Fuels and Fuel Additives; Amendments to the Enforcement Exemptions for California Gasoline Refiners

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[FRL-5812-2]

Fuels and Fuel Additives; Amendments to the Enforcement

Exemptions for California Gasoline Refiners

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: In this action, EPA is proposing to amend certain requirements

of the reformulated gasoline (RFG) regulations which are applicable to

California gasoline refiners, importers and oxygenate blenders. These

amendments will reduce the burden associated with the overlapping

California and federal regulations of gasoline refiners and oxygenate

blenders located in California and importers of California gasoline.

The first proposed amendment would allow California gasoline refiners,

importers, and oxygenate blenders to substitute the California RFG test

methods for federal RFG test methods for their production of gasoline

used in California and conventional gasoline used outside of

California. The second proposed amendment would allow California

gasoline refiners, importers and oxygenate blenders to retain the

current exemption from various federal recordkeeping, reporting, and

other enforcement-related provisions if they produce California RFG,

using one of the California ``alternative'' certification methods and

containing less oxygen than the federal RFG oxygen standard, if it is

supplied to areas within California that are not required to receive

federal RFG. The California gasoline refiners, importers and oxygenate

blenders would conduct an annual gasoline quality survey for the

federally-covered RFG areas of California to ensure the gasoline in

each federally-covered RFG area is in compliance with the federal

oxygen standard. The third proposed amendment would correct an omission

in existing 40 CFR 80.81(e)(1). The fourth proposed amendment would

permit a refiner of California gasoline to sample and test at off-site

tankage that is approved by the California Air Resources Board (CARB)

as part of the refiner's ``production facility'' if certain conditions

are met. EPA believes that these proposed changes will grant refiners

flexibility without any anticipated adverse environmental impact.

DATES: Comments on this proposed rule must be received by May 16, 1997.

EPA does not plan to hold a public hearing on this proposed rule,

unless one is requested. If a request by May 1, 1997, a public hearing

will be held. If such a hearing is held, comments must be received

within 30 days of the date of such hearing.

ADDRESSES: Written comments on this proposed action should be addressed

to Public Docket No. A-97-06, Waterside Mall (Room M-1500),

Environmental Protection Agency, Air Docket Section, 401 M Street, SW,

Washington, D.C. 20460. Documents related to this rule have been placed

in public dockets A-97-06 and may be inspected between the hours of

8:00 a.m. to 5:30 p.m., Monday through Friday. A reasonable fee may be

charged for copying docket material. Those wishing to notify EPA that

they request an opportunity for a public hearing on this action should

contact Anne-Marie C. Pastorkovich, U.S. Environmental Protection

Agency, Office of Air and Radiation, (202) 233-9013.

FOR FURTHER INFORMATION CONTACT: Anne-Marie Cooney Pastorkovich, U.S.

Environmental Protection Agency, Office of Air and Radiation, (202)

233-9013.

SUPPLEMENTARY INFORMATION:

I. Regulated Entities

Regulated categories and entities potentially affected by this

action include:

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Category Examples of regulated entities

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Industry............................ Refiners, importers and oxygenate

blenders in California.

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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 be potentially regulated by this action. Other types of entities

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

an entity is regulated by this action, one should carefully examine the

RFG provisions at 40 CFR part 80, particularly Sec. 80.81 dealing

specifically with California gasoline. 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.

II. Background

A. RFG Standards and California Covered Areas

Section 211(k) of the Clean Air Act (the Act) requires EPA to

establish requirements for reformulated gasoline (RFG) to be used in

specified ozone nonattainment areas (federally-covered areas), as well

as ``anti-dumping'' requirements for non-reformulated, or conventional,

gasoline used in the rest of the country, beginning in January 1995.

The RFG covered areas in California are Los Angeles and San Diego, and

Sacramento. The Act requires that RFG reduce ozone forming volatile

organic compound (VOC) and toxics emissions from motor vehicles, not

increase emission of oxides of nitrogen (NOX), and meet certain

content standards for oxygen, benzene and heavy metals. The relevant

regulations for RFG and conventional gasoline may be found at 40 CFR

part 80, subparts D, E, and F.1

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\1\ See 59 FR 7812 (February 16, 1994).

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B. Exemptions Specifically Related to California Gasoline

On September 18, 1992, the California Air Resources Board (CARB)

adopted regulations requiring reformulation of California gasoline. The

CARB regulations established a comprehensive set of gasoline

specifications designed to achieve reductions in emissions of VOCs,

NOX, carbon monoxide (CO), sulfur dioxide, and toxic air

pollutants from gasoline-fueled vehicles.2 The CARB regulations

set standards for eight gasoline parameters--sulfur, benzene, olefins,

aromatic hydrocarbons, oxygen, Reid vapor pressure (RVP), and

distillation temperatures for the 50 percent and 90 percent evaporation

points (T-50 and T-90, respectively)--applicable starting March 1, 1996

for all gasoline in the California distribution network (except for

gasoline being exported from California). The CARB regulations also

provide for the production and sale of alternative gasoline

formulations, with certification under the CARB program based on a

predictive model or vehicle emission testing.3

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\2\ See Title 13, California Code of Regulations sections 2250-

2272 (as amended January 26, 1996).

\3\ Id., sections 2265 and 2266.

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During the federal RFG rulemaking, and in response to comments by

California refiners, EPA concluded (1) that VOC and toxics emission

reductions resulting from the California Phase 2 standards would be

equal to or more stringent than the federal Phase I RFG standards

(applicable from January

[[Page 18697]]

1, 1995 through December 31, 1999), (2) that the content standards for

oxygen and benzene under California Phase 2 would in practice be

equivalent to the federal content standards, and (3) that the CARB's

compliance and enforcement program is designed to be sufficiently

rigorous.4 As a result, 40 CFR 80.81 exempts certain refiners,

importers and oxygenate blenders of California Phase 2 gasoline

(hereafter referred to as ``refiners'') from a number of federal RFG

and conventional gasoline provisions intended to demonstrate compliance

with the federal standards.5 While the federal RFG and

conventional gasoline standards continue to apply in California,

refiners of gasoline sold in California are exempt in most cases from

various enforcement-related provisions. California refiners are not

exempt from these federal enforcement requirements with regard to

gasoline that is delivered for use outside California, because the

California Phase 2 standards and the CARB enforcement program do not

cover gasoline exported from California.

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\4\ See 59 FR 7758, 7759 (February 16, 1994).

\5\ Specifically, the federal RFG regulations at Sec. 80.81

provide that, subsequent to March 1, 1996 (the start of the

California Phase 2 program), the specified parties are exempt from

meeting the enforcement requirements dealing with: compliance

surveys (Sec. 80.68), independent sampling and testing

(Sec. 80.65(f)), designation of gasoline (Sec. 80.65(d)), marking of

conventional gasoline (Secs. 80.65(g) and 80.82), downstream

oxygenate blending (Sec. 80.69), record keeping (Secs. 80.74 and

80.104), reporting (Secs. 80.75 and 80.105), product transfer

documents (Sec. 80.77), parameter value reconciliation requirements

(Sec. 80.65(e)(2)), reformulated gasoline and RBOB compliance

requirements (Sec. 80.65(c)), annual compliance audit requirements

(Sec. 80.65(h)), and compliance attest engagement requirements

(subpart F). Various restrictions apply to the exemptions, and the

exemptions do not apply after December 31, 1999.

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In letters of June 15, August 3 and November 10, 1995, the Western

States Petroleum Association (WSPA), on behalf of gasoline refiners in

California, petitioned EPA to revise the exemption provisions at 40 CFR

80.81 to provide additional flexibility. The three principle areas

discussed in the petition are the gasoline testing methods, the

standard for Reid vapor pressure (RVP), and production of gasoline not

meeting the federal standard for oxygen content. In February 1996, EPA

notified WSPA that EPA would initiate rulemaking to address these

issues.6 Since the California Phase 2 program was scheduled to

begin March 1, 1996, EPA announced that it would grant California

refiners temporary relief through specific exemptions from enforcement

related to test methods, oxygen content of gasoline not used in the RFG

areas, and RVP until the rulemakings could be completed.

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\6\ See letter from Mr. Steve Herman, Assistant Administrator

for Enforcement and Compliance Assurance, EPA, to Mr. Douglas

Henderson, Executive Director, Western States Petroleum Association,

dated February 29, 1996. A copy of this letter has been placed in

the docket at the location listed in the ADDRESSES section.

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A final rule related to the RVP standard was published as a direct

final rule in the Federal Register on May 8, 1996, and became effective

on July 8, 1996.7

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\7\ ``Fuels and Fuel Additives--Reformulated Gasoline Sold in

California; Reid Vapor Pressure lower limit adjustment--Direct Final

Rule,'' 61 FR 20736 (May 8, 1996).

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Today's proposal addresses the remaining two issues: gasoline

testing methods and the use in conventional gasoline areas of gasoline

certified by California that does not meet the federal RFG standard for

oxygen content. EPA is proposing changes similar to the temporary

enforcement exemptions granted to the California refiners in its

February 1996 letter.

III. Description of Proposed Action

A. Testing Methods

Both the federal RFG and the California Phase 2 programs specify

testing methods to demonstrate compliance with the standards applicable

under each programs. However, in the case of the tests for four

parameters (benzene, sulfur, oxygen, and aromatics) the methods 8

specified under the two programs are different.

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\8\ See 40 CFR 80.46(a),(e), (f) and (g) for Federal RFG test

method requirements.

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The 40 CFR 80.81(h) exemption in the federal RFG regulation allows

California refiners to use the California test methods prescribed in

Title 13, California Code of Regulations, sections 2260 et seq.,

instead of the federal test methods prescribed at 40 CFR 80.46, when

producing California Phase 2 gasoline that is used in California.

Therefore, California refiners may use either the federal or CARB

methods for gasoline used within the state. However, under existing

federal regulations, California refiners are still required to use the

federal test methods prescribed at 40 CFR 80.46 for gasoline that is

used outside California, including conventional gasoline subject to the

anti-dumping standards specified at 40 CFR 80.101.9

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\9\ EPA estimates that the portion of gasoline exported from

California and used in neighboring states is about twelve percent of

the total California gasoline production and imports.

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WSPA, on behalf of California refiners, has requested that EPA

extend the test method exemption at 40 CFR 80.81(h) to also cover the

gasoline produced by California refiners that is exported from

California to other states. WSPA asked for this change because a

refiner who is utilizing the flexibility of the CARB testing methods

for gasoline sold within California, would have to implement federal

test methods to certify the same gasoline for export to surrounding

states.

EPA believes that WSPA has raised a valid concern and that, under

certain conditions, it may be appropriate to allow the use of non-

federal test methods for gasoline exported from California. Absent such

relief, California refiners who export gasoline to other states are

required to certify such gasoline using federal testing methods. Both

``downgraded'' RFG and conventional gasoline are exported from

California. If a California refiner chooses to utilize the flexibility

of the CARB testing methods, they must also implement the federal test

methods in order to certify gasoline for distribution outside

California.

EPA believes that the standards under the California Phase 2

program are expected to result in lower emissions than will result from

federal RFG and, as discussed below, there may be emissions benefits

for areas receiving ``downgraded'' California RFG. Moreover CARB is

expected to enforce these standards in a comprehensive, aggressive

manner that will result in high compliance. The Agency does not believe

that any environmental detriment would occur from allowing the use of

the CARB test methods for gasoline produced in California, but shipped

out of state for use in non-RFG areas. Because some of the gasoline

shipped out of California as conventional gasoline may be

``downgraded'' RFG or gasoline meeting California Phase 2 standards, an

environmental benefit may be expected for areas receiving such gasoline

exported from California. Thus, allowing flexibility in testing method

for California refiners might actually produce an environmental benefit

to surrounding areas, because such flexibility would make it easier and

more economical for California refiners to export cleaner gasoline.

In its February 29, 1996 response to WSPA, EPA indicated its

intention to change the federal RFG regulations to allow additional

testing flexibility for California refiners and immediately gave

California refiners additional flexibility for a limited time. In that

letter, EPA stated that it will not enforce the requirement at 40 CFR

80.65(e)(1) and 40 CFR 80.101(i)(1)(i)(A) to test gasoline using the

federal test methods specified under 40 CFR 80.46 for benzene, sulfur,

oxygen or aromatics,

[[Page 18698]]

with regard to gasoline that is produced in or imported into California

but that is used outside California.

In order to qualify for this enforcement relief, the refiner or

importer must meet certain conditions, designed to ensure that only

gasoline produced by refiners or importers subject to CARB enforcement,

and that is sold in Federal conventional gasoline areas outside

California, is covered by this flexibility and to ensure that only

gasoline meeting RFG standards will actually be sold in Federal RFG

areas. Furthermore, it is necessary to establish equivalency between

CARB and Federal test method results, since the methods themselves are

not necessarily equivalent and therefore different methods (if not

correlated) would yield different results. In the absence of

correlation, the possibility of one fuel having more than one value

associated with it could cause disruption and confusion in the

distribution system. EPA believes that the conditions, as described in

the next paragraph, are necessary to protect the environmental benefits

associated with the Federal RFG and anti-dumping program.

To qualify, the gasoline must be produced at a refinery located in

California at which gasoline meeting the California Phase 2 standards

and requirements is produced, or the gasoline must be imported into

California from outside the United States as California Phase 2

gasoline (i.e., gasoline that meets the standards and requirements of

the California Phase 2 program). When exported from California, such

gasoline must be classified as federal conventional gasoline, and may

not be classified as federal RFG. Furthermore, the refiner must

correlate the results from any non-federal test method to the method

specified under 40 CFR 80.46 for any gasoline that is used outside

California, and such correlation must be demonstrated to EPA upon

request.

The temporary enforcement flexibility described above and in EPA's

February 29, 1996 letter will expire at the conclusion of this

rulemaking (i.e. upon the effective date of the final rule).

EPA is proposing today to amend 40 CFR 80.81 to incorporate the

enforcement flexibility regarding test methods that EPA temporarily

granted in its February 29, 1996 letter to WSPA. EPA is proposing this

action because the Agency believes that it may result in lower

compliance costs and greater flexibility for California refiners and

because there is no expected adverse environmental impact from this

proposed action.

B. Standard for Oxygen

Section 211(k) of the Clean Air Act requires that the RFG standard

of 2.0 weight percent (wt%) minimum oxygen must be met in each

federally-covered RFG area. When EPA promulgated the California

enforcement exemptions at 40 CFR 80.81, the statewide standards for

California Phase 2 gasoline would have been equal to or more stringent

than all federal RFG standards. With regard to oxygen content, the

California Phase 2 standards included a statewide flat limit of 1.8 to

2.2 wt% oxygen that EPA considered, in practice, to be equivalent to

the federal standard of 2.0 wt% minimum. As a result, EPA did not need

to distinguish between California Phase 2 gasoline used in the

federally-covered RFG areas within California from the California Phase

2 gasoline used in the other areas of California, in order to have

confidence that RFG standards would be met in each federally covered

RFG area in California.

The final California Phase 2 requirements were changed, however,

and now allow gasoline that does not meet the federal RFG standard for

oxygen. Under two alternative California certification methods, the

California predictive model and the vehicle emissions testing method,

there is no minimum oxygen content requirement for summertime

California Phase 2 gasoline.10 Under 40 CFR 80.81(e)(2), certain

enforcement exemptions are withdrawn if a California refiner uses one

of the alternative California certification methods, unless within 30

days of receiving the California certification it notifies EPA and

demonstrates that its gasoline meets all federal RFG per-gallon

standards, including the 2.0 weight % oxygen standard.

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\10\ See Title 13, California Code of Regulations, section

2262.5 for the oxygen standards, section 2265 for the alternative

predictive model method, and section 2266 for the alternative

vehicle emission testing method.

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Therefore, in order to retain the enforcement exemptions, 40 CFR

80.81(e)(2) currently requires that all California Phase 2 gasoline

produced by a refiner, regardless of whether it is sold in a federally-

covered RFG area, must meet the federal RFG standard for oxygen

content. Because neither of the two alternative California

certification methods ensure that the federal oxygen content standard

will be met, except during designated winter months, a refiner that

uses an alternative California certification method must either

additionally notify and demonstrate to EPA that its gasoline meets the

federal RFG standard for oxygen content or lose its eligibility for

certain federal exemptions under 40 CFR 80.81. This loss of eligibility

applies even if the gasoline not meeting the federal RFG standard for

oxygen content is being distributed only to those areas of California

that are not federally-covered RFG areas.

In its petition, WSPA asked EPA to amend the enforcement exemption

provisions to allow California refiners to supply California Phase 2

gasoline containing less than 2.0 wt% oxygen to markets within

California that are not federally-covered RFG areas without having to

comply with the notification and demonstration requirements of 40 CFR

80.81(e)(2) and without losing the federal enforcement exemptions. In

its February 29, 1996 response to WSPA, EPA said it is appropriate to

amend 40 CFR 80.81, provided that annual gasoline quality surveys for

oxygen content are conducted in each federally-covered RFG area, in

order to ensure the gasoline in each federally-covered RFG area in

California is in compliance with the federal oxygen content standard.

EPA reached these conclusions because the statewide California Phase 2

standards, with the exception of oxygen content, are more stringent

than the standards for federal RFG, including any gasoline formulation

certified using the alternative methods. In addition, EPA believes that

these standards will be appropriately enforced by CARB. EPA believes

that the California Phase 2 program provides emission reductions that

equal or exceed that of the federal Phase I RFG program, except for the

oxygen content requirements. EPA concluded that the federal RFG oxygen

requirements do not have to be met in areas of California that are not

subject to the federal RFG standards, in order to ensure compliance

with the oxygen requirements for areas that are subject to the federal

RFG standards. The annual compliance survey is a more appropriate

mechanism to ensure such compliance under these circumstances.

Consistent with, and as described in, the February 29, 1996 letter,

EPA is proposing to amend 40 CFR 80.81 to allow refiners to produce

California Phase 2 gasoline containing less than 2.0 wt% oxygen for use

outside the federally-covered RFG areas in California, provided

appropriate annual gasoline quality surveys for oxygen are conducted in

each federally-covered RFG area in California. These surveys must show

an average oxygen content in each covered area of at least 2.0 wt%.

While EPA could require that all gasoline batches being produced for

the federally-covered RFG areas be tested for oxygen content at the

refinery, or

[[Page 18699]]

prior to importation as applicable, such testing would not ensure that

all gasoline being sold in the federally-covered RFG areas contains at

least 2.0 wt% oxygen. Even though each refinery might meet its refinery

gate standard for oxygen on average, some areas might still receive RFG

with relatively low oxygen content while others might receive RFG with

relatively high oxygen content. The surveys are designed to ensure that

all Federal RFG program areas receive RFG that meets at least the

minimum required oxygen standard.

As in the federal RFG program outside of California, the compliance

surveys appear to be the most practical method to assure that, on

average, the federally-covered RFG areas in California receive gasoline

that meets the federal standard for oxygen content. The federal RFG

program at 40 CFR 80.67 allows refiners, importers, and oxygenate

blenders to meet certain federal RFG standards on average, rather than

on a per-gallon basis for each batch of gasoline. The requirement must

then be met on average, over the entire production, without any

averaging for each specific covered area to which the gasoline is

distributed.

Refiners, importers and oxygenate blenders producing gasoline to

meet standards on average are allowed to produce some batches of

gasoline that are less stringent than the averaging standards (within

the limits of a per-gallon minimum or maximum standard, as applicable).

But they must also produce some batches of gasoline that are more

stringent than the averaging standards, such that on average, the

applicable averaging standard is met. The averaging standards are

somewhat more stringent than the per-gallon standard (e.g., the oxygen

content averaging standard is 2.1 wt%, and the per-gallon standard is

2.0 wt%). It is expected that, if all refiners meet either the per-

gallon standards or the averaging standards, the covered areas

receiving their gasoline should achieve an average oxygen content no

lower than would occur without the allowance for such averaging, based

on the extensive fungible distribution system for gasoline products.

Because many gasoline distribution systems are fungible, some

uncertainty exists as to where each batch of gasoline from each

supplier is ultimately distributed, and what batches, or portions of

batches, from each supplier that each covered area actually receives.

For example, under the averaging program, the possibility still exists

that one or more covered areas may receive too many batches of RFG that

have a relatively low oxygen content (e.g. greater than or equal to 1.5

wt%, but less than 2.0 wt%), so that the required oxygen levels will

not have been achieved in that area.

Consequently, the federal RFG program at 40 CFR 80.67 requires

compliance surveys under 40 CFR 80.68 for refiners that elect to meet

the standards on average under 40 CFR 80.41(b), (d) or (f), as

applicable, rather than to meet the per-gallon standards for each batch

of gasoline under 40 CFR 80.41(a), (c), or (e), as applicable. In

general, the compliance surveys are to ensure that each covered area

receives gasoline that cumulatively (from all suppliers and across

time) has the same oxygen content it would have if averaging was not

allowed. However, the federal RFG regulations at 40 CFR 80.81(b)(1)

exempts refiners of California gasoline (with respect to California

gasoline) from the compliance survey provisions at 40 CFR 80.68, for

the reasons described earlier.

In response to the WSPA request concerning oxygen content

requirements in California and the changes in California Phase 2

standards regarding oxygen content, EPA has reconsidered the limited

use application of the compliance survey provisions. EPA believes that

a yearly survey program, such as that required under 40 CFR 80.68 for

averaging under the federal RFG program, along with other program

requirements (such as compliance by each refinery separately), provides

the most flexible alternative to refiners and the most assurance to EPA

that complying gasoline is actually being sold in the federally-covered

RFG areas.

As stated in its February 29, 1996 response to WSPA, EPA decided to

allow California refiners to produce gasoline that contains less than

2.0 wt% oxygen for use outside the federally-covered RFG areas, until

appropriate amendments to the RFG requirements were been published in

the Federal Register and become effective. In particular, EPA said it

will not enforce the requirement at 40 CFR 81(e)(2) that California

refiners must demonstrate that federal RFG per-gallon standards are met

on each occasion California Phase 2 gasoline is certified under Title

13, California Code of Regulations, section 2265 (dealing with gasoline

certification based on the California predictive model), provided that

two conditions are met. First, a program of gasoline quality surveys

must be conducted in each RFG covered area in California each year to

monitor annual average oxygen content. Second, the surveys must be

conducted in accordance with each requirement specified under 40 CFR

80.68(b) and (c), dealing with surveys for RFG quality, and 40 CFR

80.41(o) through (r), dealing with the effects of survey failures,

except that the surveys need only evaluate for oxygen content and a

minimum of four surveys (a survey series) must be conducted in each

covered area each calendar year.

EPA proposes to retain as an option the existing 30-day

notification and demonstration provisions at 40 CFR 80.81(e)(2).

Under the existing provision, gasoline certified using an

alternative California certification method and not meeting the federal

standard for oxygen content may not be marketed anywhere in California

without losing the enforcement exemptions listed in paragraph (e)(1).

This is because EPA cannot allow non-complying fungible gasoline in

California, unless there are adequate enforcement procedures to ensure

compliance of the gasoline in the federally-covered RFG areas with the

federal standards.

EPA considered whether it should simply eliminate the exemption for

compliance surveys at 40 CFR 80.81(b)(1) for California gasoline.

However, such an action would impact all refiners of California

gasoline, even for those that choose to not certify using one of the

alternative California certification procedures, and those that

produce, import or blend only California gasoline that meets the

federal oxygen content standard. Instead, EPA proposes to offer the

compliance surveys as an option for refiners of California gasoline

that do not choose the existing notification and demonstration option

at 40 CFR 80.81(e)(2), and that do not want to meet the federal oxygen

content standard for gasoline being used in areas of California that

are not federally-covered RFG areas. Further, EPA proposes some

exceptions to the compliance surveys as specified for federally-covered

RFG areas outside of California.

First, EPA proposes that surveys conducted under the proposed

compliance survey option of the exemption provisions at 40 CFR

80.81(e)(2) not be considered for the purposes of determining the

required number of surveys that must be conducted for compliance with

the federal RFG program at 40 CFR 80.68. Under 40 CFR 80.68(b), the

required number of compliance surveys required in a year for federally-

covered RFG areas outside of California depends partly on the number of

areas required to be surveyed in the year, the number of surveys

conducted the previous year,

[[Page 18700]]

and the survey results from the previous year.

EPA believes that the proposed optional surveys for federally-

covered RFG areas in California should not impact the required surveys

for federally-covered RFG areas outside of California. This is because

of the differences in the purpose, scope and desired consequences

between the two survey programs. The federal RFG compliance surveys

required at 40 CFR 80.68 are designed to detect and apply remedial

actions to geographical and temporal noncompliance that may occur due

to the combination of averaging and refinery based standards.

Parameters for all standards being averaged are required to be

measured, and the ultimate consequence of multiple failures of the

survey series is to effectively disallow the use of averaging. In

contrast, the proposed optional surveys under 40 CFR 80.81(e)(2) are

designed to detect and apply remedial actions to geographical and

temporal noncompliance with the oxygen content standard that may occur

due to the absence of California oxygenate standards and other

enforcement requirements intended to ensure the delivery of RFG into

RFG areas, such as product transfer documents. The ultimate consequence

of multiple failures of the survey series is to either withdraw certain

federal enforcement exemptions, or require refiners to produce

California gasoline that meets the federal oxygen content standard for

all areas within California (see fourth issue of this section).

Second, EPA proposes a fixed number of surveys for the proposed

compliance survey option, similar to the temporary enforcement

flexibility granted in the February 29, 1996 letter to WSPA. Under 40

CFR 80.68(b), a formula is used to determine the number of surveys

required in a year, which depends on a specified schedule, the number

of surveys required the previous year, gasoline volume supplied to the

covered areas, and results of the survey the previous year. However,

EPA believes that a minimum four surveys each year for each federally-

covered RFG area is adequate to determine whether the average oxygen

content is adequate. Therefore, EPA is proposing that 40 CFR

80.81(e)(2) require only a minimum of four surveys each year for each

federally-covered RFG area in California. As with the surveys required

under 40 CFR 80.68 for federally-covered areas outside of California,

EPA will determine when these optional surveys conducted in California

under 40 CFR 80.81(e)(2) shall be conducted.

Third, the proposed consequences of passing and failing an optional

survey series in a federally-covered RFG area in California under 40

CFR 80.81(e)(2) is different than the existing consequences of passing

and failing a required survey series in federally-covered RFG areas

outside of California under 40 CFR 80.68. A failure of an oxygen

content compliance survey required at 40 CFR 80.68 for a federally-

covered RFG area outside of California will result in the

``ratcheting'' of the minimum per-gallon oxygen standard to be more

stringent (i.e., to be closer to the averaging standard) for the

following year. As a consequence, the allowable range, and thus the

flexibility, for averaging will be reduced. For example, the per-gallon

minimum standard under averaging for oxygen content is 1.5 wt%. Under

40 CFR 80.41(o), if a covered area fails the survey series for a year,

the per-gallon minimum oxygen content standard for the following year

will be increased by 0.1 wt% to 1.6 wt%. If the covered area fails the

survey series in a subsequent year, the per-gallon minimum oxygen

content standard for the following year will be increased by 0.1 wt% to

1.7 wt%, and so on. If the covered area fails the survey series any

five years (consecutive or non-consecutive), the per-gallon minimum

oxygen content standard for the years following the fifth failure will

be equal to the federal per-gallon oxygen standard of 2.0 wt%. However,

a one-time relaxation of the per-gallon minimum standard by 0.1 wt% is

allowed following two consecutive years of survey series passes for

oxygen content.

For this survey option, EPA proposes that only one year of passing

the survey series in a covered area will be needed to initiate

relaxation of the minimum oxygen content standard for the following

year. EPA proposes that the minimum oxygen content standard be relaxed

by 0.1 wt% for each year following a year in which the survey series

passes in a federally-covered RFG area in California. However, EPA will

not allow the minimum oxygen content standard to be less than 1.5 wt%,

the minimum oxygen content standard for federal RFG under averaging. As

with failures of survey series required under 40 CFR 80.68 in

federally-covered RFG areas outside of California in accordance with 40

CFR 80.41(q)(4), adjusted standards under the compliance survey option

of 40 CFR 80.81(e)(2) apply to all averaged gasoline produced by a

refiner for use in any federally-covered RFG area. However, the

proposed procedures and consequences of the oxygen surveys contained in

this notice differ somewhat from the survey coincidences under 40 CFR

80.68. The surveys proposed today are much smaller in scope than the

existing, ``general'' survey provisions and the consequences for

successive failures, as discussed in greater detail in this section,

may be the subject of future Agency rulemaking action to remove some or

all of the California enforcement exemptions.

EPA proposes that the ultimate consequence of multiple failures of

the optional compliance surveys be withdrawal of the survey option,

rather than the effective withdrawal of the averaging option, as with

the required compliance surveys conducted under 40 CFR 80.68 for

federally-covered RFG areas outside of California. The compliance

survey option provides refiners of California gasoline additional

flexibility under the federal exemption provisions, conditioned on the

premise that those refiners will control the oxygen content of the

gasoline being distributed to the federally-covered RFG areas within

California. If the refiners do not control the oxygen content of the

gasoline going to those areas as determined by the results of the

surveys, EPA believes that it may be reasonable to remove the

flexibility provided under this option. Consequently, EPA proposes that

a failure of a survey series in one federally-covered RFG area in

California for three consecutive years, or an equivalent ``net''

failure of three years over any number of years (i.e., number of years

the survey series failed subtracted from the number of years the survey

series passed), the compliance survey option will no longer be

applicable for any federally-covered RFG area in California. In

practice, this situation will occur if a survey series fails for a

covered area in a year in which the minimum oxygen content standard had

been raised to 1.7 wt% due to a survey series failure in that covered

area the previous year.

Consistent with the existing compliance survey requirements for

federally-covered RFG areas outside of California, EPA proposes to

allow the optional compliance survey under 40 CFR 80.81(e)(2) to be

conducted either by individual refiners under 40 CFR 80.68(a) or as a

group of refiners under 40 CFR 80.68(b). The temporary enforcement

flexibility granted by the February 29, 1996 response to WSPA omitted

the individual survey option of 40 CFR 80.68(a), because that survey

option is not currently being used and is not expected to be used for

practical reasons. Under either 80.68(a) or (b), covered refiners are

required to actively participate in a survey program. The consequences

of any survey failure will

[[Page 18701]]

apply to all suppliers serving the failed area.

It should be noted that the California Phase 2 gasoline that does

not meet the federal RFG standards, including the oxygen standard, is

classified under the federal regulations as conventional gasoline. In

addition, the flexibility allowed by today's proposed amendments does

not alter the prohibitions under section 211(k)(5) of the Clean Air

Act, and 40 CFR 80.78(a)(1) against selling or dispensing conventional

gasoline to ultimate consumers in federally-covered RFG areas, and

against selling conventional gasoline for resale in federally-covered

RFG areas unless the gasoline is segregated and marked as

``conventional gasoline, not for sale to ultimate consumers in a

covered area.'' Nothing in today's proposal would change the

requirement that refiners and importers in California meet all other

Federal RFG standards, including the oxygen standard, for gasoline

produced or imported for use in Federal RFG covered areas in

California. These standards must be met separately for each refinery

and by each importer.

The proposed amendments to 40 CFR 80.81 are generally consistent

with the February 29, 1996 letter to WSPA.

C. Correction to 80.81(e)(1)

EPA proposes to correct 40 CFR 80.81(e)(1), which erroneously omits

one provision, paragraph (f), from the list of enforcement exemption

provisions that would not apply under the conditions of paragraphs

(e)(2) or (e)(3). Paragraph (e)(2) specifies that the exemption

provisions listed in paragraph (e)(1) do not apply if a refiner

certifies California gasoline under one of the alternative California

certification procedures, unless the refiner notifies EPA of that

alternative certification and demonstrates to EPA that its gasoline

meets all federal per-gallon standards. (This proposal adds a

compliance survey option to section (e)(2)(ii).) Paragraph (e)(3)

specifies that the exemption provisions listed in paragraph (e)(1) do

not apply in the case of a refiner of California gasoline that has been

assessed a civil, criminal or administrative penalty for certain

violations of federal or California regulations, except upon a showing

of good cause.

Paragraph (f) specifies that for California phase 2 gasoline

(California gasoline that is sold or made available for sale after

March 1, 1996) the following federal RFG enforcement requirements are

waived: the oxygenated fuels provisions of 80.78(a)(1)(iii), the

product transfer provisions of 80.78(a)(1)(iv), the oxygenate blending

provisions contained in 80.78(a)(7), and the segregation of simple and

complex model certified gasoline provision of 80.78(a)(9). Under the

conditions of either paragraph (e)(2) or (e)(3), EPA would need those

enforcement provisions to ensure that gasoline being used in federally-

covered RFG areas in California complies with the federal standards.

Therefore, EPA proposes to amend paragraph 40 CFR 80.81(e)(1) to

include paragraph (f) in the list of enforcement exemptions that would

become inapplicable under the conditions of paragraphs (e)(2) or

(e)(3).

D. Proposed Amendment to Sampling and Testing Requirements for

California refiners

Under 40 CFR 80.65(e)(1), a refiner must determine the properties

of each batch of RFG it produces prior to the gasoline leaving the

refinery.11 Under the California RFG program, refiners may obtain

approval to sample and test gasoline for compliance with California RFG

standards at off-site ``production'' tankage. This approval would have

to be obtained under Title 13, Section 2260(a)(28) of the California

Code of Regulations, which states:

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\11\ Under 40 CFR 80.2 (h), a ``refinery'' is ``a plant where

gasoline or diesel fuel is produced.''

(28) ``Production facility'' means a facility in California at

which gasoline * * * is produced. Upon request of a producer, the

executive director [of CARB] may designate, as part of the

producer's production facility, a physically separate bulk storage

facility which (A) is owned or leased by the producer, and (B) is

operated by or at the direction of the producer, and (C) is not used

to store or distribute gasoline * * * that is not supplied from the

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production facility.''

It is EPA's understanding that the third requirement, (C), is

interpreted by CARB to require that the gasoline must be transported to

the off-site tankage served via a dedicated pipeline.

In this notice, EPA is proposing amendments to 40 CFR 80.81(h),

which would allow California refiners who have obtained approval from

the State of California to conduct sampling and testing at off-site

tankage served by a dedicated pipeline to use this approach under the

federal RFG program as well. Specifically, the proposed rule would

allow a California refiner who has obtained approval from the State of

California to conduct sampling and testing at off-site tankage under

California Code of Regulations Title 13, Section 2260(a)(28), to

conduct sampling and testing at such approved off-site tankage for

purposes of the federal RFG program. The gasoline must be sampled and

tested under the terms of a current, valid protocol agreement between

the refiner and CARB. The refiner must provide a copy of the current,

valid protocol agreement specifying the off-site tankage as part of the

production facility, to the EPA Administrator or the Administrator's

designated agent, upon request.

EPA believes that this proposed approach is justified because of

the unique situation that exists in the case of refiners subject to the

California RFG requirements, including the enforcement sampling and

testing program that is carried out by the State of California at

refineries producing California RFG. EPA also believes that this

proposed approach will minimize any unnecessary inconsistencies between

the federal and California RFG requirements which do not result in

differences in environmental or public health impacts.

IV. Statutory Authority

Section 114, 211 and 301(a) of the Clean Air Act as amended (42

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

V. Environmental Impact

This rule is expected to have no negative environmental impact.

These amendments are intended to eliminate duplicative enforcement

requirements, and do not relax the federal standards. EPA has

determined that the statewide California Phase 2 program is equal to or

more stringent than the federal Phase I RFG program, except for the

oxygen standard. In fact, as described above, the California Phase 2

program is designed to, and may result in, greater emissions reductions

that the federal RFG program. The additional testing flexibility

allowed certain refiners of California gasoline under today's proposed

regulation may, in fact, result in an environmental benefit because it

would give California refiners flexibility to sell gasoline meeting

California Phase 2 standards as federal conventional gasoline in other

areas. It is reasonable to expect that such gasoline would be

``cleaner'' than other conventional gasoline and could result in an

environmental benefit to the areas receiving it.

VI. Economic Impact

Today's proposed regulation is expected to give refiners of

California gasoline additional operational flexibility and is not

expected to result in additional compliance costs for regulated

parties, including small entities.

[[Page 18702]]

The Regulatory Flexibility Act, 5 U.S.C. 601-612, requires that

Federal Agencies examine the impacts of their regulations on small

entities. The act requires an Agency to prepare a regulatory

flexibility analysis in conjunction with notice and comment rulemaking,

unless the Agency head certifies that the rule will not have a

significant impact on a substantial number of small entities. 5 U.S.C.

605(b). The Administrator certifies that this rule will not have a

significant impact on a substantial number of small entities. This rule

is not expected to result in any additional compliance cost to

regulated parties and may be expected to reduce compliance cost.

Specifically, the additional flexibility allowed by permitting use of

CARB testing methods for California gasoline exported to surrounding

areas, the proposed oxygen survey option, and the proposed off-site

sampling and testing allowance would grant all California refiners

(regardless of size), additional compliance flexibility and would

permit them options that could significantly lower compliance costs.

The changes proposed today are expected to be beneficial for all

affected industry parties, including affected small entities.

VII. Executive Order 12866

Under Executive Order 12866,12 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:

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

\12\ 58 FR 51736 (October 4, 1993).

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

(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.13

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

\13\ Id. at section 3(f)(1)-(4).

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

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.

VIII. Unfunded Mandates

Under Section 202 of the Unfunded Mandates Reform Act of 1995

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

to accompany any general notice of proposed rulemaking or final rule

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

State, local, 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 the rule proposed today does not include a

federal mandate as defined in 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.

IX. Paperwork Reduction Act

The information collection requirements in this proposed rule will

be submitted for approval to the Office of Management and Budget (OMB)

under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. An

information Collection Request (ICR) document has been prepared by EPA

(ICR NO. 1591.07) covering this and related collections. OMB has

approved the remainder of the information collection requirements for

the Standards for Reformulated Gasoline Regulations and has assigned

OMB control number 2060-0277. A copy may be obtained from Sandy Farmer,

OPPE Regulatory Information Division; U.S. Environmental Protection

Agency (2137); 401 M St., S.W.; Washingtion, DC 20460 or by calling

(202) 260-2740.

Today's proposal rule includes optional oxygen surveys applicable

in RFG program areas located within the state of California. This

survey option is necessary to ensure that the environmental and public

health benefits of the RFG program are met in California RFG areas and

is designed to preserve the California enforcement exemptions contained

in 40 CFR 80.81. Specifically, today's proposed rule allows refiners to

produce California Phase 2 gasoline containing less than 2.0 weight%

oxygen for use outside federally covered areas provided appropriate

annual gasoline quality surveys for oxygen are conducted in each

covered area in California.

EPA estimates the cost of all the required RFG surveys to be

approximately 2.3 million for 1997 and approximately $6.0 million for

1998 and beyond (when complex model standards apply). The vast majority

of the cost is attributable to the comprehensive surveys required under

40 CFR 80.68.

Section 80.68 surveys are applicable in all Federal RFG covered

areas outside California and cover a broader range of parameters than

the proposed California surveys, which are designed to monitor annual

average oxygen content only. The proposed California surveys are

limited in their number. Four surveys are proposed to be conducted each

year in each of three California Federal RFG covered areas, for a total

of 12 surveys. Industry has generally welcomed this California survey

option, since it grants flexibility and potentially reduces compliance

burdens.

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 Ageny. This includes the time

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

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

verifing information, processing and maintaining information, and

disclosing and providing 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 OMG control number. The OMB control numbers for EPA's

regulations are listed in 40 CFR part 9 and 48 CFR chapter 15.

Comments are requested on the Agency's need for this information,

the accuracy of the provided burden estimates, and any suggested

methods for minimizing respondent burden, including through the use of

automated collection techniques. Send comments on the ICR to the

Director, OPPE Regulatory Information Division; U.S. Environmental

Protection Agency (2137); 401 M St., S.W., Washington March 17, 1997 C

20460 and to the

[[Page 18703]]

Office of Information and Regulatory Affairs; Office of Management and

Budget, 725 17th St., N.W. Washington, DC 20503, marked ``Attention''

Desk Officer for EPA. Include the ICR number in any correspondence.

Since OMB is required to make a decision concerning the ICR between 30

and 60 days after April 16, 1997, a comment to OMB is best assured of

having its full effect, if OMB receives it by May 16, 1997. The final

rule will respond to any OMB or public comments on the information

collection requirements contained in this proposal.

List of Subjects in 40 CFR Part 80

Environmental protection, Air pollution control, California

exemptions, Gasoline, Reformulated gasoline, Motor vehicle pollution.

Dated: April 9, 1997.

Carol M. Browner,

Administrator.

40 CFR part 80 is proposed to be 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 80.81 is amended by revising paragraphs (e)(1), (e)(2)

and (h) to read as follows:

Sec. 80.81 Enforcement exemptions for California gasoline.

* * * * *

(e)(1) The exemption provisions contained in paragraphs (b)(2),

(b)(3), (c), and (f) of this section shall not apply under the

circumstances set forth in paragraphs (e)(2) and (e)(3) of this

section.

(2) Such exemption provisions shall not apply to any refiner,

importer, or oxygenate blender of California gasoline with regards to

any gasoline formulation that it produces or imports is certified under

Title 13, California Code of Regulations, section 2265 or section 2266,

unless:

(i)(A) Written notification option. The refiner, importer, or

oxygenate blender, within 30 days of the issuance of such

certification:

(1) Notifies the Administrator of such certification;

(2) Submits to the Administrator copies of the applicable

certification order issued by the State of California and the

application for certification submitted by the regulated party to the

State of California; and

(3) Submits to the Administrator a written demonstration that all

gasoline formulations produced, imported or blended by the refiner,

importer or oxygenate blender for use in California meets each of the

complex model per-gallon standards specified in Sec. 80.41(c).

(B) If the Administrator determines that the written demonstration

submitted under paragraph (e)(2)(i)(A) of this section does not

demonstrate that all certified gasoline formulations meet each of the

complex model per-gallon standards specified in Sec. 80.41(c), the

Administrator shall provide notice to the party (by first class mail)

of such determination and of the date on which the exemption provisions

specified in paragraph (e)(1) of this section shall no longer be

applicable, which date shall be no earlier than 90 days after the date

of the Administrator's notification; or

(ii) Compliance survey option. The compliance survey requirements

of Sec. 80.68 are met for each covered area in California for which the

refiner, importer or oxygenate blender supplies gasoline for use in the

covered area, except that:

(A) The survey series must determine compliance only with the

oxygen content standard of 2.0 weight-percent;

(B) The survey series must consist of at least four surveys a year

for each covered area;

(C) The surveys shall not be included in determining the number of

surveys under Sec. 80.68(b)(2);

(D) In the event a survey series conducted under this paragraph

(e)(2)(ii) fails in accordance with Sec. 80.68(c)(12), the provisions

of Secs. 80.41(o), (p) and (q) are applicable, except that if the

survey series failure occurs in a year in which the applicable minimum

oxygen content is 1.7 weight percent, the compliance survey option of

this section shall not be applicable for any future year; and

(E) Not withstanding Sec. 80.41(o), in the event a covered area

passes the oxygen content series in a year, the minimum oxygen content

standard for that covered area beginning in the year following the

passed survey series shall be made less stringent by decreasing the

minimum oxygen content standard by 0.1%, except that in no case shall

the minimum oxygen content standard be less than that specified in

Sec. 80.41(d).

* * * * *

(h)(1) For the purposes of the batch sampling and analysis

requirements contained in Sec. 80.65(e)(1), any refiner, importer or

oxygenate blender of California gasoline may use a sampling and/or

analysis methodology prescribed in Title 13, California Code of

Regulations, sections 2260 et seq., in lieu of any applicable

methodology specified in Sec. 80.46, with regards to

(i) Such gasoline; or

(ii) That portion of its gasoline produced or imported for use in

other areas of the United States, provided that

(A) The gasoline must be produced by a refinery that is located in

the state of California that produces California gasoline, or imported

by an importer of California gasoline;

(B) The gasoline must be classified as conventional gasoline upon

exportation from the California, or upon release or shipment from the

refinery if the refinery is located outside of California; and

(C) The refiner or importer must correlate the results from the

applicable sampling and /or analysis methodology prescribed in Title

13, California Code of Regulations, sections 2260 et seq., with the

method specified at Sec. 80.46, and such correlation must be adequately

demonstrated to EPA upon request.

(2) Nothwithstanding the requirements of Sec. 80.65(e)(1) regarding

when the properties of a batch of reformulated gasoline must be

determined, a refiner of California gasoline may determine the

properties of gasoline as specified under Sec. 80.65(e)(1) at off site

tankage provided that:

(i) The samples are properly collected under the terms of a current

and valid protocol agreement between the refiner and the California Air

Resources Board with regard to sampling at the off site tankage and

consistent with requirements prescribed in Title 13, California Code of

Regulations, sections 2260 et seq.; and

(ii) The refiner provides a copy of the protocol agreement to EPA

upon request.

* * * * *

[FR Doc. 97-9867 Filed 4-15-97; 8:45 am]

BILLING CODE 6560-50-P