of determining 1990 baselines under Methods 2 and 3, it is more appropriate to include a complete list of all refinery products used as gasoline blendstocks in order to properly characterize 1990 gasoline in accordance with the intent of the anti-dumping program. EPA recognizes that blendstocks may be transferred to different parties in the distribution system, including brokers, and that there needs to be affirmative obligation to ensure proper notification of the applicable requirements to parties downstream. We have, therefore, required refiners or importers whose ratio exceeds the 10% threshold, and who follow the first option, to notify recipient parties by written notice, either stated on the transfer documents or by separate communication, that the blendstock recipient must adjust its compliance baseline for this blendstock. In addition, the refiner or importer must provide the necessary baseline data for making the adjustment. Alternatively, if the refiner or importer follows the second option, it is required to provide written notice that such blendstocks have already been accounted for in its compliance baseline and are to be excluded from the compliance calculations of any subsequent recipient. Thus, the appropriate transfer documents must convey with each transfer of blendstocks subject to these requirements. In the case of fungibly mixed products, EPA will leave it up to the parties involved to ensure that the proper notification takes place rather than prescribing detailed product accounting and notification procedures. As stated in the SNPRM 92, the inclusion of oxygenate volume for anti- dumping compliance calculations by refiners and importers would be optional, except as required in the calculation of other exhaust emission products under the applicable model. Any refiner or importer that elects to include oxygenate volume in its compliance calculations, however, would be required to include oxygenates in its 1990 baseline determination as well. Under EPA's proposal, gasoline and other petroleum products would be included in the anti-dumping compliance calculations only once, in order to avoid double counting of products. Thus, a refiner or importer would not include in its compliance calculations gasoline it did not produce or import or gasoline blendstocks accounted for by others. A refiner that uses blendstock accounted-for by another, would have to "back out" the properties and volume of such blendstock from the volume and properties of the final product. EPA believes the SNPRM 93 will address the environmental implications of increased blendstock production by requiring additional controls for specified refinery products only when it appears that a significant deviation from past practices has occurred, as evidenced by a 10% increase in blendstock to gasoline ratio. In addition, under the SNPRM 93 we are including only those blendstocks that have an adverse environmental effect on the regulated parameters. The Agency seeks comments on all aspects of the above scheme to prevent dumping and mitigate its effect as it relates to the requirements and intent of the anti-dumping program. EPA has included an additional requirement to address situations where it is clear that a refiner or importer is transferring dirty blendstocks to a party with a less stringent baseline in order to evade the anti-dumping requirements. Under proposed Sec. 80.102(i), a refiner or importer would be required to include in their determination of compliance any applicable blendstocks that were transferred in whole or in part to evade a baseline requirement. The 3% and 10% blendstock to gasoline ratio thresholds discussed earlier are intended to address the majority of potential anti-dumping problems. However, EPA believes that some refiners and importers may engage in blendstock transfers contrary to the intent of the anti-dumping regulations. As a deterrent to this practice, EPA will monitor such blendstock transfers to determine if they are occurring with this motivation. In making this determination regarding the transfer of blendstocks between parties, EPA will look at such factors as: The magnitude of differences in baselines; the nature of any prior business relationship; the extent of financial incentives for transferring blendstocks; the refiner's process for the production of reformulated gasoline, i.e. which blendstocks are removed to meet the reformulated gasoline requirements; the historical corporate relationship, if any, that existed between the parties; and whether this transfer represents a departure from any prior business practices. EPA will also look to see if other means were available to the blendstock producer to achieve compliance with the anti-dumping requirements without such transactions. EPA would consider enforcement under this provision when there is compelling evidence that a regulated party is dumping "dirty" blendstocks without accounting for the blendstocks in its own compliance determination. D. Compliance Calculations 1. Compliance Baseline Calculation The compliance baseline calculation as discussed in the SNPRM 92 is based on the 1990 "equivalent" conventional gasoline volume (57 FR 13488). The SNPRM 93 would change the compliance baseline to reflect the receipt of blendstock from a refiner or importer that has exceeded the specified 10% blendstock to gasoline ratio, as discussed previously. The refiner or importer would be required to provide the recipient with the appropriate baseline values for making the adjustment. The blendstock recipient that must adjust its compliance baseline is required to make the adjustment in the subsequent averaging period because the producing refiner would not have notice that it activated the 10% trigger until the present averaging period was over. The producing refiner, on the other hand, has control over its gasoline and blendstock production during the year and, with proper planning, should be able to achieve compliance with such blendstocks included during the current averaging period. 2. Compliance Determination The SNPRM 93 would expand the SNPRM 92 to include exhaust benzene emissions under the Optional Complex Model and exhaust toxics emissions and NOX emissions under the Mandatory Complex Model. In addition, refiners that produce reformulated gasoline during 1995, 1996 and early 1997 would have to use the same compliance model for their conventional gasoline during those averaging periods. Compliance levels would be determined on average for that averaging period and compared against the applicable 1990 baseline for those parameters as calculated in a similar manner. Individual refinery compliance, composite sampling and compliance based on combining the properties of individual blendstock batches would be unchanged from the SNPRM 92. E. Registration The SNPRM 93 expands the registration proposal in the SNPRM 92 (57 FR 13488) to require refiners and importers to submit a statement of intent as to whether compliance will be achieved on the basis of individual or aggregate refineries, and whether compliance will be based on the Simple or Optional Complex Model for 1995, 1996, and the period prior to the date the Complex Model becomes mandatory. F. Record Keeping The SNPRM 93 expands the record keeping proposal in the SNPRM 92 (57 FR 13488) to include the results of tests performed to determine compliance under the newly proposed Optional Complex Model and Mandatory Complex Model standards. EPA's proposal would require refiners and importers to retain documents pertaining to any adjustment of compliance baseline required and documents which demonstrate the transfer of blendstocks. G. Reporting All refiners or importers of conventional gasoline would be required to submit to EPA a report within thirty (30) days following the conclusion of each averaging period which contains the following information: Total gallons of conventional gasoline produced or imported during the averaging period; average exhaust benzene emissions, sulfur, olefins and T90 if using the Complex Model, exhaust benzene emissions if using the Optional Complex Model, or exhaust toxics and NOX emissions if using the Mandatory Complex Model, and the calculations used to derive such averages for the total volume of conventional gasoline produced or imported during the averaging period; the total gallons of blendstocks produced or imported and transferred to others for use in gasoline blending. These requirements would apply for refiners that produce conventional gasoline through the combining of blendstocks as well. The above reporting requirements would not apply in the case of any conventional gasoline or gasoline blendstock that is excluded from a refiner's or importer's compliance calculation. In addition, EPA is proposing a one-time reporting requirement in order to establish the "baseline" blendstock to gasoline ratio. Any refiner or importer of conventional gasoline would be required to submit to EPA, by January 31, 1995, a report containing the total volume of gasoline produced and imported for each calendar year 1990 through 1994 for which such data are available, the total volume of gasoline blendstocks produced and imported, and transferred to others for each calendar year 1990 to 1994 for which such data are available, and the ratio of total blendstock volumes to total gasoline volumes. Refiners and importers would be required to follow the same protocols for determining the availability of data that are being proposed for establishing 1990 baselines. H. Additional Procedures for Refiners and Importers of Conventional Gasoline and Blendstock The Notice of Proposed Rulemaking included attest engagement procedures for the production of reformulated and conventional gasoline. This supplemental notice includes additional procedures as a result of the changes made in the scheme for accounting for gasoline blendstocks. These procedures would require the review of a refiner's or importer's records for compliance with the requirements of this subpart, to include review of: (1) The relevant documents to determine the blendstock to gasoline ratio; (2) any adjustment to compliance baseline calculations; (3) application of the adjusted baseline; and (4) the refiner's or importer's quality assurance program for determining the applicable values of regulated fuel properties. This review would follow the same general criteria for sample selection and testing as outlined under the reformulated gasoline requirements. EPA is proposing attest engagement procedures for the same reasons set forth in the preamble to the reformulated gasoline requirements. IX. Anti-Dumping Requirements for Conventional Gasoline A. Introduction Section 211(k)(8) of the Act requires that average per gallon emissions of specified pollutants from non-reformulated, or conventional, gasoline use must not deteriorate relative to emissions from 1990 gasoline, on a refiner or importer basis. Compliance is measured by comparing emissions of a refiner's or importer's conventional gasoline against a baseline gasoline. An individual baseline is developed for each refiner or importer based on the quality of their 1990 gasoline, although under certain circumstances the individual baseline is set at the statutory baseline. To implement this requirement, EPA has proposed requirements known as the anti-dumping provisions for conventional gasoline producers and importers. Today's proposal describes additional anti-dumping provisions as well as modifications to previously proposed provisions applicable to conventional gasoline. These are detailed in the accompanying proposed regulations, and comments are requested on any or all of today's proposal. Further background information can be found in EPA's prior proposals. B. Proposed Requirements for Individual Baselines 1. Baseline Determination In the SNPRM, EPA proposed a requirement for "sufficient" sampling of finished gasoline or blendstock streams, as appropriate by the methods proposed in the SNPRM. At this time, EPA believes that a minimum data requirement must be specified to ensure that enough samples are taken from which to develop a representative baseline and to minimize the picking and choosing of data. For a Method 1 determination, EPA is proposing to require that at least half of the shipments in a calendar month shall have been tested for a particular parameter. For Methods 2 and 3, EPA is proposing to require at least weekly sampling of continuous blendstock streams and, if blendstocks are produced on a batch basis, sampling of at least half of the batches of each blendstock produced in a month. EPA realizes that this proposal differs significantly from the SNPRM, but believes that such a requirement may be necessary to insure a sufficiently accurate baseline. Comments are requested as to the necessity of such a requirement, and on the minimum sampling requirements discussed above for each Method. In the SNPRM, EPA proposed that at least three months of summer and three months of winter data must be available for the determination of a parameter value by a particular method. Insufficient data would require use of the next method down (e.g., Method 2 instead of Method 1) or collection of additional data which would necessitate a Method 3 determination. If, following promulgation of the final rule, additional data needs to be collected because the minimum data requirements specified for using Method 1, 2 or 3 for determining a fuel component baseline value (per the proposed regulations) have not been met, EPA proposes that data shall be collected through the end of the third month of the first three full months during which summer gasoline is produced by the refiner following promulgation of the final rule. The requirement to collect at least three months of data on a refiner's winter gasoline and at least three months of data on a refiner's summer gasoline would still have to be met. In the case of a Method 1 determination, where actual 1990 gasoline shipment data is used, inconsistent sampling may have occurred causing a lack of data on one grade and abundant data on another. For example, if a refinery produced a special grade of gasoline, it may have tested each shipment of that gasoline for several fuel properties. In comparison, it may have only tested every other shipment of its typical gasoline for these same properties. Combination of all of the available data for a parameter would result in a baseline value which was skewed to the specially-produced gasoline. To minimize such skewing, and to thus get a more representative baseline, EPA proposes that average fuel parameter values be determined first for each grade of gasoline produced, and the resulting values weighted by the fraction of each grade sold in the period over which the value is determined. EPA proposes that "grade" mean each individual octane number of gasoline produced in the refinery (rounded to the nearest whole number). Comments are requested on this proposal, specifically on the ability of the proposal to minimize skewing of data, and as to whether each octane number of gasoline produced should be considered a separate grade. Comments on other "definitions" of grade for use under this proposal are requested. EPA also requests comments on allowing a refinery's own production volumes of summer and winter gasoline (based on RVP) to be used in the weighting of data on a summer and winter basis. EPA had proposed that a national average summer/winter percentage split of 46.8/53.2 be used, which was based on gasoline consumption during the summer and winter periods. Because fuel production can lead fuel consumption by up to 2 months, EPA believes that use of refinery-specific production volumes and time periods in the baseline determination will result in more representative baselines. Comments are requested on this proposal and as to how transitions in fuel production between seasons will affect this proposal and individual baseline determination. Testing of a refinery stream for one or more of the fuel properties for which a baseline value must be determined would be an unnecessary expense if a refiner can show that the refinery stream contains negligible amounts of one or more of certain fuel properties for which a baseline value must be determined. The properties that EPA proposes would not have to be determined under these circumstances are benzene, aromatics, olefins, saturates and sulfur. EPA proposes that the first four listed parameters would be deemed to exist in negligible amounts if they exist at less than 1.0 volume percent in a refinery stream. Sulfur would be deemed to exist in a negligible amount if it exists at less than 10 ppm in a refinery stream. Any properties shown to exist in a refinery stream in negligible amounts shall be assigned a value of 0.0. For example, EPA believes it would be generally easy for a refiner to show that MTBE and alkylate streams have negligible aromatic, sulfur and benzene contents. Comments are requested on this proposal, particularly on the levels of each parameter which would be considered negligible. Comments are also requested as to whether EPA should require criteria, and what those criteria should be, to show that negligible quantities of a parameter exist. For example, one way to prove that one or more fuel parameters exist in negligible quantities may be to show that a stream consists of a single chemical compound (i.e., the criteria would be that the stream is 99 percent by volume pure component). Or, it may be possible to demonstrate using chemical reaction theory or general refinering practice supported by industry survey results that an alkylate stream, for example, which is a very complex mixture, still has aromatic and benzene contents of less than 1 volume percent without measuring the benzene content of the stream. EPA previously proposed that post-1990 finished gasoline could be used in a Method 3 determination if the volumetric fraction of each blendstock in post- 1990 finished gasoline was within five (5) percent of the volumetric fraction of the same blendstock in 1990 finished gasoline. However, based on comments that typical year-to-year fluctuations would cause the blendstock volumetric fractions to exceed the proposed 5 percent requirement, EPA proposes to allow post-1990 finished gasoline data to be used if each of the post-1990 blendstock fractions is within 10 percent of the respective 1990 blendstock volumetric fraction. Comments are requested as to whether the 10 percent criteria is appropriate. In a slight change from the SNPRM, EPA proposes that the Director of the Office of Mobile Sources approve baselines and grant petitions under circumstances where petitions are allowed. Establishment of Baselines by Foreign Refineries EPA has received comments pertaining to the establishment of 1990 baselines by foreign refiners. The 1990 baseline is relevant in the early years of the reformulated gasoline program for purposes of certifying reformulated gasoline under the Simple Model,/24/ and it is relevant from 1995 onward for purposes of measuring compliance with the anti-dumping provisions of this program. NOTE /24/ The proposed Simple Model would apply from January 1, 1995 until the Complex Model becomes mandatory during 1997. In the SNPRM (April 1992), EPA proposed that domestic refiners establish their individual baseline using one of three proposed methods to calculate their 1990 average fuel parameters. Method 1 would be used if sufficient data was available; if not, then Method 2; or Method 3, if insufficient data was available for Method 2. EPA proposed that importers of foreign gasoline establish their baselines using the first proposed method, and that importers "default" to the statutory baseline if sufficient data was not available for that method. EPA did not propose any methodology for foreign refiners to establish individual baselines. Rather, the quality of gasoline imported from foreign refiners was to be controlled by regulation of domestic importers. However, EPA proposed an exception to this scheme for refiners that were also domestic importers and that imported 75% of the gasoline produced at the refinery. EPA proposed that these importers be permitted to use the three methodologies for establishing an individual baseline. The proposed approach regarding the establishment of individual baselines by foreign refineries arose from three principle concerns by EPA: 1. EPA was concerned that foreign refiners that imported less than a significant portion of their total production into the United States would be unable to produce verifiable data adequate to justify use of the three proposed methodologies. EPA did not believe that foreign refiners had records of the relevant fuel parameters necessary to accurately establish a 1990 baseline for that fraction of their total 1990 gasoline production exported to the United States. 2. EPA was concerned with its ability to conduct verification and compliance audits on foreign soil to verify the calculation of individual baselines for foreign refiners. Domestic refiners and importers are subject to regulation by the Agency, whereas regulation of foreign refiners raises significant questions on legal authority and regulatory jurisdiction. EPA's concern also extended to the effect product fungibility and mixing during shipment would have on the Agency's ability to correlate imported product with individual foreign refinery baselines. 3. EPA was concerned that permitting foreign refiners to establish individual baselines would lead to "gaming" of the system. Specifically, EPA was concerned that foreign refiners that had exported gasoline to the U.S. in 1990 that was cleaner than the statutory baseline would have economic incentives to default to the less stringent statutory standard. As a result, foreign refiners could use EPA's limited ability to auditor-verify a foreign refiner's records and intentionally default to the l;X stringent baseline. Such "gaming" might have the effect of skewing the anticipated average quality of gasoline characteristics within the United States, especially in areas where imported gasoline is a significant percentage of the total gasoline consumption. Petroleos de Venezuela S.A. (PDVSA) claims that EPA's first concern would be satisfied if a foreign refiner's data was sufficiently detailed such that the qualities of the 1990 gasoline exported to the United States could be determined, as compared to the qualities of the refiner's overall 1990 gasoline production. In such a situation, PDVSA claims that a foreign refiner should not be precluded from using the three methods to establish individual baselines for its refineries. With respect to EPA's second concern, PDVSA claims that foreign refiners and their governments would be amenable to EPA conducting verification and compliance audits. This could be arranged through diplomatic instruments if necessary. With respect to EPA's concerns on reliably tracking the origin of gasoline to specific refiners and refineries, PDVSA believes that EPA could continue, if necessary, to regulate importers of foreign gasoline. A refiner's or refinery's individual baseline would follow its gasoline as long as its gasoline could be fairly tracked at the point of importation. For example, a foreign refiner could segregate its product from others, or the point of origin could be clearly traceable from the documentation accompanying the gasoline. If the point of origin could be clearly identified, then the importer would use the foreign refiner's baseline for that product's baseline. If the point of origin could not be clearly identified, then the importer would use the statutory baseline for that gasoline. In effect, the burden of clearly identifying the point of origin would be on the importer, and through them on the foreign refiner. Finally, with respect to the gaming concern, PDVSA believes there is no significant economic incentive for such gaming as it would be economic incentive for such gaming as it would not be economic for a refiner to intentionally degrade the quality of the gasoline it exports to the United States to the statutory baseline. In addition, PDVSA claims there is no realistic chance of an adverse air quality impact from this gaming potential. PDVSA also claimed that failing to allow foreign refiners to establish individual baselines could distort the export market in a way that potentially could disrupt the supply of gasoline in certain areas of the country. EPA invites comment on all of the above issues, including EPA's concerns and the suggestions of PDVSA. EPA also invites comments on alternatives to the approaches proposed today, including allowing foreign refiners to establish individual baselines under reasonably limited circumstances based on the concerns noted above, for use in the reformulated gasoline program under the Simple Model and/or for use in the anti-dumping program. 2. Baseline Adjustment for Work-in-Progress In the SNPRM, EPA proposed that a work-in-progress (WIP) adjustment to a refiner's baseline would be allowed if certain criteria were met. One of the criteria presented in the SNPRM addressed the situation where a refiner's exhaust benzene emission value differed significantly when calculated with and without the WIP adjustment. EPA believes that the WIP adjustment should also apply to the fuel components which are capped when the simple model is used, and, per the regulatory negotiation's Agreement-in-Principle, to exhaust toxics and NOX emissions in the years when the complex model is required. EPA proposes that this adjustment apply when one or more of the following situations occur: (1) At least a 25.0 percent difference exists between sulfur, olefin and/or T90 values calculated with and without the WIP adjustment; (2) at least a 5.0 percent difference exists between the refiner's baseline exhaust benzene emissions calculated with and without the WIP adjustment; (3) at least a 5.0 percent difference exists between the refiner's baseline exhaust toxics emissions calculated with and without the WIP adjustment; (4) at least a 5.0 percent difference exists between the refiner's baseline NOX emissions calculated with and without the WIP adjustment. Comments are requested on the extension of the WIP adjustment to sulfur, T90 and olefins. Comments are also requested as to whether the proposed 25.0 percent difference requirement is an appropriate value. Another of the criteria proposed in the SNPRM required that a refiner show that failure to allow a WIP adjustment would result in a substantial portion of the capital associated with the WIP to be at risk. "Substantial" was proposed to be capital involved with the WIP which exceeded 10 percent of the refinery's depreciated plant and equipment value. Comments were received which stated that it is possible that this requirement could be biased against recently built or recently upgraded refineries because the depreciated value would be higher for these facilities than for older refineries of the same size. The commenter also claimed that newer facilities tend to be benefit the environment more than similar, older facilities, and thus could be unfairly penalized, compared to older facilities, by the proposal. Based on these comments, EPA proposes an alternative criteria which could be met in lieu of the "10 percent" criteria. EPA proposes and requests comments on the allowing either the "10 percent" criteria or minimum cost of the WIP to satisfy the capital-at-risk criteria. Comments are requested as to whether $10 million is an appropriate minimum cost. Because WIP was not previously clearly defined, EPA proposes that WIP include both projects actually under construction in 1990 and projects for which contracts were signed in 1990 such that construction would be completed in time to comply with the regulatory requirement motivating the WIP (per the discussion of this requirement in the SNPRM). Comments are requested as to whether this proposal is appropriate. Detailed comments are also requested which address the type of contracts that would qualify. 3. Baseline Adjustment for Multiple Modes of Operation EPA proposed that separate individual baselines be developed for each of the different modes of refinery operation (as discussed in the SNPRM) to minimize anticompetitive effects which could hurt smaller refiners, blenders and importers. However, some refineries may be sufficiently integrated with a blending operation such that the blending operation would not exist without the refinery, or such that negligible blendstocks or gasoline are brought into the blending operation other than those which come from the associated refinery. In such a situation, the concern about anticompetitive effects is greatly reduced. EPA proposes that a refiner which is involved in both of the regulated modes of operation may petition EPA to develop a single baseline for the combined operation, if it can show to the Administrator's satisfaction that a closely integrated relationship exists. EPA does not expect "closely integrated" to apply broadly to refiners who happen to also have blending operations. Comments are requested on this proposal, particularly on the proof required to show "close integration". 4. Ability to Petition for Extraordinary Individual Circumstance EPA requests comments on the use of an adjusted baseline if, due to the occurrence of extenuating or extraordinary circumstances in 1990, or due to its unique individual situation, a refinery's baseline is unrepresentative of the gasoline it would have produced in 1990. EPA also requests comment on what criteria would have to be met, or proof given, to demonstrate that 1990 refinery operations were indeed different than if the special circumstance had not existed. EPA expects that a refiner would have to petition EPA, and would have to show the baseline values calculated without and without the adjustment. To limit petitions, EPA proposes that petitions may be granted only if certain proof is presented in the petition, in addition to the baseline parameters calculated with and without the adjustment. Such proof may include a showing that significant financial burden will exist or that the viability of the refinery is at stake. EPA could also require a showing that 1990 operations were significantly different than 1988-89 and 1991-92 operations. Comments are requested as to the degree of financial hardship that might be required to be shown and on additional criteria which might have to be met in order to restrict any such petition to situations falling within the agency's authority under Alabama Power, as discussed in the SNPRM. Examples of extenuating circumstances could include the following two examples, and EPA requests comments as to whether such circumstances should be deemed extenuating: (1) Downtime which occurs every 4-5 years and which happened to occur in 1990 (nonannual turnaround); and (2) disasters which took out a gasoline blendstock producing unit for 30 days or more (and whether 30 days is appropriate). EPA requests comments as to whether, and what type of, other extenuating circumstances may exist. EPA also requests comment on whether it should consider allowing a baseline adjustment for the situation where (1) a fuel produced in 1990 under contract to the federal government (e.g., the military) will be phased out of production by 1995 due to changes in fuel requirements by the federal government, and (2) production of that fuel constituted at least 30 percent of a refiner's total production in 1990. For example, JP-4 jet fuel use is being eliminated by the Department of Defense. Because JP-4 is a naphtha/ kerosene blend, feedstock previously used to produce it will in the future be used in gasoline. However, that feedstock cannot be used in gasoline without first going through a reformer to increase its octane to suitable gasoline levels. This will naturally increase the average aromatic content of a refiner's gasoline. Refiners for whom JP-4 production constituted a large portion of their total production will have low baseline aromatics and benzene values relative to the values of the gasoline that will be produced in lieu of JP-4. Under certain individual circumstances, a refinery may have to close if it cannot comply with the anti-dumping provisions because its baseline parameter values were determined while it was under contract to the federal government to produce a non-gasoline fuel. EPA requests comments on this situation, and if adjustments to a baseline determination are granted, how much of a refinery's 1990 production must have constituted the soon-to- be-eliminated fuel for the circumstance to be extenuating. For all of the above situations, EPA requests comments as to whether such a petitioner should get an individual adjusted baseline, the statutory baseline, or the statutory baseline on an individual parameter basis if only certain parameters were affected by the circumstance, and whether volume adjustments should be allowed. C. Auditor /25/ Requirements and Certification 1. Introduction In the SNPRM, EPA proposed that an Agency-certified auditor be utilized to verify a refiner's or importer's 1990 individual baseline (i.e., the parameter determination) prior to submission of the baseline to EPA for approval. EPA also proposed that the auditor be independent of the refiner or importer and that EPA would certify the auditor based on criteria developed in consultation with persons knowledgeable in the technical aspects of gasoline refining. EPA recently held a public workshop on this topic and, considering the discussion at that workshop, EPA is proposing additional regulations concerning the certification of auditors and the submission of the individual baseline to EPA. NOTE /25/ EPA recognizes that the term "auditor" usually refers to a person who evaluates financial data. However, in the context of the baseline development discussed in this proposed rulemaking, "auditor" shall refer to a person who technically evaluates the baseline determination of a refiner or importer for correctness, as defined in this proposal. 2. Requirements for Auditors For the attached regulations, EPA proposes that the term auditor mean an individual or an organization although various persons involved with the auditor may also have to meet certain requirements. EPA proposes that auditors (and where applicable, the auditor's organization and/or other persons) meet criteria in two areas in order to be certified by EPA to audit refiner and importer baselines. These proposed areas are (1) independence from the refiner or importer, and (2) technical capability to evaluate the process used to develop the baseline parameters. Although these general areas were proposed in the SNPRM, they are being reproposed today in more detail. Concerning independence, EPA proposes that auditors and any other individuals or organizations, including contracting and subcontracting personnel, who are involved in substantive aspects of baseline verification be independent of the submitter. For example, EPA proposes that all persons involved in the substantive aspects of baseline verification could not have worked in the past five years as an employee of the refiner or importer whose baseline is being verified. EPA expects such criteria to mitigate potential conflict-of-interest concerns that could arise concerning the verification process if the auditor were to have an intimate relationship with the refiner or importer. Additionally, EPA is proposing that the auditor and its contractors and subcontractors be financially independent of the submitter. Specific criteria are listed in the accompanying proposed regulations. However, EPA is proposing to allow a person to audit the baseline parameters for a particular refiner or importer even if that person also developed the baseline parameters for the same refiner or importer, as long as the person (and his/her contractors, etc.) meet all the requirements for an auditor. While larger refiners are likely to develop their baselines using in-house expertise, this proposal would most likely benefit smaller refiners and importers which are more likely to have their baselines determined for them by an outside company. EPA requests comments on how to ensure that the independence requirements remain intact throughout the duration of the relationship between the auditor and the refiner, and as to whether the independence requirements should be continued for a time period after the baseline is approved, and what this time period should be. EPA is also proposing that auditors be technically experienced and knowledgeable in refinery operations. This criterion is important because of the complexity of refinery operations and because refiners may have made substantial changes in feedstocks or refinery operating conditions between 1990 and year(s) when data was collected. Such changes would have to be accounted for in the individual 1990 baseline determinations. Auditing the accounting for such changes and confirming that the necessary adjustments were made is expected to be technically challenging and only those persons with sufficient knowledge and experience would be capable. EPA is also proposing regulations which describe the technical role EPA expects auditors to fulfill in the verification process. Under these proposed regulations, the auditor would have to perform several tasks to verify certain aspects of the data collection and baseline calculations. Additionally, the auditor would have to describe a minimal amount of its verification process to EPA. As a part of this process, EPA would expect an auditor to know the relevant details and assumptions that went into the baseline determination it verified. Through the fulfillment of these requirements, EPA expects to gain sufficient confidence to approve many of the baseline parameter submissions. For baseline submissions where EPA has some uncertainty, EPA would follow up with the refiner or importer and its auditor to gain this certainty. EPA requests comment on its proposed criteria requiring that auditors be independent and technically capable of evaluating the baseline parameters. EPA also requests comment on what technical role and reporting role the auditor should play in the verification process, and if EPA should approve persons as auditors who were also involved in developing the baseline parameters for the refiner or importer. 3. Auditor Certification Because regulations under section 211(k) of the Act are aimed at refiners and importers, EPA believes that the refiner or importer should be responsible for choosing an auditor who meets the proposed requirements. EPA is considering two options for certifying auditors, and requests comments on each of these options. Under the first option, the refiner or importer would be required to ensure that the auditor meets the criteria, and provide such proof with the baseline submission. The auditor would not be pre-certified by EPA. If an auditor who does not meet the criteria is used by the refiner or importer, the baseline submission would not be approved. This option allows the refiner or importer to begin working with an auditor immediately, if it believes it can prove that the auditor will meet the criteria promulgated in the final rule. Under the second option, the qualifications of potential auditors would be submitted (by a potential auditor or by a refiner or importer) to EPA after promulgation of the final rule. (EPA is proposing that all qualification submittals indicate for which refiners and importers the auditor, its organization, contractors, and subcontractors do not meet the independence criterion mentioned above.) If no response is received from EPA within 30 days of application, that person would then be deemed an EPA-certified auditor. Refiners and importers would have to use such an EPA-certified auditor in order for their baseline submissions to be accepted. Comments are requested as to whether 30 days from application date is an appropriate response time, or whether a longer or shorter EPA response time should be considered. Alternatively, while EPA cannot certify auditors prior to the promulgation of the final rule, it may be appropriate to invite submission of applications by persons desiring to be auditors prior to the final rulemaking. EPA could begin processing auditor certification submissions prior to promulgation of the final rule, and could certify auditors soon after the promulgation date. Comments are requested on both of these options. EPA will consider other proposals certifying auditors. D. Baseline Submission and Approval In giving its approval of a baseline submission, EPA plans to rely heavily on the auditor's verification. That explains, in part, EPA's concern about auditor independence and technical abilities. Based on this reliance, if EPA discovers that an auditor has displayed gross incompetency or intentionally committed a significant error in the verification process, EPA may pursue debarment of the auditor under 18 USC 1001. EPA had proposed in the SNPRM that auditors submit a plan to EPA prior to beginning their verification process. After considering this proposed requirement further and discussing it at the public workshop, EPA is considering not adopting this requirement. Instead, EPA may require the auditor to meet certain reporting requirements in their report to EPA concerning the baseline verification process. EPA believes this change will help expedite the verification process. EPA is also proposing that each refiner or importer inform the Administrator of the name, associated organization, mailing address and telephone number of each auditor hired to verify the gasoline baseline parameter values. For example, if a refiner initially hired an auditor but then decided to use a different auditor for verifying its baseline parameters, then the refiner or importer would have informed EPA of both auditors as each was hired. EPA expects to gain insights into the quality and integrity of the baseline verification process. EPA requests comment on the proposed requirement that refiners and importers inform the Administrator of the auditor selected to verify the baseline parameter values. EPA proposes that baseline submissions be submitted by the refiner or importer to EPA within 6 months of the date of the final rulemaking. This timeframe is reasonable if most baseline auditors will be able to be certified by EPA, as discussed above, soon after promulgation of the final rule, or if the refiner or importer assumes responsibility for choosing an auditor which meets the requirements of the final rule, without pre- certification of the auditor by EPA. In the latter case, a refiner or importer could begin working with an auditor immediately. Comments are requested on the appropriateness of requiring submissions within 6 months of promulgation of the final rule. EPA proposes to accept only complete baseline submissions. As previously discussed, if data to be used in baseline development (per Method 3) is collected after promulgation of the final rule (because the minimum data requirements specified for using Method 1, 2 or 3 for determining a fuel component baseline value per the proposed regulations have not been met), EPA proposes that data may be collected through the end of the third month of the first three full months during which summer gasoline is produced by the refiner following promulgation of the final rule. Individual baselines which were determined using data collected after promulgation of the final rule shall be submitted to EPA by September 1, 1994. EPA requests comments on the above proposal. X. Environmental and Economic Impacts The environmental and economic impacts of the reformulated gasoline program are described in the Regulatory Impact Analysis supporting the rulemaking for reformulated and conventional gasoline, which is available in Public Docket No. A-91-02, located at Room M-1500, Waterside Mall (ground floor), U.S. Environmental Protection Agency, 401 M Street SW., Washington, DC 20460. XI. Public Participation EPA desires full public participation in arriving at its final decisions and solicits comments on all aspects of this proposal. Wherever applicable, full supporting data and detailed analysis should also be submitted, to allow EPA to make maximum use of the comments. All comments should be directed to the EPA Air Docket, Docket No. A-92-12 (See ADDRESSES). The close of the comment period will be announced in connection with a later Federal Register notice announcing the public hearing (See DATES). Any proprietary information being submitted for the Agency's consideration should be markedly distinguished from other submittals and clearly labelled "Confidential Business Information." Proprietary information should be sent directly to the contact person listed above, and not to the public docket, to ensure that it is not inadvertently placed in the docket. Information thus labeled and directed shall be covered by a claim of confidentiality and will be disclosed by EPA only to the extent allowed and by the procedures set forth in 40 CFR part 2. If no claim of confidentiality accompanies a submission when it is received by EPA, it may be made available to the public without further notice to the commenter. XII. Compliance With the Regulatory Flexibility Act A. Introduction Per section 605 of the Regulatory Flexibility Act (RFA), EPA needs to determine the extent to which significant adverse economic impacts on a substantial number of small business entities are likely due to the regulations being proposed today. The potential impacts due to the regulations for the complex model, Phase II reformulated gasoline standards, and renewable oxygenate incentive program are discussed briefly below. The full RFA is presented in the DRIA. Comments on the RFA are requested. Certain sectors of the gasoline industry are not likely to be more adversely affected by the complex model, the Phase II reformulated gasoline standards or the President's ethanol initiative than by previous proposals, such as the simple model. Comments are requested as to the validity of the conclusion that terminal operators, bulk plants and retail gasoline sellers will be relatively unaffected by these provisions. B. Complex Model Impacts on Small Entities The proposed complex model provides refiners (large or small) with the flexibility to choose the least cost method of fuel control in order to produce reformulated gasoline. It is expected that this flexibility will reduce the cost of producing reformulated gasoline for most refiners. Thus, it is not likely that small refiners will be adversely impacted by this proposal. The proposed complex model shows that oxygenate use affects other component values such that no net increase in NOX emissions occurs. Additionally, oxygen is a required component of reformulated gasoline. Thus demand for oxygenate is not expected to decrease due to the complex model, and oxygenate producers should not be adversely affected. EPA requests comments relative to its finding that small refiners and oxygenate producers are not likely to be adversely affected by use of the complex model. C. Phase II Standards Small refineries which choose to produce reformulated gasoline are likely to experience higher costs (per gallon) than large refineries in meeting the proposed Phase II standards. The Phase II standards are more severe than the Phase I standards, and thus more severe processing and/or capital equipment purchase may be necessary. Small refineries, which do not have the advantage of economies of scale, may have higher expenses and may have a more difficult time raising the necessary capital. However, a Sobotka analysis /26/ of this situation concluded that small refineries are not disadvantaged by the federal reformulated gasoline requirements (at current opt-in levels) because they either do not produce gasoline, do not ship a significant portion of their gasoline to the affected markets, or could readily serve conventional gasoline markets. NOTE /26/ "Evaluation of the Use of Ethanol and MTBE in Reformulated Gasoline," Prepared by Sobotka & Co., Inc. for U.S. EPA under Contract No. 68-W9-007, September 30, 1992. Oxygenate producers should also not be adversely affected by the Phase II requirements, since increasing the oxygen content of reformulated gasoline over the minimum 2.0 weight percent may be a cost-effective method for meeting the proposed standards. Thus oxygenate producers should not be adversely affected by the Phase II requirements. It is possible that nonethanol oxygenates could be slightly negatively impacted relative to ethanol because the proposed Phase II standards are based on MOBILE5.0. MOBILE5.0 reduces the impact of evaporative emissions relative to exhaust emissions. If the contribution of ethanol's high blending RVP is thus reduced, ethanol use could become more attractive, to the benefit of ethanol producers. However, any potential "decrease" in the market share for nonethanol oxygenates would not represent a level lower than at present, but merely a level less than had previously been forecasted. EPA requests comments on the impact of the Phase II standards on oxygenate producers. D. President's Ethanol Initiative As background, it is worth pointing out that some refiners may be adversely affected and some actually benefitted by the ethanol initiative, depending on their pre-ethanol initiative plans for producing reformulated gasoline. If they were planning on using ethanol, they were intending having to make a nonoxygenated reformulated gasoline blendstock (RBOB) at 7.1 psi. Now, they can make that at 7.8 psi. However, if the refiner was not planning on using ethanol, it was planning to have its reformulated gasoline blendstocks meet the 8.1 psi requirement, and now must produce such blendstocks at 7.8 psi. Comments on the impact of the ethanol initiative on small refiners. It is also possible that the incentive to use renewable oxygenates could reduce the use of nonrenewable oxygenates such as MTBE in reformulated gasoline and, thus, affect the future increase in production that producers of these oxygenates would otherwise have obtained by the reformulated gasoline program. However, this would represent gains in production foregone as a result of today's proposal, and not reductions in production. Because of their higher costs, noncaptive (i.e., stand alone) MTBE producers would be more negatively affected than captive (on-site, refinery plants) MTBE plants. Adverse effects on any ether producer could be reduced if they have the ability to produce ethanol-based ethers. If MTBE producers are negatively impacted, methanol producers who supply the methanol feedstock to the MTBE process could also be negatively affected. Ethanol producers, on the other hand, will of course benefit from the initiative. EPA requests comments on the impact of the renewable oxygenate initiative on oxygenate producers. XIII. Statutory Authority The statutory authority for the standards proposed today is granted to EPA by sections 114, 211(c) and (k) and 301 of the Clean Air Act, as amended; 42 U.S.C. 7414, 7545(c) and (k), and 7601. XIV. Administrative Designation and Regulatory Analysis Pursuant to Executive Order 12291, EPA must judge whether a regulation is "major" and therefore subject to the requirement that a Regulatory Impact Analysis be prepared. Major regulations have an annual effect on the economy in excess of $100 million, have a significant adverse impact on competition, investment, employment or innovation, or result in a major price increase. The Administrator has determined that Phase II reformulated gasoline will cost well in excess of $100 million per year and therefore should be classified as a major rule. A Draft Regulatory Impact Analysis (RIA) for the reformulated gasoline program has been prepared and placed in the docket for that rulemaking (A-92- 12). The final RIA will be completed contemporaneously with the final reformulated gasoline rule. The Draft Regulatory Impact Analysis was submitted to the Office of Management and Budget (OMB) for review as required by Executive Order 12291. Written comments from OMB and EPA response to those comments have also been placed in the public docket for this rulemaking. XV. Reporting and Recordkeeping Requirements Under the Paperwork Reduction Act of 1980, 44 U.S.C. 3501 et seq., EPA must obtain OMB clearance for any activity that will involve collecting substantially the same information from 10 or more non-Federal respondents. These information collection requirements have been submitted for approval to the Office of Management and Budget (OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. An Information Collection Request document has been prepared by EPA (ICR No. [1591]) and a copy may be obtained from Sandy Farmer, Information Policy Branch; EPA; 401 M St., S.W. (PM-223Y); Washington, DC 20460 or by calling (202) 382-2740.) Send comments regarding the collection of information, including suggestions for reducing the burden of this collection to Chief, Information Policy Branch; EPA; 401 M St., SW. (PM-223Y); Washington, DC 20503; and to the Office of Management and Budget, Washington, DC, 20503, marked "Attention: Desk Officer for EPA." The final Rule will respond to any OMB or public comments on the information collection requirements contained in this proposal. Dated: January 19, 1993. William K. Reilly, Administrator. [FR Doc. 93-4015 Filed 2-25-93; 8:45 am] BILLING CODE 6560-50-P