Regulation of Fuels and Fuel Additives: Adjustments to Individual Baselines for the Reformulated Gasoline and Anti-Dumping Programs

SUMMARY: Under the Clean Air Act (CAA or the Act), as amended in 1990,

the Environmental Protection Agency (EPA or the Agency) promulgated

anti-dumping regulations for conventional gasoline, that is, gasoline

not certified as reformulated gasoline (RFG). These regulations require

that conventional gasoline not be more polluting than it was in 1990.

They also include provisions for the development of individual refinery

baselines. The regulations also include provisions which allow a

refinery to obtain an adjusted baseline under certain, limited

circumstances. Today's regulations modify the requirements of one

baseline adjustment and specify the requirements of two new baseline

adjustments.

Specifically, today's rulemaking modifies the requirements for

obtaining a baseline adjustment due to the production of JP-4 jet fuel

in 1990. This rule also allows a baseline adjustment for refiners who

are now unable to acquire extremely sweet crude oil (that is, crude oil

relatively low in sulfur) that had been available in 1990 and from

which the gasoline used to develop a 1990 individual baseline was

obtained. Finally, this rule allows a baseline adjustment for

refineries which have both extremely low baseline sulfur and olefin

levels.

The criteria for obtaining any baseline adjustment are stringent.

As a result, only those refineries which would experience a severe

economic burden due to the regulations are allowed the relief provided

by a baseline adjustment. Since few refineries qualify for these

adjustments and requiring compliance without a baseline adjustment

would be of minimal benefit to the environment, the environmental

impact of allowing the baseline adjustments is negligible.

DATES: This rule will be effective on April 22, 1997.

ADDRESSES: Materials relevant to this final rulemaking (FRM) are

contained in Public Docket No. A-95-03. Materials relevant to the RFG

final rule are contained in Public Dockets A-91-02 and A-92-12. These

dockets are located at Room M-1500, Waterside Mall (ground floor), U.S.

Environmental Protection Agency, 401 M Street SW., Washington, DC

20460. The docket may be inspected from 8:00 a.m. until 5:30 p.m.

Monday through Friday. A reasonable fee may be charged by EPA for

copying docket materials.

FOR FURTHER INFORMATION CONTACT: Christine M. Brunner, U.S. EPA, Fuels

and Energy Division, 2565 Plymouth Road, Ann Arbor, MI 48105.

Telephone: (313) 668-4287. To request copies of this document, contact

Delores Frank, U.S. EPA, Fuels and Energy Division, 2565 Plymouth Road,

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

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Electronic Copies of Rulemaking Documents

A. Technology Transfer Network Bulletin Board System (TTNBBS)

B. Internet

II. Regulated Entities

III. Introduction

IV. JP-4 Baseline Adjustment

A. Introduction

B. General Comments on the Proposal

C. Comments on the Proposed Ratio of JP-4 Production to Gasoline

Production

D. Comments on the Aggregation and RFG Production Restrictions

E. Comments Regarding the Effect of JP-4 Production on Refinery

Operation

V. Crude Oil Quality Baseline Adjustment

A. Introduction

B. General Comments on the Proposal

C. Comments on Crude Oil Quality Changes Since 1990

D. Comments on the Proposed Criteria for a Baseline Adjustment

E. Comments on the Proposed Options for a Baseline Adjustment

VI. Low Sulfur, Low Olefin Baseline Adjustment

A. Introduction

B. General Comments on the Proposal

C. Provisions of the Final Rule

VII. Environmental and Economic Impacts

VIII. Administrative Requirements

A. Administrative Designation

B. Impact on Small Entities

C. Paperwork Reduction Act

D. Unfunded Mandates Act

E. Submission to Congress and the General Accounting Office

IX. Statutory Authority

I. Electronic Copies of Rulemaking Documents

A. Technology Transfer Network Bulletin Board System (TTNBBS)

An electronic copy of this notice is available on the EPA's Office

of Air Quality Planning and Standards (OAQPS) Technology Transfer

Network Bulletin Board System (TTNBBS). The service is free of charge,

except for the cost of the phone call. The TTNBBS can be accessed with

a phone line and a high-speed modem per the following information:

TTNBBS: 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

Rulemaking and Reporting

Fuels

File Area #9 * * * Reformulated gasoline

At this point, the system will list all available files in the

chosen category in reverse chronological order with brief descriptions.

These files are compressed (i.e., ZIPped). Today's notice can be

identified by the following title: JP4FRM.ZIP. To download this file,

type the instructions below and transfer according to the appropriate

software on your computer:

>D>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 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. After you have downloaded the

desired files, you can quit the TTNBBS with the oodbye command.

Please note that due to differences between the software used to

develop the document and the software to which the document is

downloaded, changes in page format may occur.

B. Internet

Rulemaking documents can also be located on the Internet as

follows:

World Wide Web

http://www.epa.gov/omswww

Telnet

telnet ttnbbs.rtpnc.epa.gov

[[Page 9873]]

FTP

ftp://ftp.epa.gov

Then change the directory (CD) to /pub/gopher/OMS/

Gopher

gopher://gopher.epa.gov:70/11/Offices/Air/OMS

Alternatively, go to the main EPA gopher and follow the menus:

gopher.epa.gov

EPA Offices and Regions

Office of Air and Radiation

Office of Mobile Sources

II. Regulated Entities

Entities that could be regulated by this action are those that

produced gasoline in 1990 and which have an individual baseline per

part 40 section 80.91 of the Code of Federal Regulations (CFR).

Regulated categories and entities include:

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Category Examples of regulated entities

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Industry............................... Oil refineries.

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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 facility is regulated by this action, you should carefully examine

the applicability criteria at 40 CFR 80.91. 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.

III. Introduction

The standards that a refiner must comply with for certain aspects

of the reformulated and conventional gasoline regulations are based on

the refiner's individual baseline.1 An individual baseline is the

set of fuel parameter values, emissions values, and component volumes

which represent the quality and quantity of the refiner's 1990

gasoline. (See 40 CFR 80.91.) EPA's regulations establish requirements

for developing an individual baseline. For special situations, the

Agency has allowed the baseline fuel parameters, emissions values, and

component volumes to be adjusted. Such situations have included

unforeseen downtime of a gasoline blendstock producing unit, non-annual

maintenance, work-in-progress, and JP-4 jet fuel production.

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\1\ In general, the anti-dumping provisions apply to refiners or

importers of conventional gasoline. The baseline adjustment

provisions finalized in today's notice, however, are applicable only

to refiners and their refineries.

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This FRM allows baseline adjustments for three situations where

parties would suffer an extreme economic burden due to the original

regulations if relief were not granted. Specifically, this rule (1)

Revises the requirements for a baseline adjustment due to the

production of JP-4 jet fuel in 1990, (2) provides an adjustment to the

baseline sulfur values of certain refineries for instances where

extremely sweet crude oil (which is no longer available) was used in

1990 gasoline production, and (3) adds a provision for adjusting

refinery baselines which have very low values for both sulfur and

olefins.

In general, for refiners who qualify for one or more of the

baseline adjustments finalized today, EPA will apply the adjustments to

gasoline produced in 1996. In the August 1995 Notice of Proposed

Rulemaking (NPRM) EPA indicated that any adjustments finalized under

this rulemaking would apply to a refiner's 1995 compliance

determination. However, EPA cannot retroactively apply a rulemaking,

even one that provides a measure of regulatory relief. Many refiners

affected by today's rule received baseline adjustments under the stay

promulgated at 60 FR 40006 (August 4, 1995). Because these refiners

have the same adjusted baseline under the stay that they would receive

as a result of today's action, they are unaffected by whether or not

today's rule applies to 1995 compliance determinations. For those

refiners who did not receive an adjusted baseline, EPA will consider

this rule in its review of 1995 compliance determinations.

IV. JP-4 Baseline Adjustment

A. Introduction

JP-4 jet fuel, the use of which is being phased out by the U.S.

Department of Defense, was produced in 1990 by many refiners under

contract with the Defense Department. Because refineries will most

likely use the JP-4 blendstock in gasoline, the JP-4 fuel must first be

processed through a reformer to increase its octane to suitable

gasoline levels. Due to the high aromatic content of the reformer

streams, the toxic emissions of the ``new'' gasoline (calculated using

the Simple and Complex Models) will likely increase relative to the

gasoline's 1990 values. In addition, it is possible that gasoline

production will increase (relative to 1990 production) due to movement

of blendstocks directly and indirectly from JP-4 to gasoline. The

impact of the increase in aromatic content and/or additional volume due

to JP-4 phase-out will affect certain refiners more than others.

The December 1993 regulations 2 already provide for an

adjustment to a refiner's individual baseline due to production of JP-4

in 1990 if three criteria are met. These criteria were designed to

ensure that the original adjustment would result in de minimis

environmental impact and would remove the extreme burden on the

refiner.3 First, under the original adjustment, JP-4 baseline

adjustments are allowed only for refiners who do not or will not in the

future produce RFG. If a refiner granted such an adjustment

subsequently produces RFG, its conventional gasoline compliance will be

subject to its original unadjusted baseline during the current

averaging period and all subsequent years. Second, a JP-4 baseline

adjustment is available primarily to qualifying single-refinery

refiners. A multi-refinery refiner could also receive an adjustment if

each of its refineries produced JP-4 in 1990 and if each refinery also

meets the other requirements for obtaining the adjustment. Third, to

receive an adjustment, the refiner is required to show that a

significant burden would exist if no baseline adjustment was allowed.

The original regulations require that the ratio of a refinery's 1990

JP-4 production to its 1990 gasoline production must equal or exceed

0.5 in order to be defined as a significant burden on the refiner.

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\2\ 59 FR 7716, February 16, 1994.

\3\ Alabama Power Company vs. Costle, 636 F.2d 323-357 (D.C.

Cir. 1979).

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In the August 4, 1995 NPRM (60 FR 40009), EPA proposed modified

provisions related to JP-4 baseline adjustments. These provisions were

essentially the same as those contained in a direct final rulemaking

(DFRM) which was published at 59 FR 36944, July 20, 1994.4

Specifically, EPA proposed the following three conditions that would

have to be met by a refiner who petitions for a baseline adjustment due

to JP-4 production in 1990. The first condition applies to multi-

refinery refiners while the second and third

[[Page 9874]]

conditions apply to all refining companies.

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\4\ EPA withdrew this DFRM since EPA received adverse comments

on the changes specified in the DFRM with regard to JP-4 baseline

adjustments. As announced in the DFRM, such provisions would take

effect only if no persons submitted adverse comments or requested an

opportunity to comment. For more discussion, see the support

document, ``Regulation of Fuels and Fuel Additives: Standards for

Reformulated and Conventional Gasoline--Detailed Discussion and

Analysis'', Air Docket A-95-03.

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(1) The Qualifying Refiner Must Have Produced JP-4 at One or More of

Its Refineries in 1990

The original JP-4 baseline adjustment provisions for multi-refinery

refiners require that each refinery must have produced JP-4 in 1990.

This revision would allow a refiner to obtain this baseline adjustment

even if only one of its refineries produced JP-4 in 1990 (and if the

refiner and its refineries also meet the other criteria specified for

this baseline adjustment). EPA believes it may use its discretion to

provide relief for a multi-refinery refiner even if only one of the

refiner's refineries produced JP-4 in 1990 (provided that the refiner

or refinery meets the other requirements required for a JP-4 baseline

adjustment). If a multi-refinery refiner qualifies for a baseline

adjustment under this criterion, it must then calculate the adjusted

baseline of the refinery(ies) which actually produced JP-4 in 1990 and

determine its anti-dumping compliance on an aggregate basis.

(2) The Qualifying Refiner Must Have a 1990 JP-4 to Gasoline Ratio

Greater Than or Equal to 0.15 (See Discussion Below Regarding JP-4

Baseline Adjustment Ratio)

(a) For each individual refiner, if all of its refineries produced

JP-4 in 1990, the refiner may comply with the anti-dumping requirements

on an individual or aggregate basis; or

(b) On a refiner-wide basis, in which case the refiner must

determine an individual baseline for each of its refineries but must

comply with the anti-dumping requirements on an aggregate basis.

(3) The Qualifying Refiner Must Not Produce Reformulated Gasoline (RFG)

at Any of Its Refineries Now or in the Future

The comments received on this proposal are discussed below. None of

the comments provided new information or supportive data. Therefore,

EPA today finalizes this provision as proposed, for the reasons

described in the NPRM.

B. General Comments on the Proposal

Summary of Comments

Generally, many commenters felt the original eligibility

requirements for receiving a JP-4 baseline adjustment are unnecessarily

restrictive. They felt that EPA's overriding concern should be the

impact of the baseline adjustments on the environment, and they

suggested that most refineries meeting the JP-4 criteria operate in

rural, clean air (i.e., attainment) areas.

Several commenters opposed the regulation change, stating that it

would be more equitable for all JP-4 producers to get an adjustment,

regardless of ratio, aggregation, or RFG production. Commenters stated

that this position is based on the fact that all JP-4 producers were

meeting a market demand, and therefore should not be selectively

penalized. Furthermore, these commenters felt that elimination of post-

1995 demand for JP-4 causes all baselines to be unrepresentative of

current and future operations. Therefore the JP-4 phase-out and anti-

dumping regulations may have unintended adverse effects on the

regulated community of former JP-4 suppliers. These commenters

suggested that a better approach would be to allow an adjustment for

all JP-4 producers, and allow refiners to rethink aggregation

decisions. The commenters felt this would ``level the playing field''

and simplify the regulations.

Analysis and Conclusion

EPA's authority to grant exceptions to this requirement of the CAA

is very limited. EPA does not believe it is appropriate, given the

applicable facts and this limitation, to allow adjustments for all JP-4

producers. Exceptions to this requirement of the Act should only be

allowed for cases of extreme regulatory burden with minimal

environmental impact, and not all refiners who produced JP-4 in 1990

are extremely burdened by the requirements of the RFG and anti-dumping

programs. Today's action slightly broadens the JP-4 baseline adjustment

criteria, but continues to allow adjustment only where extreme burden

is demonstrated.

C. Comments on the Proposed Ratio of JP-4 Production to Gasoline

Production

Summary of Comments

Some commenters opposed the change in production ratio to 0.15,

stating that the 0.15 ratio is arbitrary and that EPA has provided no

evidence of hardship for the three or four refineries which would be

affected. One commenter felt that if the environmental impacts are

minimal at 0.15, they would be even less for those below the 0.15

production ratio. They stated that as little as two percent JP-4

production can be a significant aspect of refining operations;

adjusting for production, this low percentage may have little impact on

the baseline but would provide necessary relief for refiners who have

experienced increasing levels of benzene and aromatics. Commenters also

felt that refineries on the ``wrong side'' of the ratio will continue

to argue for special exemptions; any ratio arbitrarily provides relief

to some while denying it to others.

Commenters also stated that it is impossible for the public to

judge whether a hardship even exists. They felt that the ratio

criterion is only one of several criteria which should be used to

determine hardship. They argued that the regulation should not be

limited to just one criterion, but rather it should include alternative

tests for hardship. Several alternative criteria for determining

hardship were suggested by commenters. One commenter suggested that EPA

should evaluate the financial penalty of noncompliance relative to the

refiner's size and profit to determine extreme burden. One commenter

proposed that a straight production volume of 100,000 gallons of JP-4,

rather than a jet fuel-to-gasoline production ratio, would be a more

appropriate baseline adjustment criterion. In addition, commenters

suggested that EPA should consider the historical pattern of JP-4

production for a refinery, stating that a refinery that produces JP-4

over a long period will have greater hardship converting that product

to gasoline.

Finally, it was suggested that EPA needs to recognize that the

industry is capital-intensive and that refineries should be encouraged

to make the necessary capital investments.

Analysis and Conclusion

As stated before, in addition to minimal environmental impact,

regulatory burden must also be considered before an exception to the

regulations can be made, and a baseline adjustment allowed. As

discussed in the December 1993 Regulatory Impact Analysis (RIA), the

JP-4 to gasoline production ratio is the best measure found by EPA to

estimate and quantify this burden. However, based on information

received by EPA subsequent to the initiation of the RFG program, the

original 0.5 ratio does not provide the relief intended by the Agency.

Using industry data, EPA proposed a more appropriate ratio of 0.15, and

stated that a few more (three or four) refineries could potentially

benefit from this change in the ratio. Although EPA agrees with

commenters that other means of showing extreme burden of the

regulations may exist, EPA has not found any which seem as appropriate

(particularly with respect to providing a quantitative means of

establishing burden). Additionally, EPA believes that such alternative

tests would be difficult to implement at this

[[Page 9875]]

stage in the baseline approval process. Finally, EPA believes that

limiting this analysis to 1990 situations is most consistent with

statutory structure.

D. Comments on the Aggregation and RFG Production Restrictions

In the August 1995 NPRM, EPA proposed that a multi-refinery

refiner, could qualify for a JP-4 baseline adjustment even if only one

of its refineries produced JP-4 in 1990. However, that refiner would

have to determine its compliance on an aggregate basis and could

produce no RFG at any of its refineries. A detailed discussion of the

basis of these requirements can be found in the support document for

this rule, ``Regulation of Fuels and Fuel Additives: Standards for

Reformulated and Conventional Gasoline-Detailed Discussion and

Analysis,'' Air Docket A-95-03.

Summary of Comments

Commenters supporting the proposed modifications to the regulation

provided several points to support the changes. Primarily, they stated

that without these changes, it would be impossible for a multi-refinery

refiner to qualify for an adjustment. Thus, according to commenters,

the regulation would not provide the relief intended by EPA. Some

commenters supporting the proposed changes to the regulation endorsed

the need for change in the aggregation requirements of the JP-4

adjustment. Commenters felt that such requirements would further

restrict the business decisions of a multi-refinery refiner.

Many commenters addressed the RFG production restrictions placed on

a refiner that receives a JP-4 adjustment. Commenters felt that

prohibiting RFG production by these refiners may cause a refiner not to

produce RFG for areas where it is needed. Also, commenters argued that

some refiners who qualify for the JP-4 adjustment may have already

produced RFG. These commenters felt that the environmental impact of

allowing RFG production would be minimal.

Analysis and Conclusion

EPA is retaining the proposed requirement that a multi-refinery

refiner qualifying for a JP-4 baseline adjustment, for which not all of

its refineries produced JP-4 in 1990, must determine its compliance on

an aggregate basis. Under the regulations promulgated today, such a

refiner is able to obtain a JP-4 baseline adjustment because it has

determined its JP-4 to gasoline ratio on an aggregate basis. EPA

continues to believe that it is appropriate to thus require such a

refiner to determine its anti-dumping compliance on an aggregate basis

as well. A multi-refinery refiner for which each of its refineries

meets the JP-4 baseline adjustment criteria individually may determine

its compliance on an aggregate or non-aggregate basis.5

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\5\ However, as for all refiners, once the decision to

determine compliance on an aggregate basis is made, compliance must

be made on that basis for all future compliance periods.

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EPA continues to believe that prohibiting RFG production is a

critical criteria for this baseline adjustment as it is the best way to

ensure that no ``dumping'' will occur. EPA does not consider this

requirement to be unduly restrictive.

E. Comments Regarding the Effect of JP-4 Production on Refinery

Operation

Summary of Comments

Several commenters, including both those supporting the regulation

changes and those opposing them, stated that EPA should give full

consideration to the effects of JP-4 production on refinery operations.

These commenters pointed out that 1990 JP-4 production can limit

gasoline production at a refinery, and that premium gasoline, the most

profitable gasoline to produce, is most affected by baseline

limitations. Commenters stated that JP-4 production limited small

refiners with low conversion configurations who could not fractionate

excess gasoline into distillate.

Analysis and Conclusion

EPA recognizes that there are difficulties in the conversion of

refinery operations from JP-4 production to gasoline production, and

that production volumes may also be limited. EPA also recognizes that

the burden of the conversion and compliance with the RFG and anti-

dumping requirements differs from refiner to refiner. However, as

stated previously, EPA's authority in allowing exceptions to the

regulations in the form of baseline adjustments is limited.

Environmental impact and regulatory burden are the only factors EPA

considered in determining what type of baseline adjustment, if any,

should be allowed. EPA believes that the most appropriate measure of

the regulatory burden in this context is the JP-4 to gasoline ratio,

discussed above.

V. Crude Oil Quality Baseline Adjustment

A. Introduction

Crude sulfur content is increasing nationwide.6 The ability of

refiners to deal with this change varies. EPA is aware that the quality

of the crude oil (with regard to sulfur content) available to refiners

in PADD IV has been deteriorating faster than crude oil in other

regions of the U.S. since 1990.7 In addition, refiners in this

region do not have access to foreign crude oil imports other than those

from Canada. Thus, the quality of crude oil available to these

refiners, from conventional or alternative sources, is limited. Prior

to promulgation of the December 1993 final rule, EPA was not aware that

the deterioration of crude oil available to certain refiners (in regard

to increasing sulfur content) might force them to cease operation since

the burden of compliance might be prohibitively expensive.

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\6\ E.J. Swain, ``U.S. crude slate continues to get heavier,

higher in sulfur,'' Oil & Gas Journal, p. 37, January 9, 1995.

\7\ Ibid.

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The anti-dumping requirements contained in the December 1993

regulations generally do not allow baseline adjustments for changing

crude oil quality or availability. However, as discussed in the

preamble to the December 1993 final rule, EPA recognized that a

refiner's ability to comply with its individual baseline can be

difficult due to changes in crude oil supplies, markets, and fuel

specifications. As with the work-in-progress baseline adjustment (40

CFR 80.91) and the original JP-4 baseline adjustment (40 CFR 80.91),

EPA believes it is appropriate to provide baseline adjustments in

situations where the anti-dumping regulatory burden is extremely

onerous and where requiring compliance would yield little or no

environmental benefit. Thus, EPA is finalizing such a baseline

adjustment where a dramatic increase in crude sulfur content has

occurred which could severely affect the anti-dumping compliance of

refiners with extremely low baseline sulfur levels.

EPA expects a minimal environmental impact from allowing the low-

sulfur crude baseline adjustment (based on the criteria finalized

today) for two reasons. First, only a few refineries are expected to

qualify for the adjustment and second, the total production volume of

these refineries is marginal.

[[Page 9876]]

B. General Comments on the Proposal

Summary of Comments

Several commenters felt that EPA was unjustified in granting a

small number of refiners special treatment for what is a ``fact of

life'' for all refiners. They felt this proposal appears to satisfy

certain refiners at the expense of others. Some commenters claimed that

since sour crude oil is typically less expensive than sweet crude oil,

refiners can invest in the appropriate level of desulfurization

capacity to refine the crude into a competitive crude slate. On the

other hand, one commenter asserted that it is not appropriate to grant

a waiver to purchase sour crude oil supplies, and then allow the

production of gasoline which would not meet the anti-dumping standards.

Other commenters opposing the proposal felt that, although it is

very restrictive, they could not support concessions for only a few

regulated parties. They contended that EPA should force a capital

solution by the affected refiners, and not allow the adjustment.

Analysis and Conclusion

In finalizing the low-sulfur crude baseline adjustment, EPA is

using the authority granted to it by Congress to allow limited

exceptions under narrow circumstances. As with the other baseline

adjustments mentioned above, the appropriate criteria for obtaining an

adjustment are designed to be stringent in order to provide relief only

in cases of extreme burden and to maintain the environmental benefits

of the (anti-dumping) program. EPA is not allowing adjustments for all

refiners who have experienced increasing crude sulfur levels since 1990

or for refiners who will experience such increases in the future. Thus,

the existing provisions in part 40, section 80.91 of the regulations

still apply, i.e., no adjustments for crude oil quality or availability

changes are allowed unless the criteria finalized today are met.

C. Comments on Crude Oil Quality Changes Since 1990

In the NPRM, EPA requested comments on inherent crude oil

properties, other than sulfur, which have significantly deteriorated

since 1990 and which directly and significantly affect the values of

any fuel parameters for which an individual baseline value must be

determined. In addition, EPA requested comments on future crude oil

trends (i.e. whether crude sulfur content will continue to increase or

stabilize), specifically on a regional or PADD basis.

Summary of Comments

No commenter specified crude oil properties, other than sulfur,

which have significantly deteriorated since 1990 and which directly and

significantly affect the values of any fuel parameters for which an

individual baseline value must be determined. Additionally, no

commenter discussed future crude oil property trends. Commenters did

discuss the RFG and anti-dumping programs, specifically with regard to

individual baselines, as indicated below.

One commenter in support of a baseline adjustment commented that

the existing anti-dumping regulations have the unintended consequence

of placing a disproportionately heavy burden on producers of clean

gasoline which ultimately could lead to a deterioration of air quality.

Specifically, the commenter stated that refiners who produced clean

gasoline in 1990 are held to stricter standards than those who produced

dirtier gasoline in 1990. Furthermore, the difficulties of the more

stringent standards become more acute when the quality of a refiner's

gasoline is affected by circumstances beyond the refiner's control.

Another commenter indicated that driving the cleanest refiners out

of business was not an intended effect of the RFG and anti-dumping

programs, and would not promote protection of public health or the

environment. This commenter felt the regulations should recognize the

needs of the cleanest refiners and afford them the opportunity for

continued operation, by allowing a low sulfur crude adjustment. The

commenter stated that despite increased sulfur content, clean refiners

would still produce very clean gasoline. Furthermore, the commenter

indicated that without an appropriate and sufficient baseline

adjustment, clean refiners may have to cease operation which could

subsequently lead to fewer clean refineries in the petroleum industry.

In regard to standard pipeline procedures, one commenter felt that

certain crude oil properties were beyond the control of downstream

refiners. Therefore, the commenter stated that refiners should be

allowed to adjust baselines annually. As an example, the commenter

stated that perhaps such an adjustment would be based on the naphtha

fraction of the crude oil received from the Alaska North Slope.

Analysis and Conclusion

EPA disagrees with the comment that refiners who produced

relatively cleaner gasoline in 1990 are held to a stricter standard

than those who produced relatively dirtier gasoline in 1990. The same

basic standard applies to all refiners with an individual baseline,

that is, they must produce gasoline as clean as the gasoline they

produced in 1990.

As indicated above, the original regulations generally do not allow

baseline adjustments for changing crude oil quality or availability.

However, during the review and approval of baselines, EPA was informed

that the depleted supply of very sweet crude oil which had been

processed in 1990 could force one or more refiners to cease gasoline

production. If a refiner processed a very sweet crude (e.g., less than

500 ppm) in 1990, its baseline sulfur level could be 50 ppm or lower.

Because of increasing sulfur content in the crude oil supply, if that

refiner currently processes relatively sweet crude oil (e.g., less than

1200 ppm sulfur), it would likely be unable to comply with its

individual baseline without severe economic burden due to its extremely

low baseline sulfur level. It may also be extremely expensive for

refiners to add refinery units in order to ensure compliance. For

example, gasoline sulfur may be lowered by hydro-desulfurization of

gasoline components and/or by charging the gasoline to blendstock

producing units. This option is expensive and could require the

installation of considerable new refining equipment. It could also

require extensive volumes of hydrogen, which may be hard to produce

within a given refinery. Thus, compliance options for such a refiner

might be prohibitively expensive.

In response to the comment on standard pipeline procedures, the

purpose of the low-sulfur crude baseline adjustment is to provide

refiners limited relief in situations where the anti-dumping regulatory

burden is extremely onerous and where requiring compliance would yield

little or no environmental benefit. Although a few refiners will be

granted the low-sulfur crude baseline adjustment, these refiners must

realize that they (like all other refiners) will be responsible for

future adaptations to changing crude sulfur levels. Baseline

adjustments are intended to reduce, not eliminate, the burden

associated with regulatory compliance. If the burden were completely

eliminated, then the required criteria would no longer be met and the

goals of the anti-dumping program would no longer be fulfilled.

[[Page 9877]]

D. Comments on the Proposed Criteria for a Baseline Adjustment

In the NPRM, EPA proposed seven criteria that a refiner would have

to meet to qualify for the low-sulfur crude baseline adjustment.

Comments on these criteria are discussed below.

Criterion 1: The refinery produces no reformulated gasoline.

The anti-dumping requirements, in general, apply to all

conventional gasoline whether or not RFG is produced. Under this

adjustment, however, no dumping will result from RFG production. If a

refiner who receives this baseline adjustment subsequently produces

RFG, the refiner's conventional gasoline compliance will be subject to

its original unadjusted baseline during the current averaging period

and in all subsequent years. However, in the NPRM, EPA also proposed

that the eligibility of any refinery of a multi-refinery company for

this baseline adjustment is not dependent on the RFG production of the

refining company's other refineries.

Summary of Comments

Some commenters stated that if a baseline adjustment were made, the

prohibition of RFG production would be unnecessary and overly

restrictive. Commenters added that restrictions on baseline adjustment

qualification may limit a refiner's ability to adapt to future,

unforeseen market changes. Commenters stated that this restriction

would have an adverse impact on cleaner operations by limiting

flexibility and competition, and could lead to a future shortage of

RFG. It was pointed out that many refiners would be prevented from

producing RFG if they were forced to revert back to their unadjusted

baselines. Commenters argued that, if refiners were forced to choose

between RFG and conventional fuel production based on artificial

factors rather than a response to market demand, refiners with higher

sulfur baselines would be able to compete in both markets

simultaneously with less competition. Therefore, the commenters

suggested that EPA should allow the baseline adjustment for refiners

that meet the other proposed criteria, regardless of their RFG

production.

Analysis and Conclusion

EPA considered the above comments in its decision, but maintains

that a refiner must not produce RFG to qualify for a baseline

adjustment. EPA believes that refiners who were able to adjust refinery

operations (through capital investment or process modifications) to

produce RFG should be able to accommodate increases in crude sulfur

content. In addition, the Agency believes that prohibiting RFG

production is the best way to ensure that ``no dumping'' will occur.

EPA does not believe that this requirement is unduly restrictive.

Therefore, EPA is finalizing the proposed criterion that a refiner must

not produce RFG to qualify for this baseline adjustment.

Criterion 2: A refiner has an unadjusted baseline sulfur value less

than or equal to 50 ppm.

EPA believes that requiring a threshold sulfur content of 50 ppm is

appropriate because higher baseline levels would indicate that the

refiner's 1990 crude slate was not extremely low in sulfur. In

addition, a refiner with a higher baseline sulfur level should have

sufficient leeway, e.g., types of crude oil supplies used or available

and processing flexibility, to comply with its individual baseline. In

the NPRM, EPA requested comments on the appropriateness of requiring a

threshold sulfur content, and on the suitability of 50 ppm or another

concentration as a threshold level.

Summary of Comments

Most commenters opposing the baseline adjustment were concerned

that such an adjustment would not result in equal treatment for all,

and would give some refiners an unfair advantage. These commenters

contended that the rule should not be applied to only those with sulfur

levels below 50 ppm or any other number, because increased crude sulfur

impacts every refiner regardless of its baseline. Commenters added that

all refiners are faced with changing crude oil quality; refiners must

consider these changes when planning future capital investments and

product slates. Furthermore, many commenters asserted that there is no

basis for the 50 ppm threshold proposed by EPA. They indicated that

this level should be significantly raised or eliminated. In addition,

one commenter argued that requests for adjustment could go beyond crude

sulfur content, though the commenter did not specify which other crude

oil parameters could be investigated. Finally, commenters contended

that this rule could be challenged based on the competitive advantage

gained by exempt parties.

Analysis and Conclusion

As with any baseline adjustment, EPA's authority to allow

adjustments is limited. As stated previously, exceptions to this

requirement of the Act will only be allowed for cases of extreme

economic burden with minimal environmental impact. Not all refiners who

have experienced increases in crude oil sulfur levels are unduly

burdened. In order to quantify this burden, and for the reasons stated

earlier, EPA proposed a 50 ppm threshold value for the crude oil sulfur

content of a refiner's unadjusted baseline. Because commenters did not

suggest another threshold value and EPA is not aware of another value

that would be more appropriate, the Agency is finalizing an unadjusted

baseline sulfur level of 50 ppm. Refiners must comply with this sulfur

criterion to qualify for a low-sulfur crude baseline adjustment.

Criterion 3: The affected refinery of a multi-refinery refiner may not

be aggregated with the refiner's other refineries for compliance

purposes.

EPA proposed that this baseline adjustment would be available to

refineries of both single-refinery and multi-refinery companies.

However, EPA also proposed that the affected refinery of a multi-

refinery refining company may not be aggregated with the company's

other refineries for compliance purposes. If a refinery that is granted

a low-sulfur crude baseline adjustment is subsequently included in an

aggregate baseline, its conventional gasoline compliance will be

subject to its original unadjusted baseline during the current

averaging period and in all subsequent years. Therefore, to qualify for

a low-sulfur crude baseline adjustment, the affected refinery of a

multi-refinery company may not be aggregated with the refining

company's other refineries for compliance purposes.

Summary of Comments

Commenters opposing the baseline adjustment proposal suggested that

EPA should not tie eligibility for the adjustment to aggregation. If

there is a need for adjustment, it should affect the refinery only,

without the need to revert back to the unadjusted baseline.

Analysis and Conclusion

EPA agrees that allowing refiners to comply with the anti-dumping

requirements on an aggregate basis provides flexibility. However, the

Agency still believes that refiners should not be able to aggregate and

also receive a low-sulfur crude baseline adjustment for one of its

refineries. Because the ability to aggregate is limited to multi-

refinery refiners, such refiners have more flexibility than single

refiners in regard to baseline compliance. Thus, they already have

[[Page 9878]]

some means of reducing the effect of increasing crude sulfur on their

compliance. EPA believes it would be inappropriate, and possibly anti-

competitive, to allow a refinery receiving this baseline adjustment to

also be included in an aggregate baseline.

Criterion 4: The installation of the refinery units necessary to

process higher sulfur crude oil supplies to comply with the refinery's

actual (i.e., unadjusted) baseline would cost $10 million or be greater

than or equal to 10 percent of the depreciated book value of the

refinery as of January 1, 1995.

The purpose of this provision is to ensure that baseline

adjustments are limited to cases of extreme burden or economic

hardship. (This is the same requirement for economic burden that must

be met by a refiner seeking a work-in-progress baseline adjustment.)

EPA requested comments on this criterion and whether the specified

values of $10 million or 10 percent are adequate given the type of unit

(e.g., hydrotreater) that a refiner would have to install in order to

comply. EPA also requested comments on (1) the economic burden, if any,

of producing and selling gasoline blendstocks in lieu of finished

gasoline, and (2) the economic burden of complying with an unadjusted

baseline under the circumstances described above by modifying refinery

operations in ways other than installing major refinery units.

Summary of Comments

Most commenters supported the proposed criterion of $10 million or

10 percent and stated that this criterion is fair and appropriate. One

commenter stated that refining equipment is expensive and it is not

difficult for a refiner to spend $10 million. Furthermore, the

commenter indicated that the 10 percent depreciation value was not a

significant hurdle either.

Commenters also expressed concern that if this adjustment were not

allowed, refiners would be forced by the regulation to produce

blendstocks in lieu of gasoline. They stated that the discounts

refiners would be forced to give for at least some of those blendstocks

would be too great to remain viable; refiners could not profitably

produce blendstocks in lieu of gasoline. The commenters contended that

the decision to produce gasoline is dictated by refinery design and

marketing. One commenter added that restricting the ability to freely

choose the most profitable product mix would be an economic

disadvantage.

In response to the second request, nearly all commenters agreed

that increases in crude sulfur directly (but not linearly) lead to

increases in gasoline sulfur, unless major structural and operational

modifications are made to the refinery (assuming the necessary

equipment is not already in place.) Whether and how EPA should address

this situation, though, is a point of contention.

One commenter, however, stated that changes in crude sulfur are a

poor indicator of gasoline sulfur levels. This commenter suggested that

it would be more appropriate to consider catalytic cracking unit

(catcracker) feed sulfur. This suggestion applies to refineries without

vacuum units, which catcrack reduced crude. Catcracker sulfur can only

be reduced by either lowering the distillation end point or

hydrotreating the feed or the blendstock. The commenter also stated,

though, that lowering the end point artificially forces a refiner to

operate at less than optimum conditions. Furthermore, hydrotreating the

blendstock stream is impractical since it reduces the octane value of

the blendstock and forces higher reformer severity. The commenter added

that feed stream hydrotreatment is expensive.

Analysis and Conclusion

EPA agrees that a refiner could be subject to an extreme economic

burden if it were forced to produce blendstocks in lieu of gasoline or

to significantly modify refinery operations in order to comply with the

anti-dumping regulations (although some refiners may produce

blendstocks or modify operations at a high cost for other reasons). As

a result, EPA believes that limited relief from these potential burdens

is necessary and can be provided through a low-sulfur crude baseline

adjustment which the Agency is finalizing today.

EPA agrees that it may not be difficult for a refiner who meets the

other criteria specified for this baseline adjustment to spend $10

million to reduce sulfur in order to comply with the anti-dumping

requirements. Nonetheless, EPA believes this economic criteria is

essential for showing extreme economic burden, and thus is retaining

this provision as proposed.

EPA generally agrees with the comment that changes in crude sulfur

are a poor indicator of gasoline sulfur levels. However, given the

other criteria that a refiner must meet to obtain this baseline

adjustment, particularly the low threshold values for baseline gasoline

sulfur and crude sulfur changes, EPA believes that it is appropriate to

consider the influence of extremely low crude sulfur levels on

extremely low baseline sulfur levels. As will be discussed below, EPA

is not basing the actual adjustment on the relationship between crude

sulfur and baseline sulfur levels.

Criterion 5: The refiner has access to a geographically-limited crude

oil supply.

EPA proposed that a refiner must show that it could not reasonably

or economically obtain crude oil from an alternative source that could

be refined into conventional gasoline in compliance with the refiner's

unadjusted baseline. EPA requested comment on this proposed provision

and on criteria that should be used to evaluate ``reasonably and

economically available''.

Summary of Comments

Small refiners with restricted operational flexibility and limited

financial access supported the proposal. They felt that without more

than the 125 percent flexibility given in the original regulation

(i.e., simple model anti-dumping compliance for sulfur), crude sulfur

increases would force very clean small refiners with low baselines out

of business. One commenter stated that refiners in the Rocky Mountains

have traditionally relied on very sweet crude oil supplies which have

historically been available in the area. However, the sulfur content of

Rocky Mountain crude oil has increased at a greater rate than that of

crude oil in the rest of the country. This commenter stated that these

refiners realistically only have access, due to geography and

economics, to crude oil supplies imported at the Canadian border.

One commenter suggested that EPA should provide examples of

refiners meeting this requirement (e.g., all single-refinery refiners

in land-locked states). This commenter also suggested additional

criteria EPA could consider in allowing this adjustment, such as the

distance from a particular refinery to alternative sources of low

sulfur crude supplies, the size of the refinery, the ability of the

refiner to access and transport such crude oil supplies, and the extent

to which the viability of the refiner is threatened by the cost of

obtaining alternative crude oil supplies. Another criterion that was

suggested would be the increase in the average sulfur content of the

crude slate used for gasoline production between 1990 and 1994.

Analysis and Conclusion

Although EPA agrees with the importance of evaluating the

[[Page 9879]]

information described in the above suggestion, it does not believe it

is necessary to impose additional specific criteria for determining who

should qualify for a low-sulfur crude baseline adjustment. EPA will

consider these factors in determining whether a refinery meets this

criterion and will evaluate petitions for this low-sulfur crude

baseline adjustment on a case-by case basis. EPA is finalizing this

provision as proposed.

Criterion 6: The refiner has experienced an average crude sulfur

increase greater than or equal to 25 percent since 1990.

EPA proposed that the highest annual-average crude sulfur slate

used during the period 1991-1994, inclusive, be compared to the 1990

sulfur level to determine if the ``25 percent'' criterion is met.

Comments were requested concerning the level of difference between 1990

and post-1990 crude sulfur contents that should exist in order to

obtain an adjustment, and whether 1991-1994 is an appropriate

comparison period or whether some other comparison should be

established. The Agency also requested comments as to whether it would

be appropriate, and feasible, to distinguish crude oil supplies used

solely for gasoline production from crude oil supplies used to produce

other refinery products. If such distinction were possible, EPA

believes it would be appropriate to base all calculations (pertaining

to this adjustment) only on the volumes of each crude used to produce

gasoline.

Summary of Comments

Opponents to the proposal were concerned that this adjustment

rewards refiners that purchased higher sulfur crude oil supplies after

1990. They indicated that the trend toward sour crude oil supplies was

recognized during the Regulatory Negotiation, and that the annual

averaging and 125 percent compliance provisions for conventional

gasoline were created to address the situation. These commenters felt

that if the 125 percent compliance level is not sufficient, it should

be changed for all parties.

Some commenters supporting this baseline adjustment indicated that

it is feasible to distinguish crude oil supplies used solely for

gasoline production from crude oil supplies used to produce other

refinery products, and that it would be appropriate to evaluate this

criterion based only on the crude used for gasoline production.

Analysis and Conclusion

Although the trend toward sour crude oil supplies was recognized in

the Regulatory Negotiation, the quality of the crude oil available to

refiners in PADD IV has been deteriorating faster than the rest of the

U.S. since 1990. As a result, some refiners with very clean baselines

have found it very difficult to comply with the anti-dumping

regulations. EPA is finalizing the low-sulfur crude baseline adjustment

for those refiners who qualify for the adjustment based on the criteria

finalized today. However, EPA believes that the criteria are

necessarily stringent so that only those refiners who are extremely

burdened will qualify. In addition, EPA believes that because the

program is so restrictive, the environmental impact of the adjustment

will be minimal and will not negate the benefits of the anti-dumping

program.

Commenters supported EPA's belief (as stated in the NPRM) that it

is appropriate and feasible to base the low-sulfur crude baseline

adjustment only on crude used for gasoline production. EPA is

finalizing this criterion as proposed, with a correction to the

regulations (contained in the proposal) which reflects the Agency's

intent in both the proposal and today's final rule, as follows. In the

proposed regulations, one aspect of the equation associated with this

criterion was incorrectly defined, namely, the definition of the

variable ``CSHI''. In the proposed regulations, ``CSHI'' was defined as

the ``highest annual average crude slate per paragraph (e)(8)(ii)(B) of

this section.'' Paragraph (e)(8)(ii)(B) of that section referenced the

``* * * highest crude sulfur level (ppm) of the crude slate utilized in

the production of gasoline in the refinery in 1994 * * *.'' Thus, the

definition of ``CSHI'' in the proposed regulations was not consistent

with the discussion contained in the proposal preamble (60 FR 40012.

August 4, 1995) which referenced the years 1991-1994, as does today's

regulation. Today's regulation corrects this error to reflect the

Agency's intent in both the NPRM and today's final rulemaking

preambles.

Criterion 7: Gasoline sulfur changes are directly and solely

attributable to the crude sulfur change, and not due to alterations in

refinery operation nor choice of products.

No comments were received on this proposed criterion. EPA is thus

finalizing this requirement.

E. Comments on the Proposed Options for a Baseline Adjustment

EPA requested comments on the options proposed for determining the

adjusted baseline sulfur level if a refiner meets the proposed criteria

and is approved for a baseline adjustment. These options are summarized

below. EPA also requested comments on its view that a refiner should

not be exempt from its other anti-dumping compliance baselines, i.e.,

all other simple model requirements as well as exhaust benzene and

exhaust toxics emissions under the complex model since those emissions

are minimally affected by sulfur. See the support document for this

rule for more discussion related to the various proposed options.

(``Regulation of Fuels and Fuel Additives: Standards for Reformulated

and Conventional Gasoline--Detailed Discussion and Analysis'', Air

Docket A-95-03.)

Option 1: EPA proposed that the adjusted baseline sulfur value be

related to the ratio of the sulfur content of the highest sulfur crude

utilized in 1994 to the average sulfur content of the crude slate

utilized in 1990. Under this option, if a refiner used two crude oil

supplies in its gasoline production in 1994 with sulfur levels of 1000

ppm and 2100 ppm, the higher sulfur crude would be used in the

determination of the adjusted baseline sulfur value. If, for example,

the 1990 average crude sulfur content was 500 ppm (resulting in a

baseline sulfur value of approximately 20 ppm), the adjusted baseline

sulfur value would be 84 ppm {20 ppm x (2100/500)}. EPA specifically

requested comments on whether the highest sulfur crude from 1991-1994

should be used rather than just considering 1994.

Option 2: EPA proposed that the adjusted baseline sulfur value be

related to the ratio of the highest average sulfur content of the crude

slate used in 1991, 1992, 1993 or 1994 to the average sulfur content of

the crude slate used in 1990. Incorporating the 1990 baseline and crude

sulfur levels from Option 1, and average crude sulfur contents of 1000,

1100, 1400, and 1300 ppm for years 1991, 1992, 1993 and 1994,

respectively, the adjusted baseline sulfur value would be 56 ppm, i.e.,

20 ppm x (1400/500).

Option 3: EPA proposed that an adjusted baseline sulfur value be

determined for each year through 1999. Beginning January 1, 2000, the

adjusted baseline sulfur value would be the same as it was in 1999. EPA

proposed that the annual adjusted value be determined over the four

years prior to the year before the new value takes effect, except for

1995 and 1996 which would be determined as specified in Option 1 above

(and for which the adjusted baseline sulfur value would be the same).

EPA also proposed that if less than a 25 percent difference occurs

between the 1990 average crude sulfur level and the average crude

sulfur level over a four-year period, the refiner would receive no

additional

[[Page 9880]]

adjustments, and its most recent adjusted baseline sulfur value would

become its permanent baseline sulfur value at that point. For example,

the standard for 1997 would be based on the ratio of the average sulfur

content of the crude oil used in 1992, 1993, 1994 or 1995 to the

average sulfur content of the crude slate used in 1990. EPA proposed

that the resulting adjusted baseline sulfur value be submitted to the

Agency for evaluation and approval by June 1 of the year preceding the

year for which it would be the standard. In the example given, the

adjusted baseline value (and all supporting information) would have to

be submitted by June 1, 1996.

Option 4: For this option, EPA proposed requirements similar to

those presented for Option 3 except that adjustments would only be

allowed through 1997, i.e., the simple model years. Beginning in 1998,

the adjusted baseline sulfur value would be equal to the value in 1997.

Option 5: EPA proposed that the adjusted baseline sulfur value be

the unadjusted baseline sulfur value plus 50 ppm. EPA specifically

solicited comments on the appropriateness of using 100 ppm or 150 ppm

instead of 50 ppm.

In order to show that increasing gasoline sulfur is due solely to

increasing crude sulfur, EPA also requested comments as to whether

changes in refinery configuration or refinery operation should be

prohibited.

Summary of Comments

Commenters suggested that if a one-time baseline adjustment is

granted, refiners should be given the opportunity to estimate the

compliance burden over a five to ten year period. According to

commenters this concession would accommodate someone who meets the

requirements in the short term, but who would require more substantial

investment to implement a long term solution. Another commenter felt a

one-time adjustment would only benefit the refiner if it were large

enough to provide relief for the foreseeable future. Commenters

indicated that the EPA proposals did not provide adequate time for

adjustment. Furthermore, one commenter argued that proposing a one-time

adjustment for a dynamic situation (changing crude oil sulfur) is

illogical. The commenter explained that other adjustments allowed by

the regulation, such as the work-in-progress, were for temporary

events.

Of the options presented in the NPRM, most commenters who supported

any adjustment felt that Option 1 was too restrictive and would offer

little relief. They preferred Option 5 as the simplest and most

flexible approach. One commenter stated that Options 1 and 2 were

inappropriate since they include the assumption that crude sulfur and

gasoline sulfur increase at a constant ratio, which is not correct. The

commenter added that the sulfur content of gasoline depends on several

factors such as the crude oil composition, refinery operation, and the

type of gasoline produced. This commenter contended that Options 3 and

4 were also inappropriate, although Option 3 was preferable to Option 4

because of the additional time provided for obtaining a final

adjustment. This commenter supported continuing relief, but did not

support a limit beginning in 1997 or 1999. The commenter considered

Option 5 to be the most appropriate option for making a sulfur

adjustment, if the added amount was 150 ppm. This commenter also

expressed concern regarding the low repeatability of tests for sulfur

below 100 ppm. The commenter claimed that EPA appears to recognize the

low repeatability by defining a negligible quantity limit of 30 ppm.

Finally, this commenter proposed that EPA provide another opportunity

for adjustment in five years, if crude sulfur levels continue to

increase at faster rates than anticipated.

One commenter felt that if a refiner does not produce RFG, does not

aggregate, has a limited crude supply, and meets the ``financial

hurdles'', there is no need for arbitrary numbers, and such refiners

should be given the statutory baseline of 338 ppm.

In addition to these concerns, other commenters opposed the

continuation of the adjustment beyond the simple model time frame. They

stated the complex model provides enough flexibility for refiners, and

that EPA has neither the expertise to evaluate non-sulfur control

options for complying with NOX requirements nor the ability to

shift from the simple model to the complex model for exhaust benzene.

Commenters also stated that the simple model sulfur cap can be avoided

by using the complex model. One commenter suggested that if EPA feels

that more flexibility is needed, it could allow separate use of the

simple and complex models for conventional fuel and RFG sulfur,

olefins, and T90. This approach would provide industry-wide flexibility

and would minimize the need to provide special relief to a limited

number of refiners.

EPA also received a suggested option from a commenter who proposed

that a refiner should be able to produce conventional gasoline which

does not meet, on average, the requirements of its individual baseline

if the refiner could show that deviation from its baseline was directly

and solely attributable to crude sulfur change, and not due to

alterations in refinery operation or choice of products. The suggested

option also contained other requirements, which are essentially those

finalized today by EPA, that are necessary for determining baseline

adjustment eligibility.

Analysis and Conclusion

All five proposed options would determine the adjusted baseline

sulfur value prior to the period of production, thus treating an

affected refiner like all other refiners. Although today's rule

provides some relief for refiners who are unduly burdened by baseline

compliance, these refiners may have to modify refinery operations in

the future to accommodate increasing crude sulfur levels. In the

future, however, refinery modifications will likely be required of most

refiners, without the benefit of a baseline adjustment.

After careful analysis of the proposed options, sulfur distribution

data, and comments, EPA is finalizing essentially Option 5 in today's

rule. Under this option, a refiner's one-time adjusted baseline sulfur

value will be equal to the refiners unadjusted baseline sulfur value

plus 100 ppm. EPA believes that a 100 ppm sulfur adjustment is

appropriate for the following reasons. First, 50 ppm, as suggested in

the NPRM, is too low. Upon further consideration, especially regarding

the criteria which must be met in order to obtain this adjustment, EPA

believes that a sulfur adjustment of 50 ppm would not provide

sufficient relief. Refiners who are severely burdened by the anti-

dumping regulations, and who meet the criteria, will likely need more

than a 50 ppm baseline adjustment in order to reduce the extreme burden

of the regulations. Second, a baseline adjustment value of 150 ppm

sulfur is too high. Although this value was proposed in the NPRM, the

Agency believes that an adjustment of this magnitude would negate the

intentions of this regulation (which is to provide reasonable relief

for extremely burdened refiners) and the goals of the anti-dumping

program. If an adjustment of 150 ppm sulfur was permitted, several

refiners not qualifying for the adjustment (due to the 50 ppm threshold

required in Criterion 2) would have lower baseline sulfur values than

some refiners who do qualify for the adjustment. Finally, EPA believes

that a sulfur adjustment of 100 ppm will provide adequate relief for

qualifying refiners while maintaining the

[[Page 9881]]

environmental benefits of the anti-dumping program.

Based on the above decision, 150 ppm is the maximum adjusted

baseline sulfur value that a refiner could be granted under today's

final rule (50 ppm threshold + 100 ppm additional sulfur = 150 ppm

maximum adjusted baseline value for sulfur). The Agency believes that

this option will provide refiners maximum flexibility with minimal

anti-competitive effects.

Regarding the comment that EPA should provide another opportunity

for adjustment in five years if crude sulfur levels continue to

increase at faster rates than expected, EPA believes this action would

be inappropriate. Baseline adjustments are intended to provide relief

where the burden is extreme. EPA expects that the refining industry

will develop means of dealing with increasing crude sulfur levels. The

cost of such means may be high, but given the lead time, and the

industry's knowledge of crude oil exploration and production, it is

unlikely that a well-prepared refiner would be extremely burdened by

future high sulfur levels.

As with other baseline adjustments, refiners receiving this

baseline adjustment will retain the adjustment even after the Simple

Model years, i.e., after 1997. Although the Complex Model does provide

more compliance flexibility than the Simple Model, EPA, via the

baseline adjustments, is providing relief for compliance with anti-

dumping requirements as a whole, and not just the Simple or Complex

Model requirements. In some cases, even the Complex Model does not

provide enough flexibility such that an extreme burden (when evaluated

under the Simple Model) is reduced. EPA also disagrees with commenters

who suggested that EPA allow compliance to be determined under one

model for conventional gasoline and under the other model for RFG. The

reasons for requiring the use of the same models for both conventional

and RFG were discussed at length in the December 1993 final rule.

Additionally, as stated several times previously, EPA does not have

authority and does not believe it is appropriate to provide a broad,

i.e., industry-wide, adjustment program.

EPA considered the suggested option, but is not finalizing it due

to some concerns about the concept and detail of the option. This

option would exempt a qualifying refiner from complying with its anti-

dumping compliance baseline if the refiner can show, at the end of the

compliance period, that deviation from its baseline was directly and

solely attributable to crude sulfur change. Thus, unlike all other

refiners, a qualifying refiner would have no clearly defined standard

prior to year of production. Furthermore, if EPA was not satisfied that

deviation from its baseline was directly and solely attributable to

crude sulfur change, the refiner would have to determine compliance

relative to its unadjusted baseline and would likely be out of

compliance.

VI. Low Sulfur, Low Olefin Baseline Adjustment

A. Introduction

Certain very clean individual baselines, i.e., those with extremely

low values for one or more fuel parameters, can make compliance for

refiners extremely difficult or impossible due to (1) limited

maneuverability about the clean baseline and (2) limited flexibility

with regard to annual averaging. During the review and approval of

individual baselines, EPA was informed that extremely low baseline

sulfur and olefin values could force a refiner to cease gasoline

production. In addition, refiners with very clean baselines presumably

produce the least polluting gasoline. It would be environmentally

harmful if these refiners ceased production and their volumes were then

produced by refiners with relatively dirtier baselines.

EPA believes it is appropriate to provide limited relief in the

form of a baseline adjustment in those few cases where the regulatory

burden is extremely onerous and where requiring compliance would yield

little or no environmental benefit.

B. General Comments on the Proposal

To provide some relief for those refiners who are severely burdened

by the combination of extremely low sulfur and olefin levels, EPA

proposed a baseline adjustment which set the annual average sulfur and

olefin values to 30 ppm and 1.0 volume percent (vol%), respectively. To

receive this adjustment, EPA proposed that a refiner must meet the

following criteria:

(1) Have an individual baseline sulfur level less than or equal to

30 ppm and an individual olefin level less than or equal to 1.0 vol%;

(2) Show that installation of the refinery units necessary for

compliance with an unadjusted baseline would cost $10 million or be at

least 10 percent of the depreciated book value of the refinery as of

January 1, 1995.

Additionally, EPA proposed that such an adjustment would be

available to both single-refinery and multi-refinery refining

companies. However, the affected refinery of a multi-refinery company

would not be allowed to be aggregated with the company's other

refineries for compliance purposes. If at any time a given refinery's

baseline is aggregated with another refinery's baseline for compliance

purposes, EPA proposed that the applicable individual baselines will

revert to the unadjusted baselines.

EPA also proposed that the summer and winter individual baseline

values for sulfur and olefins be set to 30 ppm and 1.0 vol%,

respectively.

Summary and Analysis of Comments

Several commenters supported this proposed adjustment and EPA's

statement that no environmental impacts would occur due to this rule.

Additionally, many commenters cited problems with the accuracy of

laboratory test methods at very low sulfur and olefin levels as further

justification for this baseline adjustment. Commenters stated that

errors in lab analysis, sample contamination, or product commingling

can incorrectly result in fuel parameter values which are greater than

the baseline values when those baseline values are extremely low. EPA

agrees that this baseline adjustment will provide flexibility for

qualifying refiners and will reduce the complications associated with

testing low sulfur and olefin levels.

While the majority of commenters supported this proposal, many of

them suggested changes in the criteria for the adjustment. One

commenter suggested that EPA remove the aggregation requirement. This

commenter stated that a conflict arises when a refiner also qualifies

for a JP-4 baseline adjustment (under the JP-4 baseline adjustments, in

certain instances, a qualifying multi-refinery refiner must determine

its anti-dumping compliance on an aggregate basis). EPA agrees with

this comment. EPA proposed the aggregation requirement because it

believed that, as for certain other baseline adjustments, it would be

inappropriate to provide a baseline adjustment and to also allow a

refinery receiving such an adjustment to be included in an aggregate

baseline for compliance purposes. Refiners who can comply with the

reformulated and anti-dumping regulations on an aggregate basis (i.e.,

multi-refinery refiners) already have a degree of flexibility over

single-refinery refiners, and EPA believed that allowing a refinery

both a baseline adjustment and the ability to be included in an

aggregate baseline might provide a competitive advantage to certain

refiners. However, EPA did not intend that one baseline adjustment

would eliminate use of another baseline

[[Page 9882]]

adjustment, and believes that this particular adjustment (because of

the extremely low sulfur and olefin levels involved), when coupled with

the ability to aggregate, would not create a significant competitive

advantage. Thus, EPA is not finalizing the requirement that refiners

who receive this low sulfur/low olefin adjustment must revert to the

unadjusted baseline if that refinery is included in an aggregate

baseline.

Several commenters suggested removing the economic criterion.

Commenters stated that requiring large capital expenditures as a

condition for this adjustment is unfair and devalues the investment in

all such refineries. Commenters felt that refinery modifications would

not guarantee compliance with an ultra-clean baseline. Commenters

stated that even the allowed 125 percent of such ultra-low values could

be less than the reproducibility and could approach the lower limit of

the test method. Additionally, commenters said that subtle changes in

the crude slate could affect compliance for these refiners.

EPA agrees that for extremely low sulfur or olefin values, it may

be almost impossible to install additional equipment or take other

actions to ensure compliance with 100 percent or even 125 percent of

the baseline values. In such cases, the burden would most likely exceed

$10 million or 10 percent of the depreciated refinery value as proposed

in the NPRM. To require demonstration of this would be of little

additional value. Thus, EPA is not finalizing that provision of this

baseline adjustment.

EPA proposed two options for assigning seasonal adjusted sulfur and

olefins values for summer and winter. The first option was to set these

values to 30 ppm and 1.0 vol%, respectively, as for the annual average

values. The other option was to use the refiner's own ratio of summer

and winter values to determine the seasonal values. Few commenters

indicated a preference for assigning seasonal baseline sulfur and

olefin levels. EPA is thus promulgating its first option, that is,

values of 30 ppm sulfur and 1.0 vol% olefins for both the annual

average and seasonal values. EPA believes this choice is appropriate

since, under this rule, baseline values for these two fuel parameters

are different from the actual unadjusted baseline values of qualifying

refiners. Additionally, based on comments mentioned earlier, testing of

extremely low sulfur and low olefin values could have resulted in

inaccurate unadjusted baseline values. Thus any ratio calculated from

those values would also be inaccurate.

One commenter felt that refiners should be allowed to use the 30

ppm sulfur and 1.0 vol% olefin levels as threshold values which would

also curtail testing of these trace parameters. This rule is only

concerned with baseline development, for which all testing has been

completed, and does not address compliance issues.

C. Provisions of the Final Rule

To obtain this baseline adjustment, a refinery must have a baseline

sulfur value less than or equal to 30 ppm and a baseline olefin value

less than or equal to 1.0 vol%. A refinery that meets this criteria

will have an adjusted baseline sulfur value of 30 ppm and an adjusted

baseline olefin value of 1.0 vol% as its summer, winter and annual

average values. Although for most baseline adjustments refiners are

required to petition EPA for the adjustment, in this case, since

baselines are already established, it is more efficient for EPA to

determine which refineries qualify for this baseline adjustment, rather

than require such refineries to petition EPA. Thus, refiners with

refineries that qualify for this adjustment will receive notification

from EPA in a timely manner.

VII. Environmental and Economic Impacts

EPA expects a negligible environmental impact from allowing

baseline adjustments under the criteria of this rule because (1) only a

few refiners are expected to qualify for the adjustments (about 16),

and (2) the total gasoline production of the qualifying refiners is

small (less than three percent of annual gasoline production).

To quantitatively illustrate this negligible impact, EPA used the

Complex Model (an emissions model that indicates changes in in-use

motor vehicle emissions based on changes in one or more of the gasoline

fuel parameters evaluated by the model) to determine the adjustments'

effects on harmful exhaust toxics and NOX emissions. Results from

the model indicate less than a one percent increase in exhaust toxics

emissions due to these three baseline adjustments (primarily due to the

JP-4 adjustment), and less than a 0.1 percent increase in NOX

emissions (primarily due to the low sulfur crude and low sulfur/low

olefins adjustments). The low sulfur crude and low sulfur/low olefins

baseline adjustments have almost no impact on exhaust toxics emissions,

and the JP-4 baseline adjustment will likely yield a decrease in annual

NOX emissions. Refineries affected by this rule are geographically

dispersed throughout the United States, mostly in ozone attainment

areas.

The economic impacts of this rule are generally beneficial to

affected refiners due to the additional flexibility provided by this

action. Minimal anti-competitive effects are expected.

A more comprehensive description of the environmental and economic

impacts of the RFG program is described in the Regulatory Impact

Analysis (RIA) supporting the December 1993 rule. This RIA is available

in Public Docket A-92-12 located at Room M-1500, Waterside Mall (ground

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

Washington, D.C. 20460.

VIII. Administrative Requirements

A. Administrative Designation

Pursuant to Executive Order 12866, (58 FR 51735, October 4, 1993)

the Agency must determine whether this regulatory action 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:

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

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

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

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

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

action taken or planned by another agency;

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

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

thereof; or

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

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

the Executive Order.

Pursuant to the terms of Executive Order 12866, it has been

determined that this FRM is not a ``significant regulatory action.''

B. Impact on Small Entities

EPA has determined that this rule will not have a significant

economic impact on a substantial number of small entities, and that it

is therefore not necessary to prepare a regulatory flexibility analysis

in conjunction with this final rule. Because today's rule provides for

less stringent requirements than the December 1993 regulations for

qualifying refiners, small entities which qualify for one or more of

the baseline adjustments contained herein will find

[[Page 9883]]

it easier to comply with the requirements of the RFG and anti-dumping

programs.

C. Paperwork Reduction Act

The Paperwork Reduction Act of 1980, 44 U.S.C. 3501 et seq., and

implementing regulations, 5 CFR Part 1320, do not apply to this action

as it does not involve the collection of information as defined

therein.

D. Unfunded Mandates Act

Under section 202 of the Unfunded Mandates Reform Act of 1995

(``Unfunded Mandates Act''), signed into law on March 22, 1995, EPA

must prepare a budgetary impact statement to accompany any proposed or

final rule that includes a Federal mandate that may result in

expenditure by State, local, and tribal governments, in the aggregate;

or by the private sector, of $100 million or more. Under section 205,

EPA must select the most cost-effective and least burdensome

alternative that achieves the objectives of the rule and is consistent

with statutory requirements. Section 203 requires EPA to establish a

plan for informing and advising any small governments that may be

significantly or uniquely impacted by the rule.

EPA has determined that today's action does not include a Federal

mandate that may result in estimated costs of $100 million or more to

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

private sector. This action has the net effect of reducing burden of

the RFG program on regulated entities. Therefore, the requirements of

the Unfunded Mandates Act do not apply to this action.

E. Submission to Congress and the General Accounting Office

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

Regulatory Enforcement Fairness Act of 1996, EPA submitted a report

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

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

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

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

U.S.C. 804(2).

IX. Statutory Authority

The statutory authority for the action promulgated 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.

List of Subjects in 40 CFR Part 80

Environmental protection, Air pollution control, Fuel additives,

Gasoline, Motor vehicle pollution, Reporting and recordkeeping

requirements.

Dated: February 21, 1997.

Carol M. Browner,

Administrator.

For the reasons set out in the preamble, part 80 of title 40 of the

Code of Federal Regulations 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: Sections 114, 211 and 301 of the Clean Air Act as

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

2. Section 80.91 is amended by revising paragraph (e)(7)(i);

removing paragraph (e)(7)(iv) and by adding paragraphs (e)(8) and

(e)(9) to read as follows:

Sec. 80.91 Individual baseline determination.

* * * * *

(e) * * *

(7) * * *

(i) Baseline adjustments may be allowed, upon petition and approval

(per Sec. 80.93), if a refinery produced JP-4 jet fuel in 1990 and all

of the following requirements are also met:

(A) Refinery type.

(1) The refinery is the only refinery of a refiner such that it

cannot form an aggregate baseline with another refinery (per

Sec. 80.101(h)); or

(2) The refinery is one refinery of a multi-refinery refiner for

which all of the refiner's refineries produced JP-4 in 1990; or

(3) The refinery is one refinery of a multi-refinery refiner for

which not all of the refiner's refineries produced JP-4 in 1990.

(B) No refinery of a given refiner produces reformulated gasoline.

If any refinery of the refiner produces reformulated gasoline at any

time in a calendar year, the compliance baselines of all the refiner's

refineries receiving a baseline adjustment per this paragraph (e)(7)

shall revert to the unadjusted baselines of each respective refinery

for that year and all subsequent years.

(C) 1990 JP-4 to gasoline ratio.

(1) For a refiner per paragraph (e)(7)(i)(A)(1) of this section,

the ratio of its refinery's 1990 JP-4 production to its 1990 gasoline

production must be greater than or equal to 0.15.

(2) For a refiner per paragraph (e)(7)(i)(A)(2) of this section,

the ratio of each of its refinery's 1990 JP-4 production to its 1990

gasoline production must be greater than or equal to 0.15.

(3) For a refiner per paragraph (e)(7)(i)(A)(3) of this section,

the ratio of the refiner's 1990 JP-4 production to its 1990 gasoline

production must be greater than or equal to 0.15, when determined

across all of its refineries. Such a refiner must comply with its anti-

dumping requirements on an aggregate basis, per Sec. 80.101(h), across

all of its refineries.

* * * * *

(8) Baseline adjustments due to increasing crude sulfur content.

(i) Baseline adjustments may be allowed, upon petition and approval

(per Sec. 80.93), if a refinery meets all of the following

requirements:

(A) The refinery does not produce reformulated gasoline. If the

refinery produces reformulated gasoline at any time in a calendar year,

its compliance baseline shall revert to its unadjusted baseline for

that year and all subsequent years;

(B) Has an unadjusted baseline sulfur value which is less than or

equal to 50 parts per million (ppm);

(C) Is not aggregated with one or more other refineries (per

Sec. 80.101(h)). If a refinery which received an adjustment per this

paragraph (e)(8) subsequently is included in an aggregate baseline, its

compliance baseline shall revert to its unadjusted baseline for that

year and all subsequent years;

(D) Can show that installation of the refinery units necessary to

process higher sulfur crude oil supplies to comply with the refinery's

unadjusted baseline would cost at least $10 million or be greater than

or equal to 10 percent of the depreciated book value of the refinery as

of January 1, 1995;

(E) Can show that it could not reasonably or economically obtain

crude oil from an alternative source that would permit it to produce

conventional gasoline which would comply with its unadjusted baseline;

(F) Has experienced an increase of greater than or equal to 25

percent in the average sulfur content of the crude oil used in the

production of gasoline in the refinery since 1990, calculated as

follows:

[GRAPHIC] [TIFF OMITTED] TR04MR97.002

Where:

CSHI=highest annual average crude sulfur (in ppm), of the crude slates

used in the production of gasoline, determined over the years 1991-

1994;

[[Page 9884]]

CS90=1990 annual average crude slate sulfur (in ppm), of the crude

slates used in the production of gasoline;

CS%CHG=percent change in average sulfur content of crude slate;

(G) Can show that gasoline sulfur changes are directly and solely

attributable to the crude sulfur change, and not due to alterations in

refinery operation nor choice of products.

(ii) The adjusted baseline sulfur value shall be the actual

baseline sulfur value, in ppm, plus 100 ppm.

(iii) All adjustments made pursuant to this paragraph (e)(8) must

be accompanied by:

(A) Unadjusted and adjusted fuel parameters and emissions; and

(B) A narrative describing the situation, the types of

calculations, and the reasoning supporting the types of calculations

done to determine the adjusted values.

(9) Baseline adjustment for low sulfur and olefins.

(i) Baseline adjustments may be allowed if a refinery meets all of

the following requirements:

(A) The unadjusted annual average baseline sulfur value of the

refinery is less than or equal to 30 parts per million (ppm);

(B) The unadjusted annual average baseline olefin value of the

refinery is less than or equal to 1.0 percent by volume (vol%).

(ii) Adjusted baseline values.

(A) The adjusted baseline shall have an annual average sulfur value

of 30 ppm, and an annual average olefin value of 1.0 vol%.

(B) The adjusted baseline shall have a summer sulfur value of 30

ppm, and a summer olefin value of 1.0 vol%.

(C) The adjusted baseline shall have a winter sulfur value of 30

ppm, and a winter olefin value of 1.0 vol%.

* * * * *

Sec. 80.10 [Amended]

3. Section 80.101 is amended by removing paragraph (b)(1)(v).

[FR Doc. 97-5197 Filed 3-3-97; 8:45 am]

BILLING CODE 6560-50-P