Regulation of Fuels and Fuel Additives: Renewable Oxygenate Requirement for Reformulated Gasoline

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[AMS-FRL-5017-1]

Regulation of Fuels and Fuel Additives: Renewable Oxygenate

Requirement for Reformulated Gasoline

AGENCY: Environmental Protection Agency.

ACTION: Final rule.

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SUMMARY: EPA's regulations for reformulated gasoline (RFG) based on the

Clean Air Act, as amended, requires that gasoline sold in certain areas

be reformulated to achieve the greatest possible reductions in vehicle

emissions of toxic and ozone-forming compounds. Among other things,

EPA's regulations establish standards requiring a specified oxygen

content in reformulated gasoline. This rule promulgates additional

regulations which require that 30 percent of the oxygen required by the

Clean Air Act to be used in reformulated gasoline be derived from

renewable feedstocks. This renewable oxygenate requirement will assure

that implementation of the RFG program is consistent with the

longstanding federal policy of promoting renewable fuels. The renewable

oxygenate requirement is expected to have a positive energy impact by

reducing the amount of fossil energy needed to meet the requirements of

the reformulated gasoline program. In addition, this program is

expected to stimulate the development of new technologies which would

lead to reduced emissions of greenhouse gases and further reductions in

fossil energy consumption.

EFFECTIVE DATE: This rule is effective on September 1, 1994, except

Secs. 80.83 (g) and (h) are not effective until OMB has approved the

Information Collection Requirements contained in them. EPA will publish

a document in the Federal Register following OMB approval of the

information collection requirements.

ADDRESSES: Materials relevant to this final rule (FRM) are contained in

Public Docket A-93-49, located at Room M-1500, Waterside Mall (ground

floor), U.S. Environmental Protection Agency, 401 M Street SW.,

Washington, DC 20460. Information relevant to this rulemaking may also

be found in dockets A-91-02 and A-92-12, which are hereby incorporated

into docket A-93-49 for the purposes of this rulemaking. The docket may

be inspected from 8 a.m. until 4 p.m. Monday through Friday. A

reasonable fee may be charged by EPA for copying docket materials.

FOR FURTHER INFORMATION CONTACT:

Paul Machiele, Regulation Development and Support Division, U.S. EPA

(RDSD-12), 2565 Plymouth Road, Ann Arbor, MI 48105, Telephone: (313)

668-4264.

Joann Jackson Stephens, Regulation Development and Support Division,

U.S. EPA (RDSD-12), 2565 Plymouth Road, Ann Arbor, MI 48105, Telephone:

(313) 668-4276.

To request copies of this rule contact: Delores Frank, Regulation

Development and Support Division, U.S. EPA (RDSD-12), 2565 Plymouth

Road, Ann Arbor, MI 48105, Telephone: (313) 668-4295.

SUPPLEMENTARY INFORMATION: A copy of this action is available on the

OAQPS Technology Transfer Network Bulletin Board System (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:

(M) OMS

(K) Rulemaking and Reporting

(3) Fuels

(9) Reformulated gasoline.

A list of ZIP files will be shown, all of which are related to the

reformulated gasoline rulemaking process. Today's action, as well as

the Regulatory Impact Analysis & Response to Comments Document, will be

in the form of ZIP files and can be identified by the following titles:

ROXY-PRE.ZIP, ROXY-REG.ZIP, and ROXY-RIA.ZIP. To download these files,

type the instructions below and transfer according to the appropriate

software on your computer:

ownload, rotocol, xamine, ew, ist, or elp Selection

or to exit: D filename.zip

You will be given a list of transfer protocols from which you must

choose one that matches with the terminal software on your own

computer. The software should then be opened and directed to receive

the file using the same protocol. Programs and instructions for de-

archiving compressed files can be found via ystems Utilities from

the top menu, under rchivers/de-archivers.

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.

I. Background

A. Clean Air Act Requirements

The primary purpose of the federal reformulated gasoline program is

to improve air quality by reducing motor vehicle emissions of toxic and

tropospheric ozone-forming compounds, as prescribed by section 211(k)

of the Clean Air Act as amended (CAA or the Act). The Act mandates

certain requirements for the reformulated gasoline program. Section

211(k)(2) requires a minimum content of 2.0 weight percent oxygen and

maximum content of 1.0 volume percent benzene, and section 211(k)(3)

sets minimum performance standards for emissions of ozone forming

volatile organic compounds (VOC), oxides of nitrogen (NOX), and

air toxics. To meet the oxygen content requirement, oxygenates must be

added to gasoline. The two most common oxygenates used today are methyl

tertiary-butyl ether (MTBE) and ethanol. MTBE is an ether derived

primarily from isobutylene, a product typically produced from natural

gas or petroleum, and methanol, which in turn is also produced

primarily from natural gas. Ethanol is an alcohol produced primarily

from corn, though it can be produced from other feedstocks as well. A

third oxygenate, ethyl tertiary butyl ether (ETBE), is an ether derived

from ethanol and isobutylene. A number of other oxygenates such as

tertiary amyl methyl ether (TAME) and tertiary amly ethyl ether (TAEE)

are currently under consideration by the industry as well. Their

ultimate use will depend on their relative economics compared to those

oxygenates currently in use.

Section 211(k)(1) of the Act directs EPA to promulgate regulations

establishing requirements for reformulated gasoline. It also provides

that such regulations require the greatest reductions in VOC and toxics

emissions, taking into consideration the cost of achieving such

emission reductions, non-air-quality and other air-quality related

health and environmental impacts and energy requirements.

B. Historical Background

There is considerable history behind EPA's decision to promulgate a

renewable oxygenate requirement. Congress and both the past and the

present Administrations have long supported the development and use of

renewable fuels for a variety of reasons, including a desire to reduce

oil imports, save fossil energy, reduce global warming emissions, and

develop domestic sources of fuel. This support has taken the form of a

number of legislative and policy initiatives. For example, since 1978

renewable fuels have been eligible for an excise tax credit which today

is set at 54 cents/gallon. The Departments of Energy and Agriculture

have invested hundreds of millions of dollars in research and

development related to the production and commercialization of

renewable fuels. As a result of these programs, the ethanol industry

developed into a significant industry which by 1990 represented roughly

one percent of the nation's gasoline consumption.

The 1990 amendments to the Clean Air Act provided ethanol blends

with a limited waiver from vapor pressure limits placed on the

volatility of conventional gasolines, in order to maintain the ease

with which ethanol could be blended with gasoline. Furthermore, the

1990 amendments to the Clean Air Act included several provisions which

many expected to further stimulate demand for renewable oxygenates such

as ethanol. These provisions included the wintertime oxygenated fuels

program which began in 1992 and has already considerably increased the

demand for ethanol, and the year-round reformulated gasoline program

which is to begin in December of 1994. EPA promulgated final

regulations for RFG on December 15, 1993 (59 FR 7716, February 16,

1994).

In the process of developing the regulations for the RFG program,

EPA entered into a regulatory negotiation with interested parties

shortly after passage of the Clean Air Act Amendments of 1990. Included

in the negotiations were representatives of the States, oxygenate

producers, farm interests, environmental groups, the oil industry, the

automobile industry, the driving public, the EPA, and the Department of

Energy. (See 56 FR 31176, July 9, 1991, for an explanation of the

members of the negotiating committee and a discussion of the process

for selecting them.) After extensive discussions, an Agreement in

Principle was signed by all members of the advisory committee in August

of 1991.

The 1991 regulatory negotiation agreement formed the basis for

EPA's April 1992 Supplemental Notice of Proposed Rulemaking (SNPRM) (57

FR 13416, April 16, 1992) for reformulated gasoline. In order to ensure

compliance with the minimum reductions in ozone forming volatile

organic compounds (VOCs) required by Congress for the RFG program, this

proposal did not extend the volatility waiver for ethanol-blended

conventional gasoline to RFG. In response, members of the ethanol

industry submitted comments to EPA which expressed their concern that

the proposed reformulated gasoline rules would effectively exclude

ethanol from the reformulated gasoline market.

Ethanol, when added to gasoline in the amount needed to satisfy the

oxygen content requirement of the Act, raises the Reid vapor pressure

(RVP) of the resulting blend by about 1 psi, making it more difficult

for ethanol blends to meet the mass VOC performance standards than

blends using other oxygenates. For ethanol to be used in summertime

RFG, a gasoline blendstock with an RVP low enough to offset the

increase resulting from adding ethanol would have to be obtained. The

contention was that obtaining such blendstocks would be both difficult

and expensive, because ``sub-RVP'' blendstocks would be more costly to

refine and distribute and because blendstock production would be

controlled by petroleum refiners. The ethanol industry representatives

believed that the oil industry would have a tendency to rely almost

exclusively on MTBE over ethanol because MTBE does not boost a fuel's

RVP and is readily blended at the refinery and distributed through the

existing gasoline infrastructure, since, unlike ethanol, it does not

raise materials compatibility or water adsorption concerns with the

existing gasoline distribution infrastructure. Thus, there would be

little incentive to make the sub-RVP blendstock necessary for ethanol

blending into summertime RFG. The ethanol industry representatives also

contended that refiners would not want to switch oxygenates during the

course of the year and would therefore utilize MTBE year-round, thereby

eliminating any RFG market for ethanol.

For this reason, ethanol and farm interests sought a summer

volatility waiver for ethanol-based reformulated gasolines. Other

signatories to the regulatory negotiation agreement, such as the oil

industry, methanol and ether producers, states, and environmental

groups, opposed such a waiver because it could eliminate most or all of

the VOC benefits of the RFG program if ethanol was used in large

volumes. At the request of ethanol and farm interests, the Agency held

a public hearing to receive testimony on this and other issues in June

of 1992 in Chicago.

In an attempt to address the role of ethanol, the Agency

subsequently proposed a renewable oxygenate program (ROP) (58 FR 11722,

February 26, 1993) to provide incentives for the use of ethanol and

other renewable oxygenates in reformulated gasoline. The objective of

the ROP was to provide incentives for the use of renewable oxygenates

in the reformulated gasoline program in the summer while maintaining

the overall environmental benefits of the program. Ethanol was

considered a renewable oxygenate because it is produced primarily from

agricultural sources such as corn, which can be regenerated. Other

oxygenates such as MTBE are produced primarily from nonrenewable

resources, such as petroleum and/or natural gas.

For a variety of reasons, as explained in section II of the

preamble and section I of the Regulatory Impact Analysis (RIA) for the

reformulated gasoline final rule, EPA decided not to promulgate the

ROP. First, EPA received comments from virtually all constituencies

affected by the rulemaking, including the ethanol industry, stating

that the ROP as proposed was neither feasible nor workable. While EPA

believed that a feasible program could be structured, EPA also

acknowledged that it could represent a considerable burden on the

industry. Second, the ROP would have reduced the RFG program's VOC

emission control benefits because it provided an incentive for the use

during the summer months of an oxygenate which exhibited commingling-

related emission increases. (Combining ethanol blends and non-ethanol

blends in consumer fuel tanks, even if both have identical low RVPs,

results in a mixture with significantly higher fuel volatility and

hence significantly higher VOC emissions. This effect is referred to as

commingling.) The commingling effect, along with other unique

distillation effects of ethanol on evaporative emissions and other

provisions of the ROP as proposed, were estimated in the RIA for the

RFG final rule to result in approximately a 6.0-7.5 percent increase in

VOC emissions compared to an RFG program without such incentives. While

difficult to estimate due to uncertainty in future ethanol and ETBE

market shares and lack of sufficient data to reliably quantify the

distillation effects, such an increase in VOC emissions amounts to a

loss of about 40 to 50 percent of the minimum VOC control that is

required under section 211(k)(3) for reformulated gasoline during the

summer, even though the average RVP of the RFG produced by refiners

remained the same. Thus, EPA's analysis indicated that the proposal

would not maintain the environmental benefits of reformulated gasoline.

A third concern with the ROP was that the program would have created an

incentive for the use of renewables but in no way assured their use.

Upon consideration of these and other factors, the Agency decided not

to finalize the ROP. Other options considered did not resolve the

concerns raised with the ROP as proposed. (The reader is referred to

section II of the Preamble and section I of the RIA for the

reformulated gasoline final rule for a description of the options and

alternatives to the ROP considered.)

Hence, the final rule for reformulated gasoline does not include

provisions to provide incentives for the use of renewable oxygenates.

This left substantial uncertainty regarding the magnitude of the role

renewable oxygenates would play in the roughly 35 percent of the U.S.

gasoline market expected to be covered by the RFG program.

C. Renewable Oxygenate Requirement Proposal

To address the issues discussed above, at the same time EPA issued

the final rules for RFG, it also proposed (58 FR 68343) a year-round

requirement that 30 percent of the mandatory oxygen content

specification for reformulated gasoline be obtained from renewable

oxygenates. To ensure that the ozone benefits from the reformulated

gasoline program are not adversely affected by that requirement, EPA

proposed that during the VOC control period (i.e., the summer months)

only renewable oxygenates that do not exhibit volatility-related

commingling effects when mixed with gasoline would receive renewable

oxygenate credit. All approved renewable oxygenates, including ethanol,

were expected to be acceptable during the non-summer months when

commingling-related volatility increases have relatively little effect

on VOC emissions and when ozone exceedances are rare. Also included in

the proposal were provisions for averaging and credit trading in order

to provide maximum flexibility to refiners and fuel importers in

complying with the program.

EPA presented several justifications for proposing a renewable

oxygenate requirement for reformulated gasoline. The Agency concluded

that expanding the use of renewable fuels produced from resources such

as corn, grain, wood, organic waste products, and municipal solid waste

could help cut dependence on foreign oil and reduce primary energy use

by 20% or more as compared to nonrenewable oxygenates. The Agency also

believed that renewable oxygenates offered potential air quality

advantages (such as lower emissions of VOCs and greenhouse gases) as

well as jobs-creation benefits. The Agency also stated its belief that

the 30 percent requirement for renewable oxygenates was an appropriate

level to ensure that renewables were not excluded from the reformulated

gasoline oxygenate market while allowing the remaining 70 percent of

the market to be open to all fuels, regardless of their renewables

content.

The proposed renewable oxygenate requirement would be applied in

conjunction with the reformulated gasoline program. It did not alter

the performance standards or other provisions for the reformulated

gasoline outlined in the final rulemaking for reformulated gasoline. In

addition, the proposal did not mandate the use of any particular

oxygenate, but rather ensured some minimum use of the class of

oxygenates deemed renewable, defined in the proposal as ethanol and

methanol from renewable sources, and their ether derivatives. This

proposal was designed to supplement and not negate the Agreement in

Principle arrived at through regulatory negotiation.

EPA received over 12,000 comments in response to the renewable

oxygenate proposal. The vast majority of these comments were letters

supporting the proposal written by farmers, ethanol producers, and

their supporters. Several hundred responses containing detailed,

substantive, technical comments were received from representatives of

the oil industry, the ethanol industry, corn farming and other

agricultural interests, methanol producers, environmental groups,

federal agencies, and state and local governments. Some of these

comments supported the proposal while others opposed it. Detailed

responses to many of the comments are provided in subsequent sections

of this preamble and in the Regulatory Impact Analysis (RIA) in the

docket.

The remainder of this preamble is organized into the following

sections:

II. Overview of the Renewable Oxygenate Requirement

III. Renewable Oxygenate Requirement for Reformulated Gasoline

IV. Enforcement of the Renewable Oxygenate Requirement

V. Federal Preemption

VI. Environmental, Energy, and Economic Impacts

VII. Public Participation

VIII. Compliance with Regulatory Flexibility Act

IX. Statutory Authority

X. Administrative Designation and Regulatory Analysis

XI. Compliance with the Paperwork Reduction Act

II. Overview of the Renewable Oxygenate Requirement

EPA is hereby promulgating a renewable oxygenate requirement for

reformulated gasoline similar to that proposed on December 15, 1993 (58

FR 68343, December 27, 1993). EPA believes that this action will ensure

that the requirements for the reformulated gasoline program promulgated

on December 15, 1993 (59 FR 7716, February 16, 1994) are consistent

with existing government programs and initiatives supporting renewable

fuels. For many years, both Congress and the Executive Branch have

promoted through various actions the use of renewable fuels and the

development of the renewable fuels industry for various energy,

economic, environmental, and agricultural policy objectives. Renewable

fuels have been viewed as a key element of policies to enhance domestic

energy security, reduce oil imports, conserve fossil energy resources,

and reduce emissions of greenhouse gases.

Congress, along with present and past Administrations, has

supported these goals through a variety of mechanisms. The Departments

of Energy (DOE) and Agriculture (USDA) have invested hundreds of

millions of dollars over the past 20 years to research and develop

renewable fuel feedstocks and production techniques. Congress has

supported the increased use of renewable fuels since the late 1970's

through various legistative actions. The Energy Security Act of 1980

established a number of federal policies to expand fuel ethanol

production and use. The Omnibus Budget Reconciliation Act of 1987

stated the intent of Congress to expand ethanol use. Under the

Alternative Motor Fuels Act (AMFA) of 1988, the Alternative Fuels

Council identified a significant role for ethanol. The National Energy

Policy Act (EPACT) of 1992 includes provisions to stimulate the use of

a wide-range of alternative (nonpetroleum) fuels, including several

renewable fuels. Congress and prior Administrations have also

stimulated renewable fuel use through mechanisms such as the 1.0 psi

volatility waiver in the CAAA for gasoline (other than reformulated

gasoline) blended with ethanol (the major renewable fuel in use today),

the oxygen content requirements of the wintertime oxygenated gasoline

and reformulated gasoline programs, and various economic incentives

such as tax credits since 1978 (currently equal to 54 cents per gallon

of renewable fuel).

These programs, combined with additional tax incentives in many

states and continued innovation in production techniques, have helped

the renewable fuels industry develop and grow. It has become

economically attractive to add ethanol to conventional gasoline in many

areas of the country, primarily by splash-blending ethanol with

gasoline. This process involves mixing ethanol into finished gasoline

at the terminal. (Due to materials compatibility concerns and the

hygroscopic properties of ethanol, ethanol generally is not added into

the existing gasoline distibution system at the refineries.) The

resulting ethanol blend, commonly known as gasohol, has higher

volatility than either the ethanol or the original gasoline in

isolation.

Until EPA's Phase I volatility controls went into effect in 1989,

gasoline volatility was essentially unregulated. EPA's volatility

control program reversed the upward trend in gasoline volatility, and

the resulting considerable increase in evaporative VOC emissions, by

establishing limits on the volatility of summer gasoline. In

promulgating the volatility control program, however, EPA granted a one

pound per square inch (psi) volatility waiver for ethanol-containing

blends. This waiver permitted continuation of splash blending of

ethanol into gasoline without regulatory impediment, thereby avoiding

what could have been a significant disruption to the existing market

for fuel ethanol. For ethanol to continue to be blended in the absense

of the waiver, refiners would have had to produce and market a special

low volatility gasoline specifically for blending with ethanol. Since

there was no assurance refiners would be willing to do so, the rule

could have caused a dramatic decrease in the market share for ethanol

blends that had developed under the existing Congressional and

Administration programs. EPA believed it was important to avoid such a

disruption to the ethanol industry, and as a result, granted a 1.0 psi

volatility waiver.

EPA believed that such a waiver would not significantly jeopardize

the rule's air quality objectives for several reasons. First, even with

the waiver the volatility of ethanol blends would be reduced

considerably. In fact, the volatility of the ethanol blends would be

reduced by the same amount (though not to the same level) as that of

non-ethanol blends. Second, ethanol's market share was small,

particularly in most ozone nonattainment areas, so the potential impact

on ozone levels was thought to be small. At the then existing market

share for ethanol, the waiver reduced by only about 3 percent the

volatility control that otherwise would have been achieved by both

phases of the volatility control program. Third, the rulemaking neither

required the use of oxygenates such as ethanol in gasoline nor was it

expected to increase their use. Were this not the case, the

environmental impacts of the waiver could have been considerably

greater. Congress later incorporated a similar volatility waiver in the

1990 amendments to the Clean Air Act, when it established statutory

limits on the volatility of conventional gasoline.

As a result of the Federal and State initiatives and with the

continued blending flexibility afforded by the volatility waiver, the

market for ethanol grew from a fledgling industry in 1978 to a market

which stabilized at approximately 0.8 billion gallons per year by 1990,

an amount equivalent to slightly less than 1% of nationwide gasoline

consumption.

With the passage of the CAAA of 1990, the industry once again began

to expand considerably. The oxygenated fuels program required by

section 211(m) of the CAA requires that, during the winter months, all

gasoline sold in certain cities with a history of exceedences of EPA's

national ambient air quality standard (NAAQS) for carbon monoxide (CO)

must contain oxygenates. Under this program (which began with the

winter of 1992-93), ethanol has captured approximately 30% of the

resulting oxygenate market. As a result, the demand for ethanol has

grown by roughly 50% to an estimated 1.25 billion gallons in 1993.

The oxygenate requirements of the reformulated gasoline program

contained in section 211(k) of the CAA also provide the potential to

expand considerably the market for ethanol and other renewable

oxygenates. RFG is required in the nine cities with the nation's worst

ozone pollution problem and has been adopted for many other ozone

nonattainment areas as well as a key component in their efforts to

improve air quality. The areas which will use RFG are estimated to

represent 35% of all gasoline sold in the United States.

The VOC emission performance standards for reformulated gasoline

raised concerns in the ethanol industry that just as under the gasoline

volatility control program, they will be unable to compete in the RFG

market without a volatility waiver. However, section 211(k)(3) of the

CAA establishes minimum emission performance standards that RFG must

meet, with no allowance for a volatility waiver for ethanol-blended

RFG. Furthermore, as discussed in the RFG final rule (59 FR 7716),

providing such a waiver for ethanol-containing RFG would have

jeopardized the emission benefits which Congress mandated the RFG

program to achieve. For these reasons, the final regulations for

reformulated gasoline do not contain such a volatility waiver for

summer RFG.

Thus, ethanol cannot be splash-blended into unmodifed gasoline

blendstocks and still have the resulting blend comply with the RFG

emission performance standards. Instead, either special reduced-

volatility (``sub-RVP'') blendstocks would be necessary during the

summer, or the ethanol would have to be converted into ETBE. Many in

the ethanol industry have continued to express concern that refiners

would not produce such blendstocks. If that were to occur, ethanol

producers would lose access during the summer months to those current

markets which will be covered by the RFG program. This loss of access,

the ethanol industry contends, could also lead to a reduced market

share in RFG areas in the winter months, even though no volatility

restrictions apply during those months. EPA has received numerous

letters from various members of Congress emphasizing their belief that

the RFG program was intended to provide a significant new market for

ethanol and other renewable oxygenates. EPA has also received numerous

letters from members of Congress opposing a renewable oxygenate

requirement. In general, they were not opposed to the use of renewable

oxygenates, but rather to EPA requiring their use. As discussed in

section III.A, there was also a considerable amount of discussion

concerning this issue during the Congressional debate over the 1990

CAAA.

As stated in the RFG final rule, EPA continues to believe that

ethanol will not be excluded from the oxygenate market under the RFG

program. Rather, EPA believes that many refiners will find it

economically attractive to blend ethanol in RFG. As a result, EPA

believes a market for ethanol will continue following implementation of

the RFG program. The RFG program represents a major new market for

oxygenates such as ethanol. Nevertheless, EPA has received comments

stating that without promulgation of today's rulemaking or other

similar measures, creation of additional ethanol and renewable

oxygenate blending capacity beyond that currently underway is in doubt.

EPA recognizes that concerns over the marketability of ethanol in RFG

have created substantial uncertainty for ethanol producers and

investors.

EPA believes that today's action will reduce that uncertainty and

make the RFG program consistent with long-running Congressional and

Administration policies to promote renewable fuels. This program

represents an attempt to harmonize the goals of greater reliance on

renewable fuels and air quality improvements through the use of RFG.

Specifically, the renewable oxygenate requirement will ensure that RFG

regulations do not inappropriately limit the growth of the renewable

oxygenate industry. It will ensure that several oxygenates will be used

in the RFG program and provide the renewable oxygenates a minimum

market.

It should be noted that the program encourages the use of all

renewable oxygenates, not any one renewable oxygenate (as discussed

more fully in section III). By providing market certainty the program

will encourage expanded private investment in new, more efficient and

environmentally beneficial renewable fuel production technologies. Such

potential renewable oxygenates include ethanol from cellulosic plant

material and waste cellulose and MTBE derived from methanol which was

produced from municipal solid waste, landfill gas, or sewage sludge.

The program establishes a minimum 30% market share for renewable

oxygenates. This level represents a market share for renewables that

EPA believes would likely have been achieved through open competition

with nonrenewable oxygenates in the absence of VOC emission

restrictions, based on experience under the oxygenated fuels program.

At this market share an estimated 1.7 volume percent (on an ethanol

equivalent basis) of reformulated gasoline will be derived from

renewable resources.

EPA is promulgating the renewable oxygenate program because of the

important benefits of the program. First, EPA believes the program will

help conserve fossil energy resources and minimize any detrimental

effects the reformulated gasoline program may have on energy

consumption. Second, EPA believes that the program has the potential to

provide global warming benefits by providing stimulus to the market to

develop new, more efficient production processes for renewable

oxygenates and their feedstocks. In addition, EPA believes that the

program as structured maintains the environmental benefits of the

reformulated gasoline program as promulgated on December 15, 1993, and

has the potential to increase these benefits through the incentives it

provides for increased ETBE use during the summer months.

The reformulated gasoline program promulgated in December of 1993

is projected to cause an increase in fossil energy consumption, as

discussed in more detail in sections III.H and VI of this notice.

Today's action is intended to mitigate to some extent the increase in

fossil fuel consumption that otherwise would result from implementation

of the RFG program. Today's action also provides the certainty needed

to encourage private investment in more advanced and energy-efficient

production facilities and more diverse feedstock utilization. This will

not only increase the fossil energy benefits of this program, but also

provide the opportunity for reductions in greenhouse gas emissions.

Today's action will also create incentives to utilize ETBE during

the summer months. Its use, relative to MTBE or ethanol, has the

potential to achieve slightly greater VOC emission reductions beyond

those required by the final rule for RFG. Ethanol-containing gasoline,

when mixed with other gasoline, causes the mixture to produce greater

VOC emissions than the original fuels would produce. This can occur

even in a vehicle fuel tank. This effect is called commingling and is

discussed in sections III.C and VI of this notice and in the Regulatory

Impact Analysis for the reformulated gasoline final rule. The effect of

such commingling on VOC emissions is not controlled directly by the RFG

program. As a result, to the extent that ETBE use displaces ethanol use

during the summer months, additional VOC emission benefits are

possible. In addition, ETBE possesses front-end distillation

characteristics relative to both ethanol and MTBE which are also not

controlled in the reformulated gasoline final rule, and which may

provide further (though not quantifiable with any certainty at the

present time) VOC emission benefits during the summer should its use

increase as a result of the incentives created by today's program.

Finally, EPA believes that this program is designed in a way which

provides maximum compliance flexibility for refiners and minimizes

their burden. The program is an annual program with provisions for a

refiner to average over the course of the year or trade credits with

other refiners anywhere in the country. EPA believes that by designing

the program in such a way, the objectives can be met at a minimum cost.

These provisions are especially important during the initial startup of

the program. While the renewable oxygenate program takes effect for

refiners beginning December 1, 1994, individual refiners do not need to

blend any renewable oxygenate into their gasoline until later in the

year or at all if they so desire. They will just have to demonstrate

that they met the requirements over the course of the entire year

through either the blending of greater than 15% renewable oxygenates in

the latter part of the year, or the purchase of credits from other

refiners. As a result, the averaging and trading provisions effectively

provide refiners with additional time to meet the initial requirements

of the program.

III. Renewable Oxygenate Requirement for Reformulated Gasoline

A. Legal Authority

1. Introduction

The final rule adopted today is a reasonable exercise of the

discretionary authority granted the agency under section 211(k)(1) of

the Act. EPA interprets the first sentence of section 211(k) as broad

authority to adopt reasonable requirements for reformulated gasoline,

unless otherwise prohibited by the Clean Air Act or other statutory

provision. EPA interprets the second sentence of section 211(k)(1) as

authorizing EPA to adopt regulations for the reformulated gasoline

program that result in the greatest emission reductions achievable, and

at the same time tend to optimize the resulting impacts on cost, energy

requirements, and other health and environmental impacts. In effect,

EPA has full authority to adopt emission reduction standards and other

requirements that achieve this result.1

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\1\Various commenters argued that statements in the Regulatory

Impact Analysis supporting the FRM signed on 12/15/93 showed that

EPA believed it did not have the legal authority to require the use

of renewable oxygenates. To the contrary, EPA's proposal, also

signed on 12/15/93, clearly described EPA's view that it did have

the authority to require the use of renewable oxygenates. The

statements in the RIA address renewable oxygenate requirements that

would be significantly different from that proposed in December and

would raise many of the same concerns described in the preamble to

the final rule, such as increased emissions in the summertime from

increased use of ethanol in the summertime. The prior statements in

the RIA are not relevant to the proposal issued by EPA in December.

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2. Analysis of the Text of the Statute

An analysis of EPA's authority starts with the text of the statute.

Under the first sentence of that paragraph, EPA is authorized to:

promulgate regulations under this section establishing requirements

for reformulated gasoline to be used in gasoline-fueled vehicles in

specified nonattainment areas.

Under the second sentence of section 211(k)(1), EPA's regulations are

to:

require the greatest achievable reduction in emissions of ozone

forming volatile organic compounds (during the high ozone season)

and emissions of toxic air pollutants (during the entire year)

achievable through the reformulation of conventional gasoline,

taking into consideration the cost of achieving such emission

reductions, any nonair-quality and other air-quality related health

and environmental impacts and energy requirements.

Section 211(k)(1) provides EPA general authority to establish

reasonable requirements for reformulated gasoline, including emissions

reduction requirements. Other provisions in section 211(k) address

various specific elements of the program, such as minimum requirements

for various fuel parameters (section 211(k)(2)), minimum emissions

reduction requirements (section 211(k)(3)), certification requirements

(section 211(k)(4)), prohibited acts (section 211(k)(5)), state opt-

ins, (section 211(k)(6)), and credit programs (section 211(k)(7)).

This interpretation of section 211(k)(1) is supported by the plain

meaning of that provision. On its own terms, the first sentence stands

as a general grant of authority to establish any reasonable requirement

for reformulated gasoline, with no explicit restriction on this

authority other than a one year deadline for agency action.

The first sentence of section 211(k)(1) both grants authority to

the agency and establishes a deadline for agency action. This structure

is not at all uncommon, and was employed by Congress in several similar

provisions adopted in 1990. See, e.g., section 211(h)(1) (regulation of

Reid vapor pressure), section 211(i)(2) (regulation of motor vehicle

diesel fuel), section 211(l) (regulation of gasoline detergent

additives), and section 202(a)(6) (regulation of refueling emissions

from motor vehicles). The general framework of section 211(k) is also

not unique--a grant of broad general authority in (k)(1) followed by

several detailed provisions that ensure certain minimum actions are

taken. This is consistent with the approach taken by Congress in

various other provisions of Title II of the Clean Air Act. For example,

Congress granted EPA broad, general authority to regulate motor

vehicles and their fuels, as in section 202(a) and section 211(c)(1).

These grants of broad, general authority were then supplemented by

detailed provisions providing specific actions that Congress expected

in these areas. See, e.g., section 202(b), (f), (g), (h), and (i), as

well as sections 211(c)(2), 211(g), prior to the 1990 amendments, and

the various paragraphs of section 211 cited above.

The regulations adopted today are a reasonable exercise of this

discretionary authority. They further Congressional goals by fostering

achievement of the important benefits that Congress expected to flow

from this program. They are not prohibited by any provision of the Act

or any other law, and are well within the range of authority granted by

Congress.

The plain meaning of the second sentence of section 211(k)(1)

corroborates EPA's view on it authority to issue this rule. This

provision requires promulgation of regulations that require a certain

result. The result desired by Congress is clear--the greatest

achievable reductions, taking into consideration cost, energy,

environmental and other impacts. There is no indication that EPA's

authority is limited to establishing emissions reduction standards. In

fact, this provision would authorize EPA to adopt all reasonable

requirements designed to achieve the required result. The regulation

adopted today is designed to ensure that the emissions reduction

requirements for reformulated gasoline are achieved in a manner that

reasonably optimizes the energy, cost, environmental, and other impacts

of this program. The regulations adopted today, in combination with the

regulations promulgated in December 1993, act together to achieve this

result.

Finally, EPA believes that section 211(k)(4) does not preclude the

renewable oxygenate provisions proposed herein. Section 211(k)(4)

states that the Administrator ``shall certify a fuel formulation or

slate of fuel formulations as complying with this subsection if such

fuel or fuels--(i) comply with the requirements of paragraph (2), and

(ii) achieve equivalent or greater reductions * * * than are achieved

by a reformulated gasoline meeting the applicable requirements of

paragraph (3).'' This could be interpreted as requiring certification

of a fuel that met the oxygen and other requirements of paragraph (2)

and the emissions requirements of paragraph (3) even if it did not

comply with the proposed renewable oxygenate requirement. Section

211(k)(1), however, authorizes EPA to establish requirements above and

beyond those required under paragraph (2) and (3), and section

211(k)(1) and (4) must be read together to provide a meaningful

interpretation to both provisions. EPA believes that a reasonable

interpretation requires certification of a fuel as reformulated as long

as it complies with the requirements of paragraphs (2) and (3), as well

as any additional requirements established under paragraph (1). Since

the renewable oxygenate provision is an additional requirement

established under section 211(k)(1), certification is not required

under section 211(k)(4)(B) unless a fuel or slate of fuels complies

with the requirement.

3. Analysis of the Legislative History

The legislative history of the reformulated gasoline provision

supports and is consistent with EPA's interpretation of section 211(k).

Changes made to various bills during the course of congressional

review, as well as floor debates in the respective houses, indicate EPA

was provided broad general authority to adopt requirements designed to

achieve the objectives for this program. EPA's renewables requirement

does just that, without inappropriately impinging on refiners' and

importers' operational flexibility.

a. House of Representatives--The bill reported by the House

Committee on Energy and Commerce included provisions on reformulated

gasoline that roughly paralleled the current provisions of section

211(k)(1). Under that provision, EPA was required to:

promulgate regulations under section 211 establishing specifications

for cleaner gasoline to be used in conventional gasoline fueled

vehicles. Such standards shall require the greatest reduction in

ozone-forming volatile organic compounds and air toxic emissions

achievable through the reformulation of conventional gasoline,

taking into consideration the cost of achieving such emission

reductions, and health, environmental and energy impacts.2

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\2\H. Rep. No. 101-490, 101st Cong. 2d Sess. 60 (1990);

reprinted at 1 A Legislative History of the Clean Air Act Amendments

of 1990 at 3021 (1993) (`` Leg. Hist.'').

This provision is similar to current section 211(k)(1) in that it

provides general authority to establish ``specifications'' for

reformulated gasoline, and separately requires that these regulations

include requirements to obtain the greatest achievable reductions in

VOCs and air toxics. The Committee Report's description of this

provision is fairly brief, with no indication that this general

authority is limited to establishing emission reduction

requirements.3

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\3\2 Leg. Hist. at 3321-21.

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Certain changes were made to this provision prior to its adoption

by the House, reflecting an intent to expand at least somewhat the

scope of agency authority. First, while the Committee bill authorized

EPA to establish ``specifications'' for cleaner gasoline, the House

bill used broader language authorizing EPA to establish

``requirements,'' as currently found in section 211(k)(1). Likewise,

the second sentence of the Committee bill provision referred to ``such

standards,'' while the House bill broadened this to ``such

requirements.''4 The House intended to broaden EPA's authority,

not limit it, and these changes were eventually adopted by Congress.

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\4\S.1630 as passed by the House of Representatives; 2 Leg.

Hist. at 2059.

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The Committee bill was amended in several other significant ways

prior to final passage by the House. For example, many of the specific

reformulated gasoline requirements now found in section 211(k)(2)

through (10) were first debated and adopted on the floor of the House.

Nonetheless, the general structure of section 211(k)(1) stayed the same

with the exceptions noted above. This indicates that from the very

beginning the House intended to provide EPA with broad general

authority to establish reasonable requirements for a reformulated

gasoline program. The vast bulk of the legislative history in the House

is directed at the subsequent adoption of fairly specific minimum

requirements for reformulated gasoline, with no indication that

Congress intended to otherwise limit this broad, general grant of

agency authority.

b. Senate--The legislative history in the Senate likewise shows a

desire to broaden EPA's authority in this area. The bill reported out

of the Senate Committee on Environment and Public Works started from a

more restrictive position and authorizing EPA to:

(1) * * * promulgate regulations establishing specifications for

fuel quality which will minimize, to the extent economically and

technically achievable, emissions [of various pollutants] * * *. (2)

In order to achieve and maintain attainment of ambient air quality

standards, the Administrator may promulgate regulations * * *

establishing specifications for fuels (including regulations

requiring the availability or sale of fuels meeting the

specifications in a nonattainment area or areas) to reduce emissions

of pollutants subject to a standard under this title or hazardous

air pollutants from motor vehicles. In establishing such

specifications and availability requirements the Administrator shall

consider other environmental effects which would result from

production and use of fuels meeting the specifications.5

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\5\S. Rep. at 639-40. The relevant portions of the Mitchell-Dole

substitute, Amendment No. 1293, debated on the floor of the Senate,

were identical to the bill reported out of the Senate Committee. 5

Leg. Hist. at 7552-54.

This provision is much narrower than that reported out of the House

Committee. The authority to establish ``specifications'' is clearly

limited to specifications to reduce emissions of specified pollutants,

and the specifications are limited to those aimed at achieving and

maintaining attainment of the NAAQS. It also clearly requires that such

specifications and requirements be written as performance standards.

Most of the amendments and debate on this provision focused on a

number of detailed minimum requirements that parallel the current

reformulated gasoline provisions found in section 211(k)(2) though

(10). However, certain very important changes were made to the general

authority provisions. First, the second paragraph of the provision was

replaced in its entirety with broader language that more closely

parallels the version adopted by the House. The Senate approved a floor

amendment by Senator Daschle requiring that:

The Administrator, pursuant to paragraph (1) * * * promulgate

regulations establishing specifications for reformulated gasoline to

be used in conventional gasoline fueled vehicles [in specified ozone

nonattainment areas].6

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\6\3 Leg. Hist. at 4383-88, 4 Leg. Hist. at 6816-18.

This amendment removed the limitation that the specifications could

only be designed to reduce emissions and achieve and maintain

attainment, significantly broadening EPA's authority. Nonetheless, the

provision passed by the Senate was narrower than the House bill. Even

though paragraph one of the provision was somewhat similar to the

second sentence of current section 211(k)(1), the Senate bill did not

contain a general grant of authority as found in the first sentence of

section 211(k)(1). It also more narrowly authorized EPA to establish

specifications, instead of requirements.

c. Conference Committee Bill--The Conference Committee on the House

and Senate bills rejected the Senate's narrower limits on general

authority and instead reported out the broader, more general authority

provision found in the House bill.7 This provision was then

adopted in the final bill. This legislative history indicates that both

houses, to different degrees, moved to broaden the agency's authority

to implement the reformulated gasoline program. The final bill adopted

by Congress rejected the narrower approach from the Senate and instead

approved the more general language from the House. While there was

little discussion of this, the textual changes described above lead to

the conclusion that Congress intended to provide EPA with broad general

authority to establish regulatory requirements for reformulated

gasoline. There are no indications that Congress intended otherwise.

EPA's interpretation is therefore fully consistent and supported by

this legislative history.

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\7\1 Leg. Hist. at 1548.

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d. Floor debates in the two houses--The legislative history does

contain extensive floor debate about the reformulated gasoline

provisions. While these focus primarily on the specific requirements

found in section 211(k)(2) though (10), they still provide important

insight on overall Congressional intent for this program.8 First,

Congress expected that this motor vehicle fuel program would provide

several important benefits for the nation. Most obviously it would lead

to major reductions in air pollution in the largest metropolitan areas

with the worst ozone nonattainment problems, reducing ozone forming

VOCs and toxic pollutants. Reformulating the gasoline used in

conventional vehicles would constitute a significant component of the

federal program to control motor vehicle pollution. There was a clear

concern that gasoline had gotten more polluting over the prior twenty

years, primarily through increased levels of aromatic compounds in

gasoline, used to replace the octane previously obtained from lead

additives. Benzene and aromatics were seen as the predominant air toxic

threat.

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\8\The Conference Committee Report contains limited discussion

of the reformulated gasoline program, and the Reports for the bills

reported out of the respective House and Senate Committee's are of

limited use as these bills were changed significantly prior to

passage. The floor debates, however, do contain extensive discussion

of the bills.

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Second, Congress emphasized that reformulated gasoline would

provide benefits in the form of improving our energy security, reducing

our reliance on foreign oil, and providing a major opportunity for the

agricultural sector of our economy to market renewable alcohols and

their derivatives. This would come from the use of oxygenates as

gasoline additives, including renewable oxygenates like ethanol and

ETBE. In effect, Congress intentionally designed the reformulated

gasoline program to obtain emissions reductions benefits in a way that

would promote these other very important benefits.9

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\9\For example, the following statements are from the floor

debate on the Conference Committee bill: 1 Leg. Hist. at 851-856

(Sen. Durenberger); 1 Leg. Hist. at 1154-71 (Sen. Simpson); 1 Leg.

Hist. at 969 (Sen. Baucus); 1 Leg. Hist. at 1073 (Sen. Dole); 1 Leg.

Hist. at 1187 (Rep. Dingell); 1 Leg. Hist. at 1195 (Rep. Waxman); 1

Leg. Hist. at 1209 (Rep. Sharp); 1 Leg. Hist. at 1263-67 (Rep.

Madigan); 1 Leg. Hist. at 1315 (Rep. Hall); 1 Leg. Hist. at 1435

(Rep. Richardson). Similar statements were made during consideration

of the respective House and Senate bills.

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Third, the structure developed by Congress to obtain these various

benefits involved a complex balance between imposing detailed

requirements and preserving refiner flexibility.10 The floor

debates include detailed responses by individual members of Congress to

various arguments that Congress was mandating ``government gas'' or a

``recipe,'' or was mandating use of only one oxygenate, such as

ethanol.11 The floor debates also show there was no common

understanding of terms such as ``fuel neutral,'' or ``government gas,''

or even whether certain provisions did or did not require the use of a

specific oxygenate such as ethanol. These debates do make clear,

however, that Congress designed the detailed provisions in section

211(k)(2) through (10) to ensure achievement of various benefits from

this program, while retaining an appropriate degree of refiner

flexibility.

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\1\0This complex balance can be seen in the various specific

requirements of section 211(k). Congress established both specific

content requirements (section 211(k)(2)) and minimum requirements

for either a performance standard or a ``formula,'' whichever EPA

determined to be more stringent (section 211(k)(3)(A) and (B)). A

certification program was also established, with EPA to certify any

fuel that obtained emissions reductions of a fuel that met the

requirements of section 211(k)(2) and (3). A credit program was also

established for the three specific content requirements established

in section 211(k)(2) and (3). Both the emissions performance

standards and content requirements of section 211(k)(2) and (3) act

as performance standards in light of the certification equivalency

provision of section 211(k)(4). For example, the ``formula'' of

section 211(k)(3)(A) acts as a performance standard based on section

211(k)(4).

\1\1From the debate on the Conference Committee: 1 Leg. Hist. at

853, 855 (Sen. Durenberger); 1 Leg. Hist. at 1233 (Rep. Fields); 1

Leg. Hist. at 1263 (Rep. Madigan); 1 Leg. Hist. at 1270 (Rep.

Synar); 1 Leg. Hist. at 1325 (Rep. Hall); 1 Leg. Hist. at 1395-7

(Rep. Moorehead). From the debate on the House bill: 2 Leg. Hist. at

2606, 2694-7, 2701-2, 2750-58 (Rep. Richardson); 2 Leg. Hist. at

2716 (Rep. Dingell); 2 Leg. Hist. at 2717 (Rep. Lent); 2 Leg. Hist.

at 2722 (Rep. Michel); 2 Leg. Hist. at 2733-34 (Rep. Synar). From

the debate on the Senate bill: 4 Leg. Hist. at 6812, 15, 19 (Sen.

Daschle); 4 Leg. Hist. at 6820-21 (Sen. McClure); 4 Leg. Hist. at

6824 (Sen. Grassley); 4 Leg. Hist. at 6825 (Sen. Nickles); 4 Leg.

Hist. at 6829-30 (Sen. Wirth); 4 Leg. Hist. at 6836 (Sen. Dole); 4

Leg. Hist. at 6836 (Sen. Johnston).

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Various statements were made by different members of Congress that

any oxygenate could be used that met the oxygen content and emissions

reduction requirements for reformulated gasoline.12 These

statements reflect Congress' interest in retaining appropriate refiner

flexibility. However, they only address compliance with the oxygen

content requirement mandated under section 211(k)(2) and the emissions

reduction requirements mandated under section 211(k)(1) and (3), and do

not address compliance with additional requirements established under

section 211(k)(1). They do not indicate an intention to preclude EPA

from appropriately exercising its authority under section 211(k)(1) to

either require greater than the minimum reductions called for in

section 211(k)(3) or to establish additional requirements like the

renewable requirements. Given the ambiguity in the debates on this

issue and the Act's provision that the requirements of (k)(2) be issued

under the (k)(1) rulemaking authority, EPA believes this rule may also

be considered a reasonable implementation of the (k)(2) oxygen content

requirement.

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\1\2See, e.g., 4 Leg. Hist. at 6812 (Sen. Daschle), and 1 Leg.

Hist. at 1216 (Rep. Sharp, noting that ``[t]he Administrator may not

discriminate among these different oxygenates, and should encourage

fair competition among them. As long as the percentage weight

requirement is met, and other requirements of new 211(k) . . . are

satisfied, any oxygenate should be allowed to satisfy new United

States needs.'') Also see 1 Leg. Hist. at 1325 (Rep. Hall). EPA's

renewables requirement is fully consistent with this--refiners may

use any oxygenate as long as the resulting gasoline meets the oxygen

content and renewable requirements established under section 211(k).

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This legislative history indicates that while Congress itself did

not choose to mandate any one oxygenate or class of oxygenate, it also

did not restrict EPA's ability to require the use of a class or

category of oxygenates if that would reasonably ensure achievement of

these benefits and would not inappropriately limit the operational

flexibility of refiners and importers. The renewables requirement is

entirely consistent with this approach. It is designed to achieve

important goals, and includes provisions specifically designed to

maximize the flexibility of refiners in meeting the requirement.13

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\1\3Certain commenters claimed that the requirement was

inconsistent with Congressional intent as expressed in the debate

over the Energy Policy Act of 1992. Congress rejected an amendment

to that bill which would have required that an increasing portion of

the octane in all gasoline be obtained from domestically produced,

renewable, nonpetroleum sources. The floor debate on this amendment

indicates several reasons various members of Congress were opposed

to this amendment, including concern that there would not be enough

supply of ethanol, concern over possible interference with

implementation of the Clean Air Act (based on a confusing provision

addressing the interrelationship of the two laws and authority under

the amendment for DOE to waive the requirement for air quality

reasons), as well as concern over not being fuel neutral. EPA

therefore believes that the rejection by the House of

Representatives in 1992 of an amendment to an unrelated statutory

provision, apparently based on a wide number of different reasons,

is not relevant to Congress's prior intent in 1990 when it amended

the Clean Air Act. Section 1508 of the Omnibus Budget Reconciliation

of 1987 is much more relevant on the issue of Congressional intent

and supports EPA's interpretation and rule. 42 U.S.C. 7545. In that

provision, Congress found that the United States was increasingly

dependent on the Middle East for its energy needs, that ethanol

could be used in gasoline to produce a cleaner burning fuel and

reduce pollution, and that ethanol was a renewable resource and its

increased use would reduce farm program costs and grain surpluses

and create new jobs. That bill explicitly states the sense of

Congress that EPA should use its authority under the Clean Air Act

to require greater use of ethanol as a motor fuel. EPA's renewable's

requirement is fully consistent with this statutory provision.

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Most of the congressional debate focused on the various detailed

requirements of section 211(k) such as the content requirements of

section 211(k)(2), and the emissions standards of section 211(k)(3).

There was relatively little debate or discussion concerning the scope

of EPA's general authority in section 211(k)(1). However, there are

indications that this was considered a reservoir of broad, general

authority.14 There was no indication that section 211(k)(1) did

not mean what its plain language indicates--that Congress provided EPA

with broad, general authority to establish the requirements for

reformulated gasoline, including requirements that tend to optimize the

energy and other benefits obtained by the emission reductions

requirements.

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\1\4From the debate on Conference Committee bill: 1 Leg. Hist.

at 855-6 (Sen. Durenberger noted that the performance standards and

the formula were minimum requirements, and EPA had authority to

require greater emissions reductions if appropriate); 1 Leg. Hist.

at 968-69 (colloquy between Sen. Durenberger and Sen. Baucus on same

point); 1 Leg. Hist. at 1219 (Rep. Sharp discusses the threat that

EPA could exercise its authority to reinstate a program akin to the

1970's oil price and allocation controls); 1 Leg. Hist. at 128-9

(Rep. Bliley) (``It is vital that [section 211(k)(1)] be viewed as

residual authority to modify the more specific requirements

throughout. . . .''). From the debate on the Senate bill: 4 Leg.

Hist. at 5052-3 (Sen. Symms recognized that the bill reported out of

the Committee on Environment and Public Works provided EPA broad,

general authority when he noted that ``the bill directs the

Administrator . . . to promulgate regulations establishing

specifications for fuel quality. This, in essence, would give the

Administrator the authority to mandate specific fuel formulations. .

. .'').

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4. Conclusion

EPA's interpretation of its authority under section 211(k)(1) is a

reasonable interpretation based on the plain language of the provision.

The legislative history supports this interpretation and fails to show

a contrary intent. The changes made in the reformulated gasoline

provisions, and textual changes made in the two houses and in

conference indicate an intent to broaden EPA's general authority. The

floor debates support this and fail to show a contrary intent.

EPA's exercise of authority under section 211(k)(1) also helps to

obtain the important benefits identified by Congress for reformulated

gasoline. The legislative history makes it clear that in addition to

emissions reductions, Congress expected that reformulated gasoline

would benefit the nation by obtaining various energy and other benefits

from the expanded use of oxygenates, including specifically the

benefits from using renewable oxygenates like ethanol and ETBE. EPA's

interpretation and this rule are fully consistent with this

Congressional goal.

Congress established a complex statutory structure to ensure

achievement of these various goals while retaining an appropriate

degree of refiner flexibility. EPA's final rule is carefully designed

with refiner flexibility in mind, and draws an appropriate balance

between obtaining the benefits from using renewable oxygenates and

retaining refiner flexibility. For example, the rule establishes as

close to a performance standard as is currently possible, does not

mandate one specific fuel or fuel additive, allows for a phase-in over

two years to minimize disruption, allows averaging over a long time

period, and allows for generation, use and trading of credits to show

compliance. It also is carefully designed to minimize any adverse

environmental impacts.

EPA's interpretation of its authority is consistent with the plain

language of the statute and its legislative history, and furthers the

goals identified by Congress for this program. As such it is a lawful

exercise of agency authority under section 211(k).

B. Program Overview

The renewable oxygenate requirement is one component of the

reformulated gasoline program. It does not alter the emission

performance standards or other provisions for the reformulated gasoline

program contained in the final rule for reformulated gasoline (See 59

FR 7716; February 16, 1994). In addition, it does not mandate the use

of any particular oxygenate, but rather ensures a specified minimum use

of a range of oxygenates derived from renewable resources.

As mentioned previously, EPA is requiring that 30 percent of the

required 2.0 weight percent oxygen content of all reformulated gasoline

be produced using renewable oxygenates. Renewable oxygenates must meet

two criteria for them to be used to comply with the requirements of the

program. First, they must be produced from non-fossil fuel feedstocks

(i.e., other than petroleum, natural gas, coal, or peat), or their

oxygen content must derive from oxygenates produced from such

feedstocks, as described more fully in section III.C.1 of this notice.

Second, to be considered ``renewable'' when blended into VOC-controlled

RFG, the oxygenate must not cause commingling-related increases in fuel

volatility (i.e., the oxygenate must have a linear vapor pressure

blending curve). In addition to the requirements of this program,

renewable oxygenates must also be approved for use in gasoline in

keeping with the provisions of section 211(f) of the Act, and must be

approved for use in reformulated gasoline (i.e., certifiable under

either the Simple or Complex Model, as discussed in the final rule for

the RFG program).

The oxygenates which are expected to meet these requirements, at

least in the near term include: (1) Any alcohols derived from biomass

or waste products other than untransformed fossil fuels, except when

used in RFG designated as ``VOC-controlled,'' and (2) all approved

ethers produced from renewable feedstocks, when used in either VOC-

controlled or non-VOC-controlled RFG. EPA recognizes that some non-

ether oxygenates, including some alcohols, may not cause commingling-

related increases in fuel volatility. Upon submittal of sufficient data

demonstrating that addition of a non-ether renewable oxygenate does not

cause a nonlinear increase in RVP, the Administrator may permit the

oxygenate in question to receive credit under today's renewable

oxygenate program when blended into VOC-controlled RFG. However,

methanol and ethanol will not be granted such permission, since the

nonlinearity of their effect on RVP is well-established at the present

time.

The program will be phased in over the course of two years. Fifteen

percent of the minimum 2.0 weight percent oxygen content of

reformulated gasoline is required in the form of renewable oxygenates,

as defined above, from December 1, 1994 through December 31, 1995

(hereafter referred to as the ``first year of the program''). Thirty

percent of the minimum oxygen content in reformulated gasoline is

required to be from renewable oxygenates in 1996 and each year

thereafter. As a result, on average reformulated gasoline will be

required to have at least 0.30 weight percent oxygen content (15

percent of 2.0 weight percent) provided by renewable oxygenates in the

first year of the program and 0.60 weight percent oxygen content

provided by renewable oxygenates in subsequent years.

A program phase-in is necessary because the reformulated gasoline

program takes effect at refineries December 1, 1994. As discussed more

fully in section III.F of this notice, EPA is concerned that

insufficient time is available for ethanol producers to adjust their

production schedules, for ether suppliers to set up contracts for the

purchase of renewable alcohols, for fuel producers to obtain supplies

of renewable oxygenates for addition at the refinery or for blending

with refinery-produced reformulated blendstock for oxygenate blending

(RBOB), and for terminal operators to build and obtain permits for

sufficient ethanol and ether storage and blending facilities in order

to meet the full 30 percent requirement in 1995. Reformulated gasoline

producers may also have to adjust their gasoline production plans to

accommodate a different mix of oxygenates than they might have used in

the absence of today's rule. The phase-in addresses these leadtime

concerns, ensures a more orderly startup of the program, and minimizes

the risk of any market disruptions.

The applicable renewable oxygenate requirement (15 percent or 30

percent) applies year-round. The requirement is measured on an oxygen-

equivalent basis (i.e., credit given according to the oxygenate content

of the RFG) and is based on a per gallon oxygen content of 2.0 weight

percent which is consistent with the minimum per gallon oxygen content

standard in the RFG program. However, the renewable oxygenate

requirement must be met on an annual average basis and need not be met

on a per-gallon basis. This requirement applies to all refiners or

importers of reformulated gasoline and/or RBOB. It does not apply to

oxygenate blenders, pipeline operators, or terminal operators, though

such parties are required to abide by any restrictions regarding the

type of oxygenate that may be blended into RBOB provided by refiners.

Specifically oxygenate blenders, pipeline operators and terminal

operators will have to adhere to the RBOB blending limitations not only

of the RFG final rulemaking, but also the additional limitations

resulting from today's rulemaking. If a state exercises the option

discussed in section III.G of this notice to address shoulder season

concerns, the enforcement requirements on terminal operators may be

slightly altered.

Refiners and importers of reformulated gasoline are also permitted

to generate and trade, on a nationwide basis, credits earned from use

of renewable oxygenates in excess of the applicable minimum requirement

to other producers desiring to use a lesser volume of renewable

oxygenates. Such credits can be used to satisfy part or all of a

refiner's renewable oxygenate requirement for the same calendar year

that the credits are earned. No banking of credits between calendar

years is allowed. The averaging and trading provisions established

today for the renewable oxygenate program will have no adverse

environmental impact since today's action does not alter the VOC,

toxics, and NOX emission performance standards for reformulated

gasoline.

The effect of these averaging and trading provisions is to greatly

expand the flexibility afforded refiners, particularly during the

initial startup of the program. While the renewable oxygenate program

takes effect for refiners beginning December 1, 1994, individual

refiners do not need to blend any renewable oxygenate into their

gasoline until later in the year or at all if they so desire. They will

just have to demonstrate that they met the requirements over the course

of the entire year through either the blending of greater than 15%

renewable oxygenates in the latter part of the year, or the purchase of

sufficient credits from other refiners. As a result, the averaging and

trading provisions effectively provide refiners with additional time to

meet the initial requirements of the program, and allows them to

smoothly ramp up their use of renewable oxygenates during the course of

the first year to the full 30% requirement in 1996.

The renewable oxygenate requirements are placed at the refinery

level and will apply to reformulated gasoline sold in all the covered

areas, including the opt-in areas and the two covered areas in the

State of California (Los Angeles and San Diego). Details of the

enforcement program are discussed in section IV of this notice.

Refiners who produce reformulated gasoline for use in California

beginning in March 1996 are exempt from most federal reformulated

gasoline reporting, recordkeeping, and similar enforcement

requirements. As a result, refiners producing California reformulated

gasoline are not currently required to distinguish between gasoline

volumes sold in Los Angeles or San Diego and gasoline sold in other

parts of California. However, the renewable oxygenate provisions

promulgated today will apply to reformulated gasoline sold in Los

Angeles and San Diego, as discussed in section IV of this notice in

greater detail.

The Agency received a number of comments concerning impacts of the

program on VOC emissions during the ``shoulder season.'' After

considering the issue, EPA has decided that a limited change to the

program to address the shoulder season concerns is warranted. As

discussed in section III.G, EPA has included in the final rule a

provision which would allow EPA to extend the limitations on the

blending of certain renewable oxygenates which exhibit volatility-

related commingling effects to the shoulder season within individual

states upon receipt of a petition from the Governors of the states if

certain requirements are met.

C. Renewables Requirement and Definition

1. Renewables Definition

The definition of renewable oxygenates adopted in this final rule

has been expanded from that contained in the proposal, but nevertheless

it is intended to limit credit toward the renewable oxygenate

requirement to those oxygenates which EPA expects to yield net fossil

fuel savings. The final definition is structured so as to exclude from

the renewables definition oxygenates produced in their entirety from

nonrenewable sources such as coal, oil, peat, and natural gas due to

their non-renewable, fossil nature. The definition includes oxygenates

derived wholly from renewable biomass sources including but not limited

to corn and other grains, other food products, and cellulosic plant

material. It also includes oxygenates derived from waste products such

as waste cellulose and plastics, sewage, sawdust, scrap tires, and

methane recovered from landfills. EPA recognizes that some of these

waste products may have been derived from fossil hydrocarbon sources.

Including these sources in the set of permissible feedstocks will not

by itself result in increased generation of such wastes, however, and

hence will not increase consumption of materials which can be used as

fossil fuels.

The definition excludes waste products that are untransformed from

their original fossil fuel form. As a result, methane captured from

landfills would qualify as a renewable feedstock but natural gas

currently flared at the wellhead or refinery would not qualify as a

renewable feedstock, since it would be used in its untransformed state

as an oxygenate feedstock and is in fact a fossil fuel.

It should be noted, however, that the definition includes

oxygenates whose oxygen content comes from another renewable oxygenate.

As a result, ethers derived from renewable alcohols and isobutylene

which was produced from oil or natural gas would qualify as a renewable

oxygenate, whereas ethers derived from nonrenewable alcohols would not

qualify regardless of the source of isobutylene.

Like all gasoline additives, renewable oxygenates must meet the

requirements of section 211(f) of the Clean Air Act or be waived from

those requirements. In addition, reformulated gasoline containing

renewable oxygenates must be certifiable under the appropriate RFG

emission model (as set forth in Sec. 80.42 and Sec. 80.45 of the Code

of Federal Regulations).

2. Renewable Oxygenates for Summer RFG

Alcohols and other oxygenates which cause commingling-related

volatility increases used in VOC-controlled reformulated gasoline will

not receive credit toward the 30 percent renewable oxygenate

requirement for two reasons. First, EPA does not want incentives

created by the renewable oxygenate program to diminish the VOC benefits

of the RFG program during the high ozone season. As discussed in the

RFG final rule and RIA and elsewhere in this notice, a program which

would encourage increased use of ethanol (and by extension any other

oxygenates with a similar non-linear vapor pressure blending curve) in

summer RFG introduces a number of serious concerns related to increased

VOC emissions. Second, as discussed in the proposal, the process energy

needed to offset the direct vapor pressure boost from ethanol, the

primary renewable oxygenate used in gasoline today, negates the fossil

energy savings from ethanol. The vapor pressure boost must be offset to

comply with the VOC emission performance standards for summer RFG. EPA

would expect a similar situation to apply to other oxygenates that

increase the vapor pressure of gasoline.

Direct RVP increases are controlled and accounted for in summer

reformulated gasoline by the RFG program. However, alcohols such as

ethanol and methanol can create commingling problems in vehicle fuel

tanks which are not reflected in the RFG emission models. Commingling

can significantly increase average in-use fuel volatility which leads

to higher emissions of VOCs, an ozone precursor. EPA believes that by

not granting credit toward the renewable oxygenate requirement during

the summer for commingling oxygenates, today's program will not

encourage increased use of these oxygenates during the high ozone

season, thereby avoiding the VOC emission increases that would result

from such increased use. In fact, today's provision has the potential

to stimulate the use of ETBE during the summer months, which could

displace ethanol use that otherwise may have existed under the RFG

program, thereby reducing commingling related emission increases during

the high ozone season.

As discussed in the Regulatory Impact Analysis\15\ (RIA) for the

RFG Final Rule, a thirty percent ethanol blend market share in a Phase

I VOC-controlled gasoline pool in VOC Control Region 1 would increase

the effective average RVP of the gasoline pool (even if the ethanol

blends and non-ethanol blends have the same RVP) and thereby increase

total VOC emissions (including both exhaust and non-exhaust VOC

emissions) relative to a scenario in which ethanol blends had zero

market share. EPA estimated in the RIA for the RFG Final Rule that the

commingling-related increase in VOC emissions from a thirty percent

market share for ethanol-blended RFGs would result in a VOC increase of

approximately two to three percent. In other words, the commingling

effect would reduce RFG's Phase I VOC benefits by up to twenty percent.

While EPA was aware of the commingling effect during the development of

the Complex Model, the effects could not be reliably estimated in time

for proposal and, since adding the commingling effect to the Complex

Model would have represented a considerable change to the model, EPA

deferred adding the effect to the Complex Model at the time of the RFG

final rule.

---------------------------------------------------------------------------

\15\Final Regulatory Impact Analysis for the Reformulated

Gasoline Program, FSSB, RDSD, OMS, OAR, US EPA, December 1993,

document number V-B-1, EPA Docket A-92-12.

---------------------------------------------------------------------------

The commingling effect does not occur when ethers are blended with

gasoline. Furthermore, such blends are projected by DOE\16\ to require

less fossil energy than would RFG containing nonrenewable oxygenates.

As a result, this program allows renewable ethers blended into VOC-

controlled RFG to receive renewable oxygenate credit during the high

ozone season. Under the final rule, the Administrator may allow

renewable alcohols other than ethanol and methanol and renewable

oxygenates other than alcohols and ethers to receive such credit if

sufficient information demonstrating the absence of any commingling

effects is submitted for the approval of the Administrator. As with any

fuel additive, they would also have to meet the requirements of section

211(f) of the CAA, and the RFG containing such an additive must be

certifiable under the Simple Model or Complex Model, whichever is

applicable.

---------------------------------------------------------------------------

\16\``Energy Requirements and CO2-Equivalent Emissions of

RFG,'' U.S. Department of Energy, June 6, 1994 and March 17, 1994

(draft).

---------------------------------------------------------------------------

Outside of the ozone season, VOC reductions are not required in

reformulated gasoline for ozone control and RVP is not controlled. At

such times, renewable alcohol blends would produce the desired fossil

energy savings and potential greenhouse gas emission reductions.

Therefore, EPA will give credit to renewable alcohols blended into non-

VOC-controlled RFG, the use of which is restricted to the non-high

ozone season. The only exception to this, as discussed in section

III.G, is during shoulder season months where based on a request from

the Governor of a State, EPA has extended the non-commingling season

beyond the VOC control season. Should that occur, oxygenates which

exhibit commingling effects would not be given credit toward the

renewables requirement in that State during the shoulder season as

well.

3. Performance-Based Definition of Renewable

In its proposal, EPA solicited comments on the proposed definition

of renewable oxygenates and, in particular, on the potential for

establishing a performance requirement based on energy consumption and/

or greenhouse gas emissions to define renewable oxygenates. After

further consideration and evaluation of the comments received, EPA has

decided not to promulgate a numerical type of performance-based

standard for renewable oxygenates for a number of reasons. First, the

degree of scientific uncertainty associated with quantifying energy

consumption and emissions of different greenhouse gases throughout the

entire life cycle of various oxygenates is considerable. Second, even

if life cycle emissions could be estimated, based on comments on the

proposal and discussions with EPA's Global Change Division there is

currently insufficient scientific consensus on the relative warming

potential of various greenhouse gases, notably VOC and NOX (the

bulk of the emissions other than CO2), to provide reliable

comparisons. Third, EPA has concluded that at the present time it would

be difficult and costly to collect and verify the necessary data to

implement a performance-based standard for renewable oxygenates, to the

point where the recordkeeping and reporting burden could discourage

new, more efficient feedstock and oxygenate production practices.

Fourth, EPA believes that the definition of renewable oxygenates

contained in this rule is sufficient to provide certainty that fossil

energy savings are being achieved without the establishment of a

numerical performance standard. As discussed below in section III.C.4,

the group of oxygenates derived from renewable sources are expected to

achieve energy and greenhouse gas emission performance levels roughly

equivalent to or better than those achieved by ethanol alone. For these

reasons, EPA does not believe it to be appropriate at the present time

to institute a performance standard for renewable oxygenates. However,

the Agency reserves the right to alter its definition of ``renewable''

to a performance-based standard in the future if a reasonable,

workable, and enforceable definition can be developed.

4. Renewable Alcohols/Ethers Limitation

In the December NPRM, the only oxygenates included in the proposed

definition of renewable oxygenates were ethanol and methanol produced

from renewable feedstocks and their ether derivatives. However, EPA

recognizes that for a number of reasons the production of other

oxygenates from renewable feedstocks is likely to produce fossil energy

savings similar to that for renewable methanol and ethanol. First, many

of these other oxygenates may at times be produced as co-products or

by-products of methanol or ethanol production. As a result, they should

have similar fossil energy balances. In fact, if by including them in

today's definition they are not forced to be separated out from the

ethanol and/or methanol to make them pure, it could help reduce energy

expenditures. Second, even if not co-products, they are likely to be

produced from similar feedstocks using similar production practices as

those currently used for renewable ethanol and methanol. As a result,

the energy balance should not be significantly different. In fact, the

energy balance could very well be better, since the energy balance of

either the oxygenate production itself, or that associated with

blending it into RFG, may be the reason prompting the production of the

other oxygenates in lieu of ethanol or methanol. Third, in order for

these other oxygenates to compete in the marketplace with renewable

ethanol or methanol they will need to be cost competitive. Since the

energy inputs represent a significant portion of the costs of renewable

oxygenate production, these other oxygenates are unlikely to be

produced (unless they are co-products as discussed above) unless they

are at least as energy efficient as the alternatives. Furthermore, if

they are able to compete, the oxygenate they are likely to displace

from the marketplace will be the marginal renewable oxygenate

production which is the most costly and inefficient to produce and

therefore provides the least energy savings to begin with. Fourth,

while EPA does not expect these oxygenates to represent a large portion

of the renewable oxygenate market, their exclusion from the definition

might hinder their entry into the market and hinder the development of

new, energy efficient renewable oxygenate production technologies.

As a result, EPA is including other oxygenates produced from

renewable feedstocks in its definition of permitted renewable

oxygenates under today's rule. As discussed above, however, such

oxygenates cannot be blended during the high ozone season unless either

they are converted to an ether form, or it can be demonstrated that

they do not cause a volatility increase when commingled with other

gasoline blends.

Although several commenters supported the petition process which

EPA proposed as an optional means to respond to future developments in

oxygenate technology, the Agency is limiting this petition process to

determining whether the renewable oxygenate exhibits commingling

effects which are relevant to their use under this program during the

summer months. As discussed above, EPA is extending the definition of

renewable oxygenate based on its determination that all oxygenates

derived from renewable sources and expected to be used to comply with

this program should exhibit energy benefits similar to those resulting

from ethanol use.

D. Averaging and Trading

EPA is promulgating averaging and trading provisions, as proposed,

for the oxygenates in reformulated gasoline receiving renewable credit

under today's program. Refiners are allowed to average the renewable

oxygen content of reformulated gasoline over the calendar year. During

the first year, however, the averaging period will run for 13 months,

from December 1, 1994 through December 31, 1995, to track the time

period for the other RFG requirements. Refiners are also allowed to

trade credits earned by exceeding the renewable oxygenate requirement

to other refiners. No banking of credits from one year to the next,

however, is allowed, in order to keep the program as simple as

possible.

Averaging and trading provide refiners many benefits. For example,

averaging provides refiners with production flexibility, since every

gallon need not meet the renewable oxygenate requirement. Trading

provides additional flexibility by permitting refiners to specialize:

it may be more cost-effective for some refiners than others to produce

reformulated gasoline with a renewable oxygenate content. Trading

enables those refiners for whom it is less cost-effective to buy

renewable credits from those who find it more cost-effective to blend

renewable oxygenates. Averaging and trading also allow refiners to

avoid any cost associated with compliance margins, since refiners will

not need to blend renewable oxygenates in excess of the 30 percent

requirement to assure compliance.

These provisions are especially important during the initial

startup of the program. While the renewable oxygenate program takes

effect for refiners beginning December 1, 1994, individual refiners do

not need to blend any renewable oxygenate into their gasoline until

later in the year, or at all if they so desire. They will just have to

demonstrate that they met the requirements over the course of the

entire year through either the blending of greater than 15% renewable

oxygenates in the latter part of the year, or the purchase of credits

from other refiners. As a result, the averaging and trading provisions

effectively provide refiners with additional time to meet the initial

requirements of the program, and allows them to smoothly ramp up their

use of renewable oxygenates during the course of the first year to the

full 30% requirement in the second year (1996).

1. Averaging Period

USDA submitted comments to the Agency encouraging a season-specific

averaging program, rather than an annual averaging program. USDA argued

that requiring the renewables requirement to be met separately for VOC-

controlled and non-VOC-controlled gasoline would increase the energy

and environmental benefits. Specifically, USDA suggested that a season-

specific program would provide additional incentives to convert ethanol

that would otherwise have been blended directly into summer RFG into

the form of ETBE. USDA argued that the resulting reduction in summer

ethanol use would further reduce commingling effects and lead to

additional VOC emission reductions due to the distillation

characteristics of ETBE. USDA suggested that a season-specific program

would provide the potential for ethanol market share to expand beyond

30 percent in future years. The reader is referred to the RIA for a

detailed discussion of the seasonal averaging program suggested by

USDA.

EPA has considered the issues raised by USDA, and has decided to

retain the annual averaging period proposed in the December NPRM, based

on an analysis of the logistical, energy, environmental, and cost

impacts of splitting the summer and winter seasons. First, seasonal

averaging would require ETBE use in VOC-controlled reformulated

gasoline, which presents serious capacity problems in the short-term.

Although only minor modifications are necessary in order to produce

ethers from ethanol rather than methanol, it will take some time to

make those ether production facility conversions and to acquire the

necessary construction and operating permits. EPA's analysis indicates

that insufficient ETBE capacity would be available to fully meet the

summer requirements of a season-specific renewable program in 1995 and

likely also 1996. As a result, a seasonal averaging program would have

to be delayed and/or phased in. Since, as discussed below, EPA

anticipates the Phase II RFG requirements to stimulate the use of ETBE,

a phased-in requirement might have little actual impact on ETBE use. In

addition, a split season program would introduce additional complexity

and expense to the renewable oxygenate and reformulated gasoline

programs. ETBE is more expensive on an oxygen content basis than either

MTBE or ethanol, and ETBE provides smaller toxics emission reductions

than other oxygenates included in EPA's RFG emission models, which

refiners would have to offset through other fuel controls. Thus,

forcing ETBE use in summer gasoline in order to meet a season-specific

renewable oxygenate requirement could have increased the cost of

compliance with the annual toxics requirement of the reformulated

gasoline rule, especially under Phase I of the RFG program, and

complicated implementation of the RFG program given the short leadtime

available. This problem would have been particularly severe during the

initial years of the program, since the refinery modifications

necessary to offset the increase in toxics emissions can require

several years to complete, and since the value of ETBE's RVP benefits

will increase only when the Phase II RFG standards are implemented.

Furthermore, EPA concluded that the purposes of the program could

be achieved without a season-specific program. The renewable oxygenate

program is being promulgated to provide two primary benefits: reducing

the fossil energy impact of RFG, and stimulating the development of

renewable fuels which can lead to greenhouse gas emission benefits,

this would supplement the VOC and toxics emissions reduction benefits

from RFG. ETBE use per se is not required to obtain these benefits.

Based on the DOE analysis, ETBE use during the summer does not provide

any additional fossil energy benefit than ethanol use in the winter,

and in fact, results in a slightly smaller fossil energy savings. The

program may also achieve some marginal crude oil savings and some

additional VOC emission benefits with the use of ETBE during the summer

months (due to the favorable front-end distillation characteristics of

ETBE relative to ethanol and MTBE). However, EPA does not believe a

split season is necessary to stimulate the use of ETBE in the summer

months, particularly when the Phase II RFG standards take effect.

In summary, EPA believes that a season-specific program would offer

minimal energy and environmental benefits, would increase complexity

and impair compliance flexibility resulting in increased costs in

complying with the program, would likely run into near-term capacity

limitations, and would have no impact on the overall use of renewable

fuels. As a result, EPA considers a season-specific program to be

unnecessary in order to achieve the objectives of this program.

E. Level of Renewables Required

1. Existing Renewables Market Share

During the rulemaking process, EPA considered requiring greater and

lesser levels of renewable oxygenates and requested comment on the

appropriateness of the proposed 30 percent level for renewables. Under

the winter oxygenated fuels program, which began in 1992, ethanol has

been used in approximately 30 percent of the oxygenated gasoline. That

program includes certain areas that will require RFG, but in general it

focuses on non-RFG areas with wintertime carbon monoxide (CO) problems.

Based on this experience, it appears that splash-blended ethanol can be

expected to be used in at least thirty percent of the oxygenate market

when the RVP increase resulting from the blend is not constrained,

given existing incentives for the use of ethanol and other renewable

oxygenates. The 30 percent requirement for the renewable oxygenate

program helps assure that, at minimum, renewable oxygenates will be

used to an extent similar to what would have occurred in the RFG-

related oxygenate market had the air quality imperatives of the RFG

program not required constraints on RVP levels. This will avoid a

situation where the requirements and complexity of the RFG program

limit the growth of renewable oxygenate use. Today's renewable

oxygenate requirement will in effect set a floor to avoid reduced use

of renewable oxygenates in the future. It does not set a ceiling, and

should not interfere with growth of renewable oxygenate use. There are

no similar restrictions placed on the remaining 70 percent of the RFG

oxygenate market. As discussed below in section III.E.4, if MTBE

dominates this portion of the RFG oxygenate market as anticipated, MTBE

use will still grow dramatically over its current demand.

2. Renewables Production Capacity

In the December proposal, EPA stated that given the current absence

of renewable methanol capacity, ethanol and its ether derivatives were

likely to be the primary oxygenates used to meet the renewable

oxygenate requirement in the short term. Based on 1990 data, EPA

estimated that the 30 percent renewable oxygenate requirement would

require an average production of roughly 630 million gallons of ethanol

per year, or about 60 percent of EPA's estimate of current ethanol

production capacity of roughly one billion gallons per year. EPA has

updated these estimates, as discussed more fully in the RIA, and now

estimates that approximately 670 million gallons per year of ethanol

will be needed to meet the requirements of the renewables program alone

in the 1995-1996 time frame. Other analyses have reached similar

conclusions; for example, USDA's analysis indicates that the 30 percent

renewable oxygenate requirement would require an average production of

680 million gallons per year. As discussed below in section III.F, EPA

believes that this new demand can be met, provided there is a phase-in

of the program in 1995. A phase-in will give oxygenate producers,

refiners, and terminals one additional year to obtain permits,

construct facilities and negotiate contracts before the full program

goes into effect in 1996.

3. Comments Regarding the Level of Renewables

The majority of comments from ethanol suppliers and feedstock

producers who addressed the appropriate level of renewable oxygenates

supported the 30 percent requirement. The primary rationale for their

support was that the current market share for ethanol in the oxygenated

fuels program should be maintained.

Comments were received recommending both higher and lower levels of

renewable oxygenates. Higher levels were suggested in the belief that

the ethanol industry needed the additional encouragement through just

such an incentive to grow at a more desirable rate. At this point in

time, however, the 30 percent renewables requirement in those areas

covered by the RFG program represents a considerable stimulus to the

renewable oxygenate industry. EPA believes that a larger renewable

oxygenate requirement would call into question the near-term

feasibility of the renewables program. Furthermore, EPA believes that

the 30 percent level is all that is necessary to overcome the ethanol

blending limitations in RFG caused by the VOC performance standard,

since this is the level ethanol was able to achieve absent any blending

restrictions under the winter oxygenated fuels program. In addition,

the 30 percent renewables requirement being promulgated today is a

minimum requirement. It does not prevent renewable oxygenates from

increasing their share of the gasoline oxygenate market.

Many of those opposing the 30 percent requirement argued that it

could create the potential for supply disruption and significant cost

increases in the short-term. The oil and MTBE industries objected to

the necessity for a renewable oxygenate program out-of-hand. They

argued that since ethanol already has a large portion of the current

wintertime oxygenated fuel market and since the market for ethanol

would likely increase when the RFG program begins in 1995, the 30

percent renewable oxygenate program was unnecessary. Others, notably

state air pollution control officials, recommended that the 30 percent

requirement be lowered to 10 percent in order to mitigate any

potentially negative environmental and energy impacts, as well as to

allow the market more input in selecting the oxygenates used in the

program. EPA has considered these comments but continues to believe

that the 30 percent requirement is appropriate and feasible given the

energy and environmental benefits of the renewables requirement and

long-running governmental policies to promote renewable fuels. The

basis for these conclusions is discussed elsewhere in this notice and

in the RIA.

4. Implications for Non-Renewable Oxygenates

EPA believes the 30 percent level will provide the benefits

identified above and stimulate the development of a diverse supply of

oxygenates for the oxygenate market. The 30 percent requirement will

ensure a strong role for renewable oxygenates in the RFG program while

still permitting the majority of the RFG oxygenate market share to be

open to any oxygenate, regardless of the feedstocks used to produce it.

Even with today's rule, production of MTBE and its methanol feedstock

is projected to increase because of the increased demand for oxygenates

in the United States as the RFG program takes effect. MTBE demand would

increase by 3.1 billion gallons annually if it is used in all of the

remaining 70 percent of the RFG oxygenate market. Such an expansion

equals an approximate increase of 170 percent from current MTBE usage

levels. While EPA acknowledges that MTBE and methanol demand might be

even greater in the absence of today's rule, it is important to note

that the RFG program is likely to result in dramatic growth in MTBE,

methanol, and ethanol production. Furthermore, MTBE producers can

modify their facilities at relatively modest expense to produce ETBE if

its use should prove economically advantageous given the requirements

of the RFG program and today's rule.

Similar conclusions hold true for the natural gas industry. Natural

gas is used to produce methanol and isobutylene, which in turn are used

to produce MTBE. Since MTBE production is projected to grow from

current levels as a result of the RFG program, EPA expects the demand

for natural gas for oxygenate production to grow as well. Furthermore,

isobutylene derived from natural gas is expected to play a major role

in ETBE production. It should also be noted that oxygenate production

represents a small portion of total demand for natural gas.

For these reasons, EPA does not believe that today's action will

result in significant adverse effects on the MTBE, methanol, or natural

gas industries, as their markets will dramatically increase with or

without today's action. This is particularly the case since a

considerable amount of ethanol was likely to have been used to satisfy

the RFG program requirements absent today's rule. As discussed in

section III.F, based on the expansion of ethanol production capacity

planned prior to this rule, ethanol could potentially have been used to

fulfill 15 percent of the oxygenate requirement of the RFG program.

F. Timing and Phase-In

1. Introduction

In the NPRM, EPA proposed to require that renewable oxygenates be

used to meet 30 percent of the 2.0 weight percent oxygen requirement

for the RFG program. However, at that time EPA was concerned whether

adequate supplies of renewable oxygenates would be available and

whether the distribution infrastructure was sufficient during the

initial years of the program without disrupting existing markets for

such oxygenates or incurring excessive costs. With that in mind, the

proposal requested comments concerning these issues. More specifically,

comments were requested on the appropriate level of the renewable

oxygenate requirement, leadtime requirements associated with providing

adequate renewable oxygenate supplies, the potential need for a phase-

in period, and any other supply-related issues. In response, EPA

received considerable information on the current and projected supply

of renewable oxygenates, as well as less complete information regarding

the logistics of renewable oxygenate distribution. The detailed

analysis is contained in the Regulatory Impact Analysis (RIA), and is

summarized below. Based on the projected supply of renewable oxygenates

over time and the leadtime required to establish blending and storage

facilities, EPA has concluded that, while the market can readily bear a

30 percent requirement given adequate leadtime, a phase-in of the 30

percent requirement is necessary. Therefore, EPA is requiring that 15

percent of the RFG program's 2.0 weight percent oxygen requirement be

met from renewable oxygenate sources in 1995, and that the full 30

percent of the oxygen requirement be met from such sources in 1996 and

thereafter.

The purpose of EPA's analysis was to determine whether sufficient

renewable oxygenate supply, distribution, tankage, and blending

capacity would be available in 1995 and 1996 to meet the program

requirements. Failure to have sufficient supply, distribution, tankage,

or blending capacity for the considerable increase in renewable

oxygenate demand could result in shortages or price spikes and could

interfere with the orderly implementation of the reformulated gasoline

program.

In addition, EPA considered it to be desirable for a variety of

reasons to limit to the extent possible any need to displace

substantial amounts of ethanol from existing markets. First, displacing

ethanol from existing markets would do nothing to expand the use of

renewable oxygenates and achieve the resulting benefits. Second,

shifting ethanol from existing markets to RFG markets would not

stimulate the introduction of more advanced renewable fuels production

technology. Third, as described in sections III.H and VI of this

notice, the use of ethanol from new or expanded plants is projected to

displace more fossil energy than would ethanol from existing plants.

Fourth, relatively high prices for ethanol would be needed to displace

it from existing markets, leading to higher than necessary price

increases for RFG during the initial years of the program. Ethanol

purchase contracts may already be established for 1995, and breaking

such agreements in order to shift ethanol from existing gasoline

markets to RFG markets might be difficult and costly. Furthermore,

approximately half of current ethanol consumption occurs in states

which offer substantial tax credits for ethanol blends. These credits

are equal in value to between 10 and 20 cents per gallon of ethanol. To

induce ethanol suppliers to shift ethanol from such markets to

unsubsidized markets would likely require a purchase price in excess of

current market prices for ethanol equal to or greater than the value of

the tax credits available in existing markets. In addition, ethanol is

currently used in many markets to provide the added octane for mid-

grade and premium gasolines. These gasoline grades enjoy a considerable

retail price premium which can be reflected in the price paid for the

ethanol. These price premiums for ethanol blended mid-grade and premium

gasolines may not be available to the same extent in the new renewable

oxygenate markets, particularly for the full amount of ethanol expected

to be blended under the renewable oxygenate program.

The analysis examined each element of the renewable oxygenate

supply process separately. First EPA evaluated which renewable

oxygenates would be likely to be used to fulfill the program

requirements during the early years of the program and what volume of

oxygenate that represented. Second, feedstocks for the production of

these oxygenates were examined to determine whether sufficient

feedstock supplies would be available. Third, EPA examined the adequacy

of projected production capacity for the dominant oxygenates for the

first years of the program. Fourth, EPA investigated whether

transportation and distribution networks were adequate to support the

program during the initial years. Fifth, EPA examined the projected

storage and blending capability during this time frame. EPA examined

the capability over time of each link in the renewable oxygenate

production and distribution chain to handle the demands of the

renewable oxygenate program, and concluded that a phase-in of the 30

percent requirement is necessary and that the phase-in being

promulgated today is an appropriate response to leadtime concerns.

2. Likely Renewable Oxygenates

Ethanol is likely to be the dominant renewable oxygenate used to

meet the renewable oxygenate requirements, especially during the

initial years of the program, since it is the only renewable oxygenate

currently produced in large quantities. Since ethanol cannot be blended

during the summer months to meet the requirements of the program, its

use will be concentrated during the winter months. ETBE, the simplest

ether derived from ethanol, also is likely to be used in significant

quantities since it, unlike ethanol, can be blended during the summer

months to meet the requirements of the program. As discussed below in

section III.F.6, however, ETBE production capacity is expected to be

virtually non-existent in 1995 due to construction and permitting time

constraints. Its use is expected to increase by 1996 through the

conversion of existing MTBE facilities so that the requirements of the

program are met by a combination of ethanol use in the winter and ETBE

use year-round. Other renewable oxygenates are not expected to be

available in significant quantities before 1997 given the leadtime

required to design and construct new renewable production facilities.

ETBE use is expected to increase further during the summer months once

the Phase II RFG standards take effect in the year 2000, since ETBE use

will make it easier (relative to MTBE) for refiners to achieve the more

stringent VOC performance standards.

3. New Renewable Oxygenate Demand

Before EPA could evaluate the adequacy of the renewable oxygenate

supply, distribution, and blending capacity, it was necessary to

estimate the program's demand for renewable oxygenates. The estimate

was derived in terms of new ethanol demand, since as discussed above

only ethanol or ETBE are expected to be used in significant quantities

during the first few years of the program, and since the use of ETBE

would not alter the total amount of ethanol required by today's rule

because the oxygen in ETBE is derived solely from ethanol. The ethanol

demand created by the program was estimated by multiplying the

projected 1995 volume of reformulated gasoline covered by the Federal

RFG program (including the two covered California areas) of 38.7

billion gallons per year by the volume percent of ethanol (5.76

percent) necessary to meet to 2.0 weight percent oxygen requirement in

30 percent of RFG. As a result, today's program is estimated to require

about 670 million gallons of ethanol to meet the full 30 percent

requirement. In actual practice, refiners may blend greater or lesser

amounts of ethanol in any individual gallon of RFG, depending on such

factors as tax credits and price and availability of various

oxygenates.

The actual amount of new ethanol production required by today's

rule is smaller than 670 million gallons because some ethanol is

currently sold in areas covered by the RFG program. Based on the

monthly reporting by Information Resources, Inc. (IRI) for 1993, it

appears that as much as 280 million gallons of ethanol is already being

used in areas covered by the reformulated gasoline program (State-wide

data was weighted based on population to reflect ethanol consumption

only in the RFG areas within the State). Not all of this can be

credited toward the renewable oxygenate program, however, unless the

summertime use is converted to ETBE. Based on the IRI data, as much as

180 million gallons of ethanol is currently being used during those

months of the year in which EPA would expect non-VOC-controlled

gasoline to be produced (on average September 15 through March 31).

Thus, the amount of additional wintertime ethanol production required

to meet a 30 percent renewable oxygenate requirement in 1995 would be

approximately 490 million gallons (390 million gallons in new, year-

round capacity in later years once ETBE production capacity can be

brought on-line). A 15 percent phase-in of the program would require

approximately 155 million gallons of additional ethanol production.

While this volume of ethanol could be met using existing capacity by

displacing ethanol from existing ethanol markets, EPA believes, for

reasons discussed earlier, it is desirable to minimize displacing

significant amounts of ethanol from existing markets.

4. Feedstock Capacity

The next step in EPA's analysis was to determine whether sufficient

feedstocks were available to permit this increase in renewable

oxygenate production. According to comments received from agricultural

interests, corn is the feedstock for 90 percent of current ethanol

production and is expected to provide the vast bulk of the feedstock

for new ethanol capacity added in the near term. Of the total 8.7

billion bushels of corn produced in an average year,17

approximately 360 million bushels (approximately 4 percent of average

annual corn production) was used to produce an estimated 900 million

gallons of ethanol. Therefore, the estimated 490 million gallons of new

ethanol demand resulting from today's rule would increase corn demand

by approximately 195 million bushels, or about 2 percent. Based on this

analysis, EPA has concluded that the feedstock demands for this program

can be satisfied solely with corn without significant difficulty. In

addition, other feedstocks can be used to produce renewable oxygenates,

including waste products from farms, dairy operations, bakeries, and

the soft drink industry; from cellulosic sources such as grasses and

fast-growing energy crops, and from such sources as municipal solid

waste. Based on the diversity and immense supply of these potential

feedstocks, EPA has concluded that feedstock supplies are sufficient to

support the requirements of the renewable oxygenate program being

promulgated today.

---------------------------------------------------------------------------

\1\7According to information provided by John W. McClelland of

USDA, ``Memorandum for Richard Wilson, Director, Office of Mobile

Sources, U.S. Environmental Protection Agency,'' June 20, 1994.

---------------------------------------------------------------------------

5. Ethanol Supply and Production Capacity

Current (1993) ethanol operating production capacity nationwide has

been estimated by DOE to be approximately 1.15 billion gallons. Data

from IRI for 1993 estimates ethanol consumption at roughly 1.25 billion

gallons, and EPA received comments from an ethanol producer that 1994

ethanol production was projected to be 1.25 billion gallons. As a

result, current ethanol production would be more than sufficient to

meet the requirements of today's rulemaking as long as no constraints

were placed on the volume of ethanol that could be diverted from

existing markets. However, as discussed above, there are several

reasons why EPA considers it appropriate to minimize to the extent

possible diverting ethanol from existing markets to satisfy the

renewable oxygenate program. As a result, EPA examined the amount of

current excess ethanol capacity and projected new ethanol capacity to

determine the amount of renewable oxygenates that would be available to

supply the needs of the program being promulgated today during the

initial years of the program.

The U.S. Department of Agriculture estimates that the current

ethanol production capacity is as high as 1.4 billion gallons per year.

One commenter representing the ethanol industry submitted a list of

existing ethanol plants and their operational capacity which suggested

that current ethanol production capacity is also nearly 1.4 billion

gallons per year. Based on this production capacity information and on

the current domestic ethanol consumption estimates, it appears that

there may be approximately 150 million gallons of excess ethanol

production capacity (some of which may currently be exported) currently

available that could be used to supply the requirements of the

renewable oxygenate program. However, not all of this production could

be used to supply ethanol for blending during the winter; only

approximately 80 million gallons could be supplied from current excess

capacity during the winter months.

In addition to current excess capacity, a considerable amount of

new capacity is expected to come on-line in the remainder of 1994,

1995, and 1996, according to information supplied by the Renewable

Fuels Association and USDA. This information suggests that

approximately 305 million gallons per year of additional ethanol

capacity is currently under construction and will become available in

1995. (Additional amounts are possible, but more speculative.)

Furthermore, plans were being made for another 304 million gallons of

annual capacity to be brought on line in 1996, though much of that

apparently depended on the outcome of today's rulemaking. USDA

estimated similar increases in ethanol capacity over this time period.

It should be noted that not all of the additional capacity available in

1995 would be available at the beginning of the year, and not all of it

could be dedicated to production only during the winter months as would

be required until ETBE production capacity comes on-line. A similar

situation would occur in 1996. After considering these factors, EPA has

concluded that approximately 93 million gallons of additional ethanol

production from new capacity will be available for blending during the

winter months to meet the program requirements in 1995, and an

additional 157 million gallons to meet the program requirements during

the winter months in 1996.

It should be noted that additional ethanol capacity also may become

available from corn processors, many of whom already have feedstock

processing facilities in operation and would only need to install the

capital equipment necessary to ferment the starch and separate the

ethanol. Such processors may be able to install ethanol production

capacity relatively quickly. Based on comments received, however, EPA

cannot conclude with any degree of assurance that such additional

capacity will become available.

Based on the foregoing analysis, EPA believes that as much as 173

million gallons of new ethanol production can be made available during

the winter months to meet 1995 program requirements and 330 million

gallons during the winter months to meet the 1996 requirements. After

taking into consideration the 180 million gallons of ethanol currently

blended in the RFG markets during the winter months, a total of 353

million and 510 million gallons of ethanol should be available for

blending during the winter months in both 1995 and 1996, respectively.

As shown in the following table, absent a phase-in and ETBE production

capacity, 317 million gallons of ethanol would have to be diverted from

existing markets in 1995 and 160 million gallons would have to be

diverted in 1996.

Summary of Ethanol Supply/Demand (MM gal) and Need for Displacement

------------------------------------------------------------------------

1995 (15% 1995 (No

Phase-in) Phase-in) 1996

------------------------------------------------------------------------

New Renewable Oxygenate Ethanol

Demand.......................... 335 670 670

Existing EtOH Demand in RFG Areas

During Winter\1\................ 180 180 180

Net New Winter Capacity Required. 155 490 490

Current Winter Excess Capacity... 80 80 80

1995 New Winter Capacity\2\\3\... 93 93 164

1996 New Winter Capacity\2\\3\... 0 0 89

Shortfall (Displaced from

Existing Markets)............... ........... 317 157\4\

------------------------------------------------------------------------

\1\Based on IRI estimates.

\2\If additional summer production can be stored until the winter, then

this estimate could be increased slightly.

\3\Annual available new capacity is derived from expected capacities of

ethanol plants under design/construction prorated by their projected

start-up dates.

\4\Will be reduced to the extent ETBE capacity can come online.

To the extent that existing ethanol storage capacity can be used to

store ethanol produced during the summer for use in the winter, and to

the extent that ETBE can be produced from ethanol produced during the

summer and be blended into summer RFG, the amount of ethanol displaced

from existing markets would be reduced. Based on comments received by

EPA, the amount of ethanol storage capacity appears to be approximately

116 million gallons. If this storage capacity were devoted to storing

summer ethanol for use in winter RFG, then ethanol displacements from

existing markets would fall to 201 million gallons in 1995 (with no

phase-in) and 41 million gallons in 1996. As discussed in the next

section, EPA does not anticipate that significant amounts of ETBE can

be available in 1995, though sufficient amounts to meet the needs of

the program could potentially be available in 1996. ETBE blended into

VOC-controlled RFG receives credit under today's rule, so its

availability would allow the new summer ethanol production capacity to

satisfy part of the renewable oxygenate requirement and would reduce

the displacement of winter ethanol from existing, non-RFG markets.

Based on this analysis, EPA believes that insufficient renewable

oxygenate production capacity is likely to be available to supply the

30 percent renewables requirement by 1995 without a considerable shift

of supply from existing markets, but that adequate capacity should

exist by 1996.

6. ETBE Capacity

ETBE, the simplest ether derived from ethanol, offers several

advantages to refiners over ethanol or MTBE. Unlike ethanol blends,

ETBE blends can be shipped through pipelines. ETBE has a higher octane

value than MTBE or ethanol, which would be valuable to refiners

struggling to satisfy octane demand while simultaneously reducing high-

octane components such as aromatics and olefins in order to comply with

the RFG toxics and NOx requirements. Like MTBE, ETBE does not produce

commingling-related increases in RVP levels and hence is eligible for

credit year-round under today's rule. ETBE also has a lower blending

RVP than ethanol or MTBE, which in the near term would permit refiners

who use ETBE to remove less butane to reach a desired RVP level.

Beginning in the year 2000, ETBE's low blending RVP should be even more

attractive when the more stringent Phase II performance requirements

for RFG take effect. Finally, larger amounts of ETBE than MTBE or

ethanol are needed to satisfy RFG's oxygen requirement, and these

larger amounts of ETBE would dilute undesirable gasoline properties

such as sulfur to a greater extent than would the other two oxygenates.

However, ETBE typically costs more to produce than MTBE or ethanol

per unit oxygen. Because of these cost disadvantages current ETBE

production levels are very low. EPA expects ETBE production to grow

even without today's rule in order to achieve the low RVP levels needed

to meet RFG's Phase II VOC performance standards. Today's rule will

make ETBE production even more attractive, since ETBE-blended RFG can

receive renewables credit throughout the year. However, EPA has

concluded that large amounts of additional ETBE capacity cannot be

expected for 1995. At least one year and perhaps longer is expected to

be required before significant volumes of ETBE become available.

According to current ether producers, existing MTBE plants are likely

to require one to three years to convert to ETBE production. Up to a

full year is needed to acquire construction permits and complete the

requisite engineering work. Conversion of the MTBE plant to produce

ETBE is estimated to require from six months to two years, and several

months of trial production may be needed before full production of ETBE

can commence. Furthermore, ETBE production is also dependent on the

development of adequate ethanol production, unless the ethanol is

merely diverted from existing markets. Based on this information, EPA

does not expect significant amounts of ETBE production to be possible

until the summer of 1996.

Furthermore, ether production process licensers also indicated that

plant conversion to ETBE production could reduce throughput (relative

to MTBE throughput), depending on the plant and the type of equipment

installed. The reduction is caused by differing reaction conditions and

the different nature of the reactants involved. Since considerable MTBE

capacity would have to be converted to ETBE production to satisfy the

full 30 percent renewables requirement, EPA is concerned that this loss

of throughput might create shortages of oxygenates during the first

year of the RFG program. EPA believes that phasing in the renewables

requirement will reduce the risk of such shortages and allow a more

orderly phase-in of ethanol and ETBE production capacity.

7. Transportation

EPA has also analyzed whether the additional ethanol produced under

today's rule can be transported from where it would be produced to

where it would be consumed. According to the Army Corps of Engineers

(Corps), water-based transportation is the most economical method of

shipping ethanol both within the Midwest and from the Midwest to East

Coast and West Coast markets. For plants and markets without access to

water-based transportation, railway transportation is the most likely

transportation mode. EPA has analyzed each piece of the transportation

network, specifically: (1) The river barge capacity on the Mississippi

River, (2) the ship or ocean barge capacity between the Gulf of Mexico

and East and West Coast markets, and (3) the transportation capacity

for ethanol movement from ports to retail markets.

Based on a 1992 report by the Army Corps of Engineers regarding

barge traffic on U.S rivers, it appears that transportation by barge of

all of the new ethanol production resulting from today's renewable

oxygenates program would represent less than 1 percent of U.S. river

barge capacity. As a result, EPA has concluded that today's program is

unlikely to cause noticeable changes in shipping patterns or shipping

prices. Based on current barge shipping prices, the cost for shipping

ethanol from the Midwest to the Gulf of Mexico is estimated to cost 4-5

cents per gallon.

The barges used on inland waterways cannot be used on the open

ocean. Hence ethanol destined for East Coast or West Coast markets must

be transferred to ocean-going freighters or tankers. Nevertheless,

based on conversations with New Orleans port officials, current

shipping capacity should be more than adequate to supply the shipping

requirements demanded by today's rule. Transportation from the Gulf to

either Coast is expected to cost 5-7 cents per gallon.

Not all the ethanol shipped from the Midwest to other markets would

have to be shipped by ocean-going vessels, however, since some of the

ethanol could be used in ether plants located in the Gulf area to

produce ETBE, which then would be blended into gasoline and shipped by

pipeline to markets in Texas, the Midwest, or the East Coast. Pipelines

are considered the most economical method of transporting liquids, and

the costs of shipping ETBE to RFG markets by pipeline would be

comparable to the costs of shipping MTBE to such markets.

Furthermore, the averaging and trading provisions incorporated into

today's action can be used to limit to some extent the amount of

oxygenate transportation that is necessary. As much as 12 percentage

points out of the total 30% renewable oxygenate requirement could

theoretically be met with ethanol blended in the Midwest RFG markets

where transportation constraints are limited, and the credits traded to

refiners marketing RFG in more distant markets.

Given the foregoing analysis (which is discussed more fully in the

RIA), EPA does not believe that transportation presents a bottleneck to

implementation of today's rule, although there are cost implications.

Furthermore, EPA did not receive any comments suggesting that

transportation would present implementation problems for the renewable

oxygenate rule.

8. Storage and Blending Capacity

Given sufficient production of ethanol and adequate transportation

from the point of production to their final markets, the remaining

lead-time issue is that associated with adequate ethanol storage and

blending capacity at the terminals where it is blended with gasoline.

When the ethanol is offloaded at its end-use market, it must be stored

in large terminal storage tanks. The capacity of these tanks must be

sufficient to offload the entire shipment. Once offloaded, the ethanol

then must be blended with gasoline. Some terminals splash-blend ethanol

with essentially no additional equipment or facilities, while others

use more sophisticated blending equipment. EPA did not receive comments

of a nature sufficient to evaluate the adequacy or inadequacy of

current ethanol storage and blending facilities. In order to determine

whether adequate storage and blending capacity to support the renewable

oxygenates program exists, EPA estimated the storage and blending

capacity being used to meet the current demand for ethanol in the RFG

areas and compared that with the storage and blending capacity that

would be necessary to meet the program requirements. In order to

estimate the current storage and blending capacity, EPA examined the

peak monthly ethanol blending rates reported by IRI for each RFG market

during 1993. EPA extrapolated this peak blending rate over the entire

non-VOC control season to estimate the current blending capacity

available to support the renewable oxygenate program. The results of

this analysis are shown in the following table.

Ethanol Storage and Blending Capacity in RFG Markets

------------------------------------------------------------------------

Winter % of

Ethanol total RFG

Peak Market Blending that

State (RFG areas only) Share\1\\4\ Capacity contains

(MM renewable

gals)\2\\3\ O2\5\

------------------------------------------------------------------------

Illinois/Indiana................... 36 59 2.6

Kentucky........................... 16 9 0.4

Wisconsin.......................... 13 18 0.8

Midwest Total.................... ........... 86 3.8

------------------------------------

Connecticut........................ 13 10 0.5

Delaware........................... 36 7 0.3

D.C................................ 36 5 0.2

Maryland........................... 3 4 0.2

New Jersey......................... 8 10 0.5

New York........................... 29 60 2.7

Pennsylvania....................... 19 38 1.7

Virginia........................... 17 19 0.9

Northeast Total.................. ........... 153 7.0

------------------------------------

Texas.............................. 4 9 0.4

California......................... 5 20 0.9

Total........................ ........... 268 12.1

====================================

------------------------------------------------------------------------

\1\Peak market share for ethanol blended in any month in 1993 based on

IRI data (assuming ethanol blended at 10 vol%).

\2\Wintertime ethanol only and no ETBE capacity.

\3\Peak ethanol volume blended in any month in 1993 (based on IRI data)

extrapolated over the winter season, expressed as millions of gallons.

\4\Assumes ethanol blended at 3.5 wt% oxygen.

\5\Phase-in would require total of 15% in 1995 and 30% in 1996;

percentages are based on proration of ethanol content to 2.0 wt%

oxygen.

Based on this analysis, adequate tankage and blending equipment

exists for roughly 12 percent of the oxygenate required by the

reformulated gasoline program to be supplied by ethanol during the

winter months only. This is well short of the total 30 percent required

by the program, and even short of a 15 percent phase-in level. In order

to implement the program smoothly, this shortfall will have to be made

up by one of three means: first, pass a greater volume of ethanol

through existing tankage and blending equipment; second, construct new

ethanol storage and blending capacity at terminals; or third,

supplement ethanol blended at terminals with ETBE blended at

refineries.

It is reasonable to assume that some additional ethanol could be

blended at the existing facilities by increasing the throughput of

storage tanks and blending equipment, particularly in the Midwest where

the close proximity to ethanol production facilities allows for greater

flexibility in receiving and blending ethanol shipments. EPA does not

believe it unreasonable to assume that ethanol throughput could be

increased by 25 percent or more in 1995, since it is unlikely that

existing facilities were all designed to operate at their current peak

levels with no provisions made for market growth. To the extent

throughput can be increased by even more than 25 percent in some

markets it could be used to offset (through credit trading) any

shortfall in other markets. As a result, a phase-in level of 15 percent

should be achievable in 1995 even without expanding ethanol storage and

blending facilities. Even if this were not the case, it is reasonable

to assume that some additional storage and blending capacity beyond

that available in 1993 may have been planned to be available in 1995 to

keep up with the planned increases discussed above in ethanol

production by 1995.

It is not reasonable, however, to assume that existing facilities

could increase their throughput by the 150 percent necessary to achieve

the full 30 percent requirement of today's program. Furthermore, as

discussed above, no appreciable ETBE production capacity is expected to

be available until the summer of 1996. As a result, the only way to

meet the full 30 percent requirement of the program in 1995 would be

through the addition of new ethanol storage and blending capacity.

Current estimates of the time necessary to obtain permits, construct

new storage and blending facilities, and make them fully operational

vary, but range between approximately 6 and 18 months. Thus, sufficient

time would not be available to bring on-line additional ethanol storage

and blending facilities for use until the fall of 1995. The expanded

ethanol blending capacity available by this time is unlikely to be

sufficient to supply the full 30 percent requirement over the course of

the entire year. Even if it were sufficient, it would not have been

available for the entire year and hence would not be sufficient to

satisfy the 30 percent requirement. In order to meet the full 30

percent requirement in 1995, storage and blending capacity in excess of

what would be needed in subsequent years would have to be built in

1995. While it is very difficult to predict specific market responses,

especially given the compliance flexibilities built into the program,

it does not appear that sufficient ethanol storage and blending

capacity is likely to exist for 1995 without either a phase-in of the

program or extraordinary measures to provide additional blending

capacity (e.g., tanker truck shipments from terminals outside the RFG

areas).

The situation is different for 1996, however. It may be possible by

1996 for a considerable amount of ETBE to be blended at the refineries

during both summer and winter months. Since refinery-blended ETBE would

not require specialized blending facilities at terminals, increased

ETBE use might reduce considerably the 150% increase in ethanol

blending capacity that would otherwise be necessary. Furthermore, the

additional time provided by a phase-in would allow for the construction

of additional ethanol storage and blending facilities, most of which

could be in place at the beginning of the annual averaging program in

January of 1996. Much of this additional ethanol blending capacity is

likely to be added in the Midwest to take advantage of lower ethanol

transportation costs and State tax exemptions. However, even if every

gallon of RFG in the Midwest contained 10 volume percent ethanol, only

40% of the renewable oxygenates required by the program could be met by

Midwest ethanol usage in RFG. As a result, until a significant amount

of ETBE production comes on-line, ethanol storage and blending capacity

in RFG markets outside the Midwest will have to expand by as much as

100 percent (i.e., capacity would have to double).

9. Summary and Conclusions

Based on the foregoing analyses, EPA believes that given the

compliance flexibilities built into the program it is feasible for

sufficient feedstocks, production capacity, transportation capacity,

and blending capacity to be available to meet the full 30 percent

renewables requirement by 1996. However, EPA is concerned that neither

supply nor blending capacity will be adequate in 1995 to satisfy the

full 30 percent requirement. While a supply shortfall could be filled

by diverting ethanol from its current markets to RFG markets, such

diversions would be costly and would not meet any of the objectives of

today's rule, as has been discussed earlier in this notice.

Furthermore, even if such diversions were to occur, EPA is concerned

that insufficient blending capacity would be in place in 1995 to blend

the requisite volumes of ethanol into non-VOC-controlled RFG. The risks

of this are significant and the consequences could be dramatic with

shortages, price spikes, and other market disruptions. For these

reasons, EPA has decided that a phase-in of the 30 percent renewables

requirement is both necessary and prudent. During the first year of the

program (December 1, 1994 through December 31, 1995), 15 percent of the

RFG program's minimum 2.0 weight percent oxygen requirement must be met

by renewable oxygenates. In 1996 and subsequent years, the minimum

renewables content will increase to 30 percent of the RFG program's

minimum oxygen content. Even with such a phase-in, it is still likely

that some shifting will occur from current markets into the markets

created by today's program as a result of local economic conditions and

logistical considerations. However, these shifts are likely to be small

relative to the overall size of the renewable oxygenate program and

would not materially alter the benefits of today's rule.

G. Shoulder Season/Non-commingling Season

1. Summary of the Issue and Comments

EPA received comment on the ozone impacts of the renewable

oxygenate proposal, particularly during the ``shoulder season'' periods

of April 1 through May 31 and September 16 through October 31 when the

reformulated gasoline high ozone period is not in effect. During these

periods, VOC-controlled RFG is not required at the retail level.

Commenters expressed concern that the likely increase in ethanol market

share in non-VOC-controlled RFG would increase VOC emissions both

directly (since the RVP increase from splash-blended ethanol would not

be constrained by vapor pressure limits in non-VOC-controlled RFG) and

indirectly (since greater commingling effects would occur as the market

share for ethanol-blended RFG increases). Commenters representing state

air quality regulators (NESCAUM, STAPPA/ALAPCO, and CARB), argued that

the net result of such increases in average RVP levels during the

shoulder season would be increased VOC emissions and higher ozone

levels, especially in the Northeast and California. NESCAUM suggested

that EPA extend the season in which volatility-increasing alcohols

would not receive renewable credit to April 1st through October 31st in

order to eliminate the risk of any potential ozone increases.

Other commenters such as the Clean Fuels Development Coalition and

the Ethanol Ad-Hoc Committee argued that the use of ethanol-blended

RFGs during the shoulder season would not cause additional ozone

exceedances for two reasons. First, the spillover of VOC-controlled

RFG, primarily ether-containing RFG, would reduce shoulder season RVP

levels below current levels. Second, they believed other pollution

reduction programs being implemented over the next several years would

reduce ozone precursor emissions during the shoulder season. The

combined effect would reduce such precursors by more than any increases

due to increased ethanol use, thereby negating any detrimental

environmental effects.

2. EPA Analysis of the Renewable Program's Shoulder Season Emission

Impact

Although EPA agrees that increased ethanol use in non-VOC-

controlled gasoline is likely, the Agency's analysis indicates that any

detrimental environmental effects should be negligible. The

reformulated gasoline program requires VOC-controlled fuel at the

terminal from May 1-September 15. Refiners have indicated that they

would begin shipping such fuel as early as March 1 in order to assure

that low-volume terminals and retail stations have fully converted to

VOC-controlled RFG by May 1 and June 1, respectively, as required by

the RFG program.

Since most fuel is sold at high-turnover retail outlets, EPA's

analysis shows that many vehicles will begin operating on VOC-

controlled RFG during April. Also, most vehicles will continue to

operate on VOC-controlled RFG until late September or early October,

since the fuel distribution system requires some time to replace summer

fuel with winter fuel after terminals are permitted to switch to winter

fuel on September 16. Experience with the federal volatility program

supports these conclusions, as discussed in the RIA.

EPA concludes that while increased ethanol use is likely in RFG

sold from mid-October through late March, increased ethanol use

resulting from this program will be essentially zero in May and will be

minimal in April, late September, and early October. Furthermore,

ethanol's commingling effect changes relatively little at ethanol

market shares between 30 and 70 percent and decreases at higher market

shares. As discussed in section III.F, a number of States in the

Midwest and Northeast which will participate in the RFG program already

have peak ethanol market shares approaching or even above 30 percent.

In addition, experience with the winter oxygenated fuels program

indicates that ethanol blends may well have represented 30 percent or

more of the winter RFG demand in some RFG markets without today's rule

(including some midwestern and northeastern RFG markets), suggesting

that any increase in ethanol use which might occur during the shoulder

season would cause little if any increase in commingling effects. Both

of these factors suggest that emission impacts resulting from ethanol's

vapor pressure boost and commingling effects during the shoulder season

will be less than otherwise anticipated. Since ETBE use in summer RFG

would likely reduce ethanol use in winter RFG, the extent of any

ethanol-related VOC increase during the shoulder season is likely to

decrease as ETBE capacity and usage increase. Finally, it should be

noted that VOC emissions are unconstrained during the non-VOC control

season under both the RFG and volatility control programs since such

emissions are not associated with ozone exceedances because they do not

occur outside the summer months in most of the country. Thus, today's

rule is unlikely to result in increased VOC emissions during the period

when such emissions are controlled under current EPA fuel programs.

3. EPA Analysis of the Extent of the Shoulder Season Air Quality

Problem

In examining the shoulder season issue, EPA evaluated the extent of

the air quality problem during the shoulder season. EPA has found that

ozone violations outside the May 1 to September 15 period (the period

during which all gasoline at terminals, and much of the gasoline at

retail stations, is expected to be VOC-controlled) are minimal for

those RFG areas outside of California and Texas. Ozone monitor

exceedances during September 16-October 31 and the month of April in

the Northeast comprised fewer than 4 percent of all such exceedances

recorded in RFG areas in 1986-1988. More recent 1990-1992 data for the

Northeast confirm the earlier results: less than 2 percent of all ozone

monitor exceedances recorded in RFG areas occurred in the Northeast in

April, late September, and October (and none in other winter months).

Further examination of the 1990-1992 data revealed that the documented

ozone violations involve just two distinct ozone episodes. These

episodes (one in late April and one in mid-September) happened very

near the time of year when much of the RFG sold at retail stations is

expected to be VOC-controlled. The various control measures that apply

year-round that will be implemented to attain the ozone standard on the

highest exceedance days should reduce ozone concentrations below the

National ambient air quality standard for ozone in the shoulder season.

Furthermore, given the analysis of fuel turnover discussed previously,

EPA believes that the renewable oxygenate program is unlikely to

contribute to increased ozone exceedances or additional high ozone

episodes in the Northeast.

However, the 1990-1992 data also indicate that a substantial number

of ozone violations occurred during the shoulder seasons in the

reformulated gasoline areas in California and Texas. Violations appear

to occur throughout the year in both states. However, the state of

California has imposed additional fuel regulations within its borders

to address air quality problems, and more stringent volatility

requirements go into effect throughout the state of California in 1996.

These controls will already cover the April-October time frame in

southern California, and the state of California can extend this if

they believe additional volatility controls during the period are

appropriate.

Although Texas did not submit comments to the Agency on this issue,

the possibility does exist that the renewable oxygenate program may

increase VOC emissions outside the high ozone season in Houston and

Dallas-Fort Worth. To address this problem, EPA has considered further

restricting the times during which ethanol would receive renewables

credit in this rule. However, the year-round nature of Texas' current

ozone exceedances could make such a solution impractical. Furthermore,

EPA's analysis of ethanol production and blending capacity indicates

that further restrictions on the times when ethanol would receive

renewables credit could exacerbate the supply, distribution, and

blending concerns for 1995 and 1996 discussed in section III.F. As a

result, EPA does not believe at this time that revising the design of a

national program (through such means as extending the period when

alcohols do not receive credit toward the renewables requirement on a

nationwide basis) is appropriate. Furthermore, EPA believes that

revising the design of the program on less than a national basis (e.g.,

just for Texas and/or California), would be inappropriate at this point

in time without taking into consideration the unique requirements

within each State.

4. Provisions of Today's Rule Regarding the Shoulder Season

As discussed above, EPA does not expect today's rule to result in

increased ozone exceedances during the shoulder season. However, EPA

recognizes that States may wish to further restrict the times during

which ethanol blended into RFG would receive credit toward the

renewable oxygenate requirement in order to address their unique air

quality problems. As a result, EPA will extend the non-commingling

season, during which oxygenates such as ethanol which demonstrate

commingling-related increases in RVP will not receive credit toward the

renewable oxygenate requirement, to any or all covered areas within a

State at the State's request, subject to certain limitations as

discussed below.

California is not subject to the preemption of state and local fuel

controls under section 211(c)(4) of the Act and, therefore, has broad

flexibility in adopting its own state fuel control programs. While

other states are subject to these provisions, they can also implement

their own fuel control programs if they are approved as part of their

state implementation plan (SIP) as being necessary to attain the

national ambient air quality standards. As a result, the states could

take action on their own without petitioning EPA to modify its program.

However, this petition provision allows the states the additional

flexibility of having the federal fuel control program modified (in

this limited manner) to adjust to their unique air quality needs.

The request for extension of the non-commingling season must be

signed by the Governor of the State for which the extension is to

apply. The petition must include evidence demonstrating that each of

four criteria have been met. First, the petition must include data

collected subsequent to the implementation of the renewable oxygenate

program showing that an increase in oxygenates which produce

commingling-related RVP increases (such as ethanol) has occurred in the

fuel sold in the petitioning State during the shoulder season, and that

this increase is likely to continue. Second, the petition must include

evidence demonstrating a pattern of violations during the shoulder

season of the ozone National Ambient Air Quality Standards over the

previous three years, based on ozone monitoring data, which would

warrant the extension being requested. In effect, this second criterion

would require that the pattern of ozone violations extend into the

shoulder season. Third, the petition must include an analysis

demonstrating that the pattern of ozone violations is likely to

continue even with implementation of all other ozone air quality

control measures and programs currently planned by the State. Fourth,

the petition must demonstrate that its findings were made by the

Governor through a process that was responsive to public input and that

included public notice and an opportunity for a public hearing. These

provisions are intended to provide States with air quality concerns the

ability to prevent any direct or indirect increase in VOC emissions

during the non-summer season, while simultaneously providing assurance

that any such extension is granted only for those areas where

restrictions on blending ethanol and other commingling oxygenates may

help address a genuine air quality problem.

Once a valid petition is received satisfying the noted criteria,

EPA will publish a notice in the Federal Register and tentatively

establish the non-commingling season as requested by the governor and

the effective date for the new restrictions on blending of commingling

oxygenates. These restrictions will take effect on the first day of the

next complete non-commingling season beginning one full year after the

petition is received. If a petition is received within three months of

the publication of the notice in the Federal Register which

demonstrates to the satisfaction of the Administrator either that the

four criteria were not met or that the change to the non-commingling

season is not feasible by the effective date in the notice, EPA retains

the right to either reject the State's request for an extension or

extend the effective date by up to two additional years, based on

analysis of the information contained in both petitions (the State

petition and the opposing petition). For example, a satisfactory

request to extend the non-commingling season to encompass April which

is received by the Administrator on April 20 of, say, 1997 would take

effect on April 1, 1999 if no opposing petitions were submitted.

Any changes in the duration of the non-commingling season as a

result of these provisions will be enforced at the terminal, as

discussed in section IV. It should be noted that the criteria discussed

above imply that the non-commingling season will not be extended prior

to 1997 for any State.

H. Program Benefits

The reformulated gasoline program promulgated December 15, 1993

will increase fossil energy use due to the need to reduce RVP, the

increased production and use of oxygenates, and fuel economy losses

resulting from fuel reformulation (as discussed in 59 FR 7716, February

16, 1994, and the Regulatory Impact Analysis found in Public Docket No.

A-92-12). As explained below, the use of renewable oxygenates in

reformulated gasoline under the renewable oxygenate program being

promulgated today should reduce the fossil energy used by the

reformulated gasoline program, particularly in the long term. Today's

renewable oxygenate program also helps assure that the RFG program is

compatible with long-running national policies and programs to obtain

the benefits associated with the use of renewable fuels and could,

according to the Renewable Fuels Association, result in decreased

imports of MTBE. Furthermore, the renewable oxygenate requirement will

help assure that the environmental benefits of the reformulated

gasoline program will be achieved and has the potential to enhance

those benefits, as discussed more fully below. And finally, the

renewable oxygenate program offers the potential for reduced greenhouse

gas emissions in the future as more efficient renewable oxygenate

production technologies are introduced.

1. Energy Benefits

The energy benefits of the renewable oxygenate program are strongly

dependent on the oxygenates used and the timeframe considered.

Technical and economic factors suggest that in the early years of the

program, the renewable oxygenate requirement will be met primarily with

ethanol. According to a study prepared by the Department of

Energy,18 if the 30 percent renewables requirement is met by

either using ethanol produced in current-technology ethanol plants in

winter RFG, or ETBE in summer RFG, the overall fossil energy consumed

in RFG production and use would be smaller than would be the case if

nonrenewable MTBE (the other oxygenate currently expected to capture a

large share of the RFG oxygenate market) were the only oxygenate used

in RFG.

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\1\8``Analysis Memorandum: Energy Requirements and CO2-

Equivalent Emissions of RFG,'' prepared by Margaret Singh, Argonne

National Laboratory, for Barry McNutt, U.S. Department of Energy,

June 6, 1994 and March 17, 1994 (draft). Other comments and studies

were also provided to EPA claiming vastly different energy and

global warming impacts than the DOE report. However, these other

comments tended to focus on comparisons of ethanol and ETBE-blended

RFG with conventional gasoline, instead of focusing on comparisons

of ethanol and ETBE-blended RFG with MTBE-blended RFG. As a result,

the DOE analysis contains the most relevant information regarding

the impact of today's rule on fossil energy consumption and global

warming emissions.

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The renewable oxygenate program will also help to diversify the

country's transportation energy supply away from fossil energy

(predominantly oil and natural gas) towards renewable energy by

stimulating production of renewable fuels such as ethanol and renewable

methanol. This program will have a large impact on the renewable energy

industry in general and the ethanol industry in particular because the

amounts of renewable fuels involved are large relative to historical

production levels.

The energy benefits of this program become more pronounced in later

years. Improvements in the energy efficiency of ethanol production,

achieved through such means as the use of cogeneration or waste

products to provide process energy, will further reduce the fossil

energy required to produce ethanol. Additional gains can be achieved by

reducing energy consumption and fertilizer use in corn farming through

changes in farming practices, using more energy-efficient equipment,

increasing per-acre crop yields, and decreasing fertilizer use.

Comments submitted by the Department of Agriculture and others, as well

as previous studies by DOE and EPA cited in the proposal, indicate that

as new feedstocks for ethanol such as cellulose are commercialized, and

as renewable methanol production becomes viable, the fossil energy

benefits of this program would increase substantially relative to

nonrenewable MTBE use. By providing a secure minimum market for

renewable oxygenates, today's program will help provide the certainty

needed to encourage private investments in modern, high-efficiency

agricultural practices and renewable oxygenate production technology.

2. Environmental Benefits

a. Summer Ozone-Related Benefits. In addition to the energy

benefits cited above, EPA believes this program has the potential to

provide environmental benefits in the near term, with the potential for

even greater environmental benefits in the future. These potential

benefits stem from the incentives this program creates for the use of

ETBE in summer RFG. Short-term limitations in ETBE capacity suggest

that most of the near-term program requirements will be met through the

use of ethanol blended into winter RFG. In the short term, summer RFG

will not be affected by the program except to the extent that (1)

renewable MTBE is substituted for nonrenewable MTBE, and (2) small

amounts of ETBE capacity become available. Replacing nonrenewable MTBE

with renewable MTBE would not alter the emission benefits of the RFG

program. However, ETBE use helps assure that the VOC emission

reductions sought by the RFG program are achieved or exceeded in-use.

Since ETBE production consumes ethanol, ETBE use in summer RFG is

likely to reduce direct ethanol use in summer RFG. (Even though ethanol

used in summer RFG would not receive credit toward the 30% renewables

requirement, such use is still permitted under the RFG program.)

Ethanol's commingling effect discussed in section I tends to increase

VOC emissions, so conversion of summer ethanol to ETBE (which does not

have a commingling effect) should reduce VOC emissions.

Replacing summer ethanol with ETBE may yield other benefits as

well. ETBE-blended fuels with a given Reid vapor pressure (RVP) produce

less vapor (and hence smaller nonexhaust VOC emissions) when heated

above 100 degrees Fahrenheit than do ethanol fuels with the same RVP. A

large fraction of summer VOC emissions are generated when gasoline is

heated beyond 100 degrees Fahrenheit, so replacing ethanol or MTBE with

ETBE in summer reformulated gasolines may yield additional VOC emission

redu

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