Regulations of Fuels and Fuel Additives: Extension of the Reformulated Gasoline Program to the Phoenix, Arizona Moderate Ozone Nonattainment Area

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[FRL-5834-4]

Regulations of Fuels and Fuel Additives: Extension of the

Reformulated Gasoline Program to the Phoenix, Arizona Moderate Ozone

Nonattainment Area

AGENCY: Environmental Protection Agency (``EPA'').

ACTION: Final rule.

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SUMMARY: Under section 211(k)(6) of the Clean Air Act, as amended

(``Act'' or ``CAA''), the Administrator of EPA must require the sale of

reformulated gasoline (``RFG'') in an ozone nonattainment area

classified as Marginal, Moderate, Serious, or Severe upon the

application of the governor of the state in which the nonattainment

area is located. As requested by the Governor of Arizona, today's

action extends the requirement to sell RFG to the Phoenix, Arizona

moderate ozone nonattainment area, effective July 3, 1997 for all

persons other than retailers and wholesale purchaser-consumers (i.e.,

refiners, importers, and distributors), and August 4, 1997 for

retailers and wholesale purchaser-consumers. As of the implementation

date for retailers and wholesale purchaser-consumers, the Phoenix ozone

nonattainment area will be a covered area for all purposes in the

federal RFG program. The federal Phase I RFG program provides

reductions in ozone-forming volatile organic compounds (``VOC'')

emissions and air toxics, and prohibits increase in oxides of nitrogen

(``NOX'') emissions. Reductions in VOCs are environmentally

significant because of the associated reductions in ozone formation.

Exposure to ground-level ozone (or smog) can cause respiratory

problems, chest pain, and coughing and may worsen bronchitis,

emphysema, and asthma.

DATES: This final rule is effective July 3, 1997.

ADDRESSES: Materials relevant to the final rule have been placed in

Docket A-97-02. The docket is located at the Air Docket Section, Mail

Code 6102, U.S. Environmental Protection Agency, 401 M Street, SW,

Washington, DC 20460, in room M-1500 Waterside Mall. Documents may be

inspected on business days from 8:00 a.m. to 5:30 p.m. A reasonable fee

may be charged for copying docket material. An identical docket is also

located in EPA's Region IX office in Docket A-AZ-97. The docket is

located at 75 Hawthorne Street, AIR-2, 17th Floor, San Francisco,

California 94105. Documents may be inspected from 9:00 a.m. to noon and

from 1:00--4:00 p.m. A reasonable fee may be charged for copying docket

material.

FOR FURTHER INFORMATION CONTACT: Janice Raburn at U.S. Environmental

Protection Agency Office of Air and Radiation, 401 M Street, SW

(6406J), Washington, DC 20460, (202) 233-9856.

SUPPLEMENTARY INFORMATION:

Availability on the TTNBBS

The preamble, regulatory language and regulatory support document

are also available electronically from the EPA Internet Web site and

via dial-up modem on the Technology Transfer Network (TTN), which is an

electronic bulletin board system (BBS) operated by EPA's Office of Air

Quality Planning and Standards. Both services are free of charge,

except for your existing cost of Internet connectivity or the cost of

the phone call to TTN. Users are able to access and download files on

their first call using a personal computer per the following

information. The official Federal Register version is made available on

the day of publication on the primary Internet sites listed below. The

EPA Office of Mobile Sources also publishes these notices on the

[[Page 30261]]

secondary Web site listed below and on the TTN BBS.

Internet (Web)

http://www.epa.gov/docs/fedrgstr/EPA-AIR/

(either select desired date or use Search feature)

http://www.epa.gov/OMSWWW/

(look in What's New or under the specific rulemaking topic)

TTN BBS: 919-541-5742

(1200-14400 bps, no parity, 8 data bits, 1 stop bit)

Voice Help line: 919-541-5384

Off-line: Mondays from 8:00 AM to 12:00 Noon ET

A user who has not called TTN previously will first be required to

answer some basic informational questions for registration purposes.

After completing the registration process, proceed through the

following menu choices from the Top Menu to access information on this

rulemaking.

Gateway to TTN Technical Areas (Bulletin Boards)

OMS--Mobile Sources Information

(Alerts display a chronological list of recent documents)

Rulemaking & Reporting

At this point, choose the topic (e.g., Fuels) and subtopic (e.g.,

Reformulated Gasoline) of the rulemaking, and the system will list all

available files in the chosen category in date order with brief

descriptions. To download a file, type the letter ``D'' and hit your

Enter key. Then select a transfer protocol that is supported by the

terminal software on your own computer, and pick the appropriate

command in your own software to receive the file using that same

protocol. After getting the files you want onto your computer, you can

quit the TTN BBS with the oodbye command.

Please note that due to differences between the software used to

develop the document and the software into which the document may be

downloaded, changes in format, page length, etc. may occur.

Regulated Entities

Entities potentially regulated by this action are those which

produce, supply or distribute motor gasoline. Regulated categories and

entities include:

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Examples of regulated

Category entities

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Industry.................................. Petroleum refiners, motor

gasoline distributors and

retailers.

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This table is not intended to be exhaustive, but rather provides a

guide for readers regarding entities likely to be regulated by this

action. This table lists the types of entities that EPA is now aware

could potentially be regulated by this action. Other types of entities

not listed in the table could also be regulated. To determine whether

your business would have been regulated by this action, you should

carefully examine the list of areas covered by the reformulated

gasoline program in section 80.70 of title 40 of the Code of Federal

Regulations. If you have questions regarding the applicability of this

action to a particular entity, consult the person listed in the

preceding FOR FURTHER INFORMATION CONTACT section.

The remainder of this preamble is organized into the following

sections:

I. Background

A. Clean Air Act Opt-in Provision

B. EPA Procedures and Arizona Opt-in Request

II. Action

III. Response to Comments

A. EPA Interpretation of section 211(k)(6) of the Clean Air Act

B. Phoenix Circumstances

1. Need for Air Quality Benefits of Federal RFG

2. Supply

C. Implementation Issues

1. Enforcement Relief Provided by EPA

2. Other Implementation Issues

IV. Environmental Impact

V. Statutory Authority

VI. Regulatory Flexibility

VII. Public Participation

VIII. Executive Order 12866

IX. Paperwork Reduction Act

X. Unfunded Mandates

XI. Judicial Review

XII. Submission to Congress

XIII. List of Subjects in 40 CFR Part 80

I. Background

A. Clean Air Act Opt-in Provision

As part of the Clean Air Act Amendments of 1990, Congress added a

new subsection (k) to section 211 of the Act. Subsection (k) requires

the sale of gasoline that EPA has certified as reformulated in the nine

worst ozone nonattainment areas beginning January 1, 1995. Section

211(k)(10)(D) defines the areas required to be covered by the

reformulated gasoline (``RFG'') program as the nine ozone nonattainment

areas having a 1980 population in excess of 250,000 and having the

highest ozone design values during the period 1987 through 1989.

1 Under section 211(k)(10)(D), any area reclassified as a

severe ozone nonattainment area under section 181(b) must also be

included in the RFG program. 2 EPA published final

regulations for the RFG program on February 16, 1994. See 59 FR 7716.

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\1\ Applying these criteria, EPA has determined the nine covered

areas to be the metropolitan areas including Los Angeles, Houston,

New York City, Baltimore, Chicago, San Diego, Philadelphia, Hartford

and Milwaukee.

\2\ Sacramento was reclassified from Serious to Severe effective

June 1, 1995 and became a mandatory covered RFG area effective June

1, 1996.

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Any ozone nonattainment area classified as Marginal, Moderate,

Serious, or Severe may be included in the program at the request of the

Governor of the state in which the area is located. Section

211(k)(6)(A) provides that upon the application of a Governor, EPA

shall apply the prohibition against selling conventional gasoline

(``CG'') in any area requested by the Governor which has been

classified under subpart 2 of Part D of Title I of the Act as a

Marginal, Moderate, Serious or Severe ozone nonattainment

area.3 Subparagraph 211(k)(6)(A) further provides that EPA

is to apply the prohibition as of the date the Administrator ``deems

appropriate, not later than January 1, 1995, or 1 year after such

application is received, whichever is later.'' In some cases the

effective date for a potential opt-in area may be extended beyond the

one year required by section 211(k)(6)(A). Such an extension, as

provided in section 211(k)(6)(B), would be based on a determination by

EPA that there is ``insufficient domestic capacity to produce'' RFG.

Finally, section 211(k)(6)(A) requires that EPA publish a governor's

application in the Federal Register.

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\3\ EPA recently published a proposed rulemaking that would

allow areas previously classified as Marginal through Severe to opt-

in. 62 FR 15074 (March 28, 1997).

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Although section 211(k)(6) provides EPA discretion to establish the

effective date for this prohibition to apply to such areas, EPA does

not have discretion to deny a Governor's request. Therefore, the scope

of EPA's Notice of Proposed Rulemaking (``NPRM'') was limited to

proposing an effective date for Phoenix's opt-in to the RFG program.

EPA solicited comments addressing the proposed implementation date and

stated in the NPRM that it was not soliciting comments that supported

or opposed Phoenix participating in the RFG program.

B. EPA Procedures and Arizona Opt-in Request

The Governor of Arizona established in May 1996 an Air Quality

Strategies Task Force (``Arizona Task Force'') to develop a report

describing long- and short-term strategies that would contribute to

attainment of the federal national ambient air quality standards

(``NAAQS'') for ozone, carbon monoxide and particulates. In July 1996,

this task

[[Page 30262]]

force recommended establishment of a Fuels Subcommittee to evaluate

potential short-term and long-term fuels options for the Phoenix ozone

nonattainment area. The Fuels Subcommittee was composed of

representatives of a diverse mixture of interests including gasoline-

related industries, public health organizations, and both in-county and

out-of-county interests. Several members of the refining industry

supported the opt-in to the federal RFG program for Phoenix for the

onset of the 1997 VOC control season. The subcommittee submitted its

final report to the Arizona Task Force on November 26,

1996.4

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\4\ See Docket A-97-02, II-A-3.

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By letter dated January 17, 1997, the Governor of the State of

Arizona applied to EPA to include the Phoenix moderate ozone

nonattainment area in the federal RFG program. The Governor requested

an implementation date of June 1, 1997. EPA published the Governor's

letter in the Federal Register, as required by section 211(k)(6). The

Direct Final rule published by EPA on February 18, 1997 (62 FR 7164)

extended the RFG program to the Phoenix moderate ozone nonattainment

area by setting two implementation dates. EPA set an effective date of

June 1, 1997 for refiners, importers, and distributors, and July 1,

1997 for retailers and wholesale purchaser-consumers. The Agency

published a Direct Final Rule because it viewed setting the effective

date for the addition of the Phoenix ozone nonattainment area to the

federal RFG program as non-controversial and anticipated no adverse or

critical comments.

Also on February 18, 1997 EPA published an NPRM (62 FR 7197), in

which EPA proposed to apply the prohibitions of subsection 211(k)(5) to

the Phoenix, Arizona nonattainment area. EPA proposed to adopt the same

two implementation dates for Phoenix specified in the Direct Final

Rule. EPA published an NPRM so that, in the event that it did receive

an adverse comment in response to the Direct Final Rule, the Agency

would proceed with notice-and-comment rulemaking. EPA is today taking

final action on that NPRM.

After publication of the Direct Final Rule and the NPRM, EPA

received several requests for a hearing. A copy of these comments can

be found in Air Docket A-97-02. (See ADDRESSES) Since EPA received a

request for a hearing, the Direct Final Rule adding the Phoenix ozone

nonattainment area to the RFG program was withdrawn by the

Administrator on March 31, 1997. See 62 FR 16082 (April 4, 1997.) EPA

published a Notice of public hearing on March 12, 1997 (62 FR 11405)

and held a public hearing in Phoenix, Arizona on March 18, 1997.

II. Action

Pursuant to the governor's letter and the provisions of section

211(k)(6), EPA is today adopting regulations that apply the

prohibitions of subsection 211(k)(5) to the Phoenix, Arizona moderate

ozone nonattainment area. EPA believes the implementation dates adopted

today achieve a reasonable balance between requiring the earliest

possible start date to achieve air quality benefits in Phoenix and

providing adequate lead time for industry to prepare for program

implementation. These dates are consistent with the state's request

that EPA require that the RFG program begin in the Phoenix area as

early as possible in the high ozone season, which begins June 1. These

dates will provide environmental benefits by allowing Phoenix to

achieve VOC reduction benefits for some of the 1997 VOC-controlled

season.

EPA has concluded, based on its analysis of available information,

including public comments received and discussed below (See III.

Response to Comments), that the refining and distribution industry's

capacity to supply federal RFG to Phoenix this summer exceeds the

estimated demand. EPA has also concluded that the implementation dates

adopted today provide adequate lead time to industry to set up storage

and sales agreements to ensure supply of RFG to the Phoenix ozone

nonattainment area.

The Governor's request seeks a single implementation date of June 1

for the RFG program in the Phoenix area. However, pursuant to its

discretion to set an effective date under section 211(k)(6), EPA is

establishing two implementation dates. For all persons other than

retailers and wholesale purchaser-consumers (i.e., refiners, importers,

and distributors), implementation shall take effect on the effective

date of this rule, July 3, 1997. This date applies to the refinery

level and all other points in the distribution system other than the

retail level. For retailers and wholesale purchaser-consumers,

implementation shall take effect 30 days after the effective date of

this rule, August 4, 1997. As of the implementation date for retailers

and wholesale purchaser-consumers, the Phoenix ozone nonattainment area

will be treated as a covered area for all purposes of the federal RFG

program.

III. Response to Comments

A. EPA Interpretation of Section 211(k)(6) of the Clean Air Act

Several parties noted that EPA would be setting a precedent for

future opt-ins by the criteria it uses to determine an appropriate

effective date for the Phoenix opt-in. They noted that the decision

would have a national impact and asked for assurance from EPA that it

would apply these criteria uniformly. One commenter stated that the

compliance date set for the first opt-in requests allowed refiners many

months to set up the systems and organizations necessary to comply with

the rules. This timing provided industry with the certainty it needed

to make informed compliance decisions and the time it needed to

implement the required changes either in the production of different

fuels or in the administrative requirements for compliance. The

commenter said that EPA had never contemplated such a rapid opt-in

process as the one proposed for Phoenix and recommended that EPA avoid

setting an undesirable precedent.

The Arizona opt-in request is the first request EPA has received

since the federal RFG program began in January 1995.5

Previous opt-in requests were sent in from two to three and a half

years before January 1, 1995. Section 211(k)(6)(A) authorizes EPA to

set an effective date for an area's opt-in that is no later than one

year from the date of the request, or January 1, 1995, whichever is

later. In the case of these early opt-in requests, January 1, 1995, was

later than one year from the date of the requests. Therefore, EPA set

an effective date of January 1, 1995, for those areas to opt-in. EPA

received one opt-in request shortly before the federal RFG program

began. For that request, EPA set an effective date of June 1, 1995,

less than one year from the Governor's opt-in request.6

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\5\ Voluntarily covered federal RFG areas (``opt-in'' areas)

currently exist in twelve States and the District of Columbia. Each

of these areas submitted opt-in requests (a letter from the State

Governor to the EPA Administrator) between June 1991 and October

1992. EPA responded to these requests to set an effective date under

section 211(k)(6)(A) of the CAA by (1) publishing a ``Notice of

Application for the Extension of the RFG program'' in which EPA set

an effective date of January 1, 1995, the date when the federal RFG

program was required to begin; and (2) including these areas as

``covered areas'' under 40 CFR section 80.70(j) in the Final Rule

for Standards for Reformulated and Conventional Gasoline 59 FR 7716,

7852 (February 16, 1994), as amended at 59 FR 36944, 36964 (July 20,

1994).

\6\ The Governor of Wisconsin requested to opt-in some areas in

April 1994; in August 1994, the Governor requested the effective

date of June 1995. EPA published a Direct Final Rule on January 11,

1995 (60 FR 2693) setting June 1, 1995 as the effective date.

Wisconsin subsequently withdrew its opt-in request by letter dated

March 31, 1995 and EPA published a Notice to Withdraw Final Rule on

May 3, 1995 (60 FR 21724).

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[[Page 30263]]

EPA recognizes that each ozone nonattainment area that submits an

opt-in request will have a unique set of circumstances that has led the

State to select federal RFG as a control measure. Section 211(k)(6)(A)

of the Act gives the Administrator discretion to ``establish an

effective date * * * as he deems appropriate* * *.'' EPA interprets

this provision to mean that it has broad discretion to consider any

factors reasonably relevant to the timing of the effective date. This

would include factors that affect industry and the potential opt-in

area. The factors that affect industry could include productive

capacity and capability, other markets for RFG, oxygenate supply, cost,

lead time, supply logistics for the area, potential price spikes, and

potential disruption to business. The circumstances of the potential

opt-in area could include environmental benefits and the timing of such

benefits; amount and types of reductions it needs; and effects of

transport, geography, climate, and weather patterns on air quality. EPA

will review each opt-in request and the particular facts pertaining to

the potential opt-in area and the suppliers for that area to determine

the appropriate implementation date. EPA believes that Phoenix is an

ozone nonattainment area in extraordinary circumstances. (See

discussion in III.B.1. below.) Thus, at the request of the Arizona

Governor, EPA has reviewed this opt-in request as expeditiously as

possible. EPA has provided the flexibility refiners need to meet the

effective date by providing enforcement relief for several

implementation issues. (See discussion in III.C. below.)

Some commenters were concerned that EPA viewed its scope of review

for the Phoenix opt-in too narrowly. They suggested that EPA should

consider all issues relevant to a successful and orderly

implementation.7 One commenter argued that the Arizona

Governor made four requests in his January 17, 1997 letter and that EPA

should consider all these requests together: that EPA set an effective

date for Phoenix to opt-in to federal RFG; that EPA grant two waivers

under section 211(c)(4)(C) of the Act from EPA, one for a state Reid

vapor pressure (``RVP'') standard of 7.0 pounds per square inch

(``psi'') and one for a state wintertime oxygenated fuel standard; and

that EPA allow Phoenix to opt-out of federal RFG.8 The

commenter asked that EPA justify its decision to address opt-in first

and separated from these other requests.

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\7\ EPA stated in the Notice of public hearing (62 FR 16082

(March 12, 1997)) that comments regarding Arizona's decision to opt-

in to federal RFG; EPA opt-out procedures; the Arizona Reid vapor

pressure (RVP) waiver; and enforcement issues would not be relevant

to the limited scope of the opt-in rulemaking. EPA has discussed the

RVP waiver and enforcement issues, to the extent that they are

relevant to setting the effective date, in the preamble to today's

final rule.

\8\ See Docket A-97-02, II-D-1.

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EPA interprets the Governor's January 17 letter as a request to

opt-in to federal RFG. The first paragraph of the letter states that

the purpose of the letter is to request that EPA require federal RFG to

be supplied to the Phoenix ozone nonattainment area beginning June 1,

1997. In addition, the fact that the Governor's letter requesting to

opt-in to RFG raises other issues on which EPA action may be pending

does not require EPA to resolve those issues in conjunction with the

Agency's action on the opt-in request.

The Governor's letter includes references to the pending RVP and

oxygenated fuels standards waivers, but these references simply seek

expeditious approval of these previously submitted waiver requests.

EPA's Region 9 is currently considering these 211(c)(4)(C) waiver

requests.9

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\9\ The Arizona Department of Environmental Quality (``ADEQ'')

re-submitted a formal request, (a SIP Revision with supporting

documentation) for the RVP waiver by letter dated April 29, 1997 to

Region 9. A copy of this letter (without attachments) is in Docket

A-97-02, IV-D. A copy of the letter (with attachments) can be found

in the Region 9 Docket for this rulemaking (A-AZ-97) and the Region

9 Docket for the RVP Waiver (AZ-RVP-97).

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Commenters stated that in determining an appropriate effective date

EPA should consider the capacity to supply both RFG and low RVP

gasoline. Commenters argued that EPA should address the RVP waiver

request and the timing of the waiver decision, and acknowledge the

impact on refiners. EPA has considered the effect of a state 7.0 psi

RVP program on timing and supply for federal RFG. While refiners stated

that they need to know exactly what the fuel specifications are going

to be, EPA received comments from refiners stating that they could

supply RFG to Phoenix without having a final 7.0 psi RVP waiver

preemption in place. EPA acknowledges the importance for refiners to

know what all the specifications will be for Phoenix gasoline. EPA also

acknowledges that until EPA waives preemption for a state 7.0 psi RVP

standard under section 211(c)(4)(C), Arizona is preempted from

enforcing that standard. Nonetheless, the waiver of preemption is a

separate action. If EPA waives preemption and refiners need some

transition time, because the RVP program would be a state program,

Arizona would have authority to provide the appropriate transition

time.

Regarding the wintertime oxygenated fuel waiver request, the state

has not yet submitted the documentation for this request. When it does,

Region 9 will address it in a timely manner. Regarding Arizona's

potential opt-out, EPA does not consider the January 17 letter to be an

opt-out request. While the Governor asked for clarification of EPA opt-

out procedures, he did not request to opt-out; he did not ask EPA to

set an opt-out effective date or discuss any of the criteria required

in the Opt-Out Procedures Rule.10 The Governor simply made a

statement of current intent to submit an opt-out request if a certain

condition exists. That is, if Arizona were to decide that a different

fuel would better meet its needs, the Governor would submit an opt-out

request by December 31, 1997.11

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\10\ 61 FR 35673 (July 8, 1996).

\11\ See 62 FR 15077 (March 28, 1997), EPA Notice of Proposed

Rulemaking for Transitional and General Opt Out Procedures for Phase

II Reformulated Gasoline Requirements. EPA proposed, inter alia that

states decide and submit to EPA a complete opt-out petition by

December 31, 1997, if they want a current opt-in area to opt-out

before December 31, 1999.

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Several commenters believe EPA should consider the Governor's

statement of intent to opt-out in the future in setting the effective

opt-in date. Given that EPA has not received from Arizona an opt-out

request and thus no request for a particular opt-out effective date,

EPA cannot determine what effect, if any, a potential opt-out would

have on supply as of the opt-in effective date. While EPA is concerned

with potential supply disruptions and uncertainty for the regulated

community that could result with cyclic state opt-in and opt-out, the

CAA allows states to determine which control measures for meeting

federal air quality standards are most appropriate and best meet their

needs.12 In addition, the Opt-out Procedures Rule provides a

process a state must follow to petition for removal from the program,

the criteria used by EPA to evaluate a request, and the necessary

transition period before the opt-out becomes effective.13

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\12\ There is no indication that Arizona intends to initiate

another cycle of federal RFG adoption.

\13\ 61 FR 35673, 35674 (July 8, 1996).

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B. Phoenix Circumstances

1. Need for Air Quality Benefits of Federal RFG

Many commenters addressed Phoenix's air quality situation, the

conclusion by the Arizona Task Force that federal RFG was the most

effective short-term control measure for Phoenix, and the consequences

for Phoenix air quality if it does not receive those

benefits.14 A representative of the Arizona Department of

Environmental Quality (``ADEQ'') testified at the hearing, providing

the following reasons for why the State of Arizona needs EPA to

expeditiously set an effective date for Phoenix to opt-in to federal

RFG this summer. First, Arizona has some of the toughest combinations

of strategies to address ozone pollution in the nation. Arizona

implemented the Inspection and Maintenance 240 program, including the

pressure test; has a trip reduction program more stringent than was

required for Severe ozone nonattainment areas; has a regulatory remote

sensing program; and has had a state low (7.0 psi) RVP standard since

1994.15

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\14\ Some commenters discussed what they considered to be the

best fuel for Phoenix in the long-term. As stated in the NPRM and

Notice of public hearing, Arizona's short-or long-term fuel choice

is not relevant to this opt-in rulemaking.

\15\ A remote sensor is an instrument that measures emissions in

a pathway across a road as a vehicle drives by. At the same time the

vehicle drives by, a photograph is taken of the license plate.

Remote sensing programs are designed to target the highest emitting

vehicles in an unobtrusive way. Arizona's program requires owners of

vehicles that are found to be exceeding emissions standards (with

remote sensing) to bring their vehicle in for further emissions

testing and possible repair.

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Despite these requirements, ozone violations persist in the Phoenix

nonattainment area. Twenty-nine exceedances were recorded in the summer

of 1995, and ten exceedences were recorded in 1996. In addition,

Phoenix has a long ozone season; ADEQ documents violations from mid-May

to early September. These ozone violations have significant health

implications because they affect large numbers of people in the Phoenix

metropolitan area. For example, ADEQ estimates that as many as 496,000

people could have been exposed to unhealthful levels of air quality due

to violations on July 23, 1996.

ADEQ pointed out that Phoenix is currently a Moderate nonattainment

area, but the State is concerned about potential redesignation to

Serious because of the new source review (``NSR'') requirements that

would come with it. ADEQ believes, based on its current emissions

inventory, that NSR requirements would not produce significant air

quality benefits and thus would not be an effective ozone attainment

strategy for Phoenix.16 ADEQ has been working with EPA's

Region 9 on a Voluntary Early Ozone Plan (``VEOP'') to bring cleaner

air to Phoenix sooner and obviate the need for reclassification to

Serious. The tonnage reductions represented by federal RFG for 1997

through 1999 in Phoenix are a critical portion of the emissions

reductions that ADEQ needs to show in the VEOP.

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\16\ ADEQ's current emissions inventory shows that contributions

to ozone nonattainment from mobile sources are in excess of twenty-

five percent and from stationary sources are approximately six

percent. ADEQ is currently reevaluating the inventory that it used

for the Voluntary Early Ozone Plan (``VEOP'') because they have

reason to believe that mobile emissions may have been underestimated

and biogenic emissions overestimated.

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ADEQ also stated that the Arizona Task Force concluded that supply

of RFG for Phoenix would not be at issue, based on an independent

contractor study on fuel and refining capabilities.17 The

report was reviewed by dozens of stakeholders, many of whom were fuel

suppliers. The consultant determined that there was an adequate supply

of federal RFG available for Phoenix.

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\17\ See ``Final Report: Assessment of Fuel Formulations Options

for Maricopa County for State of Arizona Department of Environmental

Quality'' performed under Contract 97-0013AA by MathPro Inc. with

Air Improvement Resource, Inc., November 7, 1996 (``MathPro

Report''), EPA Air Docket A-97-02, II-A-2.

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One commenter who served on the Arizona Task Force stated at the

hearing that, after reviewing the analysis done by a contractor, the

Task Force concluded that opt-in to federal RFG was the single most

effective measure that the state could adopt in the short term to

improve air quality in Phoenix.18 In addition to providing

the emissions reductions Phoenix needs, supply was available and the

federal enforcement mechanism was in place. The commenter added that if

there was a delay in the opt-in effective date for Phoenix, they would

move into this summer's ozone season when humidity and higher

temperatures could result in an ozone violation this summer, and this

was what the Arizona Task Force was seeking to avoid by adopting a

short-term fuels measure. One commenter, on the other hand, argued that

the summer emissions benefits of federal RFG for Phoenix would be small

(2-4 percent) for ground level ozone.

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\18\ Id.

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2. Supply

Commenters asked EPA to list the criteria it would use to determine

that adequate supply of RFG exists in a potential opt-in area. As

stated earlier, EPA believes section 211(k)(6)(A) provides broad

discretion to the Administrator to establish an appropriate effective

date. In setting an effective date for a potential opt-in area, EPA

believes it should review the many factors that could affect the supply

of gasoline to that area. These include, but are not limited to, supply

logistics, cost, potential price spikes, the number of current and

potential suppliers for that market, whether such suppliers have

experience producing RFG or the capability to produce RFG, intent of

suppliers to withdraw from the market, availability of adequate

gasoline volumes, and the amount of lead time needed by suppliers and

the distribution industry to set up storage and sales agreements to

ensure supply. By evaluating these and other factors, EPA can make a

determination as to whether industry's capacity to supply RFG for an

opt-in area meets or exceeds the demand.

EPA has determined that capacity to supply federal RFG to Phoenix

this summer exceeds the estimated gasoline demand. EPA has concluded

that refiners will be able to adequately supply federal RFG for Phoenix

within 30 days of publication of the final rule, the effective date for

terminal compliance. EPA has concluded that retailers will be able to

supply RFG within 60 days of publication of the final rule, the

effective date for retailers and wholesale purchaser-consumers. The

following is a discussion of the factors EPA considered in reaching

this conclusion.

a. Logistics

Many commenters stated that Phoenix is in a unique logistical

situation. It has no pipeline access to the large production facilities

on the Gulf Coast. It is relatively isolated from refineries and

dependent on two common carrier pipelines, one coming from the east and

one coming from the west.19 Commenters emphasized to EPA the

importance of Phoenix having a reliable supply of gasoline from both

the east and west because temporary shutdowns have occurred on each

side, disrupting supply up to 24 hours or longer. One commenter

testified at the hearing that these disruptions happen periodically.

The pipelines are primarily constructed on railroad right-of-ways, so

train derailments cause the pipeline to

[[Page 30265]]

shutdown. A shutdown occurred recently on the west pipeline due to a

train derailment, and the downtime was 24 hours. The downtime could be

longer, depending on the severity of the derailment or other problem,

such as heavy rains.

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

\19\ The Santa Fe Pacific Pipeline (``SFPP'') is the common

carrier that transports gasoline and other products (diesel, jet

fuel, and heating oil) to Phoenix by one pipeline from the west

(originating in Los Angeles, California) and one pipeline from the

east (originating in El Paso, Texas).

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

The west pipeline now delivers approximately 70 thousand B/D of

gasoline to Phoenix and about 12 percent (8,000) of that continues on

to Tucson. The east pipeline now delivers approximately 25 thousand B/D

of gasoline to Phoenix.20 Both the east and west pipelines

have significant additional capacity beyond what is currently being

shipped.21 About 20 percent of the Phoenix total is

ultimately shipped to markets outside Maricopa County and will not be

RFG unless market conditions result in a give-away.22

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\20\ MathPro Report at pages 20-27.

\21\ See Docket A-97-02, IV-E-7, Memorandum to EPA Air Docket

regarding telephone conversations between EPA and industry

representatives on the issue of supply to Phoenix.

\22\ MathPro Report at pages 20-27. A give-away occurs when

higher quality gasoline, that costs more to produce, is sold at a

lower price, one reflective of conventional gasoline. MathPro Report

at page 30.

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

Phoenix is considered part of the West Coast distribution area that

supplies 1.3 million B/D of gasoline.23 Industry

representatives believe that it is inconsequential whether a small

shortfall in RFG supply for Phoenix occurs in the east or the west

pipeline. The west pipeline has the capacity, with some disruption, to

adjust and meet the majority of the Phoenix demand for all types of

gasoline in the event of loss of the east line supply. The loss of the

east supply has happened before, when one of the two suppliers was down

for periodic maintenance and a breakdown occurred at the other. Several

refiners agreed that the only situation that is likely to cause an RFG

shortage in Phoenix is a break or stoppage in the west

pipeline.24 Given that the total Phoenix/Tucson area

gasoline demand is 110 thousand B/D and the maximum east pipeline flow

rate is 55 thousand B/D for all products, shortages and price increases

are inevitable if the west pipeline goes down.25 This would

occur regardless of the type of gasoline required by Arizona;

therefore, the state's opt-in to RFG does not affect this situation.

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

\23\ See Docket A-97-02, IV-E-7.

\24\ Id.

\25\ MathPro Report at pages 20-27.

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

b. Estimated Phoenix Gasoline Market and Refiner Capability to Supply

The total gasoline demand for the state of Arizona is approximately

130 thousand B/D. The total gasoline now being delivered to Phoenix

terminals by both pipelines is about 88 thousand B/D. Approximately 80

percent (70 thousand B/D) of the Phoenix terminal volume is used in

Maricopa County (the Phoenix ozone nonattainment area). The remaining

20 percent of the Phoenix terminal volume is shipped to five other

Arizona counties.26

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\26\ Id.

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Based on the comments received, EPA believes at least six refiners

will supply federal RFG from the west and two to three refiners will

supply RFG from the east. This assures some supply of federal RFG to

Phoenix from both the west and the east. Most of the refiners that

commented, with one exception, stated that they intend to supply

federal RFG for the Phoenix market for the summer of 1997. In addition,

one company stated that it intends to supply Phoenix by displacement;

that is, it supplies the Texas and California markets with federal RFG

and California RFG (``CaRFG''), thus making it possible for Texas and

California refiners to supply the Phoenix market. Furthermore, one

commenter submitted a plot of the price difference between RFG and CG

in the New York, Gulf Coast, and California markets. The commenter

concluded that the very narrow differential, which was about 2 cents in

the federal program and about 4 cents for the California gasoline,

indicates that supplies are more than adequate. And finally, the

Arizona Task Force contractor stated in its report that its analysis of

the gasoline distribution system (which includes the refineries, the

SFPP South Pipeline System, and the local bulk terminals) led to the

finding that in general ``the existing distribution system has the

capability to deliver the required volumes of special Maricopa County

gasolines meeting any of the proposed standards [the Arizona Task Force

considered several fuels options] .'' 27

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\27\ Id. at pages 76-77.

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One refiner commented that it currently supplies Phoenix from a

refinery located in El Paso and will not be able to produce RFG for

this summer at that refinery. The company stated, however, that they

are looking at various options to replace those volumes. Another party

stated that for the few refiners that might not be able to meet the RFG

specifications this summer, the industry has an often-utilized method

of arranging exchanges or trades of gasoline in one market for gasoline

in another. This arrangement is designed to provide relief for refiners

and marketers during company-specific supply disruptions.

c. Potential for Phoenix RFG Supply Shortage

Industry has told EPA in written comments and in meetings that the

continuous buying, selling and trading of gasoline stocks in response

to the spot prices makes supply shortages of types of gasoline, like

RFG, very unlikely.28 The short term price increases that

occurred when CaRFG was introduced in California was caused by an

unusual and unexpected combination of refinery disruptions not expected

to occur in Phoenix. Typical spot prices are: (1) CaRFG--$0.70/gallon;

(2) federal RFG-$0.69/gallon; and (3) CG--$0.66/gallon. Generally, the

differences in price correspond to difference in refining costs. Thus,

in order to supply RFG, a trader could opt to buy any of the gasoline

types, whether barged from Texas, San Francisco, Washington, or other

more distant locations, and, if necessary, turn CG into RFG, at a cost

of 3 cents/gallon.29 In effect, the cost of purchasing of

RFG would be about the same as the cost of purchasing CG and converting

it to RFG. The Energy Information Administration (EIA) recently

informed EPA that there was an oversupply of gasoline in California and

the price of CaRFG dropped 8 cents during the first week in

May.30 One commenter, however, argued that the Phoenix

requirement to supply federal RFG with a 7.0 psi RVP makes the gasoline

unique. This commenter believes that fewer refiners will supply the

Phoenix gasoline, resulting in recurring shortages, accompanied by

price spikes. As discussed in this preamble, however, most refiners

that currently supply gasoline to Phoenix commented that they intend to

continue to do so.

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

\28\ ``Spot Market'' is defined as commodity transactions

whereby participants make buy-and-sell commitments of relatively

short duration, in contrast to the ``contract'' market in which

transactions are long term. U.S. Petroleum Refining, Meeting

Requirements for Cleaner Fuels and Refiners, Volume I--Analyses and

Results, National Petroleum Council, August 1993 at GL-8. ``Spot

prices'' are the prices for a single sale of a product, i.e.,

gasoline, on the Spot Market.

\29\ See Docket A-97-02, IV-E-7.

\30\ See Docket A-97-02, IV-E-8.

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d. Oxygenate Supply

Federal RFG requires the addition of oxygenates (2.0 percent by

weight). This addition of oxygenate will increase the volume of

gasoline supply by approximately 10 percent. If Phoenix requires 65

thousand B/D of RFG and industry continues to provide that amount of

gasoline, the supply will

[[Page 30266]]

increase by approximately 6500 B/D just by the addition of oxygenate.

Several commenters provided information that there is a plentiful

supply of oxygenates. A commenter stated that given that oxygenate

producers are presently operating at approximately 90 percent of

manufacturing capacity, an RFG program for Phoenix is not expected to

cause any disruptions in oxygenate supply or drastic impacts on the

oxygenate marketplace.

e. Infrastructure and Reformulation

EPA received comments that the needed infrastructure, blending, and

segregation capability are in place for Phoenix. Phoenix has had a

winter oxygenated gasoline program since 1989, so the infrastructure

associated with oxygenate blending and product segregation is already

present. This will help ensure a smooth transition to RFG. A commenter

stated that based on its study of Arizona's distribution system, it

believed that the time required to get RFG to the marketplace will be a

month or less after it is produced.

EPA received comment that relatively small quality changes will be

required by refiners to produce RFG. Most refiners providing

conventional gasoline to Phoenix currently meet the RFG specifications

except for benzene. The most significant change in the formulation will

be the reduction of benzene to one volume percent. The addition of two

weight percent oxygen to the gasoline will contribute to the reduction

of benzene.

f. Effective Dates

In the NPRM, EPA proposed that 30 days be allowed between the

terminal and retail compliance dates and requested comment on whether a

shorter time period would be appropriate. The Agency received two

comments on this issue. One refiner stated that under the best

conditions, thirty days was feasible but not guaranteed. The refiner

explained that thirty days at a minimum was needed due to potential

difficulties in blending gasoline and in order to assure compliance at

low-volume stations. Another refiner stated it supported the 30 days

but thought 15 sufficient. Two commenters did not speak directly to

this issue but included in their comments potential schedules for opt-

in compliance. One allowed 21 days and one allowed 15 days between the

two dates. EPA has decided that 30 days is an appropriate time period

to allow between terminal and retail compliance dates. While it appears

that 15 days would be sufficient for high-volume stations, the

additional 15 days could be important for low-volume stations.

EPA proposed that the terminal effective date be 30 days following

the publication of the final opt-in rule. One commenter argued that 45

days would be more appropriate because a longer transition time would

allow terminals to gradually convert to RFG by slowly replacing their

normal inventory levels of conventional gasoline. A shorter time period

would mean that the terminal must draw down their conventional gasoline

to lower levels in order to accelerate the conversion. If a refinery

outage were to occur while inventories are artificially low, the

possibility of a physical shortage would increase and higher prices

could result. This situation could be exacerbated by the timing of the

conversion, well into the high demand summer driving season. One

commenter concerned with the precedent set by an effective date 30 days

after publication questioned whether this would provide adequate lead

time regardless of ability to supply.

EPA has decided that a terminal effective date of 30 days after

publication of the final rule provides refiners sufficient lead time.

Refiner ability to supply RFG is one of the factors EPA considers in

setting the effective date for an opt-in request, and several refiners

who supply Phoenix have stated that they have the ability to supply

federal RFG to Phoenix within 30 days of publication of the final rule.

One commenter stated that if EPA resolved issues regarding enforcement

of the RFG requirements in Phoenix by May 1, service stations could

supply federal RFG in Phoenix by mid-July. Moreover, as several

commenters stated, industry has been on notice that Phoenix would opt-

in since the date of the Arizona Governor's letter, January 17, 1997.

EPA proposed that the terminal compliance date be 30 days after

publication of the final rule or June 1, whichever was later. Based on

this proposed date, SFPP stated in its comments that it would have to

begin shipments by April 22. Refiners testified at the hearing that

they could supply RFG to Phoenix by the proposed date of June 1 if EPA

worked with them to resolve certain implementation issues. EPA has

agreed to provide enforcement relief on several implementation issues

(See discussion in III.C.1. below) and expects that refiners will be

ready to supply RFG by the terminal compliance date, which will be

later than the proposed date. The fact that EPA has set an effective

date of 30 days from publication of the final rule does not mean,

however, that EPA will decide that is the appropriate amount of lead

time for future opt-in requests. As discussed above, pursuant to

section 211(k)(6)(A), EPA will review all relevant factors for each

opt-in request to determine the appropriate effective date for a

particular area.

EPA received one comment requesting that in setting a Phoenix opt-

in effective date, EPA consider any effect that could have on the

supply of CaRFG in California. The commenter stated that a reduction in

production of CaRFG could have an adverse effect on gasoline price and

availability in California. Several California refiners commented that

they intend to supply federal RFG to Phoenix. None of these refiners

indicated that producing federal RFG would limit their production of

CaRFG. EPA has not received any information that would indicate that

the Phoenix opt-in effective date will affect the supply of CaRFG in

California.

EPA asked parties at the hearing to comment on whether supplying

RFG to Phoenix would affect the supply of CG to Arizona. EPA received

one comment on this issue from a refiner who stated that it could meet

its CG contracts for Arizona.

C. Implementation Issues

Several refiners and one trade association representing the

refiners identified implementation and enforcement issues they faced in

preparing to provide RFG to Phoenix in the summer of 1997. These issues

resulted from the lead time available for the Phoenix opt-in resulting

from the date of the Arizona Governor's opt-in request and his

requested implementation date; and the fact that much of the gasoline

supplied to Phoenix (approximately two-thirds) is produced at

refineries located in California. These California refineries are

covered by the California Enforcement Exemption in the federal RFG

rules (40 CFR 80.81). The association stated, however, that it did not

support delay of the proposed effective date. Its members could supply

RFG to Phoenix if EPA could provide some enforcement relief for the

identified implementation issues. In addition, one refiner commented

that while it encouraged EPA to grant enforcement relief, it did not

believe the issues were any reason to delay the implementation date

because refiners had actually been on notice that they would need to

prepare to supply Phoenix with RFG since January 17, 1997, the date of

the Governor's letter to EPA.

[[Page 30267]]

1. Enforcement Relief Provided by EPA

EPA provided enforcement relief from certain RFG requirements

related to compliance in an April 18, 1997 letter from Steven A.

Herman, EPA Assistant Administrator for Enforcement and Compliance

Assurance, to Urvan Sternfels, President of the National Petroleum

Refiner's Association. 31 The enforcement relief is provided

only until January 1, 1998, and consists of the following:

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

\31\ See Docket A-97-02, IV-C-6.

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

a. Registration of Parties

40 CFR 80.76 requires that refiners, importers and oxygenate

blenders register with EPA no later than three months prior to the date

they intend to produce or import RFG in order to provide EPA with

information about the companies and their facilities. In light of the

timing associated with the Phoenix opt-in, EPA will not enforce the

requirement to register three months in advance, provided a party

registers before producing any RFG for Phoenix, including the

requirement to notify EPA of which independent laboratory a party will

use.

b. Submittal of RFG Survey Plan

Section 80.68 requires certain refiners to submit to EPA a plan for

conducting gasoline quality surveys in each RFG covered area. This plan

must be submitted no later than September 1 of the year preceding the

year the surveys are to be conducted. However, given the date of

Governor Symington's opt-in letter, EPA will not enforce the

requirement to submit a Phoenix survey plan by September 1, 1996,

provided that within 30 days of EPA's final Phoenix opt-in rule a

Phoenix survey plan that meets all the requirements of section 80.68 is

submitted.

c. Use of California Test Methods

Both the federal RFG and the California Air Resources Board

(``CARB'') Phase 2 programs require refiners to use certain test

methods to demonstrate compliance with the standards applicable under

these programs. In the case of the tests for certain parameters the

methods specified under the two programs are different.

Section 80.81 allows California refiners to use CARB test methods

as an acceptable federal test method when producing CARB gasoline. This

exemption is limited to gasoline used in California, and refiners are

required to use federal test methods for gasoline exported from

California.

A letter of February 29, 1996 from Steve Herman to the Western

States Petroleum Association allows California refiners to use CARB

test methods for CG exported from California, subject to certain

conditions, but does not allow non-federal test methods for RFG

exported from California because of the stringent requirements

associated with federal RFG. However, the Phoenix opt-in presents a

situation where limited use of CARB test methods for certain federal

RFG requirements is appropriate in the case of RFG used in Phoenix.

Section 80.65(e) requires RFG refiners to use federal test methods

to analyze each RFG batch in order to certify compliance with the

federal RFG standards, and under section 80.75(a) to report results to

EPA on a quarterly basis. In addition, section 80.65(e) provides that

before a refiner can ship RFG the refiner must have received the

results of federal tests for parameters that are subject to downstream

standards, i.e., the federal test results for oxygen and benzene, and

RVP for VOC-controlled RFG, in order to prevent the introduction into

commerce of RFG that violates a downstream standard.

EPA believes that refiners in California can meet the requirement

to use federal test methods for purposes of determining batch

properties that are reported to EPA, either by using the federal test

methods at the refinery or by using an independent laboratory to

conduct federal tests. However, a refiner using an independent

laboratory may not have received the test results before the RFG

normally would be shipped. As a result, such a refiner would be

required to purchase the equipment necessary to conduct the federal

tests on site, which EPA estimates would cost about $150,000 for both

the oxygen and the benzene tests. The federal RVP test equipment costs

much less, and is already owned by most or all refiners.

Given the fact that Governor Symington's letter states that he may

request to opt-out of the RFG program by December 31, 1997, and the

cost of the equipment necessary to conduct the federal oxygen and

benzene tests, EPA believes it is appropriate to allow use of CARB test

methods to meet the RFG pre-shipping testing requirement. However,

refiners and importers using the CARB test methods also must test each

RFG batch using federal test methods, and the results of the federal

tests must be used to satisfy the batch reporting requirements of

section 80.75(a).

Therefore, EPA will not enforce the requirement at section

80.65(e)(1) that refiners and importers must have received the results

of federal oxygen and benzene tests before shipping RFG, provided the

following conditions are met.

(1) The refiner or importer does not have the equipment necessary

to conduct the federal benzene and/or oxygen tests at its refinery or

import facility.

(2) The refiner or importer has received the results of CARB

benzene and/or oxygen tests before shipping any RFG batch, these test

results have been correlated with the federal test method, and these

test results must demonstrate compliance with the federal downstream

standards. If the results of federal benzene and/or oxygen tests show

the RFG violated the federal downstream standards the refiner or

importer will have violated these standards regardless of the results

of the CARB tests. This would be true whether the federal tests are

conducted by the refiner's independent laboratory, by another regulated

party or by EPA.

(3) The refiner or importer must retain the results of any tests

conducted using CARB methods, and records demonstrating correlation

between the CARB and federal test methods, and must supply these

records to EPA on request. Enforcement of the RFG requirements in this

manner will expire on January 1, 1998.

d. Adjustment of the Reid Vapor Pressure Lower Limit

The federal RFG program includes standards for the RVP of gasoline.

The maximum RVP of RFG is controlled primarily because of the increased

VOC emissions that result from gasoline with higher RVP levels. A

minimum RVP is included because of limited availability of RVP data at

the time the simple model standards were developed. In addition, the

minimum RVP standard addresses vehicle driveability problems, such as

poor starting and running, that can occur when low volatility gasoline

does not vaporize in the vehicle engine. As a result, under section

80.42(c)(1) the minimum RVP allowed for RFG is 6.6 pounds per square

inch (``psi''), although under section 80.45(f)(1) this minimum RVP

standard changes to 6.4 psi beginning in 1998.

Arizona has regulations that require that Phoenix be subject to a

maximum summertime volatility standard of 7.0 psi. As a result,

refiners supplying RFG for Phoenix for use during the summer will have

to meet an RVP standard of 6.6 psi minimum (the federal RFG standard)

and 7.0 psi maximum (the state-imposed standard). Some refiners have

said this narrow RVP range would create gasoline production problems

because of testing variability, but that this problem would be resolved

if the

[[Page 30268]]

RVP minimum standard were 6.4 psi. In addition, the American Automobile

Manufacturers Association commented, stating that it did not believe a

summertime 6.4 RVP minimum in Phoenix would pose significant risk of

vehicle performance problems.

For these reasons, EPA believes it is appropriate to allow a

minimum RVP of 6.4 psi for VOC-controlled RFG in Phoenix. As a result,

EPA will not enforce the 6.6 psi minimum RVP standard under section

80.42(c)(1) for VOC-controlled RFG used in Phoenix, including RFG

produced for the Phoenix market that is used in non-RFG areas around

Phoenix, provided the following conditions are met.

(1) RFG must meet a minimum RVP standard of 6.4 psi during the

period May 1 through October 31.

(2) All other RFG must meet a minimum RVP standard of 6.6 psi.

(3) The refiner or importer must specify in the product transfer

documents, required in section 80.77, the VOC-controlled RFG is for use

only in the Phoenix covered area.

2. Other Implementation Issues

One refiner stated its support of EPA extension of the CARB

certified laboratory tests for gasoline properties as an alternative

for all refineries. This would include recognition of the GC-FTIR (ASTM

5986) for Aromatics, Benzene and Oxygen content. EPA intends to issue

proposed regulations establishing a performance based analytical test

method approach for the measurement of the RFG parameters specified in

section 80.46. Under this approach, quality assurance specifications

would be developed under which the performance of alternate analytical

test methods would be deemed acceptable for compliance. The Agency

envisions that this approach, if adopted, would provide additional

flexibility to the regulated industry in their choice of analytical

test methods to be utilized for compliance under the RFG and

conventional gasoline programs for analytical test methods that differ

from the designated analytical test method.

Refiners raised the issue that due to modeling effects, winter

gasoline via simple (and complex) model gives a lower toxics reduction

than summer gasoline. Since it is difficult to meet the toxics

reduction on a per gallon basis with winter gasoline, supply

flexibility is enhanced by averaging. With only part of the year being

available for averaging, it is important to implement the rule early

enough so that the partial year does not have more winter than summer

months than a full calendar year would have.

EPA proposed that if refiners produce RFG prior to June 15, 1997,

it would not be necessary to change anything because there is a balance

of summer and winter days. EPA proposed to refiners (that have

registered) that any gasoline produced and federally certified as

Federal RFG, even if produced before the effective date for Phoenix,

will count for refiner averaging. Various refiners indicated to EPA

that this approach satisfactorily addressed their concerns on this

issue.32

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\32\ See Docket A-97-02, IV-E-6.

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Another implementation issue raised by refiners arose from the

independent laboratory sampling program required in the RFG

regulations. While this should not pose a problem in areas such as Los

Angeles, Houston or Dallas where many such labs are located, there

could be a lead time problem in West Texas and New Mexico where the

refineries are more isolated and there are no labs. EPA proposed to

refiners that enforcement discretion was not needed because isolated

refiners could meet the independent lab requirements by mail. Various

refiners indicated to EPA that this approach satisfactorily addressed

their concerns on this issue.33

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\33\ Id.

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One refiner commented that a minor implementation problem results

from the fact that in-line blender certification by EPA could require

six months to a year. The refiner suggested that a solution would be

for EPA to certify promptly new in-line blenders within thirty days.

EPA believes the appropriate way to address this issue is contained in

the RFG regulations (40 CFR 80.65(f)(4)). In addition, EPA has

expeditiously reviewed any in-line blending petitions received to

address any supply issues.

Refiners commented that transitions from conventional gasoline to

RFG always pose unique problems. One refiner stated it was willing to

work with industry, EPA, and Arizona to ensure a successful transition.

Another refiner commented that Phoenix may be facing two fuel

transitions in rapid succession--a transition from conventional

gasoline to federal RFG and a transition from federal RFG to federal

RFG plus 7.0 RVP. The refiner urged EPA to work with Arizona to educate

the public about these changes because public acceptance of the fuels

changes coming to Phoenix is critical to acceptance of longer-term

presumably more stringent, fuels solutions now being devised for the

Phoenix area.

EPA agrees that a public education strategy is important for fuel

changes. EPA's Office of Mobile Sources and Region 9 have been working

with Arizona, which has prepared a public outreach and education plan

that includes meetings with stakeholders, television advertisements,

hotlines, informational brochures provided directly to motorists, and

training for technicians and service station employees. EPA has also

provided some funding for the Phoenix federal RFG public education

program.

IV. Environmental Impact

Gasoline vapors and vehicle exhaust contain VOCs and NOX

that react in the atmosphere in the presence of sunlight and heat to

produce ozone, a major component of smog. Vehicles also release toxic

emissions, one of which (benzene) is a known human carcinogen. Federal

RFG contains less of the ingredients that contribute to these harmful

forms of air pollution. Consequently, RFG reduces the exposure of the

U.S. public overall to ozone and certain air toxics.

The federal Phase I RFG program provides reductions in ozone-

forming VOC emissions and air toxics, and prohibits any increase in

NOX emissions. Reductions in VOCs are environmentally

significant because of the associated reductions in ozone formation and

in secondary formation of particulate matter, with the associated

improvements in human health and welfare. Exposure to ground-level

ozone (or smog) can damage sensitive lung tissue, reduce lung function,

cause lung inflammation, increase susceptibility to respiratory

infection, and increase sensitivity of asthmatics to allergens (e.g.,

pollen) and other bronchoconstrictors. Symptoms from short-term

exposure to ozone include coughing, eye and throat irritation, and

chest pain. Animal studies suggest that long-term exposure (months to

years) to ozone can damage lung tissue and may lead to chronic

respiratory illness.

Toxic emissions from motor vehicles have been estimated to account

for roughly half of the total exposure of the urban U.S. population to

toxic air emissions. Reductions in emissions of toxic air pollutants

are environmentally important because they carry significant benefits

for human health and welfare primarily by reducing the number of cancer

cases each year. The reduction of benzene provides the majority of air

toxics emission reductions from RFG. New monitoring data from the 1995

EPA Air Quality Trends Report shows that in RFG areas, benzene was

reduced by 43 percent. A number of adverse non-

[[Page 30269]]

cancer health effects, such as eye, nose, and throat irritation, have

also been associated with exposure to elevated levels of these air

toxics.

The Arizona Task Force estimates that if federal RFG is required to

be sold in Phoenix, VOC emissions will be cut by more than nine tons

per day. In addition, all vehicles would have improved emissions and

the area would also get reductions in toxic emissions.

V. Statutory Authority

The Statutory authority for the action proposed today is granted to

EPA by sections 211(c) and (k) and 301 of the Clean Air Act, as

amended; 42 U.S.C. 7545 (c) and (k) and 7601.

VI. Regulatory Flexibility

For the following reasons, EPA has determined that it is not

necessary to prepare a regulatory flexibility analysis in connection

with this rule. EPA has also determined that this rule will not have a

significant economic impact on a substantial number of small entities.

In promulgating the RFG and anti-dumping regulations, the Agency

analyzed the impact of the regulations on small businesses. The Agency

concluded that the regulations may possibly have some economic effect

on a substantial number of small refiners, but that the regulations may

not significantly affect other small entities, such as gasoline

blenders, terminal operators, service stations and ethanol blenders.

See 59 FR 7810-7811 (February 16, 1994). As stated in the preamble to

the final RFG/anti-dumping rule, exempting small refiners from the RFG

regulations would result in the failure of meeting CAA standards. 59 FR

7810. However, since most small refiners are located in the mountain

states or in California, which has its own RFG program, the vast

majority of small refiners are unaffected by the federal RFG

requirements (although all refiners of conventional gasoline are

subject to the anti-dumping requirements). Moreover, all businesses,

large and small, maintain the option to produce conventional gasoline

to be sold in areas not obligated by the Act to receive RFG or those

areas which have not chosen to opt into the RFG program. A complete

analysis of the effect of the RFG/anti-dumping regulations on small

businesses is contained in the Regulatory Flexibility Analysis which

was prepared for the RFG and anti-dumping rulemaking, and can be found

in the docket for that rulemaking. The docket number is: EPA Air Docket

A-92-12.

Today's rule will affect only those refiners, importers or blenders

of gasoline that choose to produce or import RFG for sale in the

Phoenix ozone nonattainment area, and gasoline distributors and retail

stations in those areas. As discussed above, EPA determined that,

because of their location, the vast majority of small refiners would be

unaffected by the RFG requirements. For the same reason, most small

refiners will be unaffected by today's action. Other small entities,

such as gasoline distributors and retail stations located in Phoenix,

which will become a covered area as a result of today's action, will be

subject to the same requirements as those small entities which are

located in current RFG covered areas. The Agency did not find the RFG

regulations to significantly affect these entities.

VII. Public Participation

The Agency held a public hearing on March 18, 1997 to hear comments

on the Notice of Proposed Rulemaking (62 FR 7197) published February

18, 1997. Comments were provided at the hearing by the Arizona

Department of Environmental Quality, fuel oxygenate producers, and

representatives of the oil industry, environmental organizations, and

other businesses that participated on the Arizona Air Quality

Strategies Task Force. In addition, EPA reviewed and considered written

comments on the proposal submitted by the same groups. These comments

have been presented and addressed in the preamble above (See III.

Response to Comments). All comments received by the Agency are located

in the EPA Air Docket A-97-02 (See ADDRESSES).

VIII. Executive Order 12866

Under Executive Order 12866,34 the Agency must determine

whether a regulation is ``significant'' and therefore subject to OMB

review and the requirements of the Executive Order. The Order defines

``significant regulatory action'' as one that is likely to result in a

rule that may:

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\34\ See 58 FR 51735 (October 4, 1993).

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(1) Have an annual effect on the economy of $100 million or more,

or adversely affect in a material way the economy, a sector of the

economy, productivity, competition, jobs, the environment, public

health or safety, or State, local or tribal governments of communities;

(2) Create a serious inconsistency or otherwise interfere with an

action taken or planned by another agency;

(3) Materially alter the budgetary impact of entitlements, grants,

user fees, or loan programs or the rights and obligations of recipients

thereof, or

(4) Raise novel legal or policy issues arising out of legal

mandates, the President's priorities, or the principles set forth in

this Executive Order.35

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\35\ Id. At section 3(f) (1)--(4).

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It has been determined that this rule is not a ``significant

regulatory action'' under the terms of Executive Order 12866 and is

therefore not subject to OMB review.

IX. Paperwork Reduction Act

Today's action does not impose any new information collection

burden. Refiners are currently subject to the information collection

requirements for federal reformulated gasoline and conventional

gasoline. Today's rule adds an additional ozone nonattainment area as a

federal RFG covered area; the rule does not change the information

collection requirements already associated with federal RFG. The Office

of Management and Budget (OMB) has previously approved the information

collection requirements contained in the final RFG/antidumping rule

under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et

seq. and has assigned OMB control number 2060-0277 (EPA ICR No. 1951).

Burden means the total time, effort, or financial resources

expended by persons to generate, maintain, retain, or disclose or

provide information to or for a Federal agency. This includes the time

needed to review instructions; develop, acquire, install, and utilize

technology and systems for the purposes of collecting, validating, and

verifying information, processing and maintaining information, and

disclosing and providing information; adjust the existing ways to

comply with any previously applicable instructions and requirements;

train personnel to be able to respond to a collection of information;

search data sources; complete and review the collection of information;

and transmit or otherwise disclose the information.

Copies of the ICR document(s) may be obtained from Sandy Farmer,

Information Policy Branch; EPA; 401 M St., SW. (mail code 2136);

Washington, DC 20460 or by calling (202) 260-2740. Include the ICR and/

or OMB number in any correspondence.

X. Unfunded Mandates

Under section 202 of the Unfunded Mandates Reform Act of 1995

(``UMRA''), P.L. 104-4, EPA must prepare a budgetary impact statement

to accompany any general notice of proposed rulemaking or final rule

that includes a Federal mandate which may result in estimated costs to

State, local,

[[Page 30270]]

or tribal governments in the aggregate, or to the private sector, of

$100 million or more in any one year. Under section 205, for any rule

subject to section 202 EPA generally must select the least costly, most

cost-effective, or least burdensome alternative that achieves the

objectives of the rule and is consistent with statutory requirements.

Under section 203, before establishing any regulatory requirements that

may significantly or uniquely affect small governments, EPA must take

steps to inform and advise small governments of the requirements and

enable them to provide input.

EPA has determined that today's rule does not trigger the

requirements of UMRA. The rule does not include a Federal mandate that

may result in estimated annual costs to State, local or tribal

governments in the aggregate, or to the private sector, of $100 million

or more, and it does not establish regulatory requirements that may

significantly or uniquely affect small governments.

XI. Judicial Review

Under section 307(b)(1) of the Clean Air Act, petitions for

judicial review of this action to extend the federal RFG program to the

Phoenix ozone nonattainment area must be filed in the United States

Court of Appeals for the appropriate circuit by August 4, 1997. Filing

a petition for reconsideration by the Administrator of this final rule

does not affect the finality of this rule for the purposes of judicial

review nor does it extend the time within which a petition for judicial

review may be filed, and shall not postpone the effectiveness of such

rule or action. This action may not be challenged later in proceedings

to enforce its requirements (see section 307(b)(2)).

XII. Submission to Congress

Under 5 U.S.C. 801(a)(1)(A) as added by the Small Business

Regulatory Enforcement Fairness Act of 1996, EPA submitted a report

containing this rule and other required information to the U.S. Senate,

the U.S. House of Representatives and the Comptroller General of the

General Accounting Office prior to publication of the rule in today's

Federal Register. This rule is not a ``major rule'' as defined by 5

U.S.C. 804(2).

Environmental protection, Air pollution control, Fuel additives,

Gasoline, and Motor vehicle pollution.

Dated: May 28, 1997.

Carol M. Browner,

Administrator.

40 CFR part 80 is amended as follows:

PART 80--REGULATION OF FUELS AND FUEL ADDITIVES

1. The authority citation for part 80 is revised to read as

follows:

Authority: Secs. 114, 211, and 301(a) of the Clean Air Act, as

amended (42 U.S.C. 7414, 7545 and 7601(a)).

2. Section 80.70 is amended by adding paragraph (m) as follows:

Sec. 80.70 Covered areas.

* * * * *

(m) The prohibitions of section 211(k)(5) will apply to all persons

other than retailers and wholesale purchaser-consumers July 3, 1997.

The prohibitions of section 211(k)(5) will apply to retailers and

wholesale purchaser-consumers August 4, 1997. As of the effective date

for retailers and wholesale purchaser-consumers, the Phoenix, Arizona

ozone nonattainment area is a covered area. The geographical extent of

the covered area listed in this paragraph shall be the nonattainment

boundaries for the Phoenix ozone nonattainment area as specified in 40

CFR 81.303.

[FR Doc. 97-14442 Filed 6-2-97; 8:45 am]

BILLING CODE 6560-50-P