Transitional and General Opt Out Procedures for Phase II Reformulated Gasoline Requirements

SUMMARY: This final rule revises the regulations for states to opt-out

of the federal reformulated gasoline (RFG) program for areas where a

state had previously voluntarily opted into the program. The previously

published opt-out provisions provide that EPA-approved opt-out

petitions become effective 90 days from approval. Under today's action,

if a state has not submitted an opt-out petition to EPA by December 31,

1997, it must participate in the federal RFG program until December 31,

2003. The Agency believes this rule is necessary to ensure a smooth

transition between the two phases of the reformulated gasoline program.

The use of Phase II RFG will provide greater health benefits than Phase

I by requiring further reductions from the refiners' 1990 gasoline

baseline for volatile organic compounds (VOCs) and toxics by about 25%

and 20% respectively. The requirements also include a nitrogen oxides

(NOX) reduction of about 6%.

Effective January 1, 2004, the current opt-out procedures become

effective again. States that want to end their involvement in the

federal RFG program prior to December 31, 1999, and not participate in

Phase II of the program, must submit a complete opt-out petition to EPA

by December 31, 1997.

Today's action does not affect the regulations for opting in to the

RFG program. In a separate action EPA will publish a final rule which

would permit former ozone nonattainment areas to opt into the federal

reformulated gasoline program.

EFFECTIVE DATE: This final rule is effective November 19, 1997.

FOR FURTHER INFORMATION CONTACT: Christine Hawk or Diane Turchetta at

U.S. Environmental Protection Agency, Office of Air and Radiation, 401

M Street, SW (6406J), Washington, DC 20460, (202) 233-9000.

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

OAQPS Technology Transfer Network Bulletin Board System (TTNBBS) and on

the Office of Mobile Sources' World Wide Web cite, http://www.epa.gov/

OMSWWW. 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, or 9600 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 will be in the

form of a ZIP file and can be identified by the following title:

OPTOUT.ZIP. To download this file, 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.

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.

State governments......................... State departments of

environmental protection.

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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 is regulated by this action, you should carefully examine

the list of areas covered by the reformulated gasoline program in

Sec. 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.

Extended Summary

EPA published a Notice of Proposed Rulemaking on March 28, 1997,

(62 FR 15077) proposing changes to the existing opt-out rule which

provides criteria and general procedures for states to opt-out of the

RFG program through December 31, 1997. This final rule promulgates the

revisions as proposed by EPA with minor changes. 61 FR 35673 (July 8,

1996).

This final rule applies to areas where the state voluntarily opted

into the federal RFG program and subsequently decides to withdraw from

it referred to as ``opt-out.'' This final rule establishes the criteria

and procedures for states to opt-out from the RFG program after

December 31, 1997. Today's rule does not change the process a state

must follow to petition for removal from the program or the criteria

used by EPA to evaluate a request. For example, the rule maintains the

requirements that the governor, or the governor's authorized

representative, submit an opt-out petition. This rule changes the time

period before the opt-out becomes effective for opt-out petitions

received from January 1, 1998, through December 31, 2003. This period

includes the remaining two years of Phase I (January 1, 1998 to

December 31, 1999) and the first four years of Phase II (January 1,

2000, to December 31, 2003).

This final rule specifies that for all opt-out petitions received

on or before December 31, 1997, the previously published procedures (61

FR 35673) will apply and that the effective date that an area will no

longer be a covered area as defined in 40 CFR section 80.70 will be 90

days (or more at a state's request) from the date of EPA's letter of

notification to the Governor of the requesting state or from the

effective date of an agency approval of a revision to the State

Implementation Plan (SIP) where applicable. States which have opted in

to the RFG program that do not submit a completed opt-out request by

December 31, 1997 and subsequently submit an opt-out request before

January 1, 2004, will be required to participate in the federal RFG

program, including

[[Page 54553]]

Phase II of the program, until at least December 31, 2003. The opt-out

request will be effective January 1, 2004 or 90 days from the Agency's

written notification to the State approving the opt-out petition,

whichever date is later, unless the Governor requests a later date.

The Agency may grant up to a five month extension to the December

31, 1997 deadline in limited circumstances. An extension can be granted

where the State's Legislature has pending legislation on the use of

federal RFG that was active prior to March 28, 1997, when this opt-out

rule was proposed. The request for an extension must demonstrate that

the legislation cannot reasonably be acted upon until after the

December deadline. Such legislation must be related to either opting

out of or remaining in the RFG program. The Governor must submit a

request for an extension to EPA containing such information before

December 31, 1997. The Agency can then grant an extension up to May 31,

1998.

Today's requirements will also cover those areas opting into the

RFG program subsequent to December 31, 1997; areas opting-in during

that time period must remain in the program at least until December 31,

2003. The opt-out procedures would revert back to the previously

published rule (90 day requirements) as of January 1, 2004.

Today's action will help provide certainty to the industry as it

makes decisions that are likely to affect the supply and cost of RFG,

which in turn could affect the cost-effectiveness of Phase II RFG.

Additionally, the action maintains the flexibility that states have in

air quality planning to the degree possible and practicable.

I. Opt-out Petitions Received January 1, 1998 Through December 31,

2003; and After December 31, 2003

A. Background

The federal reformulated gasoline (RFG) program is designed to

reduce ozone levels and air toxics in areas of the country that are

required to or volunteer to adopt the program. Reformulated gasoline

reduces motor vehicle emissions of the ozone precursors, specifically

volatile organic compounds (VOC), through fuel reformulation. RFG also

achieves a significant reduction in air toxics. In Phase II of the

program emissions of nitrogen oxides (NOX), another

precursor of ozone, are also reduced. The Clean Air Act requires RFG in

ten metropolitan areas with the highest levels of ozone.1 In

section 211(k)(6), Congress provided the opportunity for states to opt-

in to the RFG program for other areas classified under Subpart 2 of

Part D of Title I as ozone nonattainment areas.

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\1\ EPA recognizes that there are currently ten areas required

to use Federal RFG and that these areas currently do not have an

opt-out option. Those areas are: Los Angeles-Anaheim-Riverside, CA;

San Diego County, CA; Hartford-New Haven-Meriden-Waterbury, CT; New

York-Northern New Jersey-Long Island-Connecticut area; Philadelphia-

Wilmington-Trenton-Cecil County, MD; Chicago-Gary-Lake County, IL-

Indiana-Wisconsin area; Baltimore, MD; Houston-Galveston-Brazoria,

TX; Milwaukee-Racine, WI; Sacramento, CA.

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EPA issued final rules establishing requirements for RFG on

December 15, 1993. 59 FR 7716 (February 16, 1994). During the

development of the RFG rule, a number of states inquired as to whether

they would be permitted to opt-out of the RFG program at a future date,

or opt-out of certain requirements. This was based on their concern

that the air quality benefits of RFG, given their specific needs, might

not warrant the cost of the program, specifically focusing on the more

stringent standards in Phase II of the program (starting in the year

2000). States with that concern wished to retain the flexibility to

opt-out of the program. Other states indicated they viewed RFG as an

interim strategy to help bring their nonattainment areas into

attainment sooner than would otherwise be the case.

The regulation issued on December 15, 1993, did not include

procedures for opting-out of the RFG program because EPA had not

proposed and was not ready to adopt such procedures at that time. Since

then, the Agency has adopted general procedures for future opt-outs. 61

FR 35673 (July 8, 1996). These procedures apply to opt-out petitions

received through December 31, 1997.

Based upon EPA concerns regarding smooth implementation of Phase II

of the RFG program and public comments that were received in response

to the Notice of Proposed Rulemaking (60 FR 31269) published June 14,

1995, EPA is changing the regulations in this final rule for opt-out

petitions received between January 1, 1998, through December 31, 2003.

The previously published procedures in place today (61 FR 35673) will

take effect again beginning January 1, 2004.

In the proposal to the previous opt-out rulemaking, EPA outlined

its rationale for determining that it is appropriate to interpret

section 211(k) as authorizing states to opt-out of the program. 60 FR

31269 (June 14, 1995). EPA concluded that any conditions on opting out

should be focused on achieving a reasonable transition out of the

program. There were two primary areas of concern to the Agency. The

first was coordination of air quality planning. The second involved

appropriate lead time for industry to transition out of the program.

Today's final rule addresses this lead time concern by changing the

conditions for opting out during the period from January 1, 1998, to

December 31, 2003. As the effective date for Phase II RFG (January 1,

2000) approaches, industry must make investment decisions based in part

on anticipated demand for RFG. Unanticipated changes in demand, due to

opt-outs, could make cost recovery of investment difficult. To avoid

this, refiners would tend to minimize capital investments and rely on

costly operational changes which may be more to meet the Phase II

requirements. This approach to compliance requirements could lead to

higher gasoline prices which would diminish the cost-effectiveness of

EPA's RFG program. Thus, EPA believes it must consider these special

circumstances which affect industry directly and consumers indirectly

and make appropriate changes to the opt-out procedures. Therefore, EPA

is requiring states to decide by December 31, 1997 if they intend for

opt-in areas to participate in Phase I RFG up to December 31, 1999,

and/or to participate in Phase II RFG, which begins on January 1, 2000.

If a state has not submitted an opt-out petition by December 31, 1997,

it must continue to participate in Phase I RFG through December 31,

1999, and participate in Phase II RFG until December 31, 2003. The

Agency however may grant up to a five month extension to the December

31, 1997 deadline if the state meets specific criteria.

B. Statutory Authority

The statutory authority for the action in this rule is granted to

EPA by section 211(c) and (k) and section 301(a) of the Clean Air Act

as amended, 42 U.S.C. 7545 (c) and (k) and 7601(a). For a more complete

discussion of statutory authority, see the proposal for general rules

establishing criteria and procedures for states to opt-out of the RFG

program. 60 FR 31271 (June 14, 1995).

As discussed there, EPA believes it is appropriate to interpret

section 211(k) as authorizing states to opt-out of the RFG program,

provided that a process is established for a reasonable transition out

of the program. EPA believes allowing states to opt out is consistent

[[Page 54554]]

with the Act's recognition that states have the primary responsibility

to develop a mix of appropriate control strategies needed to reach

attainment with the NAAQS. Given this deference to state decision

making, it follows that the conditions on opting out should be geared

towards achieving a reasonable transition out of the RFG program, as

compared to requiring a state to justify its decision.

EPA has identified two principal areas of concern in this regard.

The first involves coordination of air quality planning. The second

involves appropriate lead time for industry to transition out of the

program. Today's rule addresses the latter concern. EPA's authority

allows it the discretion to authorize opt-outs in a way that

appropriately balances the interests of the parties affected by the

regulations. The previous rule establishing opt-out criteria and

procedures placed only limited conditions on the states, focusing on

the information that must be submitted before EPA may approve an opt-

out request. The previous rule also generally required a 90-day time

period to pass before an EPA-approved opt-out became effective. Today,

EPA is proposing to lengthen this time period for certain future opt-

outs because it believes the circumstances affecting industry have

changed enough to warrant an appropriate change.

C. Need for a Required Participation Period

In the NPRM, EPA proposed a four year required participation period

in Phase II for RFG opt-in areas. EPA solicited comments on the impact

of future opt-outs during this time period, and the expected impacts on

supply and cost from such opt-outs if they were allowed to occur. Two

petroleum associations commented that they support the establishment of

a minimum participation period for the Phase II RFG program which would

provide market certainty and stabilization. One association

specifically remarked that industry needs market certainty to not only

ensure adequate planning and investments to satisfy RFG demand at the

lowest cost, but to continue investments in RFG facilities by providing

assurance that the program would be in effect for a reasonable time to

allow a return on investment. It further commented that EPA must make

every effort to guarantee a stable regulatory climate for the highly

capital intensive RFG program. The other association remarked that it

agreed with the U.S. Department of Energy's (DOE's) comments to the

Agency's June 1995 NPRM, specifically the cost recovery issue. Several

refiners/suppliers commented that they agree with the associations'

comments. One company added that the Agency must take into account the

long term impact on all parties, including small refiners and marketers

when deciding RFG opt-ins or opt-outs. A state commented that consumers

would benefit from a stable price market which would be encouraged by a

long-term commitment to the program. The Agency did not receive any

comments arguing against the need for a required participation period.

Based on these comments, EPA maintains its belief in the need for a

required Phase II participation period as proposed. The proposed

requirement was prompted by the concerns expressed by DOE in its

comments during the previous opt-out rulemaking. Specifically, DOE

commented that a short time frame to opt-out by states who originally

intended to participate in Phase II of the RFG program makes it

difficult for refiners to recover their investments in refinery

facilities needed to comply with the requirements of Phase II RFG. (Air

Docket A-94-68) The Department further explained in its comments that

the ability to price gasoline at a level that recovers investments

depends very heavily on marginal supply and demand. Small unanticipated

changes in demand, whether due to market forces or changing regulatory

requirements, can make cost recovery of investment difficult, and cause

gasoline prices to rise or fall.

Refinery investments for Phase II RFG were originally estimated by

the U.S. Department of Energy (DOE) to be about $1 billion for East

Coast refiners and about $2 billion for Gulf Coast PADD III refiners.

These estimates were included in DOE's December 1994 report, Estimating

the Costs and Effects of RFG. Using improved modeling and real-world

RFG production volume data, EPA worked closely with API and DOE to

improve the DOE refinery model. This work was conducted in concert with

EPA's review of the NOx waiver petition submitted by the

American Petroleum Institute (API). Based on the over 200 improvements

and changes to the refinery model, DOE released an updated report in

1997 entitled Re-Estimation of the Refining Cost of RFG NOx

Control. The updated investment estimates in this report for 6.8%

NOx reduction range from about $0.2 to $0.8 billion for PADD

I and about $0.0 to $0.6 billion for PADD III.

The investment estimates decreased for several reasons but

predominantly because refiners are producing a lower volume of RFG than

was originally anticipated in 1994 due to subsequent opt-outs, due to a

smaller quantity of spillover than anticipated, and because the

refinery models used have been revised to more accurately project

capital investments by the refining industry. Although the investment

estimates are lower, EPA agrees with DOE's assessment that the

estimated investments remain significant and that a required

participation period is still appropriate. Such a requirement will

encourage refiners to make the appropriate investments which in turn

will help keep RFG prices low.

Refiners who expect to be producing Phase II RFG starting January

1, 2000, and who need additional facilities to meet the requirements of

that gasoline, are likely to begin making commitments to refinery

investments in 1997, two years in advance of the Phase II start date.

The decision to invest in the capital needed to comply with Phase II

RFG is based on each refiner's product capabilities, desire to

participate in the program, and likely anticipated demand.

Those refiners who chose to supply Phase II RFG are each uniquely

situated to comply with the year 2000 Phase II requirements. Different

levels of investment will be pursued by each refiner when investment is

chosen or is necessary. The largest investments are expected to be made

in the areas of desulfurization and alkylation to control sulfur and

olefins. Some are expected to make early refinery changes to come into

compliance with the complex model requirements in 1998. While the

economic burden of Phase II compliance will fall disproportionately on

some refiners, the Agency's main concern in this final rule is to

provide a stable regulatory environment which will not unreasonably

inhibit cost recovery, given that this could lead to supply problems

and cost fluctuations that could diminish the appeal and cost-

effectiveness of the RFG program.

D. Four Year Required Participation Period From January 1, 2000 to

December 31, 2003

In the NPRM, EPA proposed a four year required participation period

to attempt to strike a balance between the potential adverse impacts if

refiners have too little time to recoup their Phase II investments and

the need of states for some flexibility in using RFG. The Agency

solicited comments on the range of investment recovery periods needed

by the refineries who plan to invest capital in refining equipment for

Phase II RFG.

[[Page 54555]]

Several refiners and petroleum associations commented that a four

year commitment period is not necessarily sufficient or is the minimum

amount of time refiners would need to recover investments made to

produce Phase II RFG. These commenters referenced DOE's comments that

an eight year period is more adequate given the current competitive

gasoline market, as well as EPA's statement that refiners would need a

six year investment recovery period assuming a 10% real rate of return

(62 FR 15077). Two refiners encouraged EPA to adopt a six year

participation period while one suggested at least ten years based on

the argument that manufacturing Phase II RFG is a long range project

with expected pay outs of 10-20 years. Conversely, two states and two

refiners/suppliers of RFG commented that a four-year period is adequate

for several reasons including that it strikes a balance between

sufficient certainty for RFG producers and flexibility for states to

chose air quality control measures, markets tend to become more

efficient over time, and that an extended required period may not

provide additional cost recovery but instead create a disincentive to

continue participation in the program.

The above comments do not represent any new information or

compelling arguments to change the proposed four-year participation

period beyond four years. Thus the EPA continues to believe that a four

year period is the most appropriate. The Agency is not trying to assure

that all refiners will recover investments made in Phase II RFG

production in a given time period. EPA is instead seeking to structure

the federal RFG program in a way that minimizes the potential abrupt

decrease in demand that could occur to refiners, thereby making it

difficult to recover investments associated with producing this

product. The potential for such decreases in demand soon after the

implementation of Phase II RFG could be a disincentive to refiners to

invest in the kind of capital that would tend to reduce future supply

problems and to sustain the cost-effectiveness of the program. This is

because a refiner's decision to invest in Phase II RFG is based, in

part, upon an opt-in state's decision to have EPA require the sale of

Phase II RFG in a particular area. RFG market uncertainty is increased

when opt-in states are not bound to remain in the RFG program and by

the relatively simple process for states to opt out of the RFG program

provided for in the previously published rule. Without greater

assurance of the markets for Phase II reformulated gasoline over a

sufficient period of time, refiners may limit or delay investments and

prepare for a smaller than currently-predicted RFG demand.

EPA is committed to ensuring that non-attainment areas around the

country attain the National Ambient Air Quality Standards (NAAQS),

including the ozone standard. EPA recognizes, however, that under the

Clean Air Act the states play a primary role in attaining the NAAQS,

including choosing those control measures they prefer to include in

their plans to attain and maintain the NAAQS. EPA is committed to

maintaining, if possible and practical, the flexibility that states

have in air quality planning by establishing procedures to opt out and

substitute alternative control measures where the state considers

appropriate. The Agency believes that requiring RFG in opt-in states

for a period greater than four years may create a disincentive for

continued participation in those areas where this program is currently

considered a cost-effective control measure for the control of ground-

level ozone and toxics.

EPA believes that today's action achieves a balance between

allowing states with voluntary RFG areas the flexibility to opt-out of

the program and giving industry a certain level of assurance as to a

predictable demand for Phase II RFG during the important investment

recovery period of the program's early years. Today's action helps

maintain a consistent market, adequate supplies and reasonable prices,

thus maintaining the RFG program's cost-effectiveness.

E. Effective Date for Approved Opt-Out Petitions

In the NPRM, EPA proposed to change the date on which EPA-approved

opt-out petitions become effective for opt-out petitions received

January 1, 1998, through December 31, 2003. The EPA proposed that

States which previously opted in to the RFG program that do not submit

an opt-out request by December 31, 1997, and subsequently submit a

completed opt-out request before January 1, 2004, will be required to

participate in Phase II of the program until December 31, 2003. The

opt-out request will be effective January 1, 2004 or 90 days from the

Agency's written notification to the State approving the opt-out

petition, whichever is later.

The Agency also proposed that if a state submits an opt-out request

prior to December 31, 1997, the state can designate the opt-out to

occur at any future date beyond the minimum 90-day period required

under current opt-out procedures as long as it is not a date beyond

December 31, 1999. Areas opting into the RFG program subsequent to

December 31, 1997, will be treated the same as areas opting in prior to

that date and will also be included in Phase II of the program until

December 31, 2003.

A state commented that the December 31, 1997 deadline should be

extended if the Agency revises the National Ambient Air Quality

Standards (NAAQS) in the summer of 1997. It stated that a change in the

NAAQS would require analysis to verify the appropriateness of RFG as a

control strategy and that the proposed opt-out deadline would not be

sufficient for the state to make such a decision. The Agency

understands this air quality planning concern for a revision to the

NAAQS, but extending the opt-out deadline a few months would not be of

any significant value to the states for purposes of making decisions on

control strategies to meet the new ozone standard. Extending the

deadline much beyond December 31, 1997 could jeopardize the intent of

the rulemaking by not providing industry with sufficient lead time to

make necessary investment decisions.

A representative of the state of Maine commented that the opt-out

deadline should be extended at least until end of May 1998. The state

discussed the controversy within that state surrounding the decision of

whether or not to stay in the RFG program and expressed the importance

of providing its legislature the opportunity to approve such decisions.

The state's legislative session ended June 1997 and is not scheduled to

reconvene until January 1998. In January 1997, a bill was introduced in

Maine's Legislature to opt the state out of the RFG program. The

Legislature did not act on this legislation and carried it over to the

next legislative session beginning January 1998 for consideration. The

EPA believes that a limited extension is justified under these

circumstances and that a limited extension would not negate the intent

of the rulemaking since only a small refining market would be affected.

Thus in this final rule EPA is allowing a Governor, that requests an

extension so the legislature can consider a decision, to submit a

letter to EPA before December 31, 1997 to request an extension up to

May 31, 1998. To be eligible for an extension, the State's Legislature

must have pending RFG legislation that cannot reasonably be acted upon

until after the December deadline. Such legislation must be related to

either opting out of or

[[Page 54556]]

remaining in the RFG program and it must have been introduced prior to

March 28, 1997, the date of the opt-out proposal. The Governor must

submit a request for an extension to EPA containing such information

before December 31, 1997. The Agency then may grant an extension up to

May 31, 1998.

F. Return to Existing Procedures

EPA further proposed that, beginning on January 1, 2004, opt-out

requests from states again be approved based on the opt-out provisions

in effect before January 1, 1998. A petroleum association commented

that opt-outs must follow formal rulemaking process as provided for

under the CAA, and that approved opt-outs published by July 1 in a

given year should be effective January 1 of the following year to

provide adequate time for refiners to meet averaging requirement

planning and survey programs.

EPA does not agree that a separate rulemaking must be conducted for

each future opt-out request. The petition based process established in

the previous opt-out rulemaking (61 FR 35673) addresses, on a case by

case basis, future individual state requests to opt out of the federal

RFG program. The regulations establish clear and objective criteria for

EPA to apply in these future non-rulemaking actions. These criteria

address when a state's petition is complete and the appropriate

transition time under the regulations. This application of regulatory

criteria on a case by case basis to future individual situations does

not require notice and comment rulemaking, either under section 307(d)

of the Clean Air Act or the Administrative Procedure Act.

The EPA believes the petition approach is the most appropriate as

it will allow for expeditious and consistent Agency action on the

individual opt-out requests presented by states. It also provides

greater certainty in the market than individual rulemakings could

provide. Lastly, it provides quick approval for opt-out requests while

maintaining a sufficient transition period to minimize costly market

disruptions. In certain cases, the affected parties will be able to

comment on the state action. In those states where the RFG program is

included as a part of an approved state implementation plan (SIP),

affected parties that are concerned with the impacts of an opt-out

would have the opportunity to comment on a state's revised plan that

removes RFG as an air control measure.

At a state's request, the opt-out could be effective later than 90

days after approval of the petition or revised SIP. In such a case, a

state must indicate in its petition to the Agency the desired effective

date for the opt-out. EPA recommends that a state consider an opt-out

date which becomes effective on one of the RFG program's natural

transition points. These natural transition points are identified as

January 1, the start of the averaging season, and May 1 and September

15, the beginning and end, respectively, of the VOC control season. The

Agency supports state efforts to accommodate these natural transition

points.

G. Variations to Proposal

In the NPRM, EPA requested comments on two specific possible

variations to the proposal in anticipation of interest in these options

by outside parties:

(1) An area that reaches attainment of the ozone standard and is

redesignated during the period of January 1, 1998, through December 31,

2003, would be allowed to submit an opt-out request to be approved by

EPA using the same 90 day opt-out effective date applicable before

December 31, 1997 (See 61 FR 35673, July 8, 1996). A petroleum

association commented that it opposed this variation of allowing areas

to opt out of the program if they redesignate to attainment. It

specified that this variation would undercut, possibly negate, the

opportunity for cost recovery, create investment uncertainties and

instability that EPA is trying to avoid through this rulemaking, and is

inconsistent with the rationale underlying the rest of the proposal.

Most comments from industry agreed with the association's argument

against the variation. One RFG supplier, however, commented that such a

variation is important to state, local, and consumer involvement to

have every incentive to reach attainment classification as soon as

possible.

The EPA believes that this variation could jeopardize the intent of

the rule and thus is not including it in the final rule. While the

Agency agrees that states should have every incentive to reach

attainment, EPA does not believe this variation provides an incentive

great enough to outweigh the risk of undercutting the purpose of the

rule. If some states have areas that are redesignated to attainment

during the required participation period, their state implementation

plans (SIP), if applicable, would need to be revised. Even if these

processes were completed within the required period, it is likely that

the state would need to retain RFG in its maintenance plan to remain in

attainment. Thus this variation would not necessarily provide an

additional incentive to reach attainment of the ozone standard but

instead would retain an element of market uncertainty which contradicts

the purpose of the requirement.

(2) A similar participation period for areas first opting into the

RFG program subsequent to December 31, 1999, requiring these areas to

participate in Phase II of the program for at least four years from the

date of their opt-in. This variation, referred to as a ``rolling

required period'', would establish the effective date for the removal

of an area from the program as January 1, 2004, or 90 days from the

Agency's written notification approving the opt-out, or four years from

the effective date of their opt-in, whichever date is later, for all

opt-out requests received after January 1, 2000.

Several commenters supported a rolling period to avoid stranded

investments. However, one supplier remarked that it may not be

necessary to continue with a four year period beyond 2003. The EPA

believes that with the information available today and with the

uncertainty of the future, the Agency cannot conclude that there is a

need for a rolling period to assure a continued cost-effective RFG

program. The Agency did not receive a compelling argument or

information to continue with a required period for new opt-in areas.

The program which began in 1995 has remained very stable with only one

new opt-in. If a few areas were to opt-in the future, they may well be

located near a pipeline or appropriate infrastructure to meet the new

demand without additional refinery investments. However, if new areas

opt in remote locations or if there are numerous new areas, industry

may need to make unanticipated investments which could impact the price

of RFG. In this latter instance a rolling period may be necessary.

EPA believes that based on information available today there is not

sufficient justification to include a rolling period in this final

rule. However, since the Agency is committed to ensuring a cost-

effective RFG program to achieve air quality goals, EPA will take any

necessary action in the future if new information indicates a rolling

period is warranted.

II. Environmental Impact

If an area opts out of the RFG program, it will not receive the

reductions in VOCs, oxides of nitrogen (NOX), and air toxics

that are expected from this program. Instead, the areas would be

subject to the federal controls on Reid vapor pressure for gasoline in

the summertime, and would only

[[Page 54557]]

receive control of NOx and air toxics through the requirements of the

conventional gasoline anti-dumping program. These latter requirements

are designed to ensure that gasoline quality does not degrade from the

levels found in 1990. These areas would be foregoing the air quality

benefits obtained from the use of RFG.

In this final rule, EPA continues to recognize that states have the

primary responsibility to develop the mix of control strategies needed

to attain and maintain the NAAQS, and should have flexibility in

determining the mix of control measures needed to meet their air

pollution goals. However, the final rule also seeks to ensure through

the required participation period that the potential for a state to

decide to opt-out of Phase II of the RFG program does not cause adverse

impacts on the market demand for Phase II RFG during the initial years

of the program and thus maintains the cost-effectiveness of the RFG

program. EPA expects that states will in fact act prudently in

exercising their ability to opt-out under these rules. Any

environmental impacts of opting out are, therefore, not expected to

occur in isolation, but in a context of states exercising their

responsibility and developing appropriate control strategies for their

areas' air pollution goals.

III. Executive Order 12866

Under Executive Order 12866,2 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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\2\ 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.3

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\3\ 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.

IV. 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 final rulemaking or final rule that

includes a Federal mandate which may result in estimated costs to

State, local, or tribal governments in the aggregate, or to the private

sector, of $100 million or more. 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 final 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.

V. Economic Impact and Impact on Small Entities

The Administrator has determined that this rule will not have a

significant impact on a substantial number of small entities. A

regulatory flexibility analysis has therefore not been prepared. This

final rule is not expected to result in any additional compliance cost

to regulated parties and in fact is expected to decrease compliance

costs and decrease costs to consumers in the affected areas by

providing more certainty for regulated parties. This final rule imposes

no new requirements on states.

With respect to the portion of today's action which requires

participation until January 1, 2004, of opt-in areas unless they

request to opt-out prior to January 1, 1998, today's final rule is not

expected to result in any additional compliance cost to regulated

parties. It does no more than maintain the status quo for those

entities who have been supplying RFG to the RFG opt-in areas and

imposes no additional requirements on parties that must comply with the

RFG regulations.

With respect to the portion of today's final rule which would apply

to opt-out requests applied for on or after January 1, 2004, the final

rule is not expected to result in any additional compliance cost to

regulated parties and in fact is expected to decrease compliance costs

to those entities who previously supplied RFG to the area opting out.

This rule also establishes a transition period which maximizes affected

parties' ability to plan for smooth transition from the RFG program,

minimizing disruption to the motor gasoline marketplace. This

transition period is reasonably expected to allow parties to turn over

existing stocks of RFG to conventional gasoline.

VI. Paperwork Reduction Act

This action does not add any new requirements under the provisions

of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. The Office of

Management and Budget (OMB) has approved the information collection

requirements contained in the final FRG/anti-dumping rule and has

assigned OMB control number 2060-0277 (EPA ICR No. 1591.03).

Burden means the total time, effort, or financial resources

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

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

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

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

verifying information, processing and maintaining information, and

disclosing and providing information; adjust the existing ways to

comply with any previously applicable instructions and requirements;

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

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

and transmit or otherwise disclose the information.

An Agency may not conduct or sponsor, and a person is not required

to respond to a collection of information unless it displays a

currently valid OMB control number. The OMB control numbers for EPA's

regulations are listed in 40 CFR Part 9 and 48 CFR Chapter 15.

VII. Submission to Congress and the General Accounting Office

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

Regulatory Enforcement Fairness Act of 1996, EPA submitted a report

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

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

General Accounting

[[Page 54558]]

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).

List of Subjects in 40 CFR Part 80

Environmental protection, Fuel additives, Gasoline, Imports, Motor

vehicle pollution, Penalties, Reporting and recordkeeping requirements.

Dated: October 9, 1997.

Carol M. Browner,

Administrator.

Final Rulemaking

Accordingly, 40 CFR part 80 is amended as follows:

PART 80--REGULATION OF FUELS AND FUEL ADDITIVES

1. The authority citation for part 80 continues 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 80.72 is amended by revising paragraphs (a) and (c) to

read as follows:

Sec. 80.72 Procedures for opting out of the covered areas.

(a) In accordance with paragraph (b) of this section, the

Administrator may approve a petition from a state asking for removal of

any opt-in area, or portion of an opt-in area, from inclusion as a

covered area under Sec. 80.70. If the Administrator approves a

petition, he or she shall set an effective date as provided in

paragraph (c) of this section. The Administrator shall notify the state

in writing of the Agency's action on the petition and the effective

date of the removal when the petition is approved.

* * * * *

(c)(1) For opt-out petitions received on or before December 31,

1997, except as provided in paragraphs (c)(2) and (c)(3) of this

section, the Administrator shall set an effective date for removal of

an area under paragraph (a) of this section as requested by the

Governor, but no less than 90 days from the Agency's written

notification to the state approving the opt-out petition, and no later

than December 31, 1999.

(2) For opt-out petitions received on or before December 31, 1997,

except as provided in paragraph (c)(3) of this section, where RFG is

contained as an element of any plan or plan revision that has been

approved by the Agency, other than as a contingency measure consisting

of a future opt-in, then the effective date under paragraph (a) of this

section shall be the date requested by the Governor, but no less than

90 days from the effective date of Agency approval of a revision to the

plan that removes RFG as a control measure.

(3)(i) The Administrator may extend the deadline for submitting

opt-out petitions in paragraphs (c)(1) and (2) of this section for a

state if:

(A) The Governor or his authorized representative requests an

extension prior to December 31, 1997;

(B) The request indicates that there is active or pending

legislation before the state legislature that was introduced prior to

March 28, 1997;

(C) The legislation is concerning opting out of or remaining in the

reformulated gasoline program; and

(D) The request demonstrates that the legislation cannot reasonably

be acted upon prior to December 31, 1997.

(ii) The Administrator may extend the deadline until no later than

May 31, 1998. If the deadline is extended, then opt-out requests from

that state received during the extension shall be considered under the

provisions of paragraphs (c)(1) and (2) of this section.

(4) For opt-out petitions received January 1, 1998 through December

31, 2003, except as provided in paragraph (c)(5) of this section, the

Administrator shall set an effective date for removal of an area under

paragraph (a) of this section as requested by the Governor but no

earlier than January 1, 2004 or 90 days from the Agency's written

notification to the state approving the opt-out petition, whichever

date is later.

(5) For opt-out petitions received January 1, 1998 through December

31, 2003, where RFG is contained as an element of any plan or plan

revision that has been approved by the Agency, other than as a

contingency measure consisting of a future opt-in, then the effective

date for removal of an area under paragraph (a) of this section shall

be the date requested by the Governor, but no earlier than January 1,

2004, or 90 days from the effective date of Agency approval of a

revision to the plan that removes RFG as a control measure, whichever

date is later.

(6) For opt-out petitions received on or after January 1, 2004,

except as provided in paragraph (c)(7) of this section, the

Administrator shall set an effective date for removal of an area as

requested by the Governor, but no less than 90 days from the Agency's

written notification to the state approving the opt-out petition.

(7) For opt-out petitions received on or after January 1, 2004,

where RFG is contained as an element of any plan or plan revision that

has been approved by the Agency, other than as a contingency measure

consisting of a future opt-in, then the effective date for removal of

an area under paragraph (a) of this section shall be the date requested

by the Governor, but no less than 90 days from the effective date of

Agency approval of a revision to the plan that removes RFG as a control

measure.

* * * * *

[FR Doc. 97-27725 Filed 10-17-97; 8:45 am]

BILLING CODE 6560-50-P