Regulation of Fuels and Fuel Additives: Baseline Requirements for
Gasoline Produced by Foreign Refiners
Related Material
[Federal Register: August 28, 1997 (Volume 62, Number 167)]
[Rules and Regulations]
[Page 45533-45568]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28au97-7]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 80
[FRL-5883-3]
RIN 2060-AH48
Regulation of Fuels and Fuel Additives: Baseline Requirements for
Gasoline Produced by Foreign Refiners
AGENCY: Environmental Protection Agency (EPA).
ACTION: Final rule.
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SUMMARY: This final rule revises the requirements for imported
conventional gasoline. The Agency has revised the rules for
conventional gasoline (59 FR 7716, February 16, 1994) to allow a
foreign refiner to choose to petition EPA to establish an individual
baseline reflecting the quality and quantity of gasoline produced at a
foreign refinery in 1990 that was shipped to the United States. The
foreign refiner is required to meet the same requirements relating to
the establishment and use of individual refinery baselines as are met
by domestic refiners. This final action also includes additional
requirements that address issues that are unique to refiners and
refineries located outside the United States, namely those related to
tracking the movement of gasoline from the refinery to the United
States border, monitoring compliance with the requirements applicable
to foreign refiners, and imposition of appropriate sanctions for
violations. EPA will monitor the quality of imported conventional
gasoline, and if it exceeds a specified benchmark, EPA will apply
appropriate remedial action. Under this final action, the baseline for
gasoline imported from refiners without an individual baseline would be
adjusted to remedy the exceedance.
EPA believes this final rulemaking is consistent with the Agency's
commitment to fully protect public health and the environment, and with
the U.S. commitment to comply with its obligations under the World
Trade Organization agreement.
DATES: This final rule is effective August 27, 1997.
ADDRESSES: Materials relevant to the final rule have been placed in
Public Docket A-97-26 at the address below. Additional materials can be
found in Public Dockets A-91-02 and A-92-12, A-94-25 and A-96-33
located at Room M-1500, Waterside Mall (ground floor), U.S.
Environmental Protection Agency, 401 M Street S.W., Washington, DC
20460. The docket may be inspected from 8 a.m. until 5:30 p.m. Monday
through Friday. A reasonable fee may be charged by EPA for copying
docket materials.
FOR FURTHER INFORMATION CONTACT: Karen Smith, Fuels and Energy
Division, U.S. EPA (6406J), 401 M Street, SW., Washington, DC 20460,
Telephone: (202) 233-9674.
SUPPLEMENTARY INFORMATION:
Availability on the TTNBSS
Copies of this final rule are available electronically from the EPA
Internet Web site and via dial-up modem on the Technology Transfer
Network (TTN), which is an electronic bulletin board system (BBS)
operated by EPA's Office of Air Quality Planning and Standards. Both
services are free of charge, except for your existing cost of Internet
connectivity or the cost of the phone call to TTN. Users are able to
access and download files on their first call using a personal computer
per the following information. The official Federal Register version is
made available on the day of publication on the primary Internet sites
listed below. The EPA Office of Mobile Sources also publishes these
notices on the secondary Web site listed below and on the TTN BBS.
Internet (Web)
http://www.epa.gov/fedrgstr/EPA-AIR/
(either select desired date or use Search feature)
http://www.epa.gov/OMSWWW/
(look in What's New or under the specific rulemaking topic)
TTNBBS: The TTNBBS can be accessed with a dial-in phone line and a
high-speed modem (PH 919-541-5742). The parity of your modem
should be set to none, the data bits to 8, and the stop bits to 1.
Either a 1200, 2400, 9600, or 14400 baud modem should be used. When
first signing on, the user will be required to answer some basic
informational questions for registration purposes. After completing the
registration process, proceed through the following series of menus:
(T) Gateway to TTN Technical Areas (Bulletin Boards)
(M) OMS--Mobile Sources Information
(Alerts display a chronological list of recent documents)
(K) Rulemaking and Reporting
At this point, choose the topic (e.g, Fuels) and subtopic (e.g.,
Reformulated Gasoline) of the rulemaking, and the system will list all
available files in the chosen category in date order with brief
descriptions. To download a file, type the letter ``D'' and hit your
Enter key. Then select a transfer protocol that is supported by the
terminal software on your own computer, and pick the appropriate
command on your own software to receive the file using that same
protocol. After getting the files you want onto your computer, you can
quit the TTN BBS with the ``G''oodbye command.
Please note that due to differences between the software used to
develop the document and the software into which the document may be
downloaded, changes in format, page length, etc. may occur.
Regulated Entities
Entities regulated by this action are those foreign refiners and
importers which produce, import or distribute gasoline for sale in the
United States. Regulated categories and entities include:
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Examples of regulated
Category entities
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Industry.................................. Foreign Refiners, Importers.
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This table is not intended to be exhaustive, but rather provides a
guide for readers regarding entities potentially regulated by this
action. This table lists the types of entities that EPA is now aware
could potentially be regulated by this action. Other types of entities
not listed in the table could also be
[[Page 45534]]
regulated. To determine whether your company or facility may
potentially be regulated by this action, you should carefully examine
the applicability criteria of part 80, subpart D, of title 40 of the
Code of Federal Regulations. If you have questions regarding the
applicability of this action to a particular entity, consult the person
listed in the preceding FOR FURTHER INFORMATION CONTACT section.
The remainder of this final rulemaking is organized in the
following sections:
I. Background
A. Current Requirements for Imported Gasoline
B. May 1994 Proposal
C. The WTO Dispute Settlement Proceeding
D. Invitation for Public Comment
E. Requiring Individual Baselines for Foreign Refiners
F. Summary of Comments from NPRM
II. Description of Final Rule
A. Introduction
B. Requirements for Foreign Refiners with Individual Refinery
Baselines
1. Establish Refinery Baselines
2. Compliance with CG NOX and Exhaust Toxics
Requirements
3. Requirements for Tracking Refinery of Origin
4. Measures Related to Monitoring Compliance and Enforcement
C. Baseline Adjustment for Imported Gasoline that is Not FRGAS
1. Introduction
2. Monitoring
3. An Appropriate Benchmark
4. Remedial Action Upon an Exceedance
5. Imported Gasoline Subject to the Remedial Action
D. Requirements for U.S. Importers
1. Imported CG FRGAS
2. Imported CG that is not FRGAS
3. Imported RFG
E. Early Use of Individual Foreign Refinery Baselines
F. Requirements for RFG Before 1998
III. Summary of Changes from Proposal
IV. Response to Comments
A. Optional vs. Mandatory Baselines
B. Establishment of Individual Baselines
C. Liability: Party responsible for meeting the gasoline quality
requirements for FRGAS
D. Compliance Related Requirements
1. Sovereign Immunity
2. Agent for Service of Process
3. Bond Requirement
4. Foreign Refiner Commitments
5. Gasoline Tracking Requirements
6. Option to Classify Gasoline as Non-FRGAS
7. Third Party Testing Requirements
8. Diversion of FRGAS to Non-U.S. Markets
9. Attest Requirements
10. Imports from Canada by Truck
E. Remedial Measures
F. Compliance with WTO Obligations
V. Administrative Designation and Regulatory Analysis
A. Public Participation
B. Executive Order 12866
C. Economic Impact and Impact on Small Entities
D. Paperwork Reduction Act
E. Unfunded Mandates
F. Submission to Congress and the General Accounting Office
G. Statutory Authority
Regulation of Fuels and Fuel Additives
I. Background
A. Current Requirements for Imported Gasoline
On December 15, 1993, EPA issued final regulations that establish
requirements for reformulated gasoline (RFG) and conventional gasoline
(CG) (together the Gasoline Rule), as prescribed by section 211(k) of
the Clean Air Act (the Act). See 59 FR 7716 (February 16, 1994). Under
the Gasoline Rule, compliance by refiners and importers with the CG
requirements and certain RFG requirements is measured against baselines
that are intended to reflect a refinery's or importer's 1990 gasoline
quality. Domestic refiners are required to establish individual
refinery baselines of the quality and quantity of the gasoline produced
at each refinery in 1990. Domestic refinery baselines are calculated
using, in hierarchical order based on the availability of data, 1990
gasoline test data (Method 1), 1990 blendstock test data (Method 2), or
post-1990 blendstock and/or gasoline test data (Method 3). Under the
Gasoline Rule domestic blenders of gasoline and importers of foreign-
produced gasoline are treated differently than domestic refiners in
that they are required to establish baselines of the quality and
quantity of gasoline they produced or imported in 1990 using Method 1
data, if available. However, almost all blenders and importers lack the
actual 1990 test data necessary to establish a baseline using Method 1
data. As a result, blenders and importers are assigned the statutory
baseline, a baseline established by EPA in 1993 to approximate average
gasoline quality in the United States in 1990,1 with the
consequence that almost all gasoline produced at foreign refineries is
evaluated through the importer using the statutory
baseline.2 The baseline-setting scheme is specified in 40
CFR 80.91 through 80.93, and is discussed in the Preamble to the final
rule at 59 FR 7791 (February 16, 1994).
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\1\ The statutory baseline is calculated pursuant to section
211(k)(10)(B) of the Act which specifies the properties of
summertime statutory baseline gasoline, and instructs EPA to
establish the average properties of 1990 wintertime gasoline. The
Gasoline Rule specifies the properties of 1990 wintertime gasoline
in Sec. 80.45(b)(2), and the combined summer and winter, or annual,
statutory baseline gasoline properties in Sec. 80.91(c)(5).
Importers are required to meet various conventional gasoline
requirements by comparing the annual average quality of the gasoline
they import against the statutory baseline. An individual batch of
imported conventional gasoline is not subject to any requirements,
only the annual average of gasoline imported by the importer.
Foreign refiners are not subject to the requirements of the current
Gasoline Rule.
\2\ Only one importer had the Method 1 data necessary to
establish an individual baseline.
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In preparing the Gasoline Rule, EPA focused on three major issues
regarding the use of individual baselines for foreign refiners in the
RFG and CG programs. EPA's overriding consideration was the ultimate
environmental consequences of the baseline-setting scheme. The three
issues that EPA focused on were: (1) The technical difficulty of using
baseline-setting Methods 2 and 3 to accurately predict the quality of
the subset of a foreign refinery's gasoline that was exported to the
U.S. in 1990; (2) the ability of the Agency to adequately verify and
enforce the use of individual foreign refinery baselines, including
problems identifying the refinery of origin of imported gasoline and
enforcing gasoline content requirements against a foreign refiner; and
(3) the risk of adverse environmental effects from providing refiners
or importers with options in establishing baselines.
In developing the Gasoline Rule, EPA considered but did not go
forward with allowing foreign refiners the option of petitioning EPA to
establish individual baselines using Methods 1, 2, and 3, or defaulting
to the statutory baseline. EPA's reasons for not adopting the option at
that time are discussed at 59 FR 7785-7788 (February 16, 1994). When
EPA issued the final rule on December 15, 1993, however, it was not
fully satisfied that the baseline-setting scheme applicable to
importers and foreign refiners was the optimum solution and continued
to consider the issue.
B. May 1994 Proposal
In May 1994, EPA proposed to amend the Gasoline Rule to define
criteria and procedures by which foreign refiners would be allowed to
establish individual refinery baselines that reflected the properties
and volume of the gasoline that was produced at a foreign refinery in
1990 and exported for use within the United States. Under this
proposal, if a foreign refiner made the requisite showing through a
petition process EPA would establish an individual foreign refinery
baseline. U.S. importers of RFG produced at the foreign refinery would
have used the individual foreign refinery baseline
[[Page 45535]]
values to demonstrate compliance with the limited number of RFG
requirements that are based on individual baselines. Importers would
not have been allowed to use individual foreign refinery baselines for
the CG requirements. Foreign refinery baselines would have been used
only during the period 1995 through 1997 3 and only up to a
volume of gasoline each year that equaled the foreign refinery's 1990
baseline volume. The proposal also included detailed enforcement and
verification procedures.
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\3\ Individual refinery baselines are used to set certain
content requirements for RFG only through 1997. See 40 CFR 80.41.
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Subsequent to the May 1994 proposal, Congress included restrictive
language in the legislation on EPA's appropriations related to the May
1994 proposal. EPA took no further action on this proposal.
C. The WTO Dispute Settlement Proceeding
In 1995, the governments of Venezuela and Brazil initiated dispute
settlement proceedings before the World Trade Organization (WTO),
challenging as discriminatory the different treatment applied by the
Gasoline Rule to imported gasoline and gasoline produced by U.S.
refiners. Among other defenses, the United States argued that the rule
was justified by the difficulties associated with implementing and
enforcing individual baseline requirements with respect to foreign
refiners and by the potential environmental impact resulting from
providing foreign refiners the choice of employing individual
baselines. The dispute settlement panel reviewing the matter found the
regulation discriminatory under the General Agreement on Tariffs and
Trade 1994 (GATT) and that the United States had not shown that the
GATT's health, enforcement or conservation exceptions applied. The U.S.
appealed, arguing that the measure is covered by the GATT conservation
exception. The WTO Appellate Body recognized that the United States had
legitimate concerns, and modified the findings of the dispute
settlement panel accordingly, but concluded the rule did not satisfy
all the requirements for this exception. The Appellate Body based this
conclusion on its views that (1) the United States had not adequately
explored options available to deal with its compliance assurance
concerns, in particular international cooperative arrangements, and (2)
the United States had been concerned about the costs of the various
regulatory options to domestic refiners but there was no evidence
demonstrating similar concern about the costs to foreign refiners. The
Appellate Body recommended that the United States bring EPA's
regulations into conformity with WTO obligations, leaving the United
States to determine how it would comply.
On June 19, 1996 after the Administration had consulted with
Congress, the United States advised the WTO that the United States
intended to meet U.S. obligations with respect to the results of the
WTO dispute settlement proceedings, that the EPA had initiated an open
process to examine any and all options for compliance, and that a key
criterion in evaluating options would be fully protecting public health
and the environment. On June 28, 1996, EPA published an invitation for
public comment in the Federal Register (61 FR 33703), seeking input and
suggestions from all interested parties. The comment period closed on
September 26, 1996.
D. Invitation for Public Comment
The invitation for public comment was an attempt to identify any
and all options available to the Agency to meet U.S. international
obligations in response to the WTO decision. EPA's goal was to identify
all feasible options that are consistent with EPA's commitment to fully
protect public health and the environment, and at the same time are
consistent with the obligations of the United States under the WTO.
Specifically, EPA invited comment on: (1) How to accurately
establish a reliable and verifiable individual baseline for a foreign
refinery; (2) how EPA could adequately monitor compliance with and
enforce any baseline requirements; (3) how EPA could effectively
determine the refinery of origin of imported gasoline, so as to
determine the appropriate baseline to apply to the imported gasoline;
(4) the potential environmental impacts from implementing any suggested
options; and (5) a method by which EPA could better quantify or
characterize potential environmental impacts of any options proposed.
EPA also requested that commenters provide information and analysis on
the public health, environmental and economic impact associated with
any option presented.
EPA received sixteen comments from various interested parties
during the comment period. Additional comments were received subsequent
to the comment period. To review the comments submitted during the
invitation for public comment see Air Docket A-96-33 or 62 FR 24778
under Section D, Invitation for Public Comment.
E. Requiring Individual Baselines for Foreign Refiners
In preparing the earlier proposal and this final rule EPA attempted
to identify any and all options available to the Agency to meet U.S.
international obligations in response to the WTO decision. EPA's goal
was to identify all feasible options that are consistent with EPA's
commitment to fully protect public health and the environment, and at
the same time are consistent with the obligations of the United States
under the WTO. Comments submitted to EPA during and after the public
comment period, and EPA's consideration of this issue, identified two
broad approaches for consideration involving individual baselines for
foreign refineries.4
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\4\ The discussion in the preamble will focus on imports of CG,
as compared to imports of RFG. After January 1, 1998, individual
baselines have no application in the RFG program. For CG, however,
individual baselines will continue to be used in setting the
compliance requirement for all CG. The application of the final rule
to RFG prior to January 1, 1998 is discussed separately in this
notice at section II.F.
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One approach would require the use of individual baselines (IB) by
foreign refiners. Use of individual baselines by foreign refiners would
be mandatory, not optional. Under this approach, EPA would apply
basically the same requirements that apply to domestic refiners to
foreign refiners. For the reasons discussed in the proposal, and later
in this notice, EPA is not adopting this approach. EPA is instead
adopting the approach proposed, which allows foreign refiners to
establish and use an IB but does not mandate it. EPA will monitor the
emissions quality of imported gasoline and adjust the baselines for
gasoline imported from refiners without an individual baseline if a
specified benchmark is exceeded.
The mandatory approach would require all foreign refiners who
market gasoline to the U.S. to submit petitions to establish an
individual refinery baseline, using the same methods and procedures
currently in the regulations. Once an IB was assigned for a refinery,
that IB would be used in developing a volume weighted compliance
baseline. Under one approach, the foreign refiner would meet the
NOX and exhaust toxics requirements for CG exported to the
U.S. by that foreign refinery, in the same manner as domestic refiners.
Under an alternative approach the domestic importer would establish a
volume weighted compliance baseline reflecting the quantity and IBs of
gasoline imported from various foreign
[[Page 45536]]
refineries, and the domestic importer would meet the applicable CG
requirements. In either case, the use of a foreign refinery IB would be
subject to a volume cap, as for domestic refiners. Foreign refiners
would be subject to audits and inspections to verify the IB and to
verify the quantity and quality of gasoline sent to the U.S. from that
foreign refinery.5
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\5\ These and many other elements of a mandatory IB approach
would also apply where foreign refiners are provided an option to
establish and use an IB. As discussed later, it is the application
of these factors across all imported gasoline that leads to the
concerns raised by DOE relating to the supply and price of gasoline
in the U.S. market.
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Significant additional requirements would also need to be imposed
on gasoline imported under a foreign refiner's IB. For domestic
refiners, almost all gasoline is produced for the U.S. market and the
very small volume that is exported can be readily tracked and
subtracted from the domestic refiner's compliance calculations. The
domestic refiner then bases its CG compliance calculations on the
quality and quantity of finished gasoline when it leaves the refinery.
At that point it has entered the U.S. gasoline market, and there is no
need to track the gasoline or to segregate it from gasoline produced by
another refinery.
For a foreign refiner, only a portion of the refinery's total
production is likely to be sent to the U.S., ranging from a very small
percentage to a significant minority of production. The gasoline also
may travel through a long and complicated distribution system from the
point it leaves the refinery gate to the point it enters the U.S.
market. However the IB for a specific foreign refinery would properly
apply only to gasoline produced at that foreign refinery, and would not
apply to gasoline produced at a different foreign refinery.
Several facts would therefore need to be clearly established to
properly apply a foreign refinery's IB to a batch of imported gasoline.
First, the refinery that produced the specific batch of imported
gasoline must be identified. Second, it must be demonstrated that this
batch of gasoline has not been mixed with gasoline produced by a
different foreign refinery with a different IB, from the point it left
the refinery-of-origin to the point it entered the U.S. market. Third,
the total amount of CG and RFG produced by the foreign refinery and
sent to the U.S. market must be determined, to establish when the
volume cap is exceeded. As with domestic refiners, it would also be
important to track blendstocks produced and sent to the U.S. from a
foreign refinery, so a foreign refiner could not avoid a stringent IB
by shipping blendstocks instead of finished gasoline. Tracking and
segregation requirements would need to be adopted to implement this.
A certain amount of gasoline is imported from fungible gasoline
supplies, where the refinery of origin is not known. This occurred in
1990, and would be expected to continue to occur in the future. It
would be reasonable to allow the practice to continue, and gasoline
imported from such sources would continue to be subject to the
statutory baseline (SB). However a mechanism would need to be imposed
so that this supply of fungible gasoline could not be used as a way to
avoid a more stringent IB.
Under this approach, EPA would need to establish IBs for all
foreign refineries, most of which sent only a small volume of gasoline
to the U.S. in 1990. The methods used to set IBs for domestic refiners
could still be used to establish the quality and quantity of gasoline
sent to the U.S. by a foreign refiner in 1990. Given the large number
of foreign refineries involved and the potential for widely varying
technical and other ability to establish IBs, it is not clear that all
foreign refiners would have the information necessary to establish an
accurate IB for gasoline sent to the U.S. in 1990.
The Department of Energy (DOE) has advised EPA that this approach
could seriously affect the supply and price of gasoline in the U.S.
market. Currently gasoline is imported into the U.S. market from a free
moving and fungible distribution system for imported gasoline. The
volume of imported gasoline, while small compared to the total U.S.
gasoline supply, can have a significant impact on gasoline prices.
Imported gasoline tends to moderate price increases by increasing the
sources of gasoline to meet U.S. demand, whether in response to a trend
of increasing demand over time, or a short term supply problem based on
local or temporary changes in domestic supply or demand.
The mandatory approach outlined above would significantly change
the way gasoline is imported to the U.S. market, greatly increasing the
complexity and making it more likely that gasoline could not be quickly
and readily diverted to the U.S. market to meet demand. This would make
it more likely that imported gasoline would not play the same role that
it currently does in moderating price increases. The long term supply
implications are harder to predict.
The increase in complexity from this approach is based on the need
to ensure that the right IB is applied to a batch of imported gasoline,
that an IB is only used up to the applicable volume cap, and that
parties do not circumvent the appropriate IB by shifting gasoline or
blendstocks through other parties. Modifying the tracking and
monitoring restrictions described above to try and resolve the supply
concerns would increase the risk of adverse environmental effects from
this approach.
EPA is also concerned that this approach might produce incentives
that would tend to reduce the average quality of imported CG. For
example, gasoline from refiners with cleaner IBs would be measured
against a more stringent baseline than under the current rules, while
gasoline from refiners with dirtier IBs would be measured against a
less stringent baseline than under the current rules. Additional costs
would be associated with segregation, tracking, and other requirements
described above. To the extent these changes put refiners with clean
IBs at an economic disadvantage compared to refiners with either the SB
or an IB dirtier than the SB, it could potentially push the supply of
gasoline away from refiners with clean IBs.
After evaluating this approach, EPA did not propose it. While it
appears generally neutral in requiring individual baselines for both
domestic and foreign refiners, upon full consideration this approach
presents too great a risk of adverse effects on gasoline supply and
prices. EPA also has questions as to its potential environmental
impact. The Agency instead proposed the optional use of individual
baselines, with specific provisions for monitoring gasoline quality and
remedying any adverse environmental effects. EPA's rationale (including
the Department of Energy's analysis) for selecting this option is
further outlined below in Section IV. Response to Comments: Mandatory
vs. Optional Baselines.
F. Summary of Comments from NPRM
EPA received comments from nine associations representing various
groups including domestic gasoline producers, domestic importers, and
environmental organizations. Three domestic refiners individually
submitted statements supporting the comments submitted by their
representing associations. Three foreign refiners commented. One state
environmental organization submitted favorable comments to the NPRM.
EPA also received comments from the Commission of the European
Communities.
[[Page 45537]]
The issues addressed in the public comments include: the question
of mandatory versus optional baselines; EPA's use of cost
considerations in the final rule; the consideration of seasonal impacts
to prevent additional competitive advantages for foreign refiners;
whether or not the Agency has established appropriate and adequate
monitoring, compliance and enforcement requirements; the requirement
for a waiver of sovereign immunity; and the implementation of the
remedial action. This is not intended to be an exhaustive list of
comments. A complete set of comments is available from the Air Docket
(A-97-26). The major issues and comments are addressed in the Response
to Comment section of this final rule.
II. Description of Final Rule
A. Introduction
Today's final action allows foreign refiners the option to
establish and use IBs under the conventional gasoline program. Specific
regulatory provisions will be implemented to ensure that the optional
use of an IB will not lead to adverse environmental impacts. This
involves monitoring the average quality of imported gasoline, and if a
specified benchmark is exceeded, remedial action will be taken. The
remedial action involves making the requirements for imported gasoline
not subject to an IB more stringent. This will ensure the environmental
neutrality of this approach.
Under this final rule, the procedures and methods for setting an
IB, as well as the tracking, segregation and other compliance related
provisions described below will all apply. However, they will only
apply where a foreign refiner chooses to apply for an IB.
The volume of gasoline that can be imported under the IB for a
foreign refinery is limited in the same manner as for domestic
refiners, relative to a refinery's 1990 baseline volume. Since the
foreign refiner seeks an IB in order to specifically produce gasoline
for the U.S. market, the tracking and segregation requirements noted
above should not have a significant impact on the ready availability of
gasoline for import. The current requirements for imported gasoline
will continue to apply for all of the other gasoline imported into the
U.S.
There was some concern about the possible environmental impact of
providing this option to foreign refiners. A foreign refiner may only
have an economic incentive to seek an IB if it will be less stringent
than the SB. Gasoline produced by this foreign refiner would then be
measured against this less stringent IB. Other imported gasoline would
be measured against the SB through the importer. As compared to the
situation in 1990, there would be the potential for the quality of
imported gasoline to degrade from an emissions perspective.
The size and amount of this impact, however, is difficult to
quantify. It would depend on the number of foreign refiners that
receive an IB, the specific emissions levels of the IBs assigned, and
the volume of gasoline included in the IB. It would also depend on the
source and amount of CG and RFG imported into the U.S. in a specific
year. It is also hard to quantify to what extent, if any, foreign
refiners who produced gasoline in 1990 that was cleaner than the SB
would ship gasoline that is dirtier than what they shipped in 1990.
These circumstances, as well as the existence of a volume cap on the
use of IB's, and the large variation in the total levels of CG and RFG
imports each year make it difficult to assess in advance the risk of an
adverse environmental impact.
EPA is addressing these potential environmental concerns in the
final rule by: (1) Establishing a benchmark for the quality of imported
gasoline that will reasonably identify when the factors identified
above have led to an adverse environmental impact; (2) monitoring
imported gasoline to determine whether the benchmark has been exceeded;
and (3) if the benchmark is exceeded, imposing a remedy that
compensates for the adverse environmental impact.6
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\6\ EPA has adopted an analogous approach in the RFG program.
See 40 CFR 80.41 and 80.68.
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The benchmark for imported gasoline quality is the volume-weighted
average of the IBs for domestic refiners. EPA is finalizing a benchmark
for NOX emissions performance set at the volume weighted
average for domestic baselines. No benchmark is being set at this time
for exhaust toxics emissions performance, as there does not appear to
be the same potential for environmental degradation that there could be
for NOX.
EPA will monitor the quality of imported gasoline based on the
annual compliance reports filed by importers and foreign refiners
producing gasoline that is exported to the U.S. Each year EPA will
evaluate the volume weighted annual average quality of the three prior
years and compare it to the benchmark. If the average quality of
imported gasoline exceeds the benchmark, NOX requirements
for gasoline imported from refiners without an IB (currently set at the
SB) will increase in stringency the following year by an amount
equivalent to the exceedance. This will occur each time the annual
monitoring indicates that the benchmark is exceeded. If the amount of
an exceedance either increases or decreases, the amount of the remedy
will be correspondingly adjusted on an annual basis. If the annual
monitoring shows that imported gasoline does not exceed the benchmark,
the compliance requirements will be reduced to the SB for the following
year. The more stringent requirements will apply to all imported
gasoline except for gasoline produced by foreign refiners with an IB.
This approach meets the goals of environmental protection and
compliance with international obligations, as announced in the June
1996 Invitation for Public Comment, and avoids the potential supply,
price and environmental consequences of the alternative approaches
considered by EPA.
The remainder of this section describes the contents of this final
rule. The following sections describe the changes made from the
proposal as well as the response to comments received by the Agency.
The preamble to the proposal also provides additional information
related to provisions that EPA is finalizing without change from the
proposal.
B. Requirements for Foreign Refiners With Individual Refinery Baselines
1. Establish Refinery Baselines
Under this final action, a foreign refiner has the option of
submitting an individual refinery baseline petition to EPA. The
refinery baseline would reflect the quality and quantity of gasoline
produced at the foreign refinery in 1990 that was exported to the U.S.
The procedures for establishing individual refinery baselines are
located in sections 80.90 through 80.93. These same procedures were
used by domestic refiners to develop their IBs based on their overall
gasoline quantity and quality for 1990.
EPA is requiring that foreign refiners that elect to develop
individual refinery baselines would also follow these procedures to
determine the quality and quantity of gasoline they produced in 1990
that was exported to the U.S. As is the case for domestic refiners,
under section 80.92 baseline petitions would have to be supported by
the report of an EPA-approved baseline auditor.
i. Required Information: The requirements for establishing
individual baselines for foreign refineries are essentially the same as
the baseline establishment requirements for domestic refineries. EPA is
adopting additional requirements for foreign
[[Page 45538]]
refineries that address the unique circumstances associated with
establishing and enforcing the establishment and use of an individual
baseline by a foreign refiner.
The procedures for developing individual refinery baselines, set
forth in sections 80.90 through 80.93, are highlighted below and
discussed with respect to foreign refineries.
A foreign refinery's individual baseline (i.e., quality
and quantity information) must be calculated using, in hierarchical
order based on the availability of data, 1990 gasoline test data
(Method 1), 1990 blendstock test data (Method 2), or post-1990
blendstock and/or gasoline test data (Method 3) to determine the
quality and quantity of the subset of gasoline exported to the United
States in 1990.
All data collected beginning in 1990 and through the last
date of any data collection under section 80.91(d)(1)(i)(B) must be
used in the development of the foreign refineries baseline.
Baseline petitions must be submitted in the same manner as
is required of domestic refiners under section 80.93. Baseline
petitions must be submitted before January 1, 2002. EPA is requiring
the same type and quality of information and level of accuracy in
establishing a baseline no matter when a foreign refiner applies for a
baseline.
EPA is requiring that in order for a refinery to receive
an approved baseline, the refinery must commit to give EPA's auditors
full access to the foreign refinery to conduct announced and
unannounced inspections and audits related to the baseline development
and submission. EPA baseline audits could occur at any time after a
baseline petition has been submitted, either before or after EPA
approves a refinery baseline.
Under section 80.93(b)(1)(i) foreign refiners are required
to provide any additional information requested by EPA to support a
baseline submittal or petition, as is required for domestic refiners.
Under section 80.93(c) a separate baseline will be
established for each foreign refinery. However, as is the case of U.S.
refiners a foreign refiner could petition EPA for a single refinery
baseline for two closely integrated facilities under section
80.91(e)(1). In addition, as is the case for U.S. refiners, a foreign
refiner who operates more than one refinery with individual baselines
would be able to aggregate the baselines of some or all of its
refineries under section 80.101(h).
All documentation included in a baseline submission or
petition must be in the English language or include an English language
translation.
ii. EPA Action on Baseline Submissions: As for the domestic refiner
baseline approval process, EPA will subject foreign refinery baseline
submissions to an in-depth analysis and review. EPA also reserves the
right to inspect, audit and review all records or facilities used to
generate data submitted to the Agency prior to acting on a baseline
submission or petition.
After conducting its review of the data and analysis in a baseline
submission, EPA will assign an individual baseline that represents the
quality and quantity of gasoline exported to the U.S. in 1990. EPA
believes that individual refinery baselines can be established for
foreign refineries for which individual baselines are sought to the
same degree of confidence as the baselines established for domestic
refineries. Further guidance on EPA's expectations for the petition
submission and approval process is provided in the proposed rule at 62
FR 24781 (May 6, 1997).
2. Compliance With CG NOX and Exhaust Toxics Requirements
The gasoline produced at a foreign refinery with an individual
refinery baseline that is imported into the United States is called
``Foreign Refinery Gasoline,'' or ``FRGAS.'' Foreign refiners with
individual baselines are required to designate all FRGAS into one of
two categories: conventional gasoline FRGAS that is included in the
foreign refiner's NOX and exhaust toxics compliance
calculations, which is called ``certified FRGAS,'' and all other FRGAS,
which is called ``non-certified FRGAS.'' The non-certified FRGAS
category includes gasoline that meets the quality requirements for RFG,
as well as gasoline that is not RFG quality and has not been included
in the foreign refiner's NOX and exhaust toxics compliance
calculations.
Foreign refiners who obtain individual foreign refinery baselines
will have to meet the NOX and exhaust toxics emissions
performance requirements for all gasoline classified as certified
FRGAS.7
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\7\ Non-certified FRGAS will be regulated through the importer.
If the importer classifies it as RFG, it will have to meet the RFG
requirements. If the importer classifies it as CG, it will have to
meet the importers compliance baseline for CG, which in almost all
cases is the statutory baseline.
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In addition, foreign refiners with an individual refinery baseline
will be required to meet all requirements used to demonstrate
compliance with the CG emissions requirements. Certain adjustments to
these provisions are specified in the regulations to apply them to
foreign refiners. These are the same requirements that apply to
domestic refiners, and include the following:
To register with EPA, section 80.103.
To designate each batch of FRGAS as certified or non-
certified, section 80.65(d).
To determine the volume and properties of each certified
FRGAS batch through sampling and testing, section 80.101(i).
To determine the volume of each batch of non-certified
FRGAS in order to complete the compliance baseline calculation in
section 80.101(f).
To prepare product transfer documents for FRGAS, sections
80.77 and 80.106.
To keep certain records for five years, sections 80.74 and
80.104.
To submit reports to EPA on each batch of FRGAS, on the
volume of non-certified FRGAS, and on the annual average quality of
certified FRGAS, sections 80.75 and 80.105.
To comply with an annual cap on the volume of specified
blendstocks that are transferred to others and used to produce gasoline
for the U.S., section 80.102.
To have an independent audit performed of refinery
operations each year to review certain activities related to the FRGAS
requirements, sections 80.125 through 80.130. However, the audit
procedures for non-certified FRGAS would be limited to the procedures
that evaluate the quantity of non-certified FRGAS, and audits would not
be required to include procedures intended to verify information about
non-certified FRGAS that is unrelated to the compliance baseline
calculation, such as the quality of non-certified FRGAS quality or VOC-
control designations.
Under section 80.101(f) a compliance baseline for NOX
and exhaust toxics compliance is calculated for each calendar year
averaging period based on a refinery's 1990 baseline volume and
baseline NOX and exhaust toxics values, and the total
gasoline volume (CG and RFG) produced at the refinery and imported into
the U.S. during the averaging period. As a result, a foreign refiner
with an individual refinery baseline will be required to establish the
volume of U.S. market gasoline that is non-certified FRGAS in order to
calculate the refinery's compliance baseline for the NOX and
exhaust toxics CG requirements (see footnotes at 62 FR 24782 for
further clarification).
[[Page 45539]]
Therefore, a foreign refiner with an individual refinery baseline
will be required to designate each batch of U.S. market gasoline as
certified FRGAS or non-certified FRGAS, to establish the volume and
properties of gasoline designated as certified FRGAS, and to establish
the volume of gasoline designated as non-certified FRGAS.
All foreign refiners with individual refinery baselines will be
required to submit annual reports to EPA that demonstrate the average
NOX and exhaust toxics emissions for certified FRGAS meets
the refinery's compliance baseline for the averaging period.
Under today's final action, certified FRGAS will be treated
basically under the same rules as gasoline produced for the U.S. market
at a domestic refinery. The certified FRGAS will be subject to the same
conventional gasoline requirements as the conventional gasoline
produced by domestic refiners. During 1997, under section 80.101(b)(1)
a refinery's annual average for sulfur, T-90, olefins and exhaust
benzene emissions may not exceed its individual baseline for these fuel
characteristics. Starting in 1998 a refinery's annual average
conventional gasoline NOX and exhaust toxics emissions may
not exceed its individual baseline for these fuel characteristics. In
order to evaluate compliance, however, certified FRGAS must be
designated as such at the point of production, and must be tracked to
determine that it in fact is exported to the U.S.
In order to determine compliance with the NOX and
exhaust toxics requirements for certified FRGAS, the quality and
quantity of each batch of certified FRGAS must be determined. The
volume of non-certified FRGAS also will have to be determined, because
the compliance baseline applicable to a refinery depends on the total
volume of gasoline produced at a refinery and imported into the U.S.
market, including both certified and non-certified FRGAS. To determine
the quality and/or quantity of this gasoline, a foreign refiner will
have to designate FRGAS when it is produced. It also is important that
gasoline used in a foreign refinery's compliance calculation all be
designated as FRGAS and actually imported into the U.S.
In the case of certified FRGAS the foreign refiner must include the
gasoline in the refinery's NOX and exhaust toxics compliance
calculations, and meet the refinery tracking requirements, described
below. Gasoline that is not classified as FRGAS and is not imported
into the U.S. must be excluded from the refinery's compliance
calculations, and the refiner is not required to meet the refinery
tracking requirements for this gasoline.
However, the foreign refiner will continue to be required to
include all non-certified FRGAS in the refinery's compliance baseline
calculations and to meet the refinery tracking requirements for all
non-certified FRGAS. This is necessary in order to prevent adverse
environmental effects. As in the case of domestic refiners, all
gasoline imported into the United States must be included in a
refinery's compliance baseline calculation because a larger volume of
non-certified FRGAS results in a more stringent compliance baseline
applicable to the certified FRGAS.
3. Requirements for Tracking Refinery of Origin
EPA is finalizing a series of requirements to accurately identify
both certified and non-certified FRGAS gasoline upon its arrival into
the U.S. There is the potential for adverse environmental results if a
foreign refiner includes gasoline in its CG NOX and exhaust
toxics compliance calculations that is not imported into the U.S. In
addition, there is environmental risk if a foreign refiner fails to
include in its compliance baseline calculations the volume of any
gasoline that is imported into the U.S.
i. Segregation of FRGAS: EPA is requiring that certified FRGAS must
remain physically segregated from non-certified FRGAS and from
certified FRGAS produced at another refinery, from the foreign refinery
to the U.S. port of entry. As a result of this requirement, when a
foreign refiner loads FRGAS onto a ship for transport to the U.S. the
foreign refiner must know the gasoline is exclusively FRGAS that is
being included in the refinery compliance calculations (for certified
FRGAS), or compliance baseline calculations (in the case of non-
certified FRGAS).
This segregation requirement would not prohibit a foreign refiner
from combining batches of certified FRGAS, or combining batches of non-
certified FRGAS, that are produced at a single refinery into larger
volumes for shipment. In addition, where multiple refineries have been
aggregated under Sec. 80.101(h), certified FRGAS produced at the
aggregated refineries may be combined, and non-certified FRGAS produced
at the aggregated refineries may be combined.
ii. Foreign Refiner Certification of FRGAS: EPA is requiring that
foreign refiners of FRGAS prepare a certification, signed by an
appropriate foreign refiner official, for FRGAS when it is loaded onto
a ship for transport to the U.S. This certification must identify the
gasoline as being FRGAS, whether the FRGAS is certified or non-
certified, the foreign refinery where the FRGAS was produced, and the
volume of the FRGAS being transported. In the case of certified FRGAS
the certification must also include the properties of the gasoline
being transported and a declaration that the gasoline is being included
in the NOX and exhaust toxics compliance calculations for
the foreign refinery. A single declaration may apply to the entire
contents of a vessel where the gasoline is only certified FRGAS or is
only non-certified FRGAS.
The foreign refiner certification must be supported by an
inspection by an independent, EPA-approved third party such as an
independent laboratory. The independent party must confirm the refinery
of origin, guarantee that no prohibited mixing occurred, and determine
the volume and properties of the certified FRGAS, and the volume of
non-certified FRGAS.
The independent party is required to prepare a report on these
inspections that becomes a part of the foreign refiner's certification.
The independent party also must submit an inspection report to EPA.
iii. U.S. Importer Receipt of FRGAS: Under this final rule, the
U.S. importer must classify certified-FRGAS as such if the gasoline is
accompanied by a foreign refiner certification that is properly
supported by an independent party's report, and if test results from
the load port are consistent with test results from the U.S. port of
entry.
The regulations require the importer to test the FRGAS, and include
criteria for comparing the load port and port of entry testing. The
test results have to agree, for five specified parameters (sulfur,
benzene, gravity, E200 and E300), within the reproducibility limits for
the test procedures for these parameters. The two volume
determinations, corrected for temperature, have to agree within one
percent. EPA believes this level of volume correlation is appropriate
because it is well within the level of correlation normally expected in
commercial transactions. EPA understands that protests normally are
initiated if ship volume determinations in commercial dealings differ
by 0.5%.
Importers are required to include in their NOX and
exhaust toxics compliance calculations any FRGAS for which the importer
does not obtain a certificate by the foreign refiner supported by a
report prepared by an independent third party, or FRGAS where the load
and entry port comparison is outside the range specified in the
regulations.
[[Page 45540]]
In the case of FRGAS for which the importer obtains a properly
supported foreign refiner certificate, but where the volume and/or
parameter results from the load port and port of entry do not meet the
range requirements, the gasoline must be imported as non-certified
FRGAS.8 In addition, the foreign refiner is required to
remove the volume and properties of the FRGAS from its NOX
and exhaust toxics compliance calculations, because the gasoline now is
classified as non-certified FRGAS. However, the foreign refiner must
retain the volume of the FRGAS in its compliance baseline calculation,
the same as any other non-certified FRGAS, unless the foreign refiner
can demonstrate that the importer did not classify the gasoline or as
RFG or use it to produce RFG.
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\8\ The importer may also treat as GTAB any gasoline classified
as non-certified FRGAS.
---------------------------------------------------------------------------
In a case of load port and port of entry test results that are
outside the specified range for certified FRGAS, the regulations also
allow the gasoline to retain this classification if the NOX
and exhaust toxics emissions performance based upon port of entry test
results is ``cleaner'' for both pollutants than the emissions
performance based upon the load port test results.
U.S. importers are required to report to EPA on each batch of FRGAS
imported, identifying the foreign refinery, whether the FRGAS is
certified or non-certified, the volume and properties of certified
FRGAS, and the volume of non-certified FRGAS.9
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\9\ Non-certified FRGAS also must be included in the U.S.
importer's compliance calculations for RFG or conventional gasoline.
The importer must meet all current requirements for such gasoline,
such as sampling, testing and reporting.
---------------------------------------------------------------------------
iv. Attest Engagement Requirements: Under today's final rule,
foreign refiners of FRGAS must meet the independent attest engagement
requirements in sections 80.125 through 80.130, the same as domestic
refiners, although the attest requirements for non-certified FRGAS are
limited to those related to the volume of non-certified FRGAS produced
at a foreign refinery.10 EPA is adopting additional attest
requirements that relate to the FRGAS requirements. These attest
requirements supplement the requirements regarding an independent party
determination of the refinery that produced FRGAS loaded onto a ship.
The focus of the attest requirements will be on the foreign refinery
operations, while the requirements for certification by an independent
party focus on the transportation and storage of gasoline from the
refinery to the point of ship loading.
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\10\ ``Attest engagement'' is a term of art used by auditors to
describe the conduct of specified audit procedures--the auditor
attests to the conduct and results of the specified audit, or
attest, procedures completed during the attest engagement. The
requirements in sections 80.125 through 80.130 consist of specified
attest procedures dealing with the Gasoline Rule and instructions
for the conduct of these procedures.
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For further details on the procedures an auditor will be required
to perform see 62 FR 24784 (May 6, 1997) ``Attest Engagement
Requirements.''
v. Requirements for Third Parties: EPA is requiring that FRGAS
sampling, volume and fuel quality determinations and determinations of
refinery of origin at the loading port will have to be performed by an
independent party. The criteria for independence are the same criteria
that apply for the independent sampling and testing requirement for
domestic refiners and importers, and that are specified at section
80.65(f)(2)(ii). In addition, persons performing this work must be EPA
approved. EPA approval will be based on the ability to perform the
required work as demonstrated through a petition process.
Independent parties will have to agree to allow EPA inspections and
audits relative to their work under the Gasoline Rule for the foreign
refiner that are similar to the commitments required by foreign
refiners, described below.
Third party sampling and testing is a necessary part of the foreign
refiner FRGAS program. However, in response to comments EPA is
modifying these requirements in several ways for this final rule, as
discussed below.
4. Measures Related to Monitoring Compliance and Enforcement
i. Introduction: The requirements for foreign refiners with
individual refinery baselines must be subject to strong measures for
monitoring compliance and enforcing violations, as are domestic
refiners. However, there are a number of unique circumstances
associated with monitoring compliance and enforcing requirements for
foreign refiners. EPA is adopting a range of provisions designed to
address these concerns in a comprehensive manner. These provisions will
promote EPA's ability to monitor compliance with the requirements
related to foreign refinery baselines, to conduct enforcement actions
when violations of these requirements are found, and to impose
sanctions that will constitute a deterrent to future violations.
The purpose of the provisions is to ensure that EPA's compliance
and enforcement activities with regard to foreign refiners will be on a
par with those for domestic refiners, in order to assure achievement of
the environmental objectives of the gasoline programs.
ii. Inspections and audits: EPA intends to inspect and audit
foreign refineries with individual baselines and other facilities
located overseas to determine compliance with requirements related to
establishing a baseline, identifying refineries or origin, and other
requirements proposed today. Foreign refiner inspections and audits
will be like domestic refiner inspections and audits with regard to
types of facilities visited, types of information reviewed, and types
of persons who conduct the inspections and audits. As with domestic
inspections and audits, some of the inspections and audits may be
announced while some will be unannounced.
With the exception of the limited waiver of sovereign immunity, all
aspects of section (ii) inspections and audits (62 FR 24784-24785, May
6, 1997) outlined in the proposal are adopted by today's action. For a
detailed list of the inspection and audit requirements refer to that
section of the proposed rule. EPA's response to comment and final
action on the limited waiver of sovereign immunity is addressed below
in section D.
Where a foreign refiner fails to abide by the terms of the foreign
refiner commitments, or a foreign government fails to allow entry for
the purpose of EPA inspections and audits, EPA may withdraw or suspend
the refiner's individual refinery baseline.
iii. Administrative, civil, and criminal enforcement actions: A
foreign refiner with an individual refinery baseline who submits false
documents to EPA or who fails to meet other requirements will be
subject to civil, and in certain cases criminal, enforcement, and EPA
is adopting requirements that will facilitate prosecution of such
violations. These requirements consist of provisions relating to a
waiver of sovereign immunity, and commitments the foreign refiner must
include in a baseline petition submitted to EPA.
Each foreign refiner seeking an individual refinery baseline must
identify an agent for service in the U.S. and agree that service on
this agent constitutes service on the foreign refiner and its
employees. This agent for service need not be a general agent for
service; the agent need only be authorized to accept service by EPA, or
otherwise by the U.S., for enforcement actions related to these
regulatory provisions. The agent for service must be located in the
District of Columbia.
Foreign refiners have to acknowledge that the forum for civil
enforcement actions will be governed by Clean Air
[[Page 45541]]
Act (CAA) section 205. CAA section 205(b) specifies that the venue for
district court actions is either the district where the violation
occurred or where the defendant resides or in the Administrator's
principal place of business. However, EPA believes that the U.S.
district court for the District of Columbia would be the appropriate
court for violations related to the requirements proposed today that
are committed by defendants who reside outside the U.S. Administrative
assessment of civil penalties is allowed under CAA section 205(c) where
the penalty amount does not exceed $200,000, or where the EPA
Administrator and the Attorney General jointly determine that a case
involving a larger penalty is appropriate for administrative penalty
assessment.
Foreign refiners of FRGAS must acknowledge that civil and criminal
enforcement actions will use the same U.S. civil and criminal
substantive and procedural laws that apply in enforcement actions
against domestic refiners. All of these requirements are finalized in
today's rulemaking.
iv. Sanctions for civil and criminal violations: The sanctions for
civil and criminal violations committed by foreign refiners with
individual refinery baselines or employees of such foreign refiners
include the sanctions specified in the Clean Air Act. Under CAA section
211(d) the penalty for civil violations of the RFG and conventional
gasoline requirements is up to $25,000 per day of violation plus the
amount of economic benefit or savings resulting from the violation.
Injunctive authority is included under section 211(d)(2) as well. CAA
section 113(c) specifies that the criminal penalty for first violations
of knowingly making false statements or reports is a fine pursuant to
title 18 of the U.S. Code, or imprisonment for up to 5 years, or both.
The period of maximum imprisonment and the maximum fine are doubled for
repeat convictions.
Foreign refiners seeking and then operating under an individual
refinery baseline must post a bond with the U.S. Treasury that will be
available to satisfy any civil penalty or criminal fine that is imposed
against the refiner or its employees, but only with regards to
enforcement of the regulatory provisions adopted today. The amount of
this bond is $0.01 per gallon of certified FRGAS imported from the
refiner into the U.S. per year, based on the maximum annual volume of
certified FRGAS imports during the most recent five year period during
which the foreign refiner exported certified FRGAS to the U.S. using an
individual refinery baseline. However, the initial bond amount will be
based on the volume of conventional gasoline or certified FRGAS
produced at a foreign refinery that was imported into the U.S. during
the year immediately preceding the year the baseline petition is
submitted.11 The foreign refiner must submit with its
baseline petition a bond to reflect this volume, and include with its
baseline petition information necessary to accurately establish the
conventional gasoline volume for the preceding year. The foreign
refiner then each year would take into account in its bond amount
calculation the certified FRGAS volume for an additional year until
there is a five year history, at which time the certified FRGAS volume
review would include only the most recent five years.
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\11\ A foreign refinery's 1990 baseline volume would not be
appropriate for setting the bond amount, because in 1990 the
Gasoline Rule was not in effect, so there was no gasoline identified
as conventional or RFG.
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As an alternative to posting the bond with the U.S. Treasury, a
foreign refiner may meet the bond requirement by obtaining a bond in
the proper amount from a third party surety agent that would be payable
to satisfy U.S. judicial judgments for civil or administrative
penalties against the foreign refiner provided that EPA agrees in
advance to the third party and the nature of the surety agreement. In
addition, the bond requirement may be met by an alternative commitment
that results in assets of an appropriate liquidity and value being
readily available to the United States, provided that EPA agrees in
advance to the alternative.
As with domestic refiners, any violation of a regulatory
requirement by a foreign refiner could result in the imposition of
penalties. For foreign refiners with individual refinery baselines the
assessment of a penalty could then result in the forfeiture of a bond
to satisfy the penalty. This would, for example, include a failure to
allow EPA inspections and audits; failure to submit required audit
reports prepared by an independent auditor; or failure to properly
identify the source refinery for FRGAS.
If a foreign refiner with an individual refinery baseline fails to
meet any requirements, including those that apply to all refiners under
the current regulations, and/or the additional requirements that would
apply only to foreign refiners, then EPA may administratively withdraw
or suspend its individual refinery baseline.
Withdrawal or suspension of an individual refinery baseline may be
imposed for all of the refineries operated by a foreign refiner, or for
a subset of a foreign refiner's refineries where appropriate. EPA will
impose this sanction in a particular case only after evaluating the
circumstances and exercising its discretion based on factors such as
egregiousness, willfulness and prior violations. The withdrawal or
suspension may be imposed for a limited time.
C. Baseline Adjustment for Imported Gasoline That Is Non-FRGAS or Non-
Certified FRGAS
1. Introduction
Allowing foreign refiners to choose whether to establish an IB
creates a potential for adverse environmental impact. This potential is
addressed by monitoring the quality of imported gasoline, comparing it
to a benchmark, and taking remedial action if the benchmark is
exceeded. The details of this approach are described below.
2. Monitoring
Under the current regulations, importers submit an annual report
concerning the quality of the CG they import. See 40 CFR 80.105.
Importers submit an annual report after the end of the calendar year,
comparing the quality of the gasoline they imported against the
applicable annual average requirements. Starting in 1998, these
requirements are for NOX and exhaust toxics emission
performance, determined under the Complex Model.
Under the current rules, the annual report is due by the last day
of February following the end of the annual averaging period. An attest
engagement report is due by May 30. The importer's report must include
the total gallons of CG imported, the annual average compliance
baseline, and the annual average for the gasoline imported that
calendar year. The importer must also include the volume, grade and
qualities for each batch of imported gasoline.
Under today's final rule, importers will continue to submit the
reports described above for CG produced by foreign refiners without an
IB. For gasoline produced by a foreign refiner with an IB, both the
importer and the foreign refiner will submit reports to EPA. In
combination these reports will contain all of the information submitted
for gasoline produced by refiners without an IB.
These annual reports submitted by importers and foreign refiners
provide EPA with batch by batch information for all CG imported during
that year. From these, EPA will determine the volume weighted average
quality for all imported CG. This will be a simple and straightforward
way to monitor
[[Page 45542]]
imported gasoline quality. Additional sampling and testing by EPA would
be duplicative, as the importer must sample and test each batch of
imported gasoline. 40 CFR 80.101(i).
3. An Appropriate Benchmark
The purpose of the benchmark is to reasonably determine when
allowing foreign refiners the option to use an IB or to not use an IB
has caused degradation of the quality of imported gasoline from 1990
quality of imported gasoline.
Ideally, EPA would use the volume weighted average of the quality
of gasoline sent to the U.S. by foreign refineries in 1990. EPA does
not have this information, but does have information on the volume
weighted average baselines for domestic refineries. This average
accounts for approximately 95% of the U.S. gasoline market in 1990, and
reflects a wide diversity in types and kinds of refineries. There is no
available data indicating that gasoline imported from foreign
refineries was not consistent with this average, and absent evidence to
the contrary it is not unreasonable to assume that average foreign
gasoline quality in 1990 was generally equivalent to domestic gasoline
quality. Also it would not be reasonable to measure overall quality for
gasoline produced by foreign refiners using stricter criteria than that
applied to domestic refiners, in the absence of evidence to support
such an action.
The benchmark should be set at a point such that an exceedance of
the benchmark reasonably indicates that the average quality of imported
gasoline has degraded from 1990 levels because of the option provided
to foreign refiners in using or not using an IB. Many additional
factors also affect the average quality of imported gasoline. For
example, there is a wide variety in the level of imports from year to
year. The source and volume of imports from specific countries and
refineries also varies significantly from year to year. Despite general
trends in amount and source of imported gasoline, there remains a lot
of year to year variability. A change in average gasoline quality
during any particular year therefore might indicate the effects of
allowing the option for IBs, or it might reflect the unique
circumstances of that year, which may well change the next year.
Since the existence of an exceedance of the benchmark is designed
to detect a multi-year trend, EPA will use a three year average for
comparison against the benchmark. This will be a rolling average; e.g.
the average for years 1 through 3 will be compared to the benchmark one
year, the next year the average for years 2 through 4 will be compared,
and so on.
EPA is setting this benchmark for NOX at the volume
weighted baseline average for domestic refiners: 1465 mg/mile for
NOX.12
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\12\ This value is based on the Phase 2 Complex Model, and will
be used prior to and after 2000.
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For toxics, the evidence to date tends to show there would not
likely be an adverse impact from allowing the option to use IBs. In
1995, the volume weighted annual average of imported gasoline for
exhaust toxics was 86.64 mg/mile. This was cleaner than both the
statutory baseline (104.5 mg/mile) and the volume weighted average for
domestic baselines (97.34 mg/mile).\13\ In addition, one foreign
refiner that is a major supplier to the U.S. market has submitted
detailed information to EPA on their expected IB, and the information
submitted by the foreign refiner to date indicates that their IB for
exhaust toxics would be cleaner than the SB.\14\ Further information is
discussed in the response to comments section. EPA believes the present
circumstances do not indicate that there is a risk of adverse
environmental impact, and a benchmark and provisions for remedial
action are not needed for exhaust toxics at this time. Instead, EPA
will monitor the average quality of imported gasoline for exhaust
toxics as for NOX, and if an adverse trend occurs EPA will
develop a benchmark and remedial provisions analogous to that adopted
for NOX.
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\13\ In 1995 the volume weighted average for NOX for
imported gasoline was 1415.9 mg/mile, while the SB was 1461 mg/mile,
and the volume weighted average for domestic baselines was 1465 mg/
mile.
\14\ See 59 FR 22809 (May 3, 1994).
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At the start of the program, the volume weighted average for 1998
and 1999 will be compared to the benchmark, and then the average for
1998, 1999 and 2000, to start the three year rolling average. A one
year average for 1998 alone would not by itself appear adequate to
detect a multi-year trend, while a two year average would be more
effective in this regard. The effects of imports in 1998 would still be
fully accounted for, in the two year average including 1999. Since an
IB might start to be used in 1997, EPA will include with the 1998
imports all gasoline imported in 1997 after the date any gasoline
subject to an IB is imported in 1997.
4. Remedial Action Upon an Exceedance
If a volume weighted three year annual average for imported CG
exceeds the benchmark for NOX then EPA will take remedial
action. The remedial action will be an adjustment applied to the
compliance baseline for CG not included in the CG compliance
calculations of a foreign refiner with an IB. The adjustment to the
baseline will equal the amount of the exceedance of the benchmark.
This will be reevaluated each year by comparing the average for the
three prior years to the benchmark. If there is no exceedance, then a
prior adjustment will be terminated. If there is an exceedance, then a
new adjustment will be imposed that equals the amount of the current
exceedance. For example, if the three year annual average exceeds the
NOX benchmark by 5 mg/mile, then the compliance baseline for
NOX will be adjusted by 5 mg/mile. If there is no exceedance
in the next years comparison, then the adjustment will be dropped.\15\
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\15\ For the initial years of the program, an exceedance for
1998 and 1999 will lead to a remedial adjustment that equals the
exceedance, but no more than 1% of the SB for NOX. The 1%
cap is designed to avoid imposing an unnecessarily stringent
adjustment that could result from the absence of data from a
complete three year cycle.
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5. Imported Gasoline Subject to the Remedial Action
A foreign refiner using an IB will follow the same procedures as a
domestic refiner--the quality of its CG will be measured against the IB
of the refiner that produced it. Foreign refiners without an IB would
have chosen to have their gasoline measured against the SB instead of
an IB, and reasonably could be expected to include refiners whose IB
would have been more stringent than the SB. It is the use of IBs by
some refiners, and the degradation below 1990 quality in CG produced by
foreign refiners without an IB, that has the potential to cause the
average CG quality to be adversely affected when other refiners are
subject to an IB. Since the foreign refiner with an IB would be acting
no differently than domestic refiners with an IB, the remedial action
will be applied to CG imported from refiners without an IB.
D. Requirements for U.S. Importers
Under today's action U.S. importers must meet NOX and
exhaust toxics requirements for all imported CG that is not designated
as certified FRGAS, and must exclude from importer CG compliance
calculations all CG that is designated as certified FRGAS. A mechanism
is provided by which U.S. importers would demonstrate that imported CG
is certified FRGAS. The baseline that will apply to U.S. importers of
non-FRGAS and non-
[[Page 45543]]
certified FRGAS will be the statutory baseline or any adjusted baseline
as discussed in section II.C above. EPA is not changing the current
requirement that U.S. importers meet all requirements for imported RFG.
1. Imported Certified FRGAS
Certified FRGAS must be excluded from the U.S. importer's CG
compliance calculations. This prevents the double counting that would
result if certified FRGAS were included in the CG compliance
calculations of both the foreign refiner and the U.S. importer.
However, the U.S. importer must determine the quality and quantity of
certified FRGAS at the U.S. port of entry, which the importer then
reports to the foreign refiner and to EPA in order to be compared with
the foreign load port testing.
A U.S. importer must classify an imported gasoline batch as
certified FRGAS if the gasoline is accompanied by a certification
prepared by the foreign refiner that identifies the gasoline as
certified FRGAS to be included in the foreign refinery CG compliance
calculations, and a report on the certified FRGAS batch prepared by an
independent third party, and the load and entry port comparison is
within the specified range. In this way the U.S. importer acts like a
domestic distributor and would not be responsible for meeting the
NOX and exhaust toxics requirements for this gasoline. The
U.S. importer is not responsible for whether the foreign refiner meets
the annual NOX and exhaust toxics requirements for certified
FRGAS, including whether the foreign refiner properly calculates the
refinery's compliance baseline each year.
However, the U.S. importer is responsible for ensuring the foreign
refiner certification was in fact prepared by the foreign refiner named
on the certificate, and that the foreign refinery has been assigned an
individual refinery baseline by EPA. If a certified FRGAS certification
was not prepared by the named foreign refiner, for example if it is a
forgery, the U.S. importer will be required to classify the gasoline as
non-FRGAS and include the gasoline in the importer's CG compliance
calculations. Similarly, if the certificate accompanying a batch of
certified FRGAS names a foreign refinery that has not been assigned an
individual baseline, the U.S. importer will be required to classify the
gasoline as non-FRGAS and include the gasoline in the importer's CG
compliance calculations. It is necessary to make U.S. importers
responsible for accounting for imported CG in these situations in order
to enable EPA to enforce the CG requirements effectively. EPA would
have great difficulty enforcing requirements against a foreign party
who may have created fraudulent FRGAS certification documents, other
than a foreign refiner who has established an individual refinery
baseline.
EPA believes U.S. importers can easily protect themselves against
this type of liability. EPA will publish on its computer bulletin board
the identity of foreign refineries that have been assigned individual
baselines, that may be used by importers to identify legitimate foreign
refiners of FRGAS. Importers can avoid relying on false certificates by
selecting reliable business partners, or by contacting the foreign
refiner to ensure the authenticity of the certificate for any
particular certified FRGAS batch.
The U.S. importer must use an independent third party to determine
information about each certified FRGAS batch. The batch quality and
quantity must be determined through sampling and testing prior to off
loading the ship, and that will be compared with the quality and
quantity determined at the load port after the ship was loaded. The
independent party also must use the product transfer documents to
determine the identity of the foreign refinery where the certified
FRGAS was produced. The importer submits a report to the foreign
refiner and to EPA containing the batch information.
U.S. importers may not classify certified FRGAS as ``gasoline
treated as blendstock,'' (GTAB), because to do so would result in the
same CG being included in two compliance calculations.16 In
addition, U.S. importers may not use GTAB procedures to convert
certified FRGAS into RFG, for the same reason that domestic regulated
parties are not allowed to convert CG into RFG. Conversion of CG into
RFG is prohibited because of concern such conversions could result in
degradation of the CG gasoline pool. For example, in the absence of
this constraint a refiner could produce very clean CG that in fact
meets the RFG requirements, include this gasoline in the refiner's CG
compliance calculations to offset other dirty CG, and then convert this
gasoline into RFG. The result of this would be degradation in the
average quality of the refiner's CG. This same effect would be possible
if importers could convert certified FRGAS into RFG.
---------------------------------------------------------------------------
\16\ EPA has issued guidance under the current regulations that
allows importers to classify imported gasoline as blendstock, called
GTAB, that the importer must use to produce gasoline at a refinery
operated by the importer-company. The purpose of the GTAB procedures
is to enable importers to conduct remedial blending of imported
gasoline, or to reclassify gasoline with regard to RFG or CG, before
imported gasoline is introduced into U.S. commerce. This puts
importers on a more equal footing with refiners, who are able to
reblend or reclassify gasoline prior to shipping gasoline from the
refinery.
---------------------------------------------------------------------------
2. Imported Non-FRGAS or Non-Certified FRGAS
U.S. importers must meet all current requirements for imported
gasoline that is produced at a foreign refinery without an individual
baseline (i.e., non-FRGAS), and for gasoline produced at a foreign
refinery with an individual baseline where the gasoline is not included
in the foreign refinery's NOX and exhaust toxics compliance
calculations (i.e., non-certified FRGAS). If the importer classifies
the gasoline as conventional, the importer must include the gasoline in
its NOX and exhaust toxics compliance calculations. However,
the baseline used by importers would be the baseline described in
section II.C of this preamble. If the imported gasoline is classified
as RFG, the importer must meet all RFG quality and other requirements
for the gasoline.
Importers are allowed to use the current GTAB procedures to reblend
or reclassify imported non-FRGAS and non-certified FRGAS.
In the case of non-FRGAS, importers have no requirements related to
tracking the refinery of origin. In the case of non-certified FRGAS the
importer must meet additional requirements related to tracking the
refinery of origin. The importer must have an independent laboratory
determine the volume of each non-certified FRGAS batch, and report this
volume to the foreign refiner and to EPA to be compared with the load
port volume. The volume of non-certified FRGAS produced at a foreign
refinery with an individual baseline is used to calculate the
refinery's CG compliance baseline, which constitutes a volume cap on
use of an individual refinery baseline.
E. Early Use of Individual Foreign Refinery Baselines
A foreign refiner who submits a petition for an individual refinery
baseline may begin using the individual baseline prior to EPA approval
of the baseline petition, provided EPA makes a preliminary finding the
baseline petition is complete, and the foreign refiner also has
completed certain requirements proposed today. However, any gasoline
imported under a requested IB will be subject to the actual IB assigned
by EPA.
[[Page 45544]]
EPA will conduct a completeness evaluation as the first step in
baseline review process, and will notify a foreign refiner of the
results of the completeness review on request. However, the initial
completeness review does not bar EPA from requiring a foreign refiner
to submit additional information later in the baseline review process.
The additional requirements a foreign refiner will have to complete
in order to use an individual baseline early are related to ensuring
EPA's ability to monitor and enforce compliance by the foreign refiner
with all applicable requirements during the early use period. The
particular requirements that will have to be met are: (1) The
commitments regarding EPA inspections and the forum for enforcement
actions, and (2) the requirements related to posting of a bond.
If these conditions are met, the foreign refiner may begin
classifying gasoline as certified and non-certified FRGAS, and may use
the individual refinery baseline to demonstrate compliance with the
NOX and exhaust toxics requirements.17 However, a
foreign refiner will be required to meet the NOX and exhaust
toxics requirements for certified FRGAS using the refinery baseline
values that ultimately are approved by EPA. Thus, if a foreign refiner
elects to use an individual refinery baseline early, and uses baseline
values that are less stringent than the baseline values ultimately
approved by EPA, the refiner's compliance with the NOX and
exhaust toxics requirements will nevertheless be measured relative to
the approved baseline values. If this evaluation results in a violation
of the NOX and exhaust toxics requirements, the foreign
refiner will be held liable.
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\17\ During 1997, under section 80.101(b)(1) the CG requirements
are for sulfur, T-90, olefins and exhaust benzene emissions.
Beginning in 1998 the CG requirements are for NOX and
exhaust toxics emissions performance.
---------------------------------------------------------------------------
F. Requirements for RFG Before 1998
The scope of this final rule is limited to requirements for
conventional gasoline. The CG requirements rely on refinery baselines
both now and in the future. The RFG requirements for sulfur, T-90 and
olefin content also rely on individual refinery baselines, but only
until the Complex Model applies beginning in January, 1998. In the
proposed rule EPA requested comments on whether the regulations should
allow individual refinery baselines to be used for these RFG
requirements if a foreign refiner obtains an individual baseline before
January, 1998. The only comments on this issue stated that there would
be insufficient time before January, 1998 to justify use of individual
baselines for RFG and no commenters requested that this rule apply to
RFG. This final rule is therefore limited to conventional gasoline.
III. Summary of Changes From Proposal
The following list identifies aspects of the proposed rule (62 FR
24776) that were modified in the final rule.
The proposal would have required foreign refiners to
submit baseline information on the foreign refinery's overall gasoline
production for 1990. This requirement is deleted in the final rule.
Baseline information must be submitted for the gasoline sent to the
U.S. in 1990, however, EPA reserves the right to seek further
information where appropriate.
The proposal would have required that where a foreign
refiner is owned or operated by a foreign government, the government
would have to sign a waiver of sovereign immunity. The final rule
instead includes a regulatory requirement that if a foreign refiner
establishes and uses an individual baseline it will constitute a waiver
of sovereign immunity for purposes of EPA or other U.S. enforcement
actions based on violations of the requirements adopted today.
The proposal would have required that the foreign refiner
post a bond in order to receive an individual refinery baseline. In the
final rule the bond requirement and bond amount are retained, however
the foreign refiner many meet the bond requirement with other assets,
subject to EPA approval.
The proposal would have established various requirements
relating to verifying the source of gasoline imported under an
individual baseline--sampling and testing by independent third parties
at the load port and discharge port, comparisons of the test results,
and certifications as to identity and source of the gasoline. If the
gasoline failed the load and entry port comparison it would still be
included in the foreign refiner's compliance calculation. In addition,
no gasoline classified by the foreign refiner as intended for the U.S.
could be diverted to a non-U.S. market. Many of the details of those
related provisions have been modified to increase the flexibility for
importers and foreign refiners, to be consistent with the tracking
purpose of the provisions, and to take into account any potential for
adverse environmental impact.
IV. Response to Comments
A. Optional vs. Mandatory Baselines
1. EPA's Proposal
EPA proposed that foreign refiners would be allowed to establish
and use individual baselines, but it would not be mandatory. If a
refiner did not establish and use an IB, the gasoline they export to
the U.S. would be regulated through the importer, and subject to the
importer's baseline. Specific regulatory provisions would be
implemented to ensure that the option to use an individual baseline
would not lead to adverse environmental impacts. This would involve
monitoring the average quality of imported gasoline, and if a specified
benchmark is exceeded, remedial action would be taken by adjusting the
requirements applicable to imported gasoline.
Under this approach, the volume of gasoline that could be imported
under the individual baseline for a foreign refinery would be limited
in the same manner as for domestic refiners, relative to a refinery's
1990 baseline volume.
2. Comments: Optional Versus Mandatory Individual Baseline Approach
Several parties from the domestic refining and distribution
industry commented that EPA should not offer foreign refineries the
opportunity to choose between either an individual baseline or the
statutory baseline. The commenters suggested that offering the choice
discriminates against domestic refiners who do not have the opportunity
to choose, and offers the foreign refiners a competitive advantage.
These commenters argued that foreign refiners already have a
competitive advantage because they are subject to fewer environmental
costs at their refineries relative to U.S. refiners, and they are not
subject to U.S. RFG or anti-dumping regulations on the majority of
their production which is not for the U.S. market. These commenters
urge EPA to avoid any final regulation which would further upset the
competitive balance and concluded that foreign refiners should be
treated in the same manner as domestic refiners.
These commenters argued that foreign refiners who would otherwise
have individual baselines more stringent than the statutory baseline
would not apply for an IB (their product would be regulated through the
importer, who is subject to the statutory baseline), while those with
baselines less stringent than the statutory baseline would choose to
establish and use an individual baseline. The domestic industry also
[[Page 45545]]
noted that many U.S. refiners with baselines more stringent than
average could significantly benefit if they were given the choice of
choosing the statutory baseline.
To avoid this perceived inequity, domestic refiners maintain that
if all foreign refiners are not held to the statutory baseline, then
they must be required all to establish an individual baseline for
product shipped to the U.S. in 1990, or domestic refiners should be
offered the same option to operate at the statutory baseline if they
choose to do so.
One commenter stated that EPA is obligated under the Clean Air Act
to favor protecting the environment over energy and economic
considerations. The commenter stated that in American Petroleum
Institute v. EPA (52 F. 3d 113, 1120 (D.C. Cir. 1995), the court
explicitly noted that these non-environmental factors are not to be
used as an independent grant of authority for EPA rulemaking.
The same commenter suggested that EPA and DOE concerns regarding
price and supply impacts were an inappropriate foundation for this
rulemaking. The commenter stated that the structure of the Clean Air
Act, with its emphasis on protecting public health, meant that supply
or price concerns cannot provide the foundation for this rule. The
commenter concluded that EPA has an overriding obligation to consider
air quality before any other factors, and that obligation should lead
EPA to a decision to require mandatory baselines for all foreign
refiners.
Another commenter suggested that EPA's reliance on DOE's analysis
was inadequate for selecting optional baselines over mandatory
baselines. The commenter, an association representing certain domestic
refiners, stated that they do not believe DOE or any other organization
can credibly quantify the impact of foreign refiner baseline
restrictions on the U.S. market just as DOE could not quantify the
impact of baseline requirements on domestic refiners.
Another association representing the domestic refining and
distribution industry commented that despite DOE's concerns, a more
serious threat to U.S. gasoline supply is adopting a rule which
discriminates against domestic refiners. The commenter suggested that
domestic refiners' business is extremely sensitive to unequal treatment
in the international marketplace. The commenter suggested that during a
short term supply emergency, EPA could establish a temporary waiver
procedure to provide limited relief from baseline requirements. This
commenter also suggested that any waiver should apply to all suppliers
in an affected region and not be limited to foreign suppliers.
Foreign refiners, domestic gasoline marketers and domestic
importers and blenders and others commented that the optional
individual baseline is appropriate.
3. EPA Response
Optional Baselines for Domestic Refiners
EPA analyzed two approaches to establishing individual baselines
for foreign refiners. One involved mandating that all foreign refiners
obtain and use an IB in order to market conventional gasoline in the
United States, the other approach provided this as an option but did
not mandate it. For the reasons described in the proposal, and in this
notice, EPA believes there are serious problems with the mandatory
approach based on the risk that it could significantly disrupt the
marketing of foreign conventional gasoline to the United States and
therefore have significant impacts on the cost of gasoline. The
proposal also discussed the potential for degradation in emissions
quality of gasoline from the mandatory baseline approach. Because of
this, EPA proposed and is adopting an optional approach.
EPA does not agree that this discriminates against the domestic
refining and distribution industry, or that domestic refiners should be
provided the same option. While foreign refiners are provided a choice
that domestic refiners are not provided, this is because the supply and
price impacts from mandating the use of IBs for imported gasoline
differ significantly from those for domestic gasoline. In addition,
this choice can be provided to foreign refiners without adverse
environmental impacts, through the use of the baseline adjustment
mechanism to monitor and offset any potential degradation in the pool
of imported gasoline. Providing the same choice to domestic refiners
would very likely lead to a significant degradation of the much larger
pool of domestically produced gasoline, that could only be remedied
through an expensive and cost-ineffective adjustment mechanism.
In establishing the rules for conventional and reformulated
gasoline, EPA determined that domestic refiners are all able to
establish individual baselines. Under section 211(k)(8) of the Act, EPA
therefore requires that domestic refiners establish and use IBs. This
is a cost-effective way to ensure that domestically produced
conventional gasoline does not degrade in emissions related quality
below 1990 levels. It has been successfully implemented without
significant disruptions to the supply or price of conventional
gasoline. Continuing this approach for domestic refiners does not
present a risk of significantly disrupting the gasoline supply and
price market. This would be a much less cost effective way to keep
conventional gasoline quality at 1990 levels than mandating the use of
IBs for domestic refiners.
Providing domestic refiners the choice between use of an IB and use
of the statutory baseline would likely lead, according to commenters,
to many domestic refiners making this choice.\18\ EPA would have to
establish a benchmark and adjustment mechanism, similar to that
proposed for imported gasoline, to monitor for and offset any
degradation of the gasoline pool resulting from providing such an
option. Given the large volume of gasoline involved, which is much
larger than the volume of imported gasoline at issue here, and the
expectation that exercising such a choice to use the SB would be based
on the economic value of producing gasoline designed to meet a less
stringent baseline with the resulting bias for a dirtier gasoline pool,
EPA would almost assuredly be called on to impose an across the board
adjustment to baselines for domestic refiners to offset degradation of
the gasoline pool from 1990 levels. This would result in the kind of
``reformulation'' of conventional gasoline to stay at 1990 levels that
the mandatory use of IBs was meant to avoid.
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\18\ Since domestic refiners have adequate data to establish an
IB, this would not be consistent with the requirements of section
211(k)(8).
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As compared to gasoline produced by domestic refiners, EPA has two
potential parties whom it can regulate with respect to gasoline
produced by foreign refiners. For imported gasoline EPA could regulate
either the importer, or the foreign refiner. EPA therefore has
discretion under section 211(k)(8) as to which party, and under what
conditions, it imposes the requirements for conventional gasoline that
is imported. For example, under the current regulations all foreign
produced gasoline is regulated through the importer, and importers are
not provided an option concerning establishment and use of an IB, while
foreign refiners are not directly regulated.
For the reasons and circumstances described in section I.E. and in
the proposal, EPA has rejected the approach of mandating that all
foreign refiners establish and use an IB in order to
[[Page 45546]]
market conventional gasoline in the U.S. EPA has instead determined
that it is appropriate to continue regulating imported conventional
gasoline through the importer in all cases except those where a foreign
refiner has adequate data and chooses to establish and use an IB. The
concerns on price and supply which lead to rejecting the mandatory
approach for foreign refiners do not apply to domestic refiners, and
therefore do not provide a basis for changing the mandatory approach
currently applied for domestic refiners. In addition, providing this
option to foreign refiners is less likely to lead to a degradation of
the average qualities of imported gasoline than the much more likely
degradation that would occur to the much larger pool of domestically
produced gasoline if the same option were provided to domestic
refiners.
In sum, the mandatory use of IBs for domestic refiners has worked
successfully, without significantly disrupting the supply and cost of
conventional gasoline. Requiring the same approach for imported
conventional gasoline, presents the risk of this kind of significant
disruption. Providing domestic refiners with an option to establish and
use IBs would very likely lead to a degradation in the emissions
quality of conventional gasoline, over a very large percentage of the
total volume of conventional gasoline. This degradation could be
remedied by a baseline adjustment mechanism, however this would be a
less-cost effective way to avoid such degradation than not providing
such an option. Providing foreign refiners with the option to establish
and use an IB presents a risk of environmental degradation, but this
covers a much smaller pool of gasoline and it is unclear whether and to
what extent there will in fact be a degradation in the pool of imported
gasoline. If there is, it can be readily remedied consistent with the
flexibility currently available to importers and foreign refiners to
determine what gasoline is imported into the U.S., without the
potential supply and price impacts from mandating the use of IBs for
imported gasoline.
Consideration of Environmental Impact of Providing an Option for an
Individual Baseline
Several commenters suggested that the Agency's proposal put trade
and economic considerations over its concern for protecting the
environment. On the contrary, the Agency believes that this final rule
is fully consistent with the Agency's commitment to fully protect
public health and the environment.
EPA considered two different approaches to the use of IBs by
foreign refiners.19 It is reasonable for EPA to consider the
cost impacts of the two approaches and adopt the one that avoids the
risks attendant with seriously disrupting the importation of
conventional gasoline into the U.S. In this case, the provisions
adopted concerning the option to establish and use an individual
baseline will fully protect the public health and environment, and
achieve the Clean Air Act goals for the conventional gasoline program.
This will be achieved without risking significant disruption to the
supply or price of conventional gasoline.
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\19\ The potential for an adverse environmental impact from
providing an option to foreign refiners, and EPA's mechanism to
monitor for and fully offset any such adverse impact, is explained
in detail in the proposal and elsewhere in this notice. The
potential for an adverse environmental impact from the mandatory IB
approach is described in the proposal at 62 FR 24779.
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Impact of Mandatory Approach on Gasoline Supply/Price
Commenters objected that EPA did not have an adequate basis to
reject the mandatory baseline approach based on supply and cost
considerations.
Based on the information presented by DOE, EPA believes that
requiring individual baselines for all foreign refiners presents too
great a risk of adverse effects on gasoline supply and prices. To fully
understand how mandatory baselines for imported conventional gasoline
could impact the gasoline market it is first important to understand
the role imports play in the domestic market. Foreign imports account
for 6%-8% of total U.S. gasoline consumption. Almost all (over 95%) of
imports come into Petroleum Administration for Defense Districts (PADD)
I, the U.S. east coast, where they represent about 20% of total
gasoline supply.
Imported gasoline plays a significant role in the domestic gasoline
market. Imported gasoline augments the supply of gasoline on the east
coast of the United States, an area with an already large demand.
During the summer of 1996, U.S. east coast and gulf coast refinery
operating utilization rates were in excess of 96%. Only about 150
thousand barrels a day of additional domestic gasoline production
capacity was available. However, the market was demanding about 500
thousand barrels a day of additional gasoline. Imported gasoline made
up the gap with over two-thirds of the imports meeting a need that
could not be served by U.S. refineries.20
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\20\ Analysis provided in comments submitted by the Department
of Energy, July 23, 1997 in response to the May 6, 1997, NPRM.
---------------------------------------------------------------------------
One commenter suggested that EPA's optional individual baseline
approach discriminates against domestic refiners to such a degree that
domestic refining capacity in the United States could contract as a
result of this unequal treatment, which would have a more severe impact
on the gasoline market in the United States. However, the current
production rates of east coast and gulf coast refineries would indicate
that this consequence is highly unlikely. It is clear that U.S. demand
for gasoline will continue to increase at a rate surpassing U.S.
production. The suggestion that domestic refineries will reduce their
production in light of such a demand seems implausible.
One commenter suggested that EPA establish a temporary waiver
procedure to provide limited relief from baseline requirements during
short-term supply emergencies. Although EPA arguably may have the
authority to establish such a waiver provision, it would be an
impracticable solution in this instance. It is clear from the DOE's
analysis outlined below that the disruption mandatory baselines would
cause to the sale and importation of opportunistic gasoline could leave
the U.S. market with a constant risk of short term supply and price
disruptions, and the temporary waiver provision could not be
implemented in a time frame that would eliminate this risk. Moreover it
would require the U.S. government to arbitrarily determine the
appropriate market price of gasoline.
Much of the gasoline imported into PADD I is shipped into the
United States on an ad hoc basis. Currently gasoline is imported into
the U.S. market from a free moving and fungible distribution system.
This opportunistic sale of gasoline is an important element in the
U.S., and particularly the east coast, gasoline supply system. The
broad based use of tracking and monitoring restrictions which would be
required by mandatory individual baselines would eliminate the
flexibility necessary to quickly divert opportunistic gasoline to the
U.S. should the market demand it. This would make it more likely that
imported gasoline would not play the same role that it currently does
in moderating price increases.
The amount of opportunistic gasoline imported into the United
States is not inconsequential. DOE's analysis indicates that in 1996, a
total of 25
[[Page 45547]]
separate importers brought gasoline, of all types, to the U.S. east
coast from about 40 refineries in 28 countries. Of this amount, over
40% was imported as opportunistic gasoline. The ability to quickly draw
gasoline supplies from various parts of the world to the U.S. market is
important in moderating price swings and meeting consumer demand.
While most imported gasoline enters the U.S. market on the east
coast it impacts gasoline prices nationwide. Imported gasoline tends to
moderate price increases by increasing the sources of gasoline to meet
U.S. demand. DOE examined New York harbor, Chicago and Gulf Coast spot
prices for conventional gasoline which showed highly correlated
movements throughout 1996. The pipelines linkages between PADD III and
PADDs I and II are the key mechanism for linking the prices.
The DOE analysis concluded that a 1 cent per gallon change in New
York spot prices, driven by a shortage of imports, could affect the
over 4 million B/D of conventional gasoline being used in PADD's I, II
and III. A 1 cent/gallon price change, lasting as little as one week
(typical of the time required to get additional gasoline shipments to
the U.S. east coast from Europe or from the gulf coast by water), could
cost or save gasoline consumers over $10 million.21
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\21\ Comments from DOE on EPA's May 6, 1997 NPRM, page 2.
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While a number of factors are at work in market fluctuations it is
clear that the volume of imported gasoline is price responsive. By
rapidly providing additional supply, consumer demand is met without the
large price increases that would be necessary to control gasoline
demand.
EPA disagrees with the comment that an option to establish an
individual baseline should not be provided because it would give
foreign refiners a competitive advantage over domestic refiners.
Foreign refiners who establish an individual baseline will be subject
to the same requirements as domestic refiners, with additional
requirements dictated by their unique circumstances. Foreign refiners
will be required to fulfill the additional burden of tracking and
segregating their imported gasoline to ensure that the correct
individual baseline is being used for the purposes of the compliance
calculation.
Gasoline from foreign refiners who do not establish an individual
baseline would be subject, through the importer, to an adjustment to
the importer baseline needed to offset any adverse environmental impact
from a foreign refiner's choice not to seek an individual baseline.
As described above, this option is provided to foreign refiners
based on the significant difference in circumstances between applying
the mandatory use of individual baselines to domestic or foreign
refiners, and the significant difference in potential adverse impact on
the environment and gasoline supply and prices.
Role of Consideration of Costs
One commenter argued that EPA's obligation under the Clean Air Act
to protect the environment take priority over costs and economic
concerns in this rulemaking.
EPA's authority to take costs and economic factors into
consideration when establishing rules protective of the environment
depends on the terms of the specific statutory provision at issue. As
in prior rulemakings establishing the conventional gasoline program,
EPA's authority is based on sections 211(k)(8) and 211(c)(1) of the
Act. Each of these provisions gives EPA discretion to take cost and
other relevant factors into consideration when establishing
requirements that meet the air quality goals of the conventional
gasoline program. In the prior rulemakings for the conventional
gasoline program, EPA has taken these factors into consideration when
establishing the requirements needed to meet the air quality
requirements of this program. For example, EPA's CG requirements
include the ability to obtain an adjustment to the IB under certain
circumstances related to economics; establish testing, recordkeeping
and reporting requirements which reasonably take into account the
burden of the measures, and reflect the decision in the 1993 rulemaking
to not establish specific emissions requirements for VOCs, CO, and non-
exhaust toxics, based in part on economic considerations. In this case
it is also reasonable to consider adverse supply and cost impacts when
determining the appropriate approach. The statutory provisions noted
above provide EPA with the discretion to consider these factors.
B. Establishment of an Individual Baseline (IB)
1. Overview
Comments were submitted on a number of issues with regard to
establishment of individual baselines by foreign refiners. These issues
included the proposed requirement to submit baseline information on the
foreign refinery's overall gasoline production as well as the subset of
gasoline which was sent to the U.S. in 1990; the proposed January 1,
2002 deadline for submittal of foreign refinery baseline petitions; and
foreign refinery aggregation for compliance purposes.
In summary, EPA is not requiring foreign refiners to submit
baseline information on the foreign refinery's overall gasoline
production. EPA reserves the right to require such information in a
specific case if it is needed to reasonably evaluate a baseline
submission. EPA is retaining the proposed January 1, 2002 deadline for
baseline petition submittals. In general, with regard to other baseline
issues, such as aggregation, baseline volumes, and baseline review,
audit and approval, EPA is maintaining the same requirements for
foreign refiners as for domestic refiners, as proposed.
2. Use of Total 1990 Product Data
EPA proposed that a foreign refinery would have to submit
information regarding its total 1990 gasoline production as well as
information regarding the subset of the refinery's gasoline production
which was sent to the U.S. in 1990. EPA believed that information on
the total refinery gasoline production would be useful in the
calculation and verification of the quality of the subset of gasoline
sent to the U.S. in 1990.
Commenters indicated that requiring an individual baseline
calculation for the total gasoline production was burdensome, costly,
and, in general, of little additional value. Commenters indicated that
the quality of the subset of gasoline sent to the U.S. in 1990 could be
accurately determined without the additional information on the
refinery's total gasoline production. One commenter also stated that
EPA previously concluded that the overall quality from a foreign
refinery might bear scant resemblance to the quality of the portion
going to the U.S. market. This commenter also stated that requiring
information on a foreign refiner's overall gasoline production is
wholly unnecessary.
In general, EPA agrees with the commenters that requiring
information in all cases on the overall 1990 gasoline production of a
foreign refinery may be costly and may provide little additional value.
Thus, EPA will only require that a foreign refiner's baseline petition
contain information relevant to the calculation of the baseline for the
subset of gasoline sent to the U.S. in 1990. Nonetheless, the
calculation of a refinery baseline per these regulations is complex,
with wide variances in the types and amounts of data available on
[[Page 45548]]
the subset of 1990 gasoline which came to the U.S. As with domestic
refiners, EPA reserves the right to request additional information to
evaluate a petition for an IB, where such information is needed to
reasonably determine an accurate IB. In specific cases this might
include much or all of the information pertaining to the refinery's
1990 total gasoline production.
3. January 2002 Deadline
EPA proposed that baseline submissions would have to be submitted
to the Agency by January 1, 2002. EPA proposed this date in order to
allow for the collection of both summer and winter data and the
preparation of a baseline petition subsequent to June 1, 2000, the
scheduled date EPA would announce the average quality of imported
gasoline for the first monitoring period of 1998 and 1999. Domestic
refiners had approximately one year following issuance of the final
regulations in December 1993 to prepare (including completion of
sampling, testing and analysis) and submit their individual baselines
to EPA prior to the start of the program on January 1, 1995.
EPA received comments indicating that the proposed deadline was
appropriate, and others indicating that such a deadline was
unnecessary, and perhaps arbitrary. Commenters opposing a deadline
thought that foreign refiners should be allowed to apply for an
individual baseline when they desire to, for example, when export
volumes to the U.S. increase and/or pricing conditions are favorable.
One commenter questioned whether baseline petitions would be accepted
prior to January 1, 2000, and suggested that EPA specify a reasonable
period of time in which it will act on a baseline submission, as the
commenter indicated EPA did with domestic refiners.
EPA continues to believe that a deadline for the receipt of foreign
refiner baselines is appropriate in order to avoid the increased
uncertainty in determining an individual baseline too many years after
the 1990 time period that an IB is based upon. A reasonable deadline
such as January 1, 2002 provides foreign refiners several years to
exercise the option provided here, and will assure that EPA has a
reasonable factual basis to determine an accurate IB regarding 1990
gasoline volume and quality. It will also maintain requirements similar
to those imposed on domestic refiners. While a foreign refiner would
not have the right under the regulations to seek an IB after January 1,
2002, after this date a foreign refiner could still petition EPA to
revise this rule and establish an IB, for example, where the refiner
could demonstrate that it is able to establish an accurate and
verifiable IB.
Foreign refiners may submit a baseline petition to EPA at any time
prior to January 1, 2002. However, if gasoline is imported using an IB
while a petition for an IB is pending, the foreign refiner will be
subject to the ultimate approved baseline, which may change
significantly (to their benefit or detriment) from the original
submission due to errors or omissions uncovered during EPA review. In
general, baselines are reviewed in the order received, but a well
prepared and ultimately correct baseline may be approved prior to a
baseline submitted earlier which was less well prepared or incorrect.
EPA is not establishing a specific time frame to act upon
baselines, due to the many uncertainties, discussed above, regarding
the completeness of the original submittals and the number of questions
EPA may have for a refiner before determining that a submittal is
complete, accurate, and appropriate for approval. The Agency's review
of submissions by domestic refiners took between a few months and two
years, depending on the quality and completeness of the original
submission. EPA will review foreign refiner baseline submissions in an
expeditious and timely manner but cannot specify a time frame in which
a foreign refiner baseline will be acted upon. Foreign refiners can
export conventional gasoline to the U.S. using an IB under the program
requirements finalized today without an approved baseline. Foreign
refiners should note that once a baseline petition is submitted and a
refiner begins to use an IB, the refiner will be held to compliance
with the ultimately approved baseline.
4. Aggregation
As stated in the proposal, a foreign refiner who operates more than
one refinery with an individual baseline would be able to aggregate the
baselines of some or all of its refineries, as allowed for domestic
refiners.
Commenters said that allowing a foreign refiner to aggregate
refineries with both unique individual baselines and statutory
baselines gave additional flexibility to foreign refiners who would
already have the option of having or not having an individual baseline.
One commenter also stated that foreign refiners should be subject to
the same one-time decision regarding aggregation as domestic refiners.
Commenters also said that foreign refiners should not be allowed to
game the system by electing either an individual baseline (for
refineries dirtier than the statutory baseline) or the statutory
baseline (for refineries cleaner than the statutory baseline) on a
refinery-by-refinery basis for facilities owned by a single entity.
These commenters claimed that allowing some individual baseline
refineries and some statutory baseline refineries under a single owner
would ``aggravate the competitive discrimination against domestic
refiners.'' According to these commenters, all refineries owned by a
single entity should all have either an individual baseline or all have
the statutory baseline, and if a baseline for one of the refineries
to any of the refineries of a single entity.
EPA did not propose that all or none of the refineries of a foreign
refiner would have to have an individual baseline, because a central
element of the proposal was to provide foreign refiners an option:
either obtain an individual baseline and fulfill all of the
requirements accompanying the use of an individual baseline by a
foreign refinery, or continue with the current requirements with
respect to gasoline produced for the U.S., subject to any remedial
baseline adjustment.
Many of the comments above focused on foreign refineries with
statutory baselines. In fact, under today's rule, no foreign refinery
which does not apply for an individual baseline will have the statutory
baseline. Foreign refineries which apply for and receive an individual
baseline will either have a unique individual baseline or will have the
statutory baseline (with a zero baseline volume) e.g., where the
refinery was not in operation in 1990 or produced no gasoline for the
U.S. in 1990. All other foreign refineries will have no baseline, and
their gasoline will be regulated through the importer's baseline,
typically the statutory baseline. Thus, under this rule, it is possible
that some refineries of a foreign refiner would have an approved
individual baseline and some would have no baseline. An aggregate
baseline (or baselines) of a foreign refiner could only be composed of
the baselines of its facilities with approved individual baselines.
Foreign refineries without an individual baseline cannot be included in
an aggregate baseline.
A foreign refiner may choose to obtain an individual baseline for
one, some, all or none of its refineries. Limiting the option to cases
where all of a refiner's refineries receive IBs is counter to the
reasons for providing an option. For
[[Page 45549]]
example, it would lead to cases where a foreign refiner wanted to
establish an IB for a refinery and had adequate data to do so, but was
precluded from this because it could not establish an IB for a
different refinery, or to situations where EPA or the foreign refiner
would have to prove a negative in order to establish an IB, i.e., that
no IB could be developed for one refinery as a condition of allowing an
IB for a different refinery where the data was available. These results
would be inconsistent with the general approach of giving foreign
refiners an option to establish individual baselines where they want,
and have adequate data to do so.
In summary, the requirements for aggregating baselines for foreign
refiners are the same as those for domestic refiners, namely, all
facilities in an aggregate baseline must have an assigned individual
baseline, either a unique individual baseline or the statutory
baseline. Aggregate baselines may be composed of some or all of a
refiner's refineries with assigned individual baselines, and a refiner
may have more than one aggregate baseline. Each refinery, though, can
only be part of one aggregation. As with domestic refiners, the
decision to form an aggregate baseline is a one-time decision.
5. Baseline Volumes
Several commenters indicated that foreign refiners should be
subject to the same baseline volume constraints as domestic refiners,
namely, that the individual baseline applies up to their baseline
volume limit, and the statutory baseline applies to all volume in
excess of the baseline volume per the calculation of compliance
baseline values in 80.101(f), namely, a volume-weighted average of the
individual baseline value and the corresponding statutory baseline
value. EPA agrees. EPA proposed and is finalizing a requirement that
foreign refiners would be subject to the same restrictions for
individual baseline volumes as are domestic refiners, per 80.101(f).
One commenter suggested, that where it is difficult to quantify
volumes exported to the U.S. by a refiner, that Energy Information
Administration (EIA) reported country totals be used to verify and cap
quantities reported by foreign refiners. The commenter suggested that
the sum of all baseline volumes reported to EPA from a country cannot
exceed the total country volume reported by EIA in 1990. According to
the commenter, this should be done on a seasonal basis to assure that
complex model winter/summer differences are properly accounted for.
EPA proposed and is finalizing that those foreign refiners which
petition the Agency for an individual baseline will have to adequately
account for the volumes of gasoline they sent to the U.S. in 1990. EPA
agrees that EIA data would be a useful tool for checking that the sum
of the baseline volumes of each facility did not exceed the 1990
country levels reported in EIA.
16. Baseline Audits
Several commenters indicated their concern that foreign refiners
submitting baseline petitions should be subject to the same
requirements with regard to review by an EPA-approved independent
baseline auditor, and EPA audits and approval of baselines. EPA
proposed and is finalizing requirements that all foreign refinery
individual baseline petitions be reviewed by an EPA-approved
independent baseline auditor. Once submitted to the Agency, they will
undergo the same comprehensive and detailed review process used to
evaluate baseline submissions by domestic refiners.
7. Miscellaneous
Several commenters indicated that foreign refiners would have a
competitive advantage vis-a-vis the proposed regulations in a number of
areas, including the fact that they are not subject to conventional
gasoline and other environmental requirements for all of the non-U.S.
bound gasoline they produce. Commenters claimed that clean gasoline for
the U.S. could be made less expensively because foreign refiners could
``dump'' dirty components into the gasoline destined for their home
markets and other non-U.S. markets which have fewer restrictions on
gasoline quality than the U.S. One commenter suggested that a foreign
refiner seeking an individual baseline should be required to
demonstrate that it is not, in fact, dumping dirty components into
gasoline sold in its home market.
EPA acknowledges that foreign refiners may have additional
flexibility, as indicated by commenters. However, as EPA has indicated
previously, section 211(k) of the Clean Air Act is not aimed at
regulating the quality of gasoline used in other countries, nor at
regulating foreign refiners except with regard to the gasoline they
send to the U.S.
C. Type of Requirement for FRGAS
1. Summer vs. Winter Averaging
A few commenters suggested that foreign refiners with individual
baselines would have additional flexibility over domestic refiners
because of seasonal differences in the complex model. They stated that
the same gasoline evaluated under the winter model produces
significantly higher emissions than gasoline evaluated under the summer
model, and because of this, foreign refiners could meet their emission
requirements with poorer quality gasoline by increasing imports of
summer gasoline (or importing a lower portion of winter gasoline).
Commenters also stated that gasoline imports have traditionally been
higher in the summer. According to commenters, domestic refiners are
essentially limited to domestic markets and fixed seasonal demand, and
do not have the opportunity to systematically control their summer/
winter production. Commenters suggested that EPA require foreign
refiner compliance on a seasonal basis, or offer the seasonal basis
option to domestic refiners. One commenter also suggested that the
benchmark be based on the last 3 year running average of imported
summer gasoline.
Starting in 1998, compliance with IBs only applies to conventional
gasoline for which only certain exhaust emissions are of concern. The
winter complex model does produce higher exhaust emissions for a given
fuel than the summer version of the model. However, EPA disagrees that
foreign refiners could take advantage of this by systematically
producing more summer than winter gasoline. First, U.S. gasoline demand
increases nationwide during the summer. Domestic refiners produce more
gasoline in the summer, and it would seem logical that imports would
also increase during the summer. EPA agrees that domestic refiners are
essentially limited to domestic markets, however, EPA believes that
both foreign and domestic refiners are limited to the seasonal demand.
It would not be prudent for a foreign or domestic refiner to market
additional volumes of summer gasoline beyond what it could reasonably
expect to be used, because of storage issues and the fact that, for
foreign refiner's with an individual baseline, gasoline in excess of
their baseline volume is evaluated at the statutory baseline, just as
for domestic refiners.22
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\22\ On a related matter, EPA recently proposed a requirement
that conventional gasoline will be classified as summer gasoline
only where the gasoline both meets A federal RVP requirements under
section 80.27, and is intended for use in an area subject to the RVP
requirements during the period these requirements are in effect. If
adopted this would limit inappropriate classification of winter
gasoline as summer gasoline. If the agency adopts this proposal, all
gasoline produced for use in the continental United States between
May 1 and September 15 each year would be classified as summer
gasoline. This proposal was created to reduce the amount of gasoline
that was being accounted for as summer gasoline which really only
had summer RVP but was intended for use outside the summer time
period. (See 62 FR 37338).
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[[Page 45550]]
Providing different averaging periods for foreign and domestic
refiners of CG would not be consistent with EPA's basic approach of
applying the same requirements to foreign and domestic refiners except
where clear and convincing reasons call for different requirements
(such as providing an option to establish and use an IB to foreign
refiners as compared to mandating an IB, imposing additional
requirements related to tracking of gasoline and compliance assurance,
and establishing a mechanism to offset any adverse environmental impact
from providing the option to establish and use and IB). In addition,
providing domestic but not foreign refiners with an option to average
seasonally would clearly lead to adverse environmental impacts, as
domestic refiners would choose the averaging period that required less
control of gasoline quality. For these reasons EPA is not adopting the
suggested approach.
2. Other
One commenter suggested that foreign refiners have yet another
advantage because they can blend components such as MTBE into their
gasoline prior to entry into the U.S. at the tariff rate for motor
fuels while domestic refiners must pay a significantly higher chemical
duty on MTBE imported for gasoline blending. While the tariff situation
described by the commenter could provide an advantage to foreign
refiners, this tariff differential already exists, and is not a result
of, nor will it necessarily be exacerbated by, today's rule.
D. Liability
1. Party Responsible for Meeting the Gasoline Quality Requirements for
FRGAS
a. EPA's Proposal: EPA proposed that a foreign refiner who obtains
an individual refinery baseline would be responsible for meeting the
NOX and exhaust toxics requirements for the conventional
gasoline produced at the foreign refinery and imported into the United
States. This is like the requirements that apply to a domestic refiner,
who must meet the NOX and exhaust toxics and requirements
for conventional gasoline produced at the domestic refinery and used in
the United States. EPA also requested comments on an alternative
option, where the U.S. importer would be responsible for meeting the
NOX and exhaust toxics requirements for imported
conventional gasoline produced by a foreign refiner with an individual
refinery baseline, but using the baseline that applies to the foreign
refinery.
b. Comments: EPA received comments from two foreign refiners who
supported the alternative option of making the U.S. importer
responsible for meeting the conventional gasoline NOX and
exhaust toxics requirements. EPA also received comments from a group of
U.S. importers who opposed placing this responsibility on U.S.
importers if the importer would have liability for violations that
result if a foreign refiner specifies incorrect baseline values for
specific FRGAS batches.
One foreign refiner suggested an approach they believe would allow
U.S. importers to meet the NOX and exhaust toxics
requirements for imported FRGAS without risk of incorrect baseline
values, by removing any uncertainty regarding the baseline values that
apply to each individual batch of imported FRGAS. This foreign refiner
suggested that for a foreign refiner with an individual baseline, the
annual compliance baseline for an upcoming year would be established at
the beginning of that year, using an assumption for the total volume of
gasoline (conventional gasoline plus RFG) that will be produced and
shipped to the U.S. during the upcoming year.23
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\23\ Under section 80.101(f) a compliance baseline for
NOX and exhaust toxics compliance is calculated for each
calendar year averaging period based on a refinery's 1990 baseline
volume and baseline NOX and exhaust toxics values, and
the total U.S. gasoline volume (conventional gasoline and RFG)
produced at the refinery during the year. The compliance baseline
equation caps use of a refinery's individual baseline values at the
refinery's baseline volume, and any additional gasoline volume
(conventional gasoline and RFG) for a year moves the refinery's
compliance baseline values in the direction of the statutory
baseline. Thus, a refinery's annual compliance baseline, and as a
result the refinery's NOX and exhaust toxics requirements
for the year, are not finally established until the end of the year
when the refinery's total gasoline volume for the year is known.
Section 80.101(b) requires use of compliance baselines only for
the simple model requirements that apply before 1998. However, in
another rulemaking EPA has proposed to require use of compliance
baselines for the complex model requirements that apply beginning in
1998. See 62 FR 37363 (July 11, 1997). EPA believes this proposed
change will be final before the beginning of 1998. In any case, the
same provision will apply to both domestic and foreign refiners.
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The foreign refiner suggested that this assumed volume would be the
refinery's prior year volume or the refinery's volume projections for
the upcoming year, and that EPA would approve each foreign refiner's
volume assumption in advance of each year. In this way the foreign
refiner and U.S. importers of that refiner's gasoline would have
certainty at the beginning of each year of the compliance baseline that
applies to gasoline produced at the foreign refinery during the year.
This foreign refiner also suggested that if the refinery's actual
gasoline volume during the year is different than the assumed volume a
correction would be applied to the refinery's compliance baseline in a
subsequent year.
The foreign refiner stated that this approach, as compared to the
approach where the foreign refiner would meet the NOX and
exhaust toxics requirements, would be simpler, more feasible, and would
require fewer resources to implement, largely because U.S. importers
would be responsible for demonstrating compliance with the
NOX and exhaust toxics requirements.
Another foreign refiner commented that in a case where the gasoline
produced by a foreign refiner with an individual refinery baseline is
imported into the U.S. by a single importer, the U.S. importer could
take all compliance responsibility for this gasoline.
c. EPA's Response: EPA is finalizing this foreign refiner
requirement as proposed for the following reasons.
Requiring U.S. importers to meet the NOX and exhaust
toxics requirements for FRGAS presents an inherent difficulty, in that
the compliance baseline that applies to conventional gasoline is not
known until the end of each year. Domestic refiners are able to operate
with this uncertainty, because the refiner can update a refinery's
projected compliance baseline throughout the year based on gasoline
volumes, and the refiner has the ability to adjust conventional
gasoline quality to meet these projections. In contrast, U.S. importers
of FRGAS would have to rely on the foreign refiner to estimate the
compliance baseline that applies to each FRGAS batch, and the U.S.
importer would be liable if imported conventional gasoline quality
failed to meet these projections. U.S. importers have commented that it
is this uncertainty that most hampers their operations--that an
importer could rely in good faith on the foreign refiner's compliance
baseline estimate, yet the importer would be liable if the estimate
ultimately is incorrect.
[[Page 45551]]
While the alternative suggested by one foreign refiner (using EPA-
approved volume projections each year to specify a foreign refinery's
compliance baseline at the beginning of the year) would remove this
uncertainty, it has the disadvantage of constantly requiring
corrections in a subsequent year. It is unlikely a foreign refiner's
annual volume projections will ever exactly match the refinery's actual
annual volume. As a result, if this approach were adopted EPA probably
would be required to calculate and implement corrections each year for
each foreign refinery with an individual baseline. In addition, these
corrections could not be applied immediately, because a foreign
refinery's annual volume will not be established until reports could be
filed, and the correction calculated, which would necessarily occur in
the subsequent year. As a result, it is likely there would be a one
year lag in applying corrections, e.g., if a foreign refiner's volume
projection for 1998 were incorrect the details of this error would not
be known until some time in 1999, and the correction could not occur
until 2000. It is preferable that NOX and exhaust toxics
requirements be met each year without the expectation of constant
subsequent correction, if other considerations are equal. This also
avoids any risk of adverse environmental consequences that could result
if the foreign refiner ceased supplying gasoline to the United States
before the correction could be completed.
In addition, domestic refiners do not have the option of using an
incorrect compliance baseline each year and correcting for the error in
a subsequent year, and there are no compelling reasons to treat foreign
refiners differently in this regard.
EPA agrees that, in general, it is easier to monitor and enforce
requirements that apply to parties present in the United States such as
U.S. importers, as compared to parties located outside the United
States such as foreign refiners. However, even if EPA were to adopt the
suggested approach of requiring U.S. importers to meet the
NOX and exhaust toxics requirements for FRGAS, foreign
refiners of FRGAS would continue to have significant responsibilities
under the regulations that EPA would monitor and enforce. The foreign
refiner would have to establish individual refinery baselines; submit
supported volume projections to EPA; and meet a range of requirements
associated with establishing the refinery's actual volume of FRGAS each
year, including designation of FRGAS, load port sampling and testing,
record keeping and reporting, and attest requirements. EPA would have
to monitor compliance with these requirements even if U.S. importers
met the NOX and exhaust toxics requirements.
EPA disagrees with the comment by one foreign refiner that the U.S.
importer could be responsible for meeting all requirements associated
with FRGAS where a foreign refiner's FRGAS is imported by a single U.S.
importer. A foreign refinery's annual compliance baseline is based on
the refinery's volume of conventional gasoline and RFG FRGAS, and this
volume can most properly be established using information available
only at the foreign refinery. As a result, regardless of the
responsibilities assumed by the U.S. importer the foreign refiner still
must, inter alia, keep records, file reports, commission an attest
engagement, and agree to allow EPA inspections and audits.
On balance, EPA believes the proposed approach of requiring foreign
refiners of FRGAS to meet the NOX and exhaust toxics
requirements is the best approach in that it does not impose
unwarranted uncertainties on importers, avoids the uncertainty of
subsequent corrections on a yearly basis, and is consistent with the
requirements on domestic refiners.
2. Sovereign Immunity and Agent for Service of Process
a. EPA's Proposal: EPA proposed that where a foreign refiner is
owned or operated by a foreign government, the government would have to
issue a waiver of sovereign immunity before the refiner could obtain an
individual refinery baseline. As proposed, this waiver would have to be
signed by an official of the foreign government at the cabinet
secretary level or higher who has responsibility for the foreign
refinery, and would have to specify the waiver would apply in any case
of prosecution by the United States for civil or criminal violations
related to FRGAS requirements including requirements in relevant Clean
Air Act sections and Title 18 United States Code.
b. Comments: EPA received comments addressing the sovereign
immunity waiver proposal from several foreign government-owned refiners
and from a domestic association that represents independent gasoline
marketers. In addition, EPA received comments from associations
representing domestic refiners that generally addressed EPA's proposed
enforcement requirements without specifically discussing the proposed
sovereign immunity waiver requirement.
The foreign government-owned refiners and the association of
domestic marketers commented that the proposed waiver of sovereign
immunity is unnecessary. One of these foreign refiners commented that
in the antitrust context the U.S. Department of Justice has taken the
position that foreign government-owned corporations operating in the
commercial marketplace are subject to U.S. antitrust laws to the same
extent as foreign private-owned firms. This commenter concluded that
waivers of sovereign immunity are unnecessary to enforce the antitrust
laws, and that this same conclusion also should apply to enforcement
under the Clean Air Act.
Two other foreign refiners referred to 28 U.S.C. 1605(a)(2) of the
Foreign Sovereign Immunities Act (FSIA), which provides that a foreign
sovereign is not entitled to immunity in an action based on certain
``commercial activity.'' These commenters further stated or implied
that a foreign refiner, by engaging in the production and sale of
gasoline for export to the U.S., would be covered by the provisions of
this section and, hence, would not be entitled to sovereign immunity
under the FSIA with respect to matters covered by this regulation.
These commenters concluded, as a result, that the proposed sovereign
immunity waiver requirement is unnecessary. One foreign refiner
commenter said the proposed sovereign immunity waiver requirement is
particularly objectionable if the waiver must be signed by a cabinet
secretary.
One foreign refiner said the proposed scope of the waiver is too
broad, because EPA had proposed that the waiver would need to apply to
all provisions of Title 18, United States Code. This foreign refiner
said, in addition, that sovereign immunity cannot be a condition for
according national treatment under Article III of GATT 1994.
The association of domestic marketers commented that the proposed
requirement to waive sovereign immunity is inflammatory, and that other
proposed enforcement mechanisms are sufficient for appropriate EPA
enforcement, including the possibility of revoking an individual
refinery baseline, and the required foreign refiner commitments
regarding EPA inspections and audits, naming an agent for service, and
bond posting.
The associations representing domestic refiners did not
specifically address the proposed sovereign immunity waiver
requirement, but did support EPA's proposed enforcement
[[Page 45552]]
requirements in general. In addition, one of these associations
commented that EPA also should require there be an extradition treaty
in place with a foreign government before allowing a refiner in that
country to obtain an individual refinery baseline. This commenter
stated that in the absence of an extradition treaty there could not be
adequate enforcement of criminal violations.
c. EPA's Response: EPA continues to believe that to provide
adequate enforcement mechanisms related to the establishment and use of
individual baselines by foreign refiners, the issue of sovereign
immunity needs to be addressed for foreign government-owned refiners.
Therefore, EPA has retained a specific provision in the final rule
addressing sovereign immunity. However, the form of this sovereign
immunity provision is being revised based on EPA's evaluation of the
comments and prior U.S. administrative practice in this area.
Under the FSIA a foreign refiner who obtains an individual refinery
baseline from EPA, exports FRGAS to the United States, and violates
requirements applicable to the foreign refiner under this rule has
engaged in the kind of activity that falls within an exception to
sovereign immunity under 28 U.S.C. 1605(a)(2), (commonly referred to as
the ``commercial activity'' exception) as asserted by the commenters.
However, EPA is aware of no judicial precedent directly addressing
these issues in the context of a regulatory enforcement action by an
agency of the United States. As a result, a degree of uncertainty
remains on the issue of whether United States courts would rule in all
cases that a foreign refiner who obtains and uses an individual
refinery baseline automatically is ineligible to claim sovereign
immunity in the context of an EPA enforcement action for violations of
the FRGAS requirements.
Under 28 U.S.C. 1605(a)(1) the issue of sovereign immunity can be
resolved where the foreign government waives sovereign immunity. EPA
has evaluated and adopted an approach to a sovereign immunity waiver
that provides EPA with the ability to effectively enforce the
requirements applicable to a foreign refiner, in combination with other
provisions adopted today. This is similar to the approach used by the
U.S. Department of Transportation in the context of economic licenses
issued to foreign air carriers that are necessary for those carriers to
conduct commercial operations in foreign air transportation to and from
the United States. The DOT approach does not require an official of the
foreign government to sign a separate document waiving sovereign
immunity. Rather, DOT licenses for foreign air carriers, whether
government or privately owned, include a condition that states, in
essence, that operation under the license by a foreign air carrier
constitutes a waiver of sovereign immunity under the FSIA.24
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\24\ The Department of Transportation's Conditions of Authority
that applies to foreign air carriers includes the following
provision:
In the conduct of the operations authorized, the holder shall:
* * * * *
(7) Agree that operations under this authority constitute a
waiver of sovereign immunity, for purposes of 28 U.S.C. 1605(a), but
only with respect to those actions or proceedings instituted against
it in any court or other tribunal in the United States that are: (a)
based on its operations in international air transportation that,
according to the contract of carriage, include a point in the United
States as a point of origin, point of destination, or agreed
stopping place
* * * * *
DOT Order 87-8-8 (issued July 31, 1987).
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DOT has included this type of waiver of sovereign immunity clause
in its foreign air carrier licenses for several decades, and sovereign
immunity has not been raised as an issue in DOT enforcement of its
requirements against foreign government-owned air carriers. Foreign
government-owned air carriers have willingly operated under this waiver
of sovereign immunity license term, indicating that this approach for
addressing the issue of sovereign immunity has been acceptable to all
foreign governments concerned.
Based on the success of this administrative approach by another
U.S. agency, EPA is including a similar provision in the foreign
refiner final rule that is like the DOT approach, but uses regulatory
language that is somewhat different from the language used by DOT. The
regulatory language used by EPA acts to preclude a defense of sovereign
immunity for purposes of the FSIA as well as for any enforcement
actions that may be taken which may not be subject to the provisions of
the FSIA. The sole purpose and effect of the regulatory language is
limited to precluding the use of sovereign immunity as a defense to an
otherwise valid EPA or other U.S. enforcement action based on a
violation of the requirements that apply to a foreign refiner as a
result of obtaining and using an individual refinery baseline.
Under this regulatory provision, when a foreign government-owned
refiner submits a petition to EPA for an individual refinery baseline,
the baseline submission constitutes a waiver of sovereign immunity for
purposes of 28 U.S.C. 1605(a)(1) of the FSIA, e.g., for an enforcement
action based on incorrect or fraudulent submissions. In addition, when
a foreign government-owned refiner operates under an individual
refinery baseline by supplying FRGAS to the U.S., this constitutes an
additional waiver of sovereign immunity under the FSIA, e.g., for
enforcement actions based on failure to comply with the exhaust toxics
or NOX emissions requirements, failure to submit reports, or
failure to provide access to inspectors. This waiver of sovereign
immunity would also apply for any enforcement action not otherwise
subject to the FSIA.
If a foreign government-owned refiner states that it reserves the
right to or will assert a sovereign immunity defense in the context of
any EPA enforcement action for violations of the requirements under
these regulations, or in fact raises such a claim, then EPA may, in
addition to other remedies in law, take action to deny or withdraw all
individual refinery baselines that have been issued to the foreign
refiner.
3. Agent for Service of Process
a. EPA Proposal: EPA proposed that in order to obtain an individual
refinery baseline a foreign refiner would be required to name an agent
for service of process located in Washington, D.C.
b. Comments: One foreign government-owned refiner objected to the
proposed requirement to name an agent for service of process located in
Washington, D.C. as being unnecessary for a foreign government-owned
refiner. This commenter stated that the FSIA specifies procedures for
achieving service of process that do not involve a named agent. In
addition, the commenter said the requirement for an agent for service
of process should be limited to service of process in EPA enforcement
actions and should not cover service of process in non-related actions,
such as private commercial claims raised by other parties.
c. EPA's Response: EPA remains convinced that the final rule should
include a provision as proposed for all foreign refiners acting under
an individual baseline, including foreign refiners that are foreign
government-owned, to name an agent for service of process in
Washington, D.C. While it is true the FSIA includes procedures for
service of process on foreign government-owned firms, the FSIA
procedures are cumbersome at best.25 In
[[Page 45553]]
addition, 28 U.S.C. 1608(b)(1) of the FSIA states that service of
process on an agency or instrumentality of a foreign government may be
by delivery of a copy of the summons and complaint in accordance with
any ``special arrangement'' for service between the plaintiff and the
agency or instrumentality of the foreign government. EPA believes a
foreign government-owned refiner naming an agent for service of
process, as proposed, would constitute a ``special arrangement'' for
service under 28 U.S.C. 1608(b)(1), and service on such an agent by EPA
would resolve any question regarding whether service has been
accomplished.
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\25\ For example, 28 U.S.C. 1608(b)(2) provides that service on
an agency or instrumentality of a foreign state must be accomplished
by delivery of copies of the summons and complaint to an officer,
general agent, or other agent authorized by appointment or law to
receive service of process in the United States, or in accordance
with applicable international conventions on service of judicial
documents; and section 1608(b)(3) provides that if service cannot be
made under section 1608(b)(2), by delivering copies of the summons
and complaint, with translations into the official language of the
foreign state, if reasonably calculated to give actual notice, as
directed by an authority of the foreign state or political
subdivision in response to a letter rogatory, by return receipt mail
from the clerk of the court to the agency or instrumentality to be
served, or as directed by the court consistent with the law of the
foreign state.
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Commenters have not described any reason why it would be difficult
or expensive for a foreign government-owned refiner to name an agent
for service of process in Washington, D.C., but only that there is an
alternative under the FSIA. EPA believes that, on balance, it is more
appropriate to require all foreign refiners seeking an individual
refinery baseline, including foreign government-owned refiners, to name
an agent for service, instead of relying on the alternative under 28
U.S.C. 1608(b) (2) and (3) of the FSIA. It will reduce the
administrative burden on EPA and will not add any significant burden on
the foreign refiner.
Finally, EPA agrees that the agent for service of process need not
be authorized to receive process from parties other than EPA or others
in the United States government, or for enforcement actions other than
those that result from a foreign refiner having petitioned for and used
an individual refinery baseline.
4. Bond Requirement
a. EPA Proposal: EPA proposed that a foreign refiner would be
required to post a bond in order to receive an individual refinery
baseline. The amount proposed for this bond would be calculated by
multiplying the annual volume of conventional gasoline exported to the
U.S. by the foreign refiner, in gallons, times $0.01. The bond amount
that applies each year would be calculated using the annual volume for
the single year that had the greatest volume among the immediately
preceding five years. EPA also proposed that the bond requirement could
be met if a bond is obtained from a third party surety agent, provided
that EPA approves the surety agreement.
b. Comments: EPA received comments on the bond proposal from two
foreign refiners who opposed requiring bonds or believed them to be
unnecessary, and from an association of domestic refiners who supported
the bond proposal.
One foreign refiner commented that although it could accept a bond
requirement, such a requirement is not necessary. This commenter also
stated that the amount proposed for the bond is too large, and that the
bond amount required for any particular foreign refiner should be
reduced over time based on the refiner's compliance record. This
commenter stated that bonds need not be for the full amount of any
possible liability, because a lesser, but significant, bond amount
would create an incentive for good conduct, which serves one purpose of
a bond. However, this commenter did not suggest any alternative bond
amount.
The other foreign refiner, who also objected to the proposed bond
requirement, interpreted the proposal as requiring that bond amounts be
calculated based on the cumulative volume of FRGAS exported to the U.S.
by a refiner over the prior five years, and stated that the bond amount
that would result raises questions under Article II and Article III of
the GATT. This commenter also stated it is aware of no surety agent who
would issue a bond to cover judgments against a foreign refiner for
Clean Air Act violations. Further, this commenter stated that EPA
should rely on penalties other than bonds, such as imposing a sanction
of prohibiting the sale in the U.S. of gasoline produced by a foreign
refiner who has violated the Clean Air Act.
The association representing certain domestic refiners commented in
support of the bond proposal, stating that posting of bonds by foreign
refiners is critical for effective enforcement.
c. EPA's Response: A bond requirement was proposed because of
concern that collecting a judgment against a refiner located outside
the United States for an enforcement action related to the requirements
of this rule is more difficult than collecting a judgment against a
domestic refiner. None of the comments refuted this basic concern. The
bond requirement has the effect of enabling EPA to collect penalties
against foreign refiners in a straightforward manner, analogous to
penalty collections against domestic refiners.
The bond amount EPA proposed, annual conventional gasoline gallons
times $0.01, was based on an estimate of the penalty that could result
if a foreign refiner violated the exhaust toxics or NOX
requirements. These requirements are met based on average conventional
gasoline quality over a calendar year averaging period, and penalty
amounts are calculated, in part, based on the volume of gasoline in
violation. As a result, it is appropriate to use a foreign refiners's
annual conventional gasoline volume as the yardstick for calculating
bond amounts. Penalty amounts also are based on the amount the exhaust
toxics and/or NOX requirements are exceeded, and for
egregious violations penalty amounts may well exceed $0.01 per gallon.
As a result, the proposed penalty amount does not cover the maximum
possible penalty. Nevertheless, EPA believes the proposed amount is
appropriate because it ensures that a penalty up to this amount may be
collected, which constitutes a significant incentive for a foreign
refiner to avoid violations.
The comments of one foreign refiner, that bond amounts would be
calculated using the foreign refiner's five year cumulative gasoline
volume, were based on an apparent misunderstanding of the bond
proposal. EPA intends that bond amounts be calculated using the annual
conventional gasoline volume for a single year, that year which has the
highest volume for the preceding five years. EPA is slightly revising
the language in the bond provision to make this intent clear. The bond
amount applicable each year is calculated using the single year, among
the past five years, when the largest volume of conventional gasoline
was exported to the U.S.
EPA's review indicates that these concerns appear to be unfounded.
Surety agents will be available to issue bonds to cover judgments for
violations of the FRGAS requirements. Representatives of two national
associations of surety agents, the Surety Association of America and
the American Surety Association, told EPA there is nothing inherent in
the FRGAS requirements that would prevent surety agents from writing
bonds for foreign refiners as contemplated. The representatives said
the proposed FRGAS bond requirement is analogous to the bonds required
by the U.S. Customs Service, which routinely are issued by third party
surety agents. These representatives concluded that foreign refiners
can locate third party surety agents who would issue bonds to
[[Page 45554]]
meet the FRGAS requirement, and that the annual fee probably would be
between one-half and two percent of the bond amount depending on
company-specific factors such as the general business strength and
reputation of the foreign refiner and the type and amount of collateral
offered.
However, EPA now believes it is possible for a foreign refiner to
meet the purpose and intent of the bond requirement through means other
than posting the requisite bond amount with the Treasurer of the United
States or a bond issued by a third party surety. For example, if a
foreign refiner owns assets that are located in the United States it
may be possible for the foreign refiner to pledge these assets in a way
that would be equivalent to posting a cash bond. As a result, EPA has
modified the bond requirement to allow a foreign refiner to petition
EPA to be allowed to satisfy the bond requirement through an
alternative means. EPA will rule on any such petition based on whether
there is certainty as to the ready availability of liquid assets, or
easily liquidated assets, that are equal in value to the bond
requirement.
For the foregoing reasons, EPA is finalizing the proposed bond
requirement modified to allow petitions for alternative bonding
mechanisms.
EPA has included in the final rule a provision that specifies that
a foreign refiner's bond may only be used to satisfy judgments against
the foreign refiner that result from violations of the FRGAS
requirements.
EPA also is adopting a requirement that the bond may be used to
satisfy judgments that result from violations by the foreign refiner
for causing another person to violate the regulations.26 For
example, the regulations include a prohibition against combining
certified FRGAS with non-certified FRGAS that applies to any person. If
a foreign refiner causes a third party to violate this prohibition,
this would be a violation by the foreign refiner, and the bond could be
used to satisfy a judgment resulting from this violation.
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\26\ EPA also has included language in Section 80.94(n) that
prohibits foreign refiners from causing violations by other parties.
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EPA intends to reevaluate the amount required for bonds after the
FRGAS program has been in place for approximately two years. Based on
EPA's experience in implementing and enforcing the FRGAS program up to
that time EPA will evaluate whether it should revise the regulations to
allow a foreign refiner to submit a petition to EPA to reduce the
required bond amount, based on factors such as its history of
compliance and the strength of quality assurance programs in place at
the refinery to ensure violations will not occur. EPA invites all
parties to consider any modifications of the bond requirement they
believe would be appropriate based on their experience with the FRGAS
program, and to submit these suggestions to EPA at that time.
5. Foreign Refiner Commitments
a. EPA's Proposal: EPA proposed that a foreign refiner would have
to submit as part of their baseline petition a commitment to allow EPA
inspections and audits related to the FRGAS requirements, and its
acceptance of United States courts or administrative tribunals acting
under United States law as the forum for any enforcement action, in
order to receive an individual refinery baseline. EPA also proposed
that this commitment would have to be signed by the owner or president
of the foreign refiner business, or by the relevant government official
in the case of government-owned foreign refiners.
EPA proposed that the scope of EPA inspections and audits may
include information related to baseline establishment, the quality and
quantity of FRGAS, transfers of FRGAS, sampling and testing of FRGAS,
and reports submitted to EPA.
b. Comments: EPA received a comment from a foreign refiner on the
proposed commitments related to allowing EPA inspections and audits.
This commenter stated that while it is willing to allow EPA inspections
and audits, these should relate solely to establishment and use of an
individual refinery baseline. EPA also received a comment from a
domestic environmental non-governmental organization, expressing the
view that the proposed foreign refiner commitments will be less
effective than the authorities available in the United States for
ensuring EPA's ability to conduct an effective enforcement program.
c. EPA's Response: EPA agrees the scope of any EPA inspection or
audit to which a foreign refiner would consent would be limited to
matters relevant to compliance with the FRGAS requirements. The
commitment requirement is limited in this manner.
The scope of EPA audits of a foreign refiner clearly could include
a review of all information related to baseline establishment, and the
quality and quantity of all gasoline identified by the foreign refiner
as FRGAS. However, EPA auditors also must be able to verify that
gasoline and blendstock not identified as FRGAS by the foreign refiner
in fact went to non-U.S. markets. If a foreign refiner were able to
exclude from its compliance baseline calculations the volume of any
gasoline or blendstock delivered to the U.S., the compliance baseline
values would be inappropriately lenient. This concern is discussed more
fully, below. EPA auditors must be able to review documents and other
information related to gasoline not classified as FRGAS by the foreign
refiner in order to verify this gasoline was used in non-U.S. markets
and, hence, to guard against this possible form of cheating. As a
result, the effective scope of EPA audits must include all gasoline and
blendstock produced at a foreign refinery with an individual baseline,
and not just the gasoline classified by the foreign refiner as FRGAS.
The final regulations are being revised to clarify that the foreign
refiner commitment must be to allow EPA inspections and audits with
this scope.
EPA generally agrees that the required foreign refiner commitments
do not give EPA enforcement authorities that are exactly equivalent in
all respects to the authorities available in the United States, such as
the availability of search warrants, injunctions, and subpoenas.
However, EPA believes the proposed commitments, when honored by the
foreign refiner, will give EPA the ability to effectively enforce the
requirements, as is done domestically. In addition, EPA has the
recourse of withdrawing the individual refinery baseline of any foreign
refiner who fails to honor these commitments.
6. Gasoline Tracking Requirements
a. EPA's Proposal: EPA proposed a series of requirements intended
to allow EPA to ensure that gasoline, identified on arrival in the U.S.
as FRGAS that was produced at a specific foreign refinery, in fact was
produced at that foreign refinery. These proposed requirements include
the following.
Foreign refiners with individual baselines would designate
all gasoline to be imported into the United States as FRGAS when
produced.
A foreign refinery's certified FRGAS would remain
segregated from its non-certified FRGAS, and from gasoline produced at
a different foreign refinery until entry into the U.S., except that
FRGAS produced at refineries that have been aggregated could be
combined.
An independent third party would sample each certified
FRGAS batch subsequent to loading onboard a vessel, and test for all
complex model parameters.
An independent third party would review gasoline transfer
documents to verify the gasoline loaded onboard a
[[Page 45555]]
vessel was produced at the foreign refinery.
The foreign refiner would prepare a certification to
accompany the vessel identifying the gasoline as FRGAS, which would
include a report prepared by the independent third party.
U.S. importers would sample and test certified FRGAS on
arrival at the U.S. port of entry. The foreign refiner would compare
the volume and property results from the port of entry testing, with
the volume and property results from the load port testing. If the test
results differ by more than the ranges allowed in section 80.65(e)(1),
or if the volume measurements differ by more than one percent, the
foreign refiner would have to adjust its compliance calculations to
reflect the discrepancy.
The U.S. importer would treat the gasoline as certified
FRGAS if it received the proper certification and third party report,
and the load port and port of entry test results are consistent.
b. Comments and EPA's Responses:
(1) Option to Classify Gasoline as Non-FRGAS
(a) Comment
One foreign refiner and a group of independent U.S. importers
commented that foreign refiners with individual refinery baselines
should have the option of designating gasoline for the U.S. market as
FRGAS or as non-FRGAS.27 The conventional gasoline
designated as FRGAS would be subject to the foreign refiner's
individual baseline, and the conventional gasoline designated as non-
FRGAS would be treated as any other gasoline regulated through the U.S.
importer, subject to the assigned statutory baseline.
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\27\ EPA proposed to define ``FRGAS'' as gasoline produced at a
foreign refinery that has been assigned an individual refinery
baseline, and that is included in the foreign refinery's
conventional gasoline compliance calculations, or compliance
baseline calculations.
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The U.S. importers stated that this flexibility is desirable in
order to increase the volume of imported conventional gasoline that
could be classified as ``gasoline treated as blendstock,'' or
GTAB.28 Non-FRGAS then could be blended with other GTAB or
blendstocks where desired, and classified by the importer either as
conventional or reformulated gasoline. The importer then would account
for it in its compliance calculations.
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\28\ See description of GTAB, above.
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(b) EPA's Response
In the case of non-certified FRGAS produced by a foreign refiner
with an individual baseline, it is important that the volume of all
such gasoline be included in the compliance baseline calculation of the
foreign refiner for conventional gasoline. Even though a refinery's
annual compliance baseline applies only to the NOX and
exhaust toxics requirements for conventional gasoline, the equation
used to calculate the compliance baseline includes the volume of all
gasoline produced at a refinery that is used in the United States
including RFG.29 If a foreign refiner were allowed to
exclude the volume of non-certified FRGAS from compliance baseline
calculations, the compliance baseline would be less stringent than if
the volume of all certified and non-certified FRGAS were included.
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\29\ The compliance baseline equation at section 80.101(f)
requires a refiner to include the volumes of all gasoline used in
the U.S., including conventional gasoline, RFG, RFG blendstock for
oxygenate blending (RBOB), and California gasoline under section
80.81. In addition, where a refiner is required to include
blendstocks in its compliance calculations under section 80.102 the
volume of blendstocks also would be included in compliance baseline
calculations. These requirements apply equally to domestic and to
foreign refiners.
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The effect of the compliance baseline equation, in the case of a
refiner whose overall gasoline volume exceeds its individual baseline
volume, is to move the NOX and exhaust toxics compliance
baseline in the direction of the statutory baseline values. EPA assumes
that any foreign refiner who obtains an individual refinery baseline
will likely have an individual baseline value for at least one complex
model requirement (NOX or exhaust toxics emissions
performance) that is less stringent than the statutory baseline values.
Hence, the effect of the compliance baseline equation for such a
refiner is more stringent for the NOX or exhaust toxics, or
for both requirements, and the magnitude of this effect increases as
the volume of the refinery's U.S. export-gasoline increases.
In the case of conventional gasoline produced by a foreign refiner
with an individual baseline, the reason given by commenters for
allowing the foreign refiner to classify this gasoline as non-FRGAS is
to give additional flexibility to the U.S. importer. This flexibility
results from the option of classifying imported conventional gasoline
as GTAB, which under the proposal would only be available if the
imported conventional gasoline is non-FRGAS.30 This
flexibility is lost if conventional gasoline was classified as
conventional FRGAS because it would have been previously certified by
the foreign refiner and included in the foreign refiner's compliance
calculations.
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\30\ In the case of conventional gasoline classified by the
importer as GTAB, the importer is able to add blendstocks to the
gasoline if the gasoline is ``cleaner'' than required, or to
reclassify the gasoline as RFG.
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EPA is concerned that if foreign refiners had the option of
classifying conventional gasoline as FRGAS or as non-FRGAS, a foreign
refiner could classify very ``clean'' conventional gasoline as non-
FRGAS, including gasoline that in fact meets the quality requirements
for reformulated gasoline. This ``clean'' conventional gasoline then
could be classified as GTAB by the U.S. importer and reclassified as
reformulated gasoline. In this way a foreign refiner could avoid
including all RFG in its compliance baseline calculations, which would
result in adverse environmental consequences.
However, this result would not be possible if the foreign refiner
includes in its compliance baseline calculations all gasoline imported
into the United States (i.e., all FRGAS), whether or not the gasoline
is included in the foreign refiner's NOX and exhaust toxics
compliance calculations.
Assuming the foreign refiners counts the volume in its compliance
baseline equation, there is no adverse environmental consequence if the
importer can treat the foreign refiner's gasoline, whether RFG or CG,
as GTAB. If the gasoline is treated as GTAB, it will be imported
subject to the requirements applicable to the importer for either RFG
or CG, depending on how the importer classifies the gasoline. In both
cases the importer would include the gasoline in it's compliance
calculations, and the importer's compliance requirement would in all
cases be more stringent than the CG compliance baseline for the foreign
refiner.
As a result the final rules establish two categories of FRGAS--
``certified FRGAS'' and ``non-certified FRGAS.'' The foreign refiner
designates all gasoline that it produces and that is sent to the US as
FRGAS, and FRGAS is further classified as either certified or non-
certified FRGAS. The foreign refiner can include gasoline of any
quality in the non-certified FRGAS category, including gasoline that
meets the quality requirements for RFG or CG.
Gasoline classified as certified FRGAS will be subject to the
compliance baseline for NOX and exhaust toxics applicable
for the foreign refiner. The volume of all FRGAS, certified and non-
certified, must be included in the foreign refiner's compliance
baseline calculation.
The importer may not include certified FRGAS in the importer's
NOX and exhaust toxics compliance calculations. However,
importers must meet requirements for all non-certified FRGAS the same
as for non-FRGAS, i.e.,
[[Page 45556]]
non-certified FRGAS must be classified by the importer as CG or RFG and
meet the applicable quality requirements, or must be classified as GTAB
and subsequently meet the CG or RFG requirements. The importer may
treat any non-certified FRGAS as GTAB.31
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\31\ In another rulemaking EPA has proposed giving refiners and
importers additional flexibility for reclassifying previously
certified gasoline, called the PCG option. See 62 FR 37349 (July 11,
1997). The proposed PCG option would allow a refiner or importer to
reclassify previously certified conventional gasoline as RFG,
provided the refiner or importer replaces the reclassified
conventional gasoline during the same averaging period. EPA believes
the PCG option, if adopted, would give U.S. importers flexibility
regarding conventional gasoline classified by the foreign refiner as
certified FRGAS.
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As described above, there will be no adverse environmental impact
from this. It will also increase flexibility under the regulations for
both importers and foreign refiners.
To implement this change, EPA is revising the regulations so that
the appropriate classification, tracking, record-keeping and reporting
occurs for non-certified FRGAS. To accomplish this, the provisions
proposed for ``RFG FRGAS'' would basically be applied for all non-
certified FRGAS, whether RFG or CG.
In addition, EPA is adopting an additional flexibility regarding
FRGAS classification that was not proposed. A foreign refiner who has
obtained an individual refinery baseline may elect each calendar year
to not participate in the FRGAS program at all, provided notice is
provided to EPA before the beginning of the calendar year. If such a
foreign refiner gives timely non-participation notice to EPA, the
foreign refiner could not classify any gasoline, conventional gasoline
or RFG, as FRGAS during the calendar year, and the individual refinery
baseline would have no effect for that year. In this situation the
foreign refiner would not have to meet the gasoline tracking
requirements during the year (designation, independent sampling and
testing, attest engagements, etc.), and the refiner would not have to
submit reports to EPA. However, such a non-participating foreign
refiner would remain subject to EPA audits and enforcement that focus
on prior years when the refiner did participate in the FRGAS program.
As a result, enforcement-related requirements, such as the refiner
commitments and bond, would remain in effect during any period of non-
participation.
A foreign refiner who has elected the non-participation status
could begin participating again at the beginning of any subsequent year
by giving notice to EPA before the beginning of the year when
participation is to begin.
Also, where a foreign refiner operates multiple refineries with
individual baselines that have been aggregated under section 80.101(h),
the foreign refiner is required to make the same FRGAS election for all
refineries in the aggregation. This consistency requirement for
aggregated refineries is similar to the requirement that aggregation
decisions cannot be modified from year-to-year, that applies to
domestic and foreign refiners. If a foreign refiner of aggregated
refineries could elect non-participation FRGAS status for only one
refinery in the aggregation while electing for the remaining refineries
to participate in the FRGAS program, this would have the effect of
changing the aggregation for the participating refinery or refineries.
EPA believes the additional flexibility of allowing an annual FRGAS
election is appropriate because there would be no adverse environmental
effect if a foreign refiner with a relatively ``dirty'' individual
baseline elected to not use that baseline. In that case, the
conventional gasoline would be regulated through the importer, who is
subject to the statutory baseline.
As a result, EPA is finalizing the regulations to require a foreign
refiner with an individual refinery baseline to classify all gasoline
exported to the United States as FRGAS, or, at the foreign refiner's
election, to classify no gasoline as FRGAS. A foreign refiner with an
individual refinery baseline would not be allowed to classify part of
its gasoline as FRGAS and part as non-FRGAS during a calendar year.
EPA also is including a provision in the final rule to specifically
prohibit a foreign refiner with an individual baseline from failing to
include in the refinery compliance baseline calculations all gasoline
produced at the foreign refinery that is used in the U.S., and
including any blendstock produced at the foreign refinery that is used
to produce RFG used in the U.S. If EPA discovers that a foreign refiner
with an individual baseline has produced gasoline that was used in the
U.S., but that was not included in the refinery's compliance baseline
calculations, this would be a violation of the prohibition. In
addition, this also would result in a recalculation of the refinery's
compliance baseline for the relevant year, ab initio, which could
result in the foreign refiner violating the revised NOX and
exhaust toxics requirements for that year. It would be no defense if
the gasoline or blendstock had been transferred to a third party who
was responsible for exporting the gasoline or blendstock to the U.S.,
even if the foreign refiner had no actual knowledge of the subsequent
U.S. export or if the foreign refiner had a good faith belief the
gasoline or blendstocks would be used only in non-U.S. markets.
This is similar to the requirement at section 80.67(h)(3) that
prohibits domestic refiners from using improperly created oxygen or
benzene credits regardless of any good faith belief the credits were
valid, and if invalid credits are used results in EPA recalculating the
refiner's compliance calculations, ab initio, with the invalid credits
being removed.
As a result, EPA believes it would be prudent for foreign refiners
of FRGAS to take appropriate commercial steps to ensure they are
informed if gasoline or blendstock transferred to third parties
ultimately is exported to the U.S. If a foreign refiner fails to take
reasonable steps in this regard, and EPA determines that the refiner's
gasoline or blendstock is exported to the U.S. by a third party without
being included in the refiner's compliance baseline calculations, EPA
will consider this an aggravating factor in determining the amount of
any penalty imposed against the foreign refiner for the violation.
(2) Third Party Testing Requirements
(a) Comments
EPA received several comments related to the proposed third party
testing requirements and the comparison of load port test results with
port of entry test results. One foreign refiner and an association of
domestic gasoline marketers commented that load port testing is not
necessary, and the foreign refiner stated their comment is based on the
view that EPA should require U.S. importers to meet NOX and
exhaust toxics requirements based on testing only at the U.S. port of
entry and EPA audits of refinery records.
A number of comments were related to factors intended to reduce the
costs associated with third party testing. Two foreign refiners
commented that if third party testing is required, the load port
testing requirement should require analysis only of vessel composite
samples instead of separate analyses for each vessel compartment. One
foreign refiner commented that the parameters required to be analyzed
should be limited to gravity, T50, T90, benzene and sulfur, or in the
alternative, for NOX and exhaust toxics emissions
performance. Two foreign refiners commented that the third party tester
should not be required to use an independent laboratory, and instead
should be allowed to observe the testing
[[Page 45557]]
in the foreign refiner's laboratory or use the foreign refiner's
laboratory equipment, because at present there are no independent
laboratory facilities located near their foreign refineries.
Two foreign refiners commented that comparisons of load port
testing with port of entry testing should be on the basis of ASTM
reproducibility,32 instead of the comparison criteria
proposed by EPA.
---------------------------------------------------------------------------
\32\ The American Society of Testing and Materials, ASTM, is a
non-governmental body that describes test methods, including test
methods for gasoline parameters, that are generally recognized as
industry-standard test methods. ASTM includes precision measures for
each test method in the form of repeatability and reproducibility
statistics. In general, repeatability reflects intra-laboratory
variability, while reproducibility reflects inter-laboratory
variability.
---------------------------------------------------------------------------
One foreign refiner also commented that in the case of inconsistent
load port--port of entry test results, the U.S. importer should be
responsible for meeting the NOX and exhaust toxics
requirements for the gasoline.
An association of domestic refiners commented that the proposed
requirements for third party testing are necessary for an effective
enforcement program.
(b) EPA's Response
EPA continues to believe third party sampling and testing is a
necessary part of the foreign refiner FRGAS program. However, in
response to comments EPA is modifying these requirements in several
ways in the final rule.
The primary purpose served by the third party sampling and testing
requirements is to provide information useful in evaluating whether any
event has occurred since the gasoline was loaded into the vessel that
would cast doubt on the identification of the source refinery of FRGAS.
The NOX and exhaust toxics requirements are met on the basis
of sampling and testing conducted by the foreign refiner at the foreign
refinery (not necessarily at the load port), and is largely unrelated
to the third party load port sampling and testing. The tracking purpose
of the third party testing requirements provides the focus for
evaluating the comments received on this issue.
In the case of gasoline classified as non-certified FRGAS, EPA now
believes that no third party load port sampling or testing to determine
gasoline properties is necessary. There is no adverse environmental
effect if a foreign refiner includes FRGAS in its compliance baseline
calculations even if this gasoline was produced by a different refiner.
As a result, there is little need for third party testing intended to
verify gasoline was produced at the specified foreign refinery, and,
hence, EPA is dropping the requirement for third parties to determine
properties of non-certified FRGAS. However, EPA has retained the
requirement for third party determination of volume for non-certified
FRGAS, because the volume of all FRGAS is important to the accuracy of
the compliance baseline calculation.
In addition, the foreign refiner is required to prepare a
certification to accompany shipments of non-certified FRGAS that
identify the foreign refinery and the volume, supported by the report
of the independent third party. The requirement also remains that the
U.S. importer must report the volume of non-certified FRGAS to EPA and
to the foreign refiner. EPA intends to monitor the volumes of non-
certified FRGAS used by foreign refiners in their compliance baseline
calculations. If EPA discovers that the volume of non-certified FRGAS
included in a foreign refiner's compliance baseline calculation is
incorrect (for example, discovers this violation during an audit of the
foreign refinery), EPA will recalculate the refinery's compliance
baseline and evaluate the refinery's compliance with the NOX
and exhaust toxics requirements on this basis.
In the case of gasoline classified as certified FRGAS, EPA believes
third party testing is needed in order to verify the imported gasoline
was produced at the named foreign refinery and subsequent to loading
was not mixed with gasoline from a different foreign refinery. Only
conventional gasoline that is produced at the foreign refinery with an
individual baseline is entitled to use that baseline, and it would be
inappropriate for the foreign refiner or anyone else to substitute
conventional gasoline produced at another refinery.33
However, the purpose of third party sampling and testing of certified
FRGAS is limited to identifying the source refinery. As a result, and
in response to comments received, EPA has revised the parameters that
must be tested by the third party, the manner in which the third party
may determine the property values, and the criteria that are used to
compare load port and port of entry test results to more reasonably
reflect the purpose of this sampling and testing.
---------------------------------------------------------------------------
\33\ As discussed elsewhere in this preamble, foreign refiners
of FRGAS who have aggregated refineries may mix or substitute
gasoline produced at any refinery within the aggregation.
---------------------------------------------------------------------------
The purpose of comparing load port and port of entry test results
is to verify the gasoline on board a vessel on arrival at the U.S. port
of entry is the same gasoline that was loaded by the refiner at the
load port, i.e., to verify that the vessel has not stopped en route to
the U.S. to discharge or take on gasoline. EPA had proposed that this
comparison must be of all complex model parameters.34 A
foreign refiner commented that a comparison based on test results for a
subset of the complex model parameters would also meet the purpose of
this provision, i.e., test results for sulfur, benzene, T50, T90, and
gravity. EPA agrees the vessel tracking purpose is served by comparing
results for the suggested parameters, although the distillation terms
E200 and E300 that are used in the complex model are being substituted
for the distillation terms T50 and T90 recommended by the commenter. It
is highly likely the gasoline on board a vessel has not been altered if
the values for these five parameters plus the gasoline volume are
unchanged.
---------------------------------------------------------------------------
\34\ The parameters that are used in the complex model are
sulfur, aromatics, olefins, benzene, oxygenate, distillation (E200
and E300), and gravity. See 40 CFR 80.65(e)(2)(i).
---------------------------------------------------------------------------
However, it nevertheless is necessary for the foreign refiner to
have the third party determine values for all complex model parameters
for certified FRGAS loaded onto the vessel, so the foreign refiner can
correct its NOX compliance and exhaust toxics calculations
in the event the results from load port and port of entry testing are
inconsistent, or the vessel is diverted to a non-U.S. market, as
discussed below. The additional parameters that must be established for
the vessel are aromatics, olefins, oxygenate and RVP. These additional
parameters may be established by the third party testing the ship
composite sample for them. In addition, if a vessel is loaded from
shore tanks containing gasoline that has been tested for the additional
parameters and the volume from each shore tank that was loaded is
known, the third party may calculate the additional parameter values
for the gasoline that was loaded onto the vessel.
Thus, the load port testing must be for all complex model
parameters, but the comparison of load port and port of entry samples
must be only for the subset of parameters.
EPA also now believes the appropriate basis for comparison of load
port and port of entry testing is ASTM reproducibility, as recommended
in the comments. EPA proposed requiring these comparisons be based on
the ranges specified at 40 CFR 80.65(e)(2)(i). However, these proposed
ranges currently are used under the regulations to compare a refiner's
internal test results for RFG with the test results obtained by the
refiner's independent
[[Page 45558]]
laboratory. The purpose is to verify the actual quality of the
gasoline, not the source refinery. A relatively high degree of
correlation in test results would be expected between a refiner and the
single independent laboratory selected and used by the refiner on an
ongoing basis. In contrast, a foreign refiner's load port test results
for FRGAS normally will be compared with port of entry testing
conducted by multiple importers, where unusually high correlation in
test results would not be expected. EPA believes ASTM reproducibility
is an appropriate correlation criteria in this situation in light of
the tracking purpose of load port and port of entry test comparisons.
ASTM reproducibility for most parameters is calculated using the test
result obtained in each test, and the reproducibility value that must
be used for each load port-port of entry comparison must be calculated
using the port of entry test result.35 The final regulations
are being revised accordingly.
---------------------------------------------------------------------------
\35\ For example, under the ASTM test for benzene, ASTM D 3606-
92, reproducibility is calculated as 0.28 times the measured value.
If the benzene tests for a particular vessel are 2.50 vol% from the
load port composite sample, and 1.80 vol% from the port of entry
composite sample, the reproducibility calculated as 1.80 vol%
0.50 vol% based on the 1.80 vol% port of entry result,
i.e., the load port result would be consistent with the port of
entry result if it is between 1.30 vol% and 2.30 vol%. In this
example the benzene test results are inconsistent because the load
port result is larger than 2.30 vol%.
---------------------------------------------------------------------------
Also in light of the limited purpose of load port testing, EPA now
believes this testing need not be conducted in an independent
laboratory. This is in contrast to independent sampling and testing of
RFG, which must be conducted at an independent laboratory. EPA believes
the purpose of load port testing may be achieved if the independent
chemist observes the foreign refiner chemist conduct the required tests
or if the independent chemist uses the foreign refiner's laboratory
equipment. In addition, load port testing of certified FRGAS could be
conducted by the independent third party at an independent laboratory.
The final regulations are being revised accordingly.
EPA proposed that load port testing would be conducted separately
for each quantity of gasoline that is not homogeneous with regard to
the properties being tested, i.e., that separate testing would be
conducted for each batch.36 Commenters stated that EPA
instead should allow parties to conduct load port-port of entry test
comparisons on the basis of vessel composite samples. Based on the
tracking purpose of load port-port of entry test comparisons, EPA
agrees with the commenters' suggestion. The point of comparing load
port with port of entry test results is to establish that a vessel has
not stopped en route to the United States to add new gasoline. The
gasoline quality and quantity changes that would result from such a
mid-journey stop would be revealed by comparing the analysis results of
vessel composite samples, and EPA now believes there is no need to
require separate comparisons for each gasoline batch being transported
on a vessel.
---------------------------------------------------------------------------
\36\ 40 CFR 80.2(gg) defines an RFG batch as a quantity that is
homogeneous with regard to the RFG parameters. In another
rulemaking, EPA has proposed that this definition also would apply
to conventional gasoline. See 62 FR 37339 (July 11, 1997).
---------------------------------------------------------------------------
EPA proposed that if port of entry test results for certified FRGAS
differ from load port test results by more than the specified ranges,
the foreign refiner would be required to correct its compliance
calculations to reflect the port of entry results. Foreign refiners
objected, stating they sell their gasoline ``free on board'' (FOB) the
foreign load port, and, hence, have no control and are not responsible
for what happens to it afterwards.
EPA now believes the proposed approach is not the most appropriate
consequence when port of entry test results are inconsistent with load
port test results. Instead, EPA believes the U.S. importer should
simply treat the gasoline as non-certified FRGAS. In the case of
inconsistent results from load port and port of entry testing, the
implication is the gasoline was not produced by the foreign refiner or
has been mixed with gasoline not produced by the foreign refiner, and
is not entitled to the foreign refinery's individual baseline. In
addition, the U.S. importer must inform the foreign refiner of the
inconsistent results, and the foreign refiner must adjust its
compliance calculations to remove the qualities and volume of the
conventional gasoline from the refinery NOX and exhaust
toxics compliance calculations.
However, the foreign refiner may not remove the volume from its
compliance baseline calculations. This is necessary in order to prevent
the adverse impacts, described above, that could occur if foreign
refiners of FRGAS or their importers have the option of classifying
conventional gasoline as ``non-FRGAS.'' Requiring the named foreign
refiner to retain the volume of the non-certified FRGAS in its
compliance baseline calculations even where load port and port of entry
test results are inconsistent removes any incentive for the foreign
refiner or its U.S. importer to manipulate test results in order to
make them inconsistent, and in this way to ship to the United States
gasoline that could be treated as ``non-FRGAS.''
EPA is providing an exception to this requirement. In the case of
test results outside the specified ranges the foreign refiner need not
retain the volume of the gasoline in its compliance baseline
calculations, where the foreign refiner can demonstrate that the U.S.
importer does not classify the imported gasoline as reformulated
gasoline, or use the imported gasoline to produce reformulated gasoline
through the GTAB protocol. This exception is appropriate because the
potential for adverse environmental effects only exists where the
gasoline is used as reformulated gasoline in the U.S.37 EPA
intends to review compliance with this exception when it conducts
audits of foreign refiners and U.S. importers. If EPA discovers that a
foreign refiner excluded the volume of certified FRGAS from its
compliance baseline calculations based on inconsistent load port--port
of entry testing, but the gasoline was classified as reformulated
gasoline by the U.S. importer, the foreign refiner's compliance
baseline calculation will be adjusted, ab initio, which could result in
a violation of the NOX and exhaust toxics requirements by
the foreign refiner. This would be true in a case where only a portion
of the gasoline at issue has been classified as reformulated gasoline
using the GTAB protocol. Moreover, the foreign refiner could not avoid
this result even if it had a good faith belief the U.S. importer would
not use the gasoline at issue to produce reformulated gasoline. The
burden is on the foreign refiner to demonstrate that the gasoline was
not classified as reformulated.
---------------------------------------------------------------------------
\37\ If the gasoline is included in the importer's CG compliance
calculations, it will be subject to the statutory baseline, which is
more stringent than the applicable compliance baseline where the
foreign refiner includes the volume in its compliance baseline
equation.
---------------------------------------------------------------------------
EPA is adopting an additional basis for retaining the certified
FRGAS classification of conventional gasoline, even if the load port
and port of entry test results are outside the specified ranges. This
is based on a comparison of the NOX and exhaust toxics
emissions performance of the FRGAS calculated using load port test
results, with the emissions performance calculated using port of entry
test results. If the port of entry emissions performance for both
NOX and exhaust toxics, in milligrams per mile, is smaller
than the load port emissions performance (i.e., cleaner),
[[Page 45559]]
the gasoline remains classified as certified FRGAS regardless of the
parameter test results comparisons. This exception is appropriate
because there is no adverse environmental effect if the quality of the
conventional gasoline improves in terms of NOX and exhaust
toxics emissions performance. However, this exception would not apply
if EPA is able to establish that the vessel in fact stopped en route to
the United States and took on additional gasoline produced at a
different foreign refinery.
7. Diversion of FRGAS to Non-U.S. Markets
a. EPA Proposal: EPA proposed that all gasoline produced at a
foreign refinery with an individual baseline that is exported to the
U.S. must be classified as FRGAS. However, EPA left open and requested
comment on the issue of whether the regulations should allow FRGAS to
be diverted to a non-U.S. market after production, for example, whether
a vessel containing FRGAS could be diverted to a non-U.S. market.
b. Comments: EPA received comments from two foreign refiners and an
association representing domestic marketers that recommended foreign
refiners be given the option of diverting FRGAS to non-U.S. markets.
The two foreign refiners stated that foreign refiners could implement
commercial procedures that would allow them to know when FRGAS has been
diverted to a non-U.S. market, and the foreign refiner could correct
their compliance calculations accordingly.
c. EPA's Response: EPA now agrees that foreign refiners of FRGAS
should be allowed to divert certified and non-certified FRGAS to non-
U.S. markets, provided the foreign refiner corrects its compliance
baseline calculations, and in the case of certified FRGAS its
NOX and exhaust toxics compliance calculations, to reflect
the diversion. In the case of diverted certified FRGAS, the foreign
refiner must use the load port test results, and the load port volume,
as the basis for correcting the NOX and exhaust toxics
compliance calculations. A foreign refiner may treat FRGAS as having
been diverted only if the foreign refiner is able to demonstrate the
gasoline in fact was used outside the U.S. This demonstration must be
in the form of documents obtained from the recipient of the gasoline
that certify where the gasoline will be used, and that the gasoline
will not be imported into the United States. Provisions have been
included in the final rule to reflect these requirements.
8. Attest Requirements
a. EPA Proposal: Under the Gasoline Rule foreign refiners of FRGAS,
like domestic refiners, are required to commission an attest engagement
each year.38 EPA proposed additional attest procedures
dealing with the FRGAS requirements, that would have to be completed by
foreign refiners of FRGAS.
---------------------------------------------------------------------------
\38\ ``Attest engagement'' is a term of art used by auditors to
describe the conduct of audit procedures that have been agreed upon
in advance by the auditor and the subject of the audit--the auditor
attests to the conduct and results of the specified audit, or
attest, procedures completed during the attest engagement. The
requirements in sections 80.125 through 80.130 consist of specified
attest procedures dealing with the Gasoline Rule and instructions
for the conduct of these procedures.
---------------------------------------------------------------------------
b. Comments: EPA received comments on the proposed FRGAS attest
procedures from a domestic firm of Certified Public Accountants. These
comments included specific suggestions regarding the wording used in
certain proposed FRGAS attest provisions.
c. EPA's Response: EPA has modified the attest procedures to
address the comments received. In particular, EPA has included
additional details in the attest procedure that requires the auditor to
determine whether FRGAS was produced at the foreign refinery in
question, and whether FRGAS was produced at any non-FRGAS or FRGAS
produced at a different refinery.
9. Truck Imports
a. EPA Proposal: EPA did not distinguish gasoline that is imported
into the U.S. by truck, from gasoline that is transported by vessel, in
the foreign refiner proposed rule. However, in implementing the current
regulations EPA has allowed an additional option for meeting the
conventional gasoline requirements where the gasoline is imported into
the U.S. by truck, because of the costs associated with every-batch
sampling that is required for imported gasoline. Under this option
truck importers are allowed to demonstrate compliance with the
conventional gasoline requirements based on the quality of gasoline at
the terminal located outside the U.S. where the trucks are loaded. This
quality must meet the statutory baseline on an every-gallon basis, and
not an annual average basis. The foreign terminal operator provides the
U.S. importer with documents for each truck loaded at the terminal,
that demonstrate the gasoline meets these quality requirements. These
documents must be based on complete sampling and testing by the foreign
terminal operator. In addition, the U.S. importer must conduct a
program of periodic quality assurance testing of the gasoline dispensed
at the foreign terminal to verify the accuracy of the foreign refiner's
documents. This option was allowed in guidance issued by EPA in
Reformulated Gasoline and Anti-Dumping Questions and Answers (October
29, 1994), and has been proposed for inclusion in the Gasoline Rule in
another rulemaking, 62 FR 37367 (July 11, 1997).
b. Comments: EPA received comments from a coalition of companies
who import gasoline into the United States by truck. These commenters
stated that EPA should structure the foreign refiner requirements in a
manner that allows truck importers to continue using the testing option
described above.
In particular, these commenters expressed the view that the foreign
refiner FRGAS requirements would affect truck importers only if an
individual refinery baseline is sought by the foreign refiner supplying
gasoline to the terminal used by truck importers. If an individual
refinery baseline is obtained by such a foreign refiner, the commenters
suggested the foreign refinery should be considered analogous to the
load port, and the truck loading terminal should be considered
analogous to the U.S. port of entry. In this way the gasoline dispensed
at the truck loading terminal would have no additional testing
requirements that would be met by the U.S. importer.
c. EPA's Response: Where the foreign refiner has not obtained an
individual refinery baseline the testing option available to truck
importers, described above, is unaffected by the foreign refiner
requirements being promulgated. However, if conventional gasoline
imported by a truck importer is produced at a foreign refinery with an
individual baseline the current importer testing option is not
available. This is true because the truck testing option does not allow
any gasoline to meet NOX and exhaust toxics quality
requirements other than statutory baseline-based requirements.
EPA believes it may be possible to modify the testing option
available to truck importers for application with gasoline produced at
a foreign refinery with an individual refinery baseline. However, this
is not the most appropriate rulemaking for such a modification. As
described above, EPA has proposed in a separate rulemaking to include
this truck importer testing option in the regulations, which EPA hopes
to complete by the end of December 1997. EPA believes it would be most
appropriate to address all issues related to testing by truck importers
in that separate rulemaking, including
[[Page 45560]]
where the foreign refiner has obtained an individual refinery baseline.
In the meantime, if EPA receives an individual refinery baseline
petition from a foreign refiner that supplies truck importers, EPA will
attempt to address the issue of the truck testing option through
modifying the Question and Answer guidance.
E. Remedial Measures
1. EPA's Proposal
Allowing foreign refiners to choose whether to establish an
individual baseline creates a potential for adverse environmental
impact. This would be addressed by monitoring the quality of imported
gasoline, comparing it to a benchmark, and taking remedial action if
the benchmark is exceeded.
EPA would monitor the entire pool of imported gasoline, and
determine the volume weighted average quality of the gasoline. This
average would be compared to a benchmark. The purpose of the benchmark
is to reasonably determine when allowing foreign refiners the option to
use or not use an IB has caused degradation of the quality of imported
gasoline from the 1990 quality of imported gasoline. The best measure
of this, given the absence of actual data on the average quality of
gasoline imported in 1990, would be the volume weighted average
baseline for domestic refiners.
Since the use of a benchmark is designed to detect a multi-year
trend stemming from providing foreign refiners the option to use or not
use an IB, as compared to short term changes in gasoline quality
attributable to the many other factors that can affect the quality of
imported gasoline on a year to year basis, EPA proposed to use a three
year rolling average of the quality of imported gasoline. Thus each
year the average quality of the imported CG for the prior three years
would be compared to the benchmark.
If the benchmark was exceeded, EPA would take remedial action by
adjusting the requirement applicable to imported CG that is not subject
to an IB. The adjustment would be equal to the amount of the
exceedance. The existence and level of the adjustment would be
evaluated each year by comparing the benchmark to the most recent 3
year average. The adjusted requirement would apply to CG imported from
refiners without an IB.
Under the proposal, a benchmark would be set for NOX
emissions but not for exhaust toxics, as the evidence prior to the
proposal indicated that there would not likely be an adverse impact on
toxics from allowing the option to use an IB. Instead, EPA would
monitor the quality of imported CG for toxics, and if an adverse trend
were to occur EPA would develop at that time an appropriate benchmark
and adjustment mechanism, analogous to that proposed for
NOX.
2. Comments
Comments were received from various associations and members of the
refining and distribution industry, importers, gasoline marketers,
foreign refiners, a state environmental office and an environmental
group. Several of the commenters supported the proposed approach in
general, suggesting changes to specific parts of the proposal. One
commenter suggested extending the approach to include all imported and
domestic conventional gasoline, using this mechanism to improve the
average quality of fuel in areas with poor fuel quality. One commenter
from the gasoline refining and distribution industry opposed the
general approach of the proposal arguing that the after-the-fact
approach of the proposal was inappropriate as it would allow air
quality to degrade before remedial action was taken.
Several commenters suggested changes to the benchmark. One
commenter suggested that a three year running average of the quality of
domestic CG would be a better way to ensure that imported gasoline was
no dirtier than domestic gasoline on average. Another commenter
suggested that a benchmark based on a one year average instead of a
three year average would be more protective of air quality and
therefore more appropriate. Another commenter suggested using the
statutory baseline as the benchmark instead of the volume weighted
average of domestic refiner IBs. One commenter suggested that remedial
action should be triggered when the benchmark was exceeded by an amount
reflecting the reproducibility of the test results for NOX
emissions. Finally, one commenter suggested using a national average as
the benchmark, done by individual metropolitan areas.
While one commenter supported limiting the benchmark to
NOX, two commenters recommended adding a benchmark for
toxics. One commenter questioned EPA's lack of a benchmark for toxics,
given the difficulty in analyzing import data and enforcing
requirements against foreign refiners and the importance of the toxics
reductions from the RFG and CG programs. Another commenter suggested
monitoring exhaust toxics as well as NOX as domestic
refiners are subject to requirements for both, the prior history of the
toxics qualities of imported CG does not assure the quality of future
imports of CG, and the additional monitoring and reporting would not
impose significant effort for either EPA or the affected industry. This
commenter also expressed the view that gasoline produced outside the
U.S. would be likely to have higher toxics on average than that
produced in the U.S., based on the on-going phase out of lead, the
summer to winter ratio of imports, and the results of a 1993 National
Petroleum Council study on gasoline quality. In addition, EPA was
cautioned to exclude data from the U.S. Virgin Islands in determining
the toxics qualities of imported CG.
One commenter objected that the adjustment mechanism did not comply
with the legal requirements spelled out by the WTO Appellate Body and
Panel, in that it could lead to subjecting imported gasoline to
stricter requirements than identical domestic gasoline. The commenter
argues that even though domestic refiners were required to use an IB,
there could still be changes in the average quality of domestic
gasoline yet no adjustment mechanism was employed in that case.
3. EPA's Response
For the reasons decribed below, EPA is finalizing these provisions
as proposed.
The ``after-the-fact'' approach of these provisions is based on
EPA's inability to accurately quantify ahead of time the actual adverse
impact, if any, from allowing foreign refiners the option to use or not
use an IB. EPA does believe providing such an option clearly creates
the potential for such an adverse impact, but the size and amount of
the impact is difficult to quantify with any degree of certainty ahead
of time, as well as whether or not it will occur. It would depend on a
variety of factors, some of which would change from year to year--the
number of foreign refiners that receive an IB, the actual IBs assigned
to them, the volume of gasoline included in the IB, the source and
amount of CG and RFG imported each year, and the extent, if any, to
which foreign refiners whose 1990 exports to the U.S. were cleaner on
average than the SB would now ship gasoline that is dirtier than what
they exported to the U.S. in 1990.
No commenter disputed the above, or suggested a way for EPA to
fairly quantify ahead of time the potential risk of an adverse
environmental impact. Given this uncertainty, EPA continues to believe
that the better course is to monitor imported CG, measure it against a
benchmark designed to reflect a multi-
[[Page 45561]]
year trend in gasoline quality, and if the benchmark is exceeded adjust
the gasoline quality requirement for imported CG by an amount that
offsets this adverse impact. EPA also does not believe it is
appropriate to extend this monitoring and adjustment approach to
include all CG, both domestic and imported. All domestic refiners and
blenders of CG have been assigned an IB, and do not have the option to
choose between the SB and an IB. As a result, for domestic refiners
there is not the same ability to choose a less stringent requirement,
based on economic reasons, with the resulting potential for an adverse
environmental impact, as there is for foreign refiners. Therefore,
there is not the same need to protect against such an adverse impact
for domestically produced gasoline.
EPA proposed a three year rolling average in the comparison to the
benchmark as it is a better mechanism to detect a multi-year trend. A
one year average was rejected in the proposal as it might only reflect
the year to year volatility in the source and quantities of imported CG
which occur for a variety of reasons independent of the option to use
an IB. The commenter suggesting the use of a one year average did not
provide any evidence to rebut this view, but argued instead that a one
year average would be more protective of air quality. EPA is finalizing
the three year rolling average as it is a better mechanism to determine
when air quality has been adversely impacted from providing the option
to use an IB, and therefore needs to be protected by an adjustment.
EPA proposed comparing the average quality of imported CG to the
volume weighted average of the IBs for domestic refiners. This reflects
the central purpose of the CG program as applied to imported gasoline--
to avoid degradation in the quality of imported gasoline from the
quality of gasoline imported in 1990. As noted in the proposal, we do
not have actual data on the quality of gasoline imported in 1990 and it
is not unreasonable to assume that the average quality of imported
gasoline was generally equivalent to the volume weighted average of IBs
for domestic refiners, absent evidence to the contrary. The proposed
benchmark is based on this view, and no commenter contested these
assumptions or presented evidence to the contrary. One commenter
suggested comparing imported CG to the average quality of CG currently
produced by domestic refiners, another suggested using a national
average done by metropolitan area, and another suggested comparing it
to the SB. EPA is not adopting these methods because each of them is a
less direct way to meet the purpose identified above. These
alternatives would be a less certain way to meet the objectives as they
are less directly related to the quality of gasoline imported in 1990.
EPA disagrees with the suggestion that the remedial action should
be triggered when the benchmark is exceeded by an amount reflecting the
reproducibility of the test results for NOX emissions. The
reproducibility of test results addresses comparisons of individual
test results conducted for example in different labs. It is not
relevant when comparing averages that are based on numerous data
points. A multi-year rolling average is an adequate benchmark to
determine the existence of an adverse trend, and an additional element
for reproducibility of individual test results is not needed.
EPA's proposal to establish a benchmark for NOX at this
time but not for exhaust toxics was based on a review of the annual
reports submitted by importers for calendar year 1995. Those reports
showed that the average level of exhaust toxics for gasoline imported
in 1995 was significantly cleaner than either the statutory baseline or
the volume weighted average of individual baselines for domestic
refiners. In addition, information previously submitted by one foreign
refiner indicated that the IB they would seek would be cleaner than the
SB for exhaust toxics. Based on this, EPA did not believe there was
enough indication that there would be an adverse impact on toxics to
warrant establishing a benchmark and adjustment mechanism at this time.
Instead, EPA would monitor the toxics qualities of imported gasoline
and adopt a benchmark and adjustment mechanism in the future if
appropriate.
None of the commenters provided information or reasons that warrant
a different conclusion. The claim that data on imported gasoline is
hard to analyze is unfounded, as it is relatively easy to determine the
volume weighted average quality of imported gasoline from the batch
reports submitted by importers. The same information will still be
available under the regulations finalized today; the fact that some of
the information may now be submitted by foreign refiners does not
change the availability and quality of the data submitted. Since the
regulatory changes adopted today will only affect conventional
gasoline, there will be no impact at all on the important toxics
reductions obtained in the RFG program. The fact that domestic refiners
are subject to requirements for both NOX and exhaust toxics
is not a reason to set a benchmark for toxics now, as both importers
and foreign refiners with an approved IB will also be subject to
requirements for NOX and exhaust toxics. While the prior
history of the toxics quality of imported gasoline does not assure that
the future quality will be the same, it does indicate that it is much
less likely that a toxics problem will develop from allowing foreign
refiners to use an IB. Since the proposal was published, EPA has been
able to evaluate the batch reports submitted by importers for calendar
year 1996. The results follow the same pattern as in 1995--the average
toxics quality of imported gasoline is significantly cleaner than
either the SB or the volume weighted average of the IBs for domestic
refiners. Data from the Virgin Islands was not included in either the
1995 or 1996 calculations, as this is not considered imported gasoline
for purposes of the CG or RFG regulations. Data on the actual toxics
quality of imported gasoline in 1995 and 1996 provides concrete
evidence for evaluating the risk of an adverse impact on toxics from
allowing foreign refiners an option to use IBs. This data is more
probative on this issue than the potential but unspecified impacts of
lead-phase down on foreign produced gasoline and the overall quality of
gasoline produced overseas in 1993, which would be dominated by
gasoline produced and used overseas as compared to gasoline exported to
the U.S. EPA is therefore not adopting a benchmark for exhaust toxics
at this time, and instead will continue to monitor the average toxics
quality of imported gasoline and will take appropriate action to adopt
a benchmark and adjustment mechanism for exhaust toxics if
circumstances develop which warrant such action.
F. Compliance With WTO Obligations
Some commenters claimed that certain provisions related to
enforcing compliance with the requirements for establishment and use of
an individual baseline, and the mechanism for remedial measures, were
not consistent with the obligations of the United States under the
World Trade Organization agreement.
This rule meets the commitment of the United States to comply with
its obligations under the World Trade Organization agreement with
respect to this matter. This rule provides all foreign refiners with
the opportunity to apply for and use an individual baseline. To the
limited extent that foreign refiners with individual baselines are to
be subject to different
[[Page 45562]]
requirements than domestic refiners, great care has been taken to
ensure that these requirements are limited to those that are essential
to address issues that are unique to refiners exporting gasoline to the
United States.
V. Administrative Designation and Regulatory Analysis
A. Public Participation
The agency held a public hearing on May 20, 1997, to hear comments
on the Notice of Proposed Rulemaking (62 FR 24776) published on May 6,
1997. Comments were provided at the hearing by the National Petroleum
Refiner's Association and the Independent Refiners Coalition. EPA
reviewed and considered written comments on the proposal submitted by
the same groups as well as written comments from various other
commenters. These comments have been presented and addressed in the
preamble above. (See Response to Comments, Section IV) All comments
received by the Agency are located in the EPA Air Docket A-97-26.
B. Executive Order 12866
Under Executive Order 12866, (58 FR 51735 (October 4, 1993)) the
Agency must determine whether the regulatory action is ``significant''
and therefore subject to Office of Management and Budget (OMB) review
and the requirements of the Executive Order. The Order defines
``significant regulatory action'' as one that is likely to result in a
rule that may:
(1) Have an annual effect on the economy of $100 million or more or
adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, or tribal governments or communities
(2) Create a serious inconsistency or otherwise interfere with an
action taken or planned by another Agency
(3) Materially alter the budgetary impact of entitlement, grants,
user fees, or loan programs or the rights and obligations of recipients
thereof; or
(4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
the Executive Order.
Pursuant to the terms of Executive Order 12866, it has been
determined that this rule is a ``significant regulatory action,'' as
such, this action was submitted to OMB for review.
C. Economic Impact and Impact on Small Entities
EPA has determined that this final rule will not have a significant
impact on a substantial number of small entities because only a limited
number of domestic entities would be affected by this rule and would be
small entities. In addition, today's action will not significantly
change the requirements applicable to importers of gasoline produced by
foreign refineries. A regulatory flexibility analysis has therefore not
been prepared.
Of the entire population of importers currently reporting to the
EPA, somewhat less than 100 importers that would be subject to today's
proposed rule are small entities. Under 40 CFR. 80.65 and 80.101 the
requirements for imported CG must currently be met by the importer. The
current requirements are based on the statutory baseline while today's
final rule would require either foreign refiners or importers to meet
the CG requirements using the baselines of the various foreign
refineries. Other importers would continue to meet the CG requirements
using the statutory baseline or an adjusted baseline. This will not,
however, have a significant impact on the importer, as the importer
will continue to only import gasoline that allows it to meet the annual
average requirements, and such gasoline would continue to be available
from the foreign refineries. The provision generally corresponds with
existing requirements. This final rule will continue the requirement
that importers be responsible for sampling and testing for foreign
gasoline imported into the U.S. Importers will be responsible for this
activity at the port of entry in the U.S. Importers will rely on the
foreign refiners and the independent party's to establish refinery of
origin. Importers can accomplish this by making private arrangements
with the importing foreign refiner and the independent party. The
Agency believes that, in general, exercising good business practices
with reputable foreign refiners will tend to eliminate any impact on
the importer. The impact of today's final rule will therefore either
not increase an importers cost, or would do so only marginally.
The issue of baselines for imported gasoline is discussed generally
in section VII-C of the Regulatory Impact Analysis that was prepared to
support the Final Rule for gasoline. A copy of this document may be
found in the RFG docket, number A-92-12, at the location identified in
the ADDRESSES section of this document.
D. The Paperwork Reduction Act
The information collection requirements in this final rule 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 (ICR) document has been prepared by EPA
(ICR No. 1591.08) and a copy may be obtained from Sandy Farmer,
Regulatory Information Division; U.S. Environmental Protection Agency
(2136); 401 M St., S.W.; Washington, DC 20460 or by calling (202) 260-
2740. The information requirements are not effective until OMB approves
them.
This final rule will allow foreign refiners to establish individual
baselines to demonstrate compliance with the Agency's gasoline rule.
The information collected will enable EPA to evaluate imported gasoline
in a manner similar to gasoline produced at domestic refineries.
Section 211(k) specifically recognizes the need for recordkeeping,
reporting and sampling/testing requirements for enforcement of this
program. Because of the complex nature of the gasoline rule, EPA cannot
determine compliance merely by taking samples of gasoline at various
facilities.
Estimated labor and cost burdens for this rule are:
No. Of Respondents, 32.
Total Annual Response, 90.
Average labor burden per response, 2.1 hours.
Average cost burden per response, $1,408.
Total annual hours requested, 192 hours.
Total annual capital costs, $126,700.00.
Capital cost are those cost associated with testing of gasoline by
independent laboratories.
Burden means the total time, effort, or financial resources
expended by persons to generate, maintain, retain, or disclose or
provide information to or for a Federal agency. This includes the time
needed to review instructions; develop, acquire, install, and utilize
technology and systems for the purposes of collecting, validating, and
verifying information, processing and maintaining information, and
disclosing and providing information; adjust the existing ways to
comply with any previously applicable instructions and requirements;
train personnel to be able to respond to a collection of information;
search data sources; complete and review the collection of information;
and transmit or otherwise disclose the information. An Agency may not
conduct or sponsor, and a person is not required to respond to a
collection of information unless it displays a currently valid OMB
control number. The OMB control numbers for
[[Page 45563]]
EPA's regulations are listed in 40 CFR Part 9 and 48 CFR Chapter 15.
Send comments on the Agency's need for this information, the
accuracy of the provided burden estimates, and any suggested methods
for minimizing respondent burden, including through the use of
automated collection techniques to the Director, OPPE Regulatory
Information Division, U.S. Environmental Protection Agency (2137), 401
M Street, SW., Washington, DC 20460, and to the Office of Information
and Regulatory Affairs, Office of Management and Budget, 725 17th St.,
N.W., Washington, DC 20503, marked ``Attention: Desk Officer for EPA.''
Include the ICR number in any correspondence.
E. Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public
Law 104-4, establishes requirements for Federal agencies to assess the
effects of their regulatory actions on State, local, and tribal
governments and the private sector. Under section 202 of the UMRA, EPA
generally must prepare a written statement, including a cost-benefit
analysis, for proposed and final rules with ``Federal mandates'' that
may result in expenditures to State, local, and tribal governments, in
the aggregate, or to the private sector, of $100 million or more in any
one year. Before promulgating an EPA rule for which a written statement
is needed, section 205 of the UMRA generally requires EPA to identify
and consider a reasonable number of regulatory alternatives and adopt
the least costly, most cost-effective or least burdensome alternative
that achieves the objectives of the rule. The provisions of section 205
do not apply when they are inconsistent with applicable law. Moreover,
section 205 allows EPA to adopt an alternative other than the least
costly, most cost-effective or least burdensome alternative if the
Administrator publishes with the final rule an explanation why that
alternative was not adopted. Before EPA establishes any regulatory
requirements that may significantly or uniquely affect small
governments, including tribal governments, it must have developed under
section 203 of the UMRA a small government agency plan. The plan must
provide for notifying potentially affected small governments, enabling
officials of affected small governments to have meaningful and timely
input in the development of EPA regulatory proposals with significant
Federal intergovernmental mandates, and informing, educating, and
advising small governments on compliance with the regulatory
requirements.
Today's rule contains no Federal mandates (under the regulatory
provisions of Title II of the UMRA) for State, local or tribal
governments or the private sector. The rule imposes no enforceable duty
on any State, local or tribal governments or the private sector.
F. Submission to Congress and the General Accounting Office
Under 5 U.S.C. 801(a)(1)(A) as added by the Small Business
Regulatory Enforcement Fairness Act of 1996, EPA submitted a report
containing this rule and other required information to the U.S. Senate,
the U.S. House of Representatives and the Comptroller General of the
General Accounting Office prior to publication of the rule in today's
Federal Register. This rule is not a major rule as defined by 5 U.S.C.
804(2).
G. Statutory Authority
The statutory authority for the rules 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.
List of Subjects in 40 CFR Part 80
Environmental protection, Air pollution control, Fuel additives,
Gasoline, Motor vehicle pollution, Penalties, Reporting and
recordkeeping requirements.
Dated: August 19, 1997.
Carol M. Browner,
Administrator.
40 CFR Part 80 is amended as follows:
PART 80--REGULATIONS OF FUELS AND FUEL ADDITIVES
1. The authority citation for part 80 continues to read as follows:
Authority: Sections 114, 211 and 301(a) of the Clean Air Act as
amended, 42 U.S.C. 7414, 7545 and 7601(a).
2. Section 80.94 is added to subpart E to read as follows:
Sec. 80.94 Requirements for gasoline produced at foreign refineries.
(a) Definitions. (1) A foreign refinery is a refinery that is
located outside the United States, including the Commonwealth of Puerto
Rico, the Virgin Islands, Guam, American Samoa, and the Commonwealth of
the Northern Mariana Islands (collectively referred to in this section
as ``the United States'').
(2) A foreign refiner is a person who meets the definition of
refiner under Sec. 80.2(i) for foreign refinery.
(3) FRGAS means gasoline produced at a foreign refinery that has
been assigned an individual refinery baseline and that is imported into
the United States.
(4) Non-FRGAS means gasoline that is produced at a foreign refinery
that has not been assigned an individual refinery baseline, gasoline
produced at a foreign refinery with an individual refinery baseline
that is not imported into the United States, and gasoline produced at a
foreign refinery with an individual baseline during a year when the
foreign refiner has opted to not participate in the FRGAS program under
paragraph (c)(3) of this section.
(5) Certified FRGAS means FRGAS the foreign refiner intends to
include in the foreign refinery's NOX and exhaust toxics
compliance calculations under Sec. 80.101(g), and does include in these
compliance calculations when reported to EPA.
(6) Non-certified FRGAS means FRGAS that is not certified FRGAS.
(b) Baseline establishment. Any foreign refiner may submit to EPA a
petition for an individual refinery baseline, under Secs. 80.90 through
80.93.
(1) The provisions for baselines as specified in Secs. 80.90
through 80.93 shall apply to a foreign refinery, except where provided
otherwise in this section.
(2) The baseline for a foreign refinery shall reflect only the
volume and properties of gasoline produced in 1990 that was imported
into the United States.
(3) A baseline petition shall establish the volume of conventional
gasoline produced at a foreign refinery and imported into the United
States during the calendar year immediately preceding the year the
baseline petition is submitted.
(4) In making determinations for foreign refinery baselines EPA
will consider all information supplied by a foreign refiner, and in
addition may rely on any and all appropriate assumptions necessary to
make such a determination.
(5) Where a foreign refiner submits a petition that is incomplete
or inadequate to establish an accurate baseline, and the refiner fails
to cure this defect after a request for more information, then EPA
shall not assign an individual refinery baseline.
(6) Baseline petitions under this paragraph (b) of this section
must be submitted before January 1, 2002.
(c) General requirements for foreign refiners with individual
refinery baselines. Any foreign refiner of a refinery that has been
assigned an individual baseline under paragraph (b) of this section
shall designate all gasoline produced at the foreign refinery that is
exported to the United States as either certified FRGAS or as non-
[[Page 45564]]
certified FRGAS, except as provided in paragraph (c)(3) of this
section.
(1)(i) In the case of certified FRGAS, the foreign refiner shall
meet all requirements that apply to refiners under 40 CFR part 80,
subparts D, E and F.
(ii) If the foreign refinery baseline is assigned, or a foreign
refiner begins early use of a refinery baseline under paragraph (r) of
this section, on a date other than January 1, the compliance baseline
for the initial year shall be calculated under Sec. 80.101(f) using an
adjusted baseline volume, as follows:
AV1990 = (D/365) x V1990
where:
AV1990 = Adjusted 1990 baseline volume
D = Number of days remaining in the year, beginning with the day the
foreign refinery baseline is approved or the day the foreign refiner
begins early use of a refinery baseline, whichever is later
V1990 = Foreign refinery's 1990 baseline volume.
(2) In the case of non-certified FRGAS, the foreign refiner shall
meet the following requirements, except the foreign refiner shall
substitute the name ``non-certified FRGAS'' for the names
``reformulated gasoline'' or ``RBOB'' wherever they appear in the
following requirements:
(i) The designation requirements in Sec. 80.65(d)(1);
(ii) The recordkeeping requirements in Sec. 80.74 (a), and (b)(3);
(iii) The reporting requirements in Sec. 80.75 (a), (m), and (n);
(iv) The registration requirements in Sec. 80.76;
(v) The product transfer document requirements in Sec. 80.77 (a)
through (f), and (j);
(vi) The prohibition in Sec. 80.78(a)(10), (b) and (c); and
(vii) The independent audit requirements in Secs. 80.125 through
80.127, 80.128 (a) through (c), and (g) through (i), and 80.130.
(3)(i) Any foreign refiner that has been assigned an individual
baseline for a foreign refinery under paragraph (b) of this section may
elect to classify no gasoline imported into the United States as FRGAS,
provided the foreign refiner notifies EPA of the election no later than
November 1 of the prior calendar year.
(ii) An election under paragraph (c)(3)(i) of this section shall:
(A) Be for an entire calendar year averaging period and apply to
all gasoline produced during the calendar year at the foreign refinery
that is imported into the United States; and
(B) Remain in effect for each succeeding calendar year averaging
period, unless and until the foreign refiner notifies EPA of a
termination of the election. The change in election shall take effect
at the beginning of the next calendar year.
(iii) A foreign refiner who has aggregated refineries under
Sec. 80.101(h) shall make the same election under paragraph (c)(3)(i)
of this section for all refineries in the aggregation.
(d) Designation, product transfer documents, and foreign refiner
certification. (1) Any foreign refiner of a foreign refinery that has
been assigned an individual baseline shall designate each batch of
FRGAS as such at the time the gasoline is produced, unless the foreign
refiner has elected to classify no gasoline exported to the United
States as FRGAS under paragraph (c)(3)(i) of this section.
(2) On each occasion when any person transfers custody or title to
any FRGAS prior to its being imported into the United States, the
following information shall be included as part of the product transfer
document information in Secs. 80.77 and 80.106:
(i) Identification of the gasoline as certified FRGAS or as non-
certified FRGAS; and
(ii) The name and EPA refinery registration number of the refinery
where the FRGAS was produced.
(3) On each occasion when FRGAS is loaded onto a vessel or other
transportation mode for transport to the United States, the foreign
refiner shall prepare a certification for each batch of the FRGAS that
meets the following requirements:
(i) The certification shall include the report of the independent
third party under paragraph (f) of this section, and the following
additional information:
(A) The name and EPA registration number of the refinery that
produced the FRGAS;
(B) The identification of the gasoline as certified FRGAS or non-
certified FRGAS;
(C) The volume of FRGAS being transported, in gallons;
(D) A declaration that the FRGAS is being included in the
compliance baseline calculations under Sec. 80.101(f) for the refinery
that produced the FRGAS; and
(E) In the case of certified FRGAS:
(1) The values for each parameter required to calculate
NOX and exhaust toxics emissions performance as determined
under paragraph (f) of this section; and
(2) A declaration that the FRGAS is being included in the
compliance calculations under Sec. 80.101(g) for the refinery that
produced the FRGAS.
(ii) The certification shall be made part of the product transfer
documents for the FRGAS.
(e) Transfers of FRGAS to non-United States markets. The foreign
refiner is responsible to ensure that all gasoline classified as FRGAS
is imported into the United States. A foreign refiner may remove the
FRGAS classification, and the gasoline need not be imported into the
United States, but only if:
(1)(i) The foreign refiner excludes:
(A) The volume of gasoline from the refinery's compliance baseline
calculations under Sec. 80.101(h); and
(B) In the case of certified FRGAS, the volume and parameter values
of the gasoline from the compliance calculations under Sec. 80.101(g);
(ii) The exclusions under paragraph (e)(1)(i) of this section shall
be on the basis of the parameter and volumes determined under paragraph
(f) of this section; and
(2) The foreign refiner obtains sufficient evidence in the form of
documentation that the gasoline was not imported into the United
States.
(f) Load port independent sampling, testing and refinery
identification. (1) On each occasion FRGAS is loaded onto a vessel for
transport to the United States a foreign refiner shall have an
independent third party:
(i) Inspect the vessel prior to loading and determine the volume of
any tank bottoms;
(ii) Determine the volume of FRGAS loaded onto the vessel
(exclusive of any tank bottoms present before vessel loading);
(iii) Obtain the EPA-assigned registration number of the foreign
refinery;
(iv) Determine the name and country of registration of the vessel
used to transport the FRGAS to the United States; and
(v) Determine the date and time the vessel departs the port serving
the foreign refinery.
(2) On each occasion certified FRGAS is loaded onto a vessel for
transport to the United States a foreign refiner shall have an
independent third party:
(i) Collect a representative sample of the certified FRGAS from
each vessel compartment subsequent to loading on the vessel and prior
to departure of the vessel from the port serving the foreign refinery;
(ii) Prepare a volume-weighted vessel composite sample from the
compartment samples, and determine the values for sulfur, benzene,
gravity, E200 and E300 using the methodologies specified in Sec. 80.46,
by:
(A) The third party analyzing the sample; or
[[Page 45565]]
(B) The third party observing the foreign refiner analyze the
sample;
(iii) Determine the values for aromatics, olefins, RVP and each
oxygenate specified in Sec. 80.65(e)(2) for the gasoline loaded onto
the vessel, by:
(A) Completing the analysis procedures under paragraph (f)(2)(ii)
of this section for the additional parameters; or
(B) Obtaining from the foreign refiner the test results of samples
collected from each shore tank containing gasoline that was loaded onto
the vessel, and calculating the parameter values for the gasoline
loaded onto the vessel from the tank parameter values and the gasoline
volume from each such shore tank that was loaded;
(iv) Review original documents that reflect movement and storage of
the certified FRGAS from the refinery to the load port, and from this
review determine:
(A) The refinery at which the FRGAS was produced; and
(B) That the FRGAS remained segregated from:
(1) Non-FRGAS and non-certified FRGAS; and
(2) Other certified FRGAS produced at a different refinery, except
that certified FRGAS may be combined with other certified FRGAS
produced at refineries that are aggregated under Sec. 80.101(h);
(3) The independent third party shall submit a report:
(i) To the foreign refiner containing the information required
under paragraphs (f) (1) and (2) of this section, to accompany the
product transfer documents for the vessel; and
(ii) To the Administrator containing the information required under
paragraphs (f) (1) and (2) of this section, within thirty days
following the date of the independent third party's inspection. This
report shall include a description of the method used to determine the
identity of the refinery at which the gasoline was produced, that the
gasoline remained segregated as specified in paragraph (n)(1) of this
section, and a description of the gasoline's movement and storage
between production at the source refinery and vessel loading.
(4) A person may be used to meet the third party requirements in
this paragraph (f) only if:
(i) The person is approved in advance by EPA, based on a
demonstration of ability to perform the procedures required in this
paragraph (f);
(ii) The person is independent under the criteria specified in
Sec. 80.65(f)(2)(iii); and
(iii) The person signs a commitment that contains the provisions
specified in paragraph (i) of this section with regard to activities,
facilities and documents relevant to compliance with the requirements
of this paragraph (f).
(g) Comparison of load port and port of entry testing. (1)(i) Any
foreign refiner and any United States importer of certified FRGAS shall
compare the results from the load port testing under paragraph (f) of
this section, with the port of entry testing as reported under
paragraph (o) of this section, for the volume of gasoline, for the
parameter values for sulfur, benzene, gravity, E200 and E300, and for
the NOX and exhaust toxics emissions performance; except
that
(ii) Where a vessel transporting certified FRGAS off loads this
gasoline at more than one United States port of entry, and the
conditions of paragraph (g)(2)(i) of this section are not met at the
first United States port of entry, the requirements of paragraph (g)(1)
and (g)(2) of this section do not apply at subsequent ports of entry if
the United States importer obtains a certification from the vessel
owner or his immediate designee that the vessel has not loaded any
gasoline or blendstock between the first United States port of entry
and the subsequent port of entry.
(2)(i) The requirements of paragraph (g)(2)(ii) apply if:
(A)(1) The temperature-corrected volumes determined at the port of
entry and at the load port differ by more than one percent; or
(2) For any parameter specified in paragraph (f)(2)(ii) of this
section, the values determined at the port of entry and at the load
port differ by more than the reproducibility amount specified for the
port of entry test result by the American Society of Testing and
Materials (ASTM); unless
(B) The NOX and exhaust toxics emissions performance, in
grams per mile, calculated using the port of entry test results, are
each equal to or less than the NOX and exhaust toxics
emissions performance calculated using the load port test results;
(ii) The United States importer and the foreign refiner shall treat
the gasoline as non-certified FRGAS, and the foreign refiner shall:
(A) Exclude the gasoline volume and properties from its
conventional gasoline NOX and exhaust toxics compliance
calculations under Sec. 80.101(g); and
(B) Include the gasoline volume in its compliance baseline
calculation under Sec. 80.101(f), unless the foreign refiner
establishes that the United States importer classified the gasoline
only as conventional gasoline and not as reformulated gasoline.
(h) Attest requirements. The following additional procedures shall
be carried out by any foreign refiner of FRGAS as part of the attest
engagement for each foreign refinery under 40 CFR part 80, subpart F.
(1) Include in the inventory reconciliation analysis under
Sec. 80.128(b) and the tender analysis under Sec. 80.128(c) non-FRGAS
in addition to the gasoline types listed in Sec. 80.128 (b) and (c).
(2) Obtain separate listings of all tenders of certified FRGAS, and
of non-certified FRGAS. Agree the total volume of tenders from the
listings to the gasoline inventory reconciliation analysis in
Sec. 80.128(b), and to the volumes determined by the third party under
paragraph (f)(1) of this section.
(3) For each tender under paragraph (h)(2) of this section where
the gasoline is loaded onto a marine vessel, report as a finding the
name and country of registration of each vessel, and the volumes of
FRGAS loaded onto each vessel.
(4) Select a sample from the list of vessels identified in
paragraph (h)(3) of this section used to transport certified FRGAS, in
accordance with the guidelines in Sec. 80.127, and for each vessel
selected perform the following:
(i) Obtain the report of the independent third party, under
paragraph (f) of this section, and of the United States importer under
paragraph (o) of this section.
(A) Agree the information in these reports with regard to vessel
identification, gasoline volumes and test results.
(B) Identify, and report as a finding, each occasion the load port
and port of entry parameter and volume results differ by more than the
amounts allowed in paragraph (g) of this section, and determine whether
the foreign refiner adjusted its refinery calculations as required in
paragraph (g) of this section.
(ii) Obtain the documents used by the independent third party to
determine transportation and storage of the certified FRGAS from the
refinery to the load port, under paragraph (f) of this section. Obtain
tank activity records for any storage tank where the certified FRGAS is
stored, and pipeline activity records for any pipeline used to
transport the certified FRGAS, prior to being loaded onto the vessel.
Use these records to determine whether the certified FRGAS was produced
at the refinery that is the subject of the attest engagement, and
whether the certified FRGAS was mixed with any non-certified FRGAS,
non-FRGAS, or any certified FRGAS produced at a different
[[Page 45566]]
refinery that was not aggregated under Sec. 80.101(h).
(5)(i) Select a sample from the list of vessels identified in
paragraph (h)(3) of this section used to transport certified and non-
certified FRGAS, in accordance with the guidelines in Sec. 80.127, and
for each vessel selected perform the following:
(ii) Obtain a commercial document of general circulation that lists
vessel arrivals and departures, and that includes the port and date of
departure of the vessel, and the port of entry and date of arrival of
the vessel. Agree the vessel's departure and arrival locations and
dates from the independent third party and United States importer
reports to the information contained in the commercial document.
(6) Obtain separate listings of all tenders of non-FRGAS, and
perform the following:
(i) Agree the total volume of tenders from the listings to the
gasoline inventory reconciliation analysis in Sec. 80.128(b).
(ii) Obtain a separate listing of the tenders under paragraph
(h)(6) of this section where the gasoline is loaded onto a marine
vessel. Select a sample from this listing in accordance with the
guidelines in Sec. 80.127, and obtain a commercial document of general
circulation that lists vessel arrivals and departures, and that
includes the port and date of departure and the ports and dates where
the gasoline was off loaded for the selected vessels. Determine and
report as a finding the country where the gasoline was off loaded for
each vessel selected.
(7) In order to complete the requirements of this paragraph (h) an
auditor shall:
(i) Be independent of the foreign refiner;
(ii) Be licensed as a Certified Public Accountant in the United
States and a citizen of the United States, or be approved in advance by
EPA based on a demonstration of ability to perform the procedures
required in Secs. 80.125 through 80.130 and this paragraph (h); and
(iii) Sign a commitment that contains the provisions specified in
paragraph (i) of this section with regard to activities and documents
relevant to compliance with the requirements of Secs. 80.125 through
80.130 and this paragraph (h).
(i) Foreign refiner commitments. Any foreign refiner shall commit
to and comply with the provisions contained in this paragraph (i) as a
condition to being assigned an individual refinery baseline.
(1) Any United States Environmental Protection Agency inspector or
auditor will be given full, complete and immediate access to conduct
inspections and audits of the foreign refinery.
(i) Inspections and audits may be either announced in advance by
EPA, or unannounced.
(ii) Access will be provided to any location where:
(A) Gasoline is produced;
(B) Documents related to refinery operations are kept;
(C) Gasoline or blendstock samples are tested or stored; and
(D) FRGAS is stored or transported between the foreign refinery and
the United States, including storage tanks, vessels and pipelines.
(iii) Inspections and audits may be by EPA employees or contractors
to EPA.
(iv) Any documents requested that are related to matters covered by
inspections and audits will be provided to an EPA inspector or auditor
on request.
(v) Inspections and audits by EPA may include review and copying of
any documents related to:
(A) Refinery baseline establishment, including the volume and
parameters, and transfers of title or custody, of any gasoline or
blendstocks, whether FRGAS or non-FRGAS, produced at the foreign
refinery during the period January 1, 1990 through the date of the
refinery baseline petition or through the date of the inspection or
audit if a baseline petition has not been approved, and any work papers
related to refinery baseline establishment;
(B) The parameters and volume of FRGAS;
(C) The proper classification of gasoline as being FRGAS or as not
being FRGAS, or as certified FRGAS or as non-certified FRGAS;
(D) Transfers of title or custody to FRGAS;
(E) Sampling and testing of FRGAS;
(F) Work performed and reports prepared by independent third
parties and by independent auditors under the requirements of this
section, including work papers; and
(G) Reports prepared for submission to EPA, and any work papers
related to such reports.
(vi) Inspections and audits by EPA may include taking samples of
gasoline or blendstock, and interviewing employees.
(vii) Any employee of the foreign refiner will be made available
for interview by the EPA inspector or auditor, on request, within a
reasonable time period.
(viii) English language translations of any documents will be
provided to an EPA inspector or auditor, on request, within 10 working
days.
(ix) English language interpreters will be provided to accompany
EPA inspectors and auditors, on request.
(2) An agent for service of process located in the District of
Columbia will be named, and service on this agent constitutes service
on the foreign refiner or any officer, or employee of the foreign
refiner for any action by EPA or otherwise by the United States related
to the requirements of 40 CFR part 80, subparts D, E and F.
(3) The forum for any civil or criminal enforcement action related
to the provisions of this section for violations of the Clean Air Act
or regulations promulgated thereunder shall be governed by the Clean
Air Act, including the EPA administrative forum where allowed under the
Clean Air Act.
(4) United States substantive and procedural laws shall apply to
any civil or criminal enforcement action against the foreign refiner or
any employee of the foreign refiner related to the provisions of this
section.
(5) Submitting a petition for an individual refinery baseline,
producing and exporting gasoline under an individual refinery baseline,
and all other actions to comply with the requirements of 40 CFR part
80, subparts D, E and F relating to the establishment and use of an
individual refinery baseline constitute actions or activities covered
by and within the meaning of 28 U.S.C. 1605(a)(2), but solely with
respect to actions instituted against the foreign refiner, its agents,
officers, and employees in any court or other tribunal in the United
States for conduct that violates the requirements applicable to the
foreign refiner under 40 CFR part 80, subparts D, E and F, including
such conduct that violates Title 18 U.S.C. section 1001, Clean Air Act
section 113(c)(2), or other applicable provisions of the Clean Air Act.
(6) The foreign refiner, or its agents, officers, or employees,
will not seek to detain or to impose civil or criminal remedies against
EPA inspectors or auditors, whether EPA employees or EPA contractors,
for actions performed within the scope of EPA employment related to the
provisions of this section.
(7) The commitment required by this paragraph (i) shall be signed
by the owner or president of the foreign refiner business.
(8) In any case where FRGAS produced at a foreign refinery is
stored or transported by another company between the refinery and the
vessel that transports the FRGAS to the United States, the foreign
refiner shall obtain from each such other company a commitment that
meets the
[[Page 45567]]
requirements specified in paragraphs (i) (1) through (7) of this
section, and these commitments shall be included in the foreign
refiner's baseline petition.
(j) Sovereign immunity. By submitting a petition for an individual
foreign refinery baseline under this section, or by producing and
exporting gasoline to the United States under an individual refinery
baseline under this section, the foreign refiner, its agents, officers,
and employees, without exception, become subject to the full operation
of the administrative and judicial enforcement powers and provisions of
the United States without limitation based on sovereign immunity, with
respect to actions instituted against the foreign refiner, its agents,
officers, and employees in any court or other tribunal in the United
States for conduct that violates the requirements applicable to the
foreign refiner under 40 CFR part 80, subparts D, E and F, including
such conduct that violates Title 18 U.S.C. section 1001, Clean Air Act
section 113(c)(2), or other applicable provisions of the Clean Air Act.
(k) Bond posting. Any foreign refiner shall meet the requirements
of this paragraph (k) as a condition to being assigned an individual
refinery baseline.
(1) The foreign refiner shall post a bond of the amount calculated
using the following equation:
Bond=G x $0.01
where:
Bond=amount of the bond in U.S. dollars
G=the largest volume of conventional gasoline produced at the foreign
refinery and exported to the United States, in gallons, during a single
calendar year among the most recent of the following calendar years, up
to a maximum of five calendar years: the calendar year immediately
preceding the date the baseline petition is submitted, the calendar
year the baseline petition is submitted, and each succeeding calendar
year
(2) Bonds shall be posted by:
(i) Paying the amount of the bond to the Treasurer of the United
States;
(ii) Obtaining a bond in the proper amount from a third party
surety agent that is payable to satisfy United States judicial
judgments against the foreign refiner, provided EPA agrees in advance
as to the third party and the nature of the surety agreement; or
(iii) An alternative commitment that results in assets of an
appropriate liquidity and value being readily available to the United
States, provided EPA agrees in advance as to the alternative
commitment.
(3) If the bond amount for a foreign refinery increases the foreign
refiner shall increase the bond to cover the shortfall within 90 days
of the date the bond amount changes. If the bond amount decreases, the
foreign refiner may reduce the amount of the bond beginning 90 days
after the date the bond amount changes.
(4) Bonds posted under this paragraph (k) shall be used to satisfy
any judicial judgment that results from an administrative or judicial
enforcement action for conduct in violation of 40 CFR part 80, subparts
D, E and F, including such conduct that violates Title 18 U.S.C.
section 1001, Clean Air Act section 113(c)(2), or other applicable
provisions of the Clean Air Act.
(5) On any occasion a foreign refiner bond is used to satisfy any
judgment, the foreign refiner shall increase the bond to cover the
amount used within 90 days of the date the bond is used.
(l) Blendstock tracking. For purposes of blendstock tracking by any
foreign refiner under Sec. 80.102 by a foreign refiner with an
individual refinery baseline, the foreign refiner may exclude from the
calculations required in Sec. 80.102(d) the volume of applicable
blendstocks for which the foreign refiner has sufficient evidence in
the form of documentation that the blendstocks were used to produce
gasoline used outside the United States.
(m) English language reports. Any report or other document
submitted to EPA by any foreign refiner shall be in the English
language, or shall include an English language translation.
(n) Prohibitions. (1) No person may combine certified FRGAS with
any non-certified FRGAS or non-FRGAS, and no person may combine
certified FRGAS with any certified FRGAS produced at a different
refinery that is not aggregated under Sec. 80.101(h), except as
provided in paragraph (e) of this section.
(2) No foreign refiner or other person may cause another person to
commit an action prohibited in paragraph (n)(1) of this section, or
that otherwise violates the requirements of this section.
(o) United States importer requirements. Any United States importer
shall meet the following requirements.
(1) Each batch of imported gasoline shall be classified by the
importer as being FRGAS or as non-FRGAS, and each batch classified as
FRGAS shall be further classified as certified FRGAS or as non-
certified FRGAS.
(2) Gasoline shall be classified as certified FRGAS or as non-
certified FRGAS according to the designation by the foreign refiner if
this designation is supported by product transfer documents prepared by
the foreign refiner as required in paragraph (d) of this section,
unless the gasoline is classified as non-certified FRGAS under
paragraph (g) of this section.
(3) For each gasoline batch classified as FRGAS, any United States
importer shall perform the following procedures.
(i) In the case of both certified and non-certified FRGAS, have an
independent third party:
(A) Determine the volume of gasoline in the vessel;
(B) Use the foreign refiner's FRGAS certification to determine the
name and EPA-assigned registration number of the foreign refinery that
produced the FRGAS;
(C) Determine the name and country of registration of the vessel
used to transport the FRGAS to the United States; and
(D) Determine the date and time the vessel arrives at the United
States port of entry.
(ii) In the case of certified FRGAS, have an independent third
party:
(A) Collect a representative sample from each vessel compartment
subsequent to the vessel's arrival at the United States port of entry
and prior to off loading any gasoline from the vessel;
(B) Prepare a volume-weighted vessel composite sample from the
compartment samples; and
(C) Determine the values for sulfur, benzene, gravity, E200 and
E300 using the methodologies specified in Sec. 80.46, by:
(1) The third party analyzing the sample; or
(2) The third party observing the importer analyze the sample
(4) Any importer shall submit reports within thirty days following
the date any vessel transporting FRGAS arrives at the United States
port of entry:
(i) To the Administrator containing the information determined
under paragraph (o)(3) of this section; and
(ii) To the foreign refiner containing the information determined
under paragraph (o)(3)(ii) of this section.
(5)(i) Any United States importer shall meet the requirements
specified for conventional gasoline in Sec. 80.101 for any imported
conventional gasoline that is not classified as certified FRGAS under
paragraph (o)(2) of this section.
(ii) The baseline applicable to a United States importer who has
not been assigned an individual importer baseline under
Sec. 80.91(b)(4) shall be the baseline specified in paragraph (p) of
this section.
(p) Importer Baseline. (1) Each calendar year starting in 2000, the
Administrator shall calculate the
[[Page 45568]]
volume weighted average NOX emissions of imported
conventional gasoline for a multi-year period (MYANOx). This
calculation:
(i) Shall use the Phase II Complex Model;
(ii) Shall include all conventional gasoline in the following
categories:
(A) Imported conventional gasoline that is classified as
conventional gasoline, and included in the conventional gasoline
compliance calculations of importers for each year; and
(B) Imported conventional gasoline that is classified as certified
FRGAS, and included in the conventional gasoline compliance
calculations of foreign refiners for each year;
(iii)(A) In 2000 only, shall be for the 1998 and 1999 averaging
periods and also shall include all conventional gasoline classified as
FRGAS and included in the conventional gasoline compliance calculations
of a foreign refiner for 1997, and all conventional gasoline batches
not classified as FRGAS that are imported during 1997 beginning on the
date the first batch of FRGAS arrives at a United States port of entry;
and
(B) Starting in 2001, shall include imported conventional gasoline
during the prior three calendar year averaging periods.
(2)(i) If the volume-weighted average NOX emissions
(MYANOx), calculated in paragraph (p)(1) of this section, is
greater than 1,465 mg/mile, the Administrator shall calculate an
adjusted baseline for NOX according to the following
equation:
ABNOx = 1,465 mg/mile - (MYANOx - 1,465 mg/mile)
where:
ABNOx = Adjusted NOX baseline, in mg/mile
MYANOx = Multi-year average NOX emissions, in mg/
mile
(ii) For the 1998 and 1999 multi-year averaging period only the
value of ABNOx shall not be larger than 1,480 mg/mile
regardless of the calculation under paragraph (p)(2)(i) of this
section.
(3)(i) Notwithstanding the provisions of Sec. 80.91(b)(4)(iii), the
baseline NOX emissions values applicable to any United
States importer who has not been assigned an individual importer
baseline under Sec. 80.91(b)(4) shall be the more stringent of the
statutory baseline value for NOX under Sec. 80.91(c)(5), or
the adjusted NOX baseline calculated in paragraph (p)(2) of
this section.
(ii) On or before June 1 of each calendar year, the Administrator
shall announce the NOX baseline that applies to importers
under this paragraph (p). If the baseline is an adjusted baseline, it
shall be effective for any conventional gasoline imported beginning 60
days following the Administrator's announcement. If the baseline is the
statutory baseline, it shall be effective upon announcement. A baseline
shall remain in effect until the effective date of a subsequent change
to the baseline pursuant to this paragraph (p).
(q) Withdrawal or suspension of a foreign refinery's baseline. EPA
may withdraw or suspend a baseline that has been assigned to a foreign
refinery where:
(1) A foreign refiner fails to meet any requirement of this
section;
(2) A foreign government fails to allow EPA inspections as provided
in paragraph (i)(1) of this section;
(3) A foreign refiner asserts a claim of, or a right to claim,
sovereign immunity in an action to enforce the requirements in 40 CFR
part 80, subparts D, E and F; or
(4) A foreign refiner fails to pay a civil or criminal penalty that
is not satisfied using the foreign refiner bond specified in paragraph
(k) of this section.
(r) Early use of a foreign refinery baseline. (1) A foreign refiner
may begin using an individual refinery baseline before EPA has approved
the baseline, provided that:
(i) A baseline petition has been submitted as required in paragraph
(b) of this section;
(ii) EPA has made a provisional finding that the baseline petition
is complete;
(iii) The foreign refiner has made the commitments required in
paragraph (i) of this section;
(iv) The persons who will meet the independent third party and
independent attest requirements for the foreign refinery have made the
commitments required in paragraphs (f)(3)(iii) and (h)(7)(iii) of this
section; and
(v) The foreign refiner has met the bond requirements of paragraph
(k) of this section.
(2) In any case where a foreign refiner uses an individual refinery
baseline before final approval under paragraph (r)(1) of this section,
and the foreign refinery baseline values that ultimately are approved
by EPA are more stringent than the early baseline values used by the
foreign refiner, the foreign refiner shall recalculate its compliance,
ab initio, using the baseline values approved by EPA, and the foreign
refiner shall be liable for any resulting violation of the conventional
gasoline requirements.
(s) Additional requirements for petitions, reports and
certificates. Any petition for a refinery baseline under paragraph (b)
of this section, any report or other submission required by paragraphs
(c), (f)(2), or (i) of this section, and any certification under
paragraph (d)(3) or (g)(1)(ii) of this section shall be:
(1) Submitted in accordance with procedures specified by the
Administrator, including use of any forms that may specified by the
Administrator.
(2) Be signed by the president or owner of the foreign refiner
company, or in the case of (g)(1)(ii) the vessel owner, or by that
person's immediate designee, and shall contain the following
declaration:
I hereby certify: (1) that I have actual authority to sign on
behalf of and to bind [insert name of foreign refiner or vessel
owner] with regard to all statements contained herein; (2) that I am
aware that the information contained herein is being certified, or
submitted to the United States Environmental Protection Agency,
under the requirements of 40 CFR part 80, subparts D, E and F and
that the information is material for determining compliance under
these regulations; and (3) that I have read and understand the
information being certified or submitted, and this information is
true, complete and correct to the best of my knowledge and belief
after I have taken reasonable and appropriate steps to verify the
accuracy thereof.
I affirm that I have read and understand that the provisions of
40 CFR part 80, subparts D, E and F, including 40 CFR 80.94 (i), (j)
and (k), apply to [insert name of foreign refiner or vessel owner].
Pursuant to Clean Air Act section 113(c) and Title 18, United States
Code, section 1001, the penalty for furnishing false, incomplete or
misleading information in this certification or submission is a fine
of up to $10,000, and/or imprisonment for up to five years.
[FR Doc. 97-22803 Filed 8-27-97; 8:45 am]
BILLING CODE 6560-50-P
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