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Regulation of Fuels and Fuel Additives: Individual Foreign Refinery Baseline Requirements for Reformulated Gasoline

American Government Special Collections Reference Desk

American Government

Regulation of Fuels and Fuel Additives: Individual Foreign Refinery Baseline Requirements for Reformulated Gasoline

Carol M. Browner
Environmental Protection Agency
May 3, 1994


[Federal Register Volume 59, Number 84 (Tuesday, May 3, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 94-10434]


[[Page Unknown]]

[Federal Register: May 3, 1994]


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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 80

[AMS-FRL-4879-7]
RIN 2060-AF13

 

Regulation of Fuels and Fuel Additives: Individual Foreign 
Refinery Baseline Requirements for Reformulated Gasoline

AGENCY: Environmental Protection Agency.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The EPA is proposing to amend the reformulated gasoline 
regulations to define criteria and procedures by which foreign refiners 
establish individual refinery baselines that reflect the properties and 
volume of the gasoline that was produced at a foreign refinery in 1990 
and imported for use within the United States. EPA is seeking comments 
on a wide range of matters in this proposal, including the air quality 
effects of the proposed approach. Where the requisite showing is made 
through a petition process, importers of reformulated gasoline produced 
at the foreign refinery would be allowed to use the individual foreign 
refinery baseline values to demonstrate compliance with the 
reformulated gasoline standards with regard to gasoline produced at 
that foreign refinery and imported into the United States only during 
the period 1995 through 1997 and only up to a volume of gasoline each 
year that equals the foreign refinery's 1990 import volume, and subject 
to certain limitations and conditions that are proposed as well. This 
amendment would allow imported reformulated gasoline to be evaluated 
relative to individual refinery baselines in a manner that is similar 
to that applicable to reformulated gasoline produced at domestic 
refineries. Individual foreign refinery baselines could be used only 
with reformulated gasoline under this proposal, and such baselines 
could not be used with conventional gasoline.
    EPA specifically states that it seeks comments on the proposed 
approach for foreign refinery baselines and on any underlying 
assumptions, as well as any other options for regulating imported 
reformulated gasoline that would be fair to all regulated parties and 
would achieve the environmental benefits intended for reformulated 
gasoline by the Clean Air Act.

DATES: The comment period will close on June 23, 1994. EPA will hold a 
public hearing on this proposal on May 23, 1994, beginning at 10 a.m.

ADDRESSES: Send comments to Public Docket A-94-25 at the address below. 
It is also requested that a duplicate copy of comments be sent to the 
person listed in the FOR FURTHER INFORMATION CONTACT section of this 
document. Materials relevant to this NPRM are contained in Public 
Dockets A-91-02 and A-92-12 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 a.m. until 12 
noon and from 1:30 p.m. until 3 p.m. Monday through Friday. A 
reasonable fee may be charged by EPA for copying docket materials.
    The meeting will be held at the Hyatt Regency Hotel, 2799 Jefferson 
Davis Highway, Arlington, Virginia 22202.

FOR FURTHER INFORMATION CONTACT: George Lawrence, Field Operations and 
Support Division, U.S. EPA (6406J), 401 M Street, SW., Washington, DC 
20460, Telephone: (202) 233-9307.

SUPPLEMENTARY INFORMATION: To Request Copies of This Document Contact: 
Helen Sablack, Field Operations and Support Division, U.S. EPA (6406J), 
401 M Street, SW., Washington, DC 20460, Telephone: (202) 233-9402.
    Copies of this proposed rule are available on the OAQPS Technology 
Transfer Network Bulletin Board System (TTNBBS). The TTNBBS can be 
accessed with a dial-in phone line and a high-speed modem (PH# 919-541-
5742). The parity of your modem should be set to none, the data bits to 
8, and the stop bits to 1. Either a 1200, 2400, 9600, or 14400 baud 
modem should be used. When first signing on, the user will be required 
to answer some basic informational questions for registration purposes. 
After completing the registration process, proceed through the 
following series of menus:

(T) GATEWAY TO TTN TECHNICAL AREAS (Bulletin Boards)
(M) OMS
(K) Rulemaking and Reporting
(3) Fuels
(9) Reformulated gasoline

    A list of ZIP files will be shown, all of which are related to the 
reformulated gasoline rulemaking process. The individual foreign 
refinery baseline proposed rule is identified by the title: 
``FORBASE.ZIP.'' To download this file, type the instructions below and 
transfer according to the appropriate software on your computer:

ownload, 

rotocol, xamine, ew, ist, or elp Selection or to exit: D FORBASE.ZIP You will be given a list of transfer protocols from which you must choose one that matches with the terminal software on your own computer. Then go into your own software and tell it 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. Background On December 15, 1993 the EPA Administrator issued the final regulations implementing the reformulated gasoline and anti-dumping programs (the Final Rule), as prescribed by section 211(k) of the Clean Air Act (the Act). See 59 FR 7716 (February 16, 1994). Under the final rule, compliance by refiners and importers with certain reformulated gasoline and anti-dumping standards is measured against baselines that are intended to reflect 1990 gasoline quality. Domestic refiners are required to establish individual refinery baselines of the quality and quantity of the gasoline that was produced by the refiner in 1990. Domestic refinery baselines must be calculated using, in hierarchical order based on the availability of data, 1990 gasoline test data (Method 1), 1990 blendstock test data (Method 2), or post-1990 blendstock and/or gasoline test data (Method 3). Under the rule, domestic importers of foreign-refined gasoline are treated differently. They are required to establish baselines of the quality and quantity of 1990 gasoline that they import using 1990 gasoline test data (Method 1) if available. If Method 1 data are not available, importers are assigned a baseline approximating average gasoline quality in the United States in 1990--the statutory baseline.1 EPA anticipates that most importers, like most domestic refiners, lack the actual 1990 testing data necessary to establish a baseline using Method 1. As a result, EPA expects most importers will be assigned the statutory baseline, with the consequence that most gasoline produced at foreign refineries will be evaluated using the statutory baseline. The baseline-setting scheme is specified in 40 CFR 80.91 through 80.93 and is discussed in the Preamble to the final rule at 59 FR 7791 (February 16, 1994). --------------------------------------------------------------------------- \1\The ``statutory'' baseline is calculated pursuant to section 211(k)(10)(B) of the Act which defines the statutory baseline for summertime gasoline and instructs the Administrator to establish the properties of the statutory baseline for wintertime gasoline based on average 1990 qualities of wintertime gasoline. EPA's Final Rule specifies the properties of the statutory baseline for wintertime gasoline in Sec. 80.45(b)(2), and annual statutory baseline gasoline properties in Sec. 80.91(c)(5). --------------------------------------------------------------------------- Before January 1, 1998, refiners and importers have the option of certifying reformulated gasoline using either the ``simple'' model or ``early use of the complex model.'' Under either of these reformulated gasoline certification approaches, compliance with certain standards is determined in relation to the baseline established for each refinery or importer. Under the simple model, the annual average levels for sulfur, T-90, and olefins are limited to each refinery's or importer's baseline levels for these parameters.2 Under early use of the complex model (in contrast to mandatory use of the complex model beginning in 1998) refinery- or importer-specific standards for VOC, toxics, and NOX emissions performance are set in part using refiner or importer baseline levels for sulfur, T-90, and olefins.3 --------------------------------------------------------------------------- \2\The reformulated gasoline ``simple'' model requirements include standards for oxygen, benzene, RVP, and toxics emissions which are unrelated to refinery or importer baselines, in addition to standards for sulfur, T-90, and olefins which are in relation to refinery or importer baselines. See Secs. 80.41 (a) and (b). \3\Under early use of the ``complex'' model, a refiner or importer calculates refinery- or importer-specific standards for VOC, toxics, and NOX emissions performance by using the complex model to evaluate a gasoline with ``simple'' model values for benzene, RVP, oxygen, and aromatics, and the refiner's or importer's individual baseline values for sulfur, T-90, and olefins. See Sec. 80.41(j). --------------------------------------------------------------------------- Beginning on January 1, 1998, only the complex model may be used to certify reformulated gasoline, and the basis for all compliance with the reformulated gasoline complex model standards is determined in relation to 1990 statutory baseline gasoline. See Secs. 80.41(i)(2)- (i)(3). As a result, beginning in 1998 refiner or importer baselines are no longer relevant to determining compliance with reformulated gasoline standards. Compliance with the standards for conventional gasoline (the ``anti-dumping'' standards) is measured against refinery or importer baselines beginning in January 1995 and thereafter. See Sec. 80.101. As a result of the baseline-setting requirements of the final rule discussed above, domestic refiners would determine compliance with the anti-dumping standards in relation to refinery-specific baselines, while most or all importers of gasoline produced at foreign refineries would determine compliance in relation to the statutory baseline. In developing the final rule, EPA evaluated comments regarding the proposed approach for establishing baselines for imported gasoline, including comments submitted on behalf of Petroleos de Venezuela, S.A. (PDVSA), the Venezuelan national oil company, in response to the April 16, 1992 reformulated gasoline proposal, at 57 FR 13416. In their comments, PDVSA said that the proposal for imported gasoline baselines is unfair in that it treats domestic and foreign refiners differently. PDVSA also stated in its comments that this difference in treatment of domestic and foreign refiners conflicted with the requirements of the General Agreement on Tariffs and Trade (GATT). EPA officials held a series of meetings on the foreign refiner baseline issue during the Fall of 1992 and during 1993. These included meetings with PDVSA officials, regarding whether PDVSA has the data necessary to establish a baseline of the quality of its gasoline that was used in the United States in 1990, and whether EPA could formulate an adequate enforcement scheme for a program that included individual foreign refinery baselines. EPA also met with domestic refiners on this issue, to hear their concerns, and with representatives of other agencies, primarily officials from the Office of the U.S. Trade Representative and the State Department, to better understand the GATT requirements. EPA's February 26, 1993 reformulated gasoline proposal also invited comment on these issues. See 58 FR 11758. As a result of these comments and meetings, EPA considered provisions allowing foreign refiners to establish individual refinery baselines in a manner similar to that required for domestic refiners. See discussion in the Preamble to the final rule at 59 FR 7785-7788 (February 16, 1994). EPA was not prepared to adopt such provisions by the court ordered deadline for the final rule of December 15, 1993, but it stated at that time that it would continue to consider this issue and continue discussions with PDVSA. Since issuance of the final rule, EPA has continued to consider this question, including the relationship of the GATT and the reformulated gasoline rule, and is seeking comments on its proposal in this notice to allow foreign refiners to establish individual refinery baselines under limited circumstances. While EPA does not necessarily agree with PDVSA position on GATT requirements, EPA desires to remove the uncertainty in this regard and we believe the proposal does that in a manner fully protective of human health and the environment. II. The Proposed Limited Use of Individual Foreign Refinery Baselines Under today's proposal, importers would be allowed limited use of a baseline established for an individual foreign refinery to demonstrate compliance with the reformulated gasoline standards for gasoline produced at that foreign refinery and imported for use in the United States. The use of individual foreign refinery baselines would be conditioned and limited in the following ways: EPA would have to specifically approve the baseline for the foreign refinery. In order to obtain a baseline, the foreign refiner would have to submit a petition to EPA, which would include the same types of gasoline and blendstock testing data and refinery modelling analyses that domestic refiners must submit. In addition, a foreign refiner would have to support its baseline petition with a report prepared by an independent baseline auditor, and like for domestic refiners EPA would have to approve the auditor. One key aspect of a foreign refiner's baseline petition is that it would have to conclusively establish the quality and volume of gasoline that was used in the United States in 1990, and not just the refinery's overall gasoline quality in 1990. Individual foreign refinery baselines could be used by importers only to demonstrate compliance with reformulated gasoline standards and only prior to January 1, 1998. They could not be used to demonstrate compliance with anti-dumping standards. The total volume of imported reformulated gasoline that could be subject to the individual baseline for any foreign refinery would be limited each year to the volume of that refinery's gasoline used in the United States in 1990. The importer would be required to establish that any imported gasoline that would be subject to an individual foreign refinery baseline actually came from that refinery, through gasoline inspections and attest engagements conducted by independent inspectors and auditors at the foreign refinery. EPA inspectors would have to receive full access to the foreign refinery to conduct announced and unannounced inspections and audits related to the individual foreign refinery's baseline or any gasoline produced at the foreign refinery. These conditions and limits are discussed more fully below. Under the final rule, individual baselines are used to certify reformulated gasoline and demonstrate compliance with the reformulated gasoline standards only during 1995 through 1997. Beginning January 1, 1998 all reformulated gasoline compliance must be certified using the statutory baseline. See Secs. 80.41(h)-(j). This constraint also would apply to importers of reformulated gasoline who under today's proposal had previously used individual foreign refinery baselines. Importers would be able to use an individual foreign refinery baseline for reformulated gasoline for 1995 through 1997 only if all of these conditions and limits are fully met. If any condition is not met with regard to a specific foreign refinery, then importers would not be allowed to use the foreign refinery's individual baseline. If any such conditions are not met subsequent to the time the importer uses the individual foreign refinery baseline, then the importer would be required to recalculate its compliance using the statutory baseline, even if the failure to meet the conditions occurs during a subsequent averaging period. This potentially could expose the importer to substantial penalties if subsequent use of the statutory baseline causes the importer to be in non-compliance with the reformulated gasoline requirements.4 --------------------------------------------------------------------------- \4\Under section 211(d) of the Clean Air Act, violators of the reformulated gasoline requirements and standards are subject to a maximum penalty of $25,000 per violation per day, plus economic benefit. Violations of multi-day (averaging) standards constitute a separate day of violation for each day in the averaging period. --------------------------------------------------------------------------- EPA is proposing that importers who use a foreign refinery's individual baseline would use that baseline, and the volume of the foreign refinery's reformulated gasoline involved, to calculate a new importer baseline for use during that year. The total of the reformulated gasoline imported by the importer during the relevant averaging period would then be evaluated against this new importer baseline to determine compliance by the importer with the reformulated gasoline standards. This proposed method for using foreign refinery baselines is illustrated by the following example. A hypothetical importer has been assigned the statutory baseline. During 1996 he imports reformulated gasoline totalling 900,000 barrels of gasoline produced at hypothetical foreign refinery A, and 800,000 barrels of gasoline produced at hypothetical foreign refinery B. Foreign refiner A has an individual refinery baseline, and the sulfur baseline level is 400 ppm, and a baseline volume of 1,000,000 barrels.5 Foreign refiner B does not have an individual refinery baseline, and the importer would use the statutory baseline, which for sulfur is 338 ppm, for the refinery B volume. The average sulfur content of the imported gasoline that was produced at foreign refinery A was 375 ppm, and the average sulfur content of the imported gasoline that was produced at foreign refinery B was 360 ppm. --------------------------------------------------------------------------- \5\Because the 1990 baseline volume assigned to Refinery A is greater than 900,000 barrels, the importer may use Refinery A's individual baseline for all 900,000 barrels imported from that refinery. --------------------------------------------------------------------------- The hypothetical importer would calculate a new sulfur baseline of 370.80 ppm as follows: TP03MY94.000 The hypothetical importer then would compute the average sulfur content of all gasoline imported during the year, of 365.00 ppm, as follows: TP03MY94.001 Because the 365.00 ppm overall average sulfur content of the gasoline imported is less than the 370.80 ppm calculated baseline for the importer, the importer meets the sulfur standard applicable to the importer. Note that the imported gasoline produced at foreign refinery A would not be required to separately meet the 400 ppm sulfur baseline applicable to refinery A, and the imported gasoline produced at foreign refinery B would not be required to separately meet the 338 ppm sulfur baseline applicable to refinery B. A. Establishing Individual Foreign Refinery Baselines In order to establish an individual baseline for a foreign refinery under this proposal, a petition would have to be submitted to EPA in a manner analogous to the baseline submissions required for domestic refiners. The petition would have to contain the Method 1, Method 2, and/or Method 3 data, collected and evaluated in the same manner as is required of domestic refiners under Sec. 80.91. The baseline data would have to be submitted in the same manner as is required of domestic refiners under Sec. 80.93, except that EPA is proposing to modify the requirements in Sec. 80.93 related to the dates by which baseline submissions are due. Under Sec. 80.93 domestic refiners are required to submit data collected before December 15, 1993 by June 1, 1994, or by September 1, 1994 if data is collected subsequent to December 15, 1993. As a result of the timing of this proposal, these dates are not reasonable for baseline petitions for foreign refiners. EPA is therefore proposing that any petition for an individual foreign refinery baseline would be required to be submitted to the Administrator within six months following the date the individual foreign refinery baseline final regulation is signed. This approach is analogous to the lead time afforded domestic refiners in the final rule for baseline submissions. Another departure from the baseline submission requirements of Sec. 80.93 is that baseline data for foreign refineries would have to be submitted in such a manner that EPA could determine the quality and quantity of the gasoline produced at the foreign refinery during 1990 that was used in the United States. Baseline submissions by domestic refiners are not required to focus on the 1990 U.S. market share of refinery production, because it is assumed that all gasoline produced at a domestic refinery is used in the United States, unless the refiner shows certain gasoline was exported. This proposal that foreign refinery baseline petitions would be required to establish U.S. market gasoline quality and quantity is critical, because the quality of a foreign refinery's U.S. market gasoline in many cases would be different from the quality of the refinery's overall gasoline quality. Under the proposal, if EPA is unable to determine both the quality and quantity of the gasoline that was produced by any foreign refinery in 1990 and used in the United States, the individual foreign refinery baseline petition would be denied. The accuracy and completeness of the data and conclusions contained in the individual foreign refinery baseline petition would have to be verified by an independent EPA-approved auditor, in the same manner as is required of domestic refiners under Sec. 80.92. Thus, the auditor would have to be approved by EPA according to the criteria, specified in Sec. 80.92, which include approval of the auditor's independence and technical ability. EPA is proposing that a petition for an individual foreign refinery baseline must be submitted by the foreign refiner. EPA believes the foreign refiner is the most appropriate person to submit such a petition, because it is the foreign refiner who will possess most or all of the information that would support such a petition. EPA also is proposing that the petition must contain a declaration by the owner or president of the foreign refiner business that the information submitted in the petition is accurate and complete. EPA is further proposing that the foreign refiner owner or president would be required to affirmatively declare that EPA auditors and inspectors will be given full and immediate access to all refinery premises, for purposes of compliance with the EPA inspection requirements EPA has proposed in Sec. 80.84(f). The declarations by the foreign refiner owner or president would be mandatory conditions for EPA approval of any foreign refinery baseline petition. EPA is proposing this declaration requirement in order to ensure that in each case of a foreign refiner seeking an individual baseline, refiner officials at the highest levels of the business are aware of the refiner commitments that are necessary for use of a foreign refinery's baseline. B. Establishing the Refinery-of-Origin EPA is proposing regulatory requirements that would, for any batch of imported gasoline claimed to be subject to an individual foreign refinery baseline, establish the identity of the foreign refinery at which the gasoline was produced. The proposed requirements would include the testing of samples of the gasoline in question collected subsequent to loading into the ship at the port serving the foreign refinery, but before the ship leaves that port. These test results from the foreign refinery loading point would then be compared with test results of samples of the gasoline in question collected when the ship arrives at the United States port of entry. Sampling and testing of gasoline at the U.S. port of entry is required by the final rule, at Secs. 80.65(e)-(f). The proposed regulations include criteria for evaluating whether the test results of the gasoline samples from the foreign refinery loading port match the test results of the gasoline samples from the U.S. port of entry. The test results would have to agree, for each parameter included in the evaluation of reformulated gasoline, within the limits used for comparing domestic refiner and independent laboratory test results, which are specified in Sec. 80.65(f). The volume of gasoline contained in each shipment of imported gasoline claimed to be subject to an individual foreign refinery baseline also would have to be confirmed. The inspection at the foreign refinery loading port would have to establish the volume loaded onto the ship, which would be compared to the volume determination at the U.S. port of entry. EPA is proposing that these two volume determinations, corrected for temperature and density, would have to agree within one percent. EPA believes this level of correlation is appropriate, because it is well within the level of correlation normally expected in commercial transactions. EPA understands that protests normally are initiated if ship volume determinations in commercial dealings differ by 0.5%. Nevertheless, EPA requests comment as to the appropriate level of correlation which should be required, and as to any other approach to confirming volumes that would be preferable to that proposed. In the event any single parameter, or the volumes involved, would not agree in the manner proposed, the individual foreign refinery baseline could not be used by the importer for the specific batch of imported gasoline for which there is parameter value or volume disagreement. EPA believes that in most cases the gasoline contained in each compartment of a ship would constitute a separate batch, because the gasoline would not be homogeneous across more than one compartment, and would therefore not meet the batch definition of Sec. 80.2(gg). In consequence, EPA believes that in most cases the sampling, testing, and volume determinations would have to be performed separately for each of a ship's compartments. In addition, it is EPA's understanding that the current practice for inspecting the gasoline transported by ship is to separately sample each compartment, even when the same grade of gasoline is being transported in more than one compartment of a ship. EPA also is proposing that the independent laboratory would be required to determine the refinery of origin, and thereby establish whether the gasoline loaded onto the ship was in fact produced at that refinery. The laboratory also would determine whether the foreign refinery's gasoline has been combined with gasoline produced at any other refinery. Only gasoline that is produced at the foreign refinery or origin would be eligible for use with the foreign refinery's baseline, yet it is possible that gasoline loaded onto a ship at a port serving a foreign refinery could have been produced at a different refinery. For example, two refineries could be linked to a port by a common pipeline, or gasoline could be produced at a foreign refinery and then transferred by ship to storage tanks located at a second foreign refinery. The proposed requirements related to determining the refinery of origin would confirm that gasoline loaded into a ship at the port serving a foreign refinery was in fact produced at the foreign refinery and therefore that the foreign refinery's individual baseline would be applicable. This confirmation of the source refinery by the independent inspector normally would require the review of documents that reflect all transfers and storage of the gasoline in question from the point of production at the source refinery to the point of ship loading. The inspector thus would be required to establish the refinery of origin and that there was no fungible mixing of the gasoline in question with any gasoline produced at any other refinery prior to loading onto the ship. An additional proposed requirement that relates to establishing the refinery-of-origin for imported gasoline is the proposal for attest engagements at the foreign refinery. This attest requirement would supplement the requirements regarding an independent laboratory determination of the source refinery of gasoline. The focus of the attest engagement, however, would be on the refinery operations while the independent laboratory's primary focus would be on the transportation and storage of gasoline from the refinery to the point of ship loading. Under the proposed procedures, the attester would be required to confirm the overall production for the refinery in question, and to confirm that the portion claimed to have been transferred to ships for shipment to the United States was a part of that overall production. The attester also would be required to confirm the transfer of gasoline from the refinery to the ships, and to identify the ships into which the gasoline was transferred. EPA requests comment on whether these proposed attest procedures are appropriate and adequate. EPA is proposing that the sampling, testing, and volume determinations at the foreign refinery loading port would have to be performed by an independent laboratory that is U.S.-based. The proposed criteria for independence are the same criteria that apply for the independent sampling and testing requirement for domestic refiners and importers, and that are specified at Sec. 80.65(f)(2)(ii). Similarly, EPA is proposing that the attest requirements would have to be fulfilled by certified public accountants (CPA's) that are United States citizens, or members of a firm that is a U.S. corporation. The proposed requirements that the independent laboratories and CPA's be U.S.-based is intended to result in laboratories and CPA's over which EPA may easily exercise jurisdiction. EPA's ability to inspect, obtain judicial enforcement, or submit information requests under section 114 of the Clean Air Act is significantly more effective in the case of a person that is a United States citizen or a United States corporation. These enforcement approaches may not be easily available against non-U.S. corporations or citizens. EPA seeks comment on the proposed requirement that independent laboratories and CPA's be U.S. corporations or citizens. C. The Volume Limitation on Use of Individual Foreign Refinery Baselines EPA is proposing that the total volume of imported reformulated gasoline that could be subject to the individual baseline for any foreign refinery would be limited each year to the volume of that refinery's gasoline that was used in the United States in 1990. It has been argued that this proposed volume constraint would limit any potential adverse environmental effects of gasoline imported under individual foreign refinery baselines in comparison to the final rule, as is discussed more fully below. The proposed volume constraint would apply separately to each foreign refinery having an individual baseline, and would apply across all of the importers who import gasoline produced at each foreign refinery. Thus, for example, if the gasoline produced at a particular foreign refinery having an individual baseline is imported by ten importers during a specific year, the volume constraint applicable to that foreign refinery would apply to the ten importers collectively. Any of the hypothetical refinery's gasoline that is imported that year beyond the proposed volume constraint would be subject to the baseline otherwise applicable to the importer (normally the statutory baseline), and the individual foreign refinery's baseline would not apply to this excess volume. EPA is proposing that the date gasoline is imported would be the criterion for determining which gasoline would qualify for use of an individual foreign refinery baseline. In the event importers claim use of an individual foreign refinery's baseline for a volume in excess of the proposed volume constraint, the gasoline that is first imported that equals the volume constraint would receive use of the individual baseline. Thus, the proposed volume constraint would apply based on the date the gasoline is imported into the United States, and not based on the date the gasoline is produced. Beginning on January 1 of each year the volume constraint accounting would begin anew. EPA is not proposing any regulatory mechanisms that would provide importers a running accounting of the volume of a particular foreign refinery's gasoline that has been imported subject to an individual refinery baseline. Moreover, EPA would not know the total volume of imported gasoline claimed to be subject to any particular foreign refinery's baseline until quarterly or annual reports are submitted to EPA. EPA expects that importers would make private arrangements with their foreign refiner business partners to track the volume of each foreign refinery's gasoline that is imported under each individual foreign refinery's baseline. In this way EPA believes that importers would be able to know whether any particular batch of imported gasoline would be within the volume constraint that would apply to the foreign refinery that produced the gasoline. The proposed consequences for the importer that would result from claiming use of an individual foreign refinery's baseline beyond the proposed volume constraint are discussed below. EPA is proposing that any reformulated gasoline that is imported during 1994 and for which an individual foreign refinery baseline is used would be combined with such gasoline imported during 1995 for purposes of the proposed volume constraint. This proposal for combining compliance calculations for gasoline imported during 1994 and 1995 is analogous to the requirement in the final rule that reformulated gasoline produced or imported in 1994 must be combined with reformulated gasoline produced or imported in 1995 for determining compliance with average standards. See Sec. 80.67(i). EPA is further proposing to expand the 1990 baseline volume to allow for imports during 1994, but this expanded baseline volume would apply only for gasoline imported during 1994-1995. The mechanism proposed for this volume expansion is to multiply the foreign refinery's 1990 baseline volume times 1.17, which would result in an additional volume equal to two months of the 1990 baseline volume. EPA believes this approach for expanding the 1990 baseline volume to cover imports during 1994 is appropriate, because it would allow imports subject to an individual baseline to begin in November 1994 and to continue at the same rate as would be allowed for 1995. EPA requests comment on this proposal for combining gasoline imports in 1994 and 1995 for purposes of applying the proposed volume constraint on use of an individual foreign refinery's baseline, and on the proposed mechanism for calculating an expanded 1990 individual foreign refinery baseline volume for use during 1994 and 1995. D. The Requirement To Allow EPA Inspections and Audits EPA is proposing that, as a condition of use by an importer of an individual foreign refinery's baseline, EPA inspectors and auditors would have to be given full access to conduct inspections and audits related to the foreign refinery's baseline and to the gasoline produced at the foreign refinery. The proposed access for inspections and audits would be at the foreign refinery, at any place gasoline produced at the foreign refinery for the U.S. market is located, and at any location where documents are kept that relate to the foreign refinery's baseline or to gasoline produced at the foreign refinery for the U.S. market. EPA is proposing that the access would have to be granted in response to inspections or audits that either are announced or unannounced. EPA is proposing the inspection and audit access requirement in order to allow EPA inspectors and auditors to confirm the baseline submissions that would relate to any foreign refinery. In addition, EPA inspections and audits would confirm the information related to refinery-of-origin that is reported to EPA. The proposed access requirements related to foreign refineries would provide EPA with access analogous to that exercised over domestic refiners to conduct inspections and audits. EPA historically has conducted inspections and audits of domestic refineries in order to ensure compliance with gasoline quality rules, including the lead phasedown requirements at Sec. 80.20, and the gasoline volatility requirements at Secs. 80.27-28. EPA intends to follow this enforcement approach with the reformulated gasoline program. EPA believes it is important that it have comparable access to foreign refinery operations under the proposed approach for foreign refinery baseline in order to meet its enforcement responsibilities. The scope of the proposed access requirement is intended to allow EPA to inspect or audit wherever documents are located that would relate to an individual foreign refinery's baseline, or to the production or shipping of gasoline that would be subject to such a baseline. In addition, the access proposal would ensure EPA access to collect samples of any gasoline that would be subject to an individual foreign refinery baseline. EPA is proposing that the access requirement would terminate on January 1, 2003. This proposed termination date is five years following January 1, 1998, the last date individual foreign refinery baselines could be used. Five years is the statutory limitation that applies to potential liability for violations of the reformulated gasoline requirements. EPA also is proposing that its inspection and audit access would be limited to gasoline produced before 1998 and to documents that relate to such gasoline. This proposed limitation on the access requirement also corresponds to the January 1, 1998 date individual foreign refinery baselines would become unavailable. EPA would conduct these inspections or audits at facilities controlled by the foreign refiner. As a result, EPA inspectors and auditors would have to be given access to conduct inspections or audits by the foreign refiner and by the country in which the foreign refiner's facilities are located. Any failure to grant access, therefore, would be the result of an action or decision by the foreign refiner or the foreign country. Nevertheless, the consequences of any failure to give EPA full and immediate access would fall on the U.S. importers of that foreign refiner's gasoline. In consequence, EPA believes any importer who would claim use of an individual foreign refinery's baseline would be expected to protect itself against this possibility through whatever means it would feel prudent, such as assurances from the foreign refiner that the access requirement would be met, or contractual indemnification provisions that would apply in the event the access requirement is not met. The proposed consequences for the importer that would result from any failure to meet the access requirements are discussed below. E. Failure To Meet Requirements EPA is proposing that a foreign refinery's individual baseline could not be used by any importer if EPA were to determine that information submitted to EPA to establish the foreign refinery's individual baseline is inaccurate, or if EPA were denied access to the foreign refinery to conduct an inspection or audit. EPA also is proposing that a foreign refinery's individual baseline could not be used by the importer of a specific batch of gasoline in the event any of the foreign refinery baseline requirements would not be met with respect to that batch of gasoline. Thus, for example, if EPA would determine that a foreign refinery's individual baseline submittal is in error, an individual baseline for that refinery could not be used by any importer during any year, unless the Administrator determines a shorter period is appropriate. Similarly, if EPA were to attempt to conduct an inspection or audit of a foreign refinery and were to be denied full and immediate access, the individual baseline for that refinery could not be used by any importer during any year, unless the Administrator determines a shorter period is appropriate. In this situation, any importer who had previously submitted reports to EPA for any averaging period that included use of the foreign refinery's individual baseline would be required to recompute its compliance calculations, ab initio, using the baseline that would apply to the importer in the absence of the foreign refinery's individual baseline--normally the statutory baseline. This recalculation by the importer would be required even if the recalculation would result in violations by the importer of the reformulated gasoline standards. It would be no defense for the importer to argue it used the foreign refinery's individual baseline in a good faith belief the baseline information was accurate, or that the foreign refiner would allow EPA to conduct inspections and audits. A similar result would occur if EPA were to discover that a particular batch of imported gasoline, claimed by the importer to be subject to a foreign refinery's individual baseline, in fact is not entitled to use of that baseline. This could occur, for example, if through the CPA attest engagement or through an EPA audit it were discovered that the gasoline comprising the batch was not produced at the foreign refinery claimed by the importer. Another example of gasoline that would not be entitled to use of a foreign refinery's baseline would be a batch of gasoline that is imported subsequent to the date when the total volume of imported gasoline for which use of the foreign refinery's baseline is claimed equals the baseline volume for that foreign refinery. In these cases the importer who improperly claimed use of the foreign refinery's individual baseline, but not other importers of gasoline produced by that foreign refinery, would be required to recompute its compliance calculations, ab initio, as described above. EPA is proposing that these consequences would be imposed on the importers, because there are clear barriers to effective enforcement directly against foreign refiners. This would occur even in a case where EPA could prove that gasoline was improperly imported using a foreign refinery's individual baseline, and where the improper use was the fault of the foreign refiner, for example by submitting false baseline information or by refusing to allow EPA inspections or audits. In such a case EPA could not bring effective enforcement against the foreign refiner. As a result, in order to preserve the integrity of the reformulated gasoline program, EPA proposes that importers would be ultimately responsible for the proper establishment and use of individual foreign refinery baselines. EPA believes that importers would be able to decide whether and when to claim use of a foreign refinery's individual baseline. This approach is predicated on the assumption that importers would be expected to use great care in making this decision, and would do so only if the importer has complete confidence the foreign refinery baseline information was properly submitted to EPA and the foreign refiner intends to fully and properly comply with all requirements related to use of individual foreign refinery baselines, including requirements that apply years into the future. EPA also would expect importers to require the foreign refiner to carry out a gasoline volume tracking scheme that would enable importers to know with certainty that any batch of imported gasoline for which use of the foreign refinery's individual baseline would be claimed is within the foreign refinery's baseline volume. III. Justification for Proposed Amendment to Final Rule When EPA issued the final rule on December 15, 1993 the Agency was not fully satisfied that the baseline-setting scheme applicable to importers, and thereby applicable to foreign refiners, was the optimum solution. In preparing the final rule, EPA focused on three major issues regarding the use of individual baselines for foreign refiners in the reformulated and conventional gasoline programs. EPA's overriding consideration, and the basis for EPA's focus on these issues, was the ultimate environmental consequences of the baseline- setting scheme. The three issues are: (1) The technical problems with using baseline-setting Methods 2 and 3 to accurately predict the qualities of gasoline imported in 1990 from a foreign refiner; (2) the ability of the agency to adequately verify and enforce the use of foreign refiner individual baselines, including problems identifying the refinery of origin of imported gasoline and enforcing performance standards against a foreign refiner; and (3) any risk that would result from providing refiners or importers with options in establishing baselines. The final regulations for reformulated and conventional gasoline, promulgated on December 15, 1993 pursuant to a court ordered deadline, attempt to resolve these issues. These issues, however, are complex and have potentially broad consequences. EPA therefore announced that it would continue to consider individual baselines for foreign refiners after promulgation of the Final Rules in mid-December 1993. This consideration has resulted in today's proposal, with EPA inviting comments on the proposed resolution described above. The first issue involved whether and when it would be appropriate to allow refiners or importers an option in establishing individual baselines. In general, EPA's Final Rule takes the approach that options should not be allowed. Given a choice, a refiner or importer would tend to choose the option requiring the least expense overall, which would also presumably be the least protective of the environment. Avoiding options should therefore tend to avoid skewing the program in a way that would reduce air quality benefits. EPA described this gaming concern in the preamble to the Final Rule, at 59 FR 7785 (February 16, 1994). Under EPA's Final Rule, domestic refiners are basically provided no choice regarding individual baselines--they must develop an individual baseline, using one or more of three different methods or modelling approaches. Since gasoline produced by domestic refiners made up an overwhelming majority of the gasoline sold in the U.S. in 1990, the average of all domestic refiner baselines should closely approximate the average 1990 quality of gasoline sold in 1990. Importers are treated like domestic refiners in that they are not provided an option on how to develop an individual baseline. A major difference, however, is that importers may use only the first of the three modeling methods. If the data are not available for this method, the importer defaults to the statutory baseline. In general, EPA expects all or almost all importers to default to the statutory baseline. For foreign refiners, EPA considered whether it should also require that all foreign refiners establish individual baselines before they could import either conventional or simple model reformulated gasoline into the U.S. However, as discussed later, EPA had considerable doubt about the ability of baseline-setting Methods 2 and 3 to accurately predict the quality of that portion of a foreign refiner's production sent to the U.S. in 1990. EPA believed many foreign refiners would therefore not be able to use these models, and mandating use of an individual baseline might therefore lead to a ban on importation of gasoline from those foreign refiners not able to develop such baselines.6 In addition, EPA had serious questions whether it could adequately verify the accuracy of individual baselines for foreign refiners under such a scenario. The current Final Rule resolves these concerns by not allowing foreign refiners to establish individual baselines, and regulating the introduction of gasoline into the U.S. through the importer. Importers must establish an individual baseline in the manner described above. --------------------------------------------------------------------------- \6\EPA considered the option of banning foreign supplies of gasoline that were not produced under a verifiably accurate individual baseline. This option appeared to redress the issue of the loss of a ``netting out'' effect due to the presumed loss of ``cleaner'' than statutory baseline foreign gasoline. However, EPA believes that many foreign refiners do not possess adequate data to establish an individual baseline. It has been agreed that the consequence of banning foreign supplies of gasoline, both to the nation's energy security and to competitive pricing, would be unfair. --------------------------------------------------------------------------- The air quality impact of allowing foreign refiners a choice in what baseline to use, such as would result from the petition process proposed today, depends in large part on which foreign refiners ultimately would have the ability, and would choose, to produce reformulated gasoline for importation into the U.S., and on the individual baselines of those foreign refiners who would make this choice. If a significant number of foreign refiners sent gasoline to the U.S. in 1990 that was cleaner than the statutory baseline, those refiners would not be expected to choose to establish an individual baseline but would instead default to the statutory baseline. Refiners who sent gasoline to the U.S. in 1990 that was dirtier than the statutory baseline might well decide to petition for an individual baseline, assuming they could satisfy all of the conditions for establishing an individual baseline. In such a case, this might result in certain foreign refiners being allowed to degrade the emissions performance of their gasoline down from its actual 1990 quality to the statutory baseline. Under this approach other foreign refiners might be allowed to establish accurate and verifiable individual baselines that are dirtier than the statutory baseline, and thereby continue to produce at this quality. In comparison, the current regulatory provisions provide foreign refiners with no choice. As described above, foreign refiners whose 1990 gasoline was cleaner than the statutory baseline may degrade the quality of their gasoline down to the statutory baseline, while foreign refiners whose 1990 gasoline was dirtier than the statutory baseline are required to reformulate to meet the stricter statutory baseline. It is important to note that EPA does not have any clear evidence as to the actual average quality of gasoline imported into the U.S. in 1990. EPA does not know, for example, whether a significant amount of such gasoline was cleaner than the statutory baseline. While it would be reasonable to assume that at least some imported gasoline was cleaner and some was dirtier than the statutory baseline, EPA is not in a position to quantify this in any reliable manner. As such, it is not clear whether or how much providing foreign refiners with an option in establishing an individual baseline would actually skew the air quality impacts of these programs in a negative direction. As mentioned above, a second major issue EPA has considered involves the technical limits of Methods 1, 2 or 3 in predicting the qualities of that portion of a foreign refiner's 1990 gasoline production that was sent to the U.S.7 Foreign refiners likely did not send the majority of their gasoline to the United States in 1990. Foreign refiners may not have exported the majority of their gasoline to the United States in 1990. Domestic refiners, on the other hand, are assumed to have distributed (and to continue to distribute) the majority of their gasoline within the U.S. In the absence of actual 1990 data, domestic refiners may calculate individual baselines using models developed by EPA that depend, in part, on the fact that the majority of the modelled gasoline is distributed in the U.S. However, foreign refiners typically did not distribute the majority of their 1990 gasoline within the U.S., rendering the models inappropriate for those refiners.8 --------------------------------------------------------------------------- \7\These technical limits have important implications for the first issue discussed above. For example, if EPA required that foreign refiners establish individual baselines, without providing any choice on defaulting to the statutory baseline, then many foreign refiners might not be able to develop such baselines and EPA would confront a situation involving whether or not it should ban the importation of gasoline from such foreign refiners. \8\EPA believes it is possible that in certain limited situations a foreign refiner may be able to establish a baseline of U.S.-market gasoline quality and quantity. For example, a foreign refiner potentially could establish that in 1990 its refinery produced only a limited number of gasoline blending components, and therefore could be capable of producing only a predictable and limited number of gasoline types from these blending components. In such a case, it is possible that a baseline could be established based on the ``cleanest'' of the gasoline types, without actually showing that this was the gasoline supplied to the U.S. market. Under this approach, the foreign refiner's baseline would be the most rigorous baseline possible given the refinery configuration. --------------------------------------------------------------------------- The third major issue of concern involves whether EPA can accurately verify individual baselines of foreign refiners and effectively enforce standards for foreign produced gasoline based on such individual baselines. EPA was concerned that it would not be able to effectively exercise authority to inspect foreign facilities and require the production of records or samples, or to require accurate auditing of the compliance of foreign operations. This includes, for example, EPA's ability to ensure the accuracy of an individual foreign refiner baseline, EPA's ability to clearly identify the refinery of origin for gasoline imported into the U.S. (the ``tracking'' issue), and EPA's ability to easily access foreign records, samples, and facilities for inspections and other compliance measures. With respect to tracking refinery of origin, EPA believes it must be able to establish with certainty which baseline attaches to each specific batch of gasoline imported into the U.S. The distribution of foreign produced gasoline is significantly distinct from domestic distribution patterns. As described in the preamble to the final rule, see 59 FR 7785 (February 16, 1994), the association of a refinery- specific baseline with the gasoline produced at a domestic refinery is relatively uncomplicated, because compliance is determined at the refinery level before fungible mixing in the gasoline distribution system. The source refinery for gasoline is clear before the gasoline leaves the refinery. In the case of all imported gasoline, on the other hand, the gasoline will be transported from the refinery to the U.S. port of entry prior to the point at which the imported gasoline would have to be associated with a foreign refinery-specific baseline. This stage of transportation from the foreign refinery to the U.S. port of entry could be by fungible means for any imported gasoline, with the consequence that fungible mixing could obscure the identity of the source refinery for any batch of imported gasoline. For a discussion of these and other enforcement and compliance related issues, see the preamble to the final rule at 59 FR 7787 (February 16, 1994). Finally, it is important to place the role of individual baselines in their proper context for the reformulated and conventional gasoline programs. For conventional gasoline, the individual baseline of a refiner or importer establishes the applicable emissions standard for the conventional gasoline they produce or import. On average, a refiner's or importer's conventional gasoline has to meet an emissions performance standard measured by the performance of their individual baseline. If the refiner or importer is assigned the statutory baseline instead of an individual baseline, then performance is measured against the statutory baseline. This performance standard applies on an annual basis starting with 1995. The statutory basis for these requirements are found in section 211(k)(8) of the Act. The individual baseline plays a much more limited rule in the reformulated gasoline program. For the first three years of that program, three specific fuel qualities are capped at the level of a refiner's or importer's individual baseline.\9\ Starting January 1, 1998, a refiner or importer's individual baseline has no relevance in the reformulated gasoline program. This short term requirement is part of the standards adopted by EPA and commonly called the simple model. The refiner and importer specific caps on the three parameters were based on EPA's understanding of the directional impacts of these parameters on emissions, the lack of adequate data to fully model the emissions impacts of these three gasoline parameters when EPA proposed the simple model, and the lead time needed before requiring use of a subsequent, more complex emissions performance model adopted by EPA in the final rule. Further discussion of this may be found in the preamble to the final rule at 59 FR 7720 (February 16, 1994). --------------------------------------------------------------------------- \9\The three parameters are sulfur, olefins, and T-90 or E300. See Sec. 80.41(h)(2). --------------------------------------------------------------------------- The final rule's requirements for individual baselines resolves these various concerns in a straightforward manner. EPA is seeking comment on whether this proposal addresses all of the above concern, in a manner that achieves the environmental goals intended for reformulated gasoline while at the same time addressing the equity concerns that previously have been raised, by placing clear limits and conditions on the use of individual baselines for foreign refiners. These limits and conditions would be designed to address the issues described above--concerns about skewing of air quality benefits in a negative direction by providing options in establishing individual baselines, concerns about the technical limits of the refinery modeling used to establish baselines, and finally concerns over the Agency's ability to adequately verify individual baselines for foreign refiners and adequately ensure compliance by imported gasoline with standards based on individual baselines. A. Accuracy of Individual Foreign Refiner Baselines As described in detail above, this proposed amendment provides that parties that desire to establish an individual baseline for a foreign refinery would submit a petition to EPA's Assistant Administrator for Air and Radiation to establish a reliable and verifiable individual baseline. The petitioner would also submit data adequate to establish the volume of gasoline exported to the United States during 1990. The Assistant Administrator would only approve petitions when the individual baseline had been established with sufficient certainty, to the satisfaction of the Assistant Administrator. The Assistant Administrator's decision whether to approve a petition would depend, in part, on the certainty with which the foreign refiner's 1990 fuel properties and volume data could be verified by a U.S.-based independent baseline auditor and by EPA, as discussed above. In requiring that a petitioner bear the burden of demonstrating to the Assistant Administrator that the individual baseline and the data submitted in support of an individual baseline is accurate and verifiable, and in requiring that a U.S.-based attestor corroborate that demonstration, the amendment provides for appropriate certainty in establishing accurate individual baselines. EPA requests comment as to whether the proposal would result in appropriate certainty as to any foreign refinery baseline that would be established. B. Certainty as to Refinery-of-Origin In the preamble to the final rule, EPA expressed concern about effectively determining the refinery-of-origin for specific batches of imported gasoline so as to determine the appropriate baseline to be applied to the product. However, EPA is proposing and seeking comment on procedures that are designed to ensure that importers effectively track gasoline from the point of gasoline production to the port-of- entry into the U.S. Strict tracking and segregation of reformulated gasoline that is produced by foreign refiners and that would be subject to an individual baseline is necessary to assure compliance with this program. Only by matching a discrete volume of gasoline with an individual baseline would an importer be able to accurately calculate its compliance with this proposed amendment to the reformulated gasoline program. Further, such tracking and segregation is necessary for EPA to ensure that use of an individual baseline remains within the foreign refiner's volume cap. Today's proposed amendment of the final rule seeks to provide for certainty with respect to establishing the refinery-of-origin of imported gasoline through the use of independent sampling and testing that would be required upon loading on-board ship at the refinery-of- origin and upon receipt by an importer at a U.S. port-of-entry. The sampling and testing at both ends of the shipment would help to assure that the volume and parameters of the product subject to the individual baseline are identical. Additionally, the independent laboratory would verify the foreign refinery-of-origin before the shipment leaves the foreign port. The amendment proposes that batch specific information pertaining to the parameters and volume of the batch would be collected by an independent laboratory upon loading of the product and a report filed with EPA. This information would be available for comparison with batch specific information required to be collected by importers upon receipt of product. Further, the tracking system would help to ensure that EPA could determine that the imported reformulated gasoline produced subject to an individual baseline was not commingled with gasoline produced under another baseline en route from its source to the U.S. port-of-entry. Today's proposal also would require that an importer exercising the option to use a foreign refinery's individual baseline must demonstrate that an annual attestation engagement is conducted of the foreign refinery for each year of individual baseline use. The engagement would be undertaken by a U.S.-based CPA or firm. This requirement would be equivalent with attest engagement requirements applicable to domestic refiners and importers under the Final Rule. The engagement would verify that the gasoline loaded on-board ship was produced by the refinery for which individual baseline use is claimed. The practical effect of today's proposal would be to condition the use of individual foreign refinery baselines upon strict tracking of reformulated gasoline. An importer's use of a foreign refinery's individual baseline would depend upon the importer's ability to establish with certainty that the reformulated gasoline for which the individual baseline is claimed was, in fact, produced at the foreign refinery for which the individual baseline is applicable. EPA requests comment regarding whether there would be appropriate certainty as to the refinery of origin of any imported gasoline that would use an individual foreign refinery's baseline under this proposal. C. The Limited Potential for Adverse Air Quality Effects From Gaming It has been argued that the proposed constraints on the use of individual baselines by importers would limit the potential for gaming associated with establishing baselines for imported gasoline, and in consequence the potential for adverse air quality effects from such gaming. If all foreign refiners sending gasoline to the U.S. established accurate and verifiable baselines, and concerns about tracking refinery of origin and other compliance concerns were resolved, then it has been agreed, those baselines and the gasoline produced under them clearly and easily would lead to the air quality benefits expected from conventional and reformulated gasoline. This might be considered the ``ideal'', or best possible result. As described earlier, however, there is considerable doubt about whether accurate, verifiable, and enforceable baselines can be expected for all foreign refiners. The Final Rule addresses these problems in effect by requiring all foreign refiners to produce gasoline using the statutory baseline-- those cleaner than the statutory baseline are allowed to degrade down to that baseline, while those dirtier than the statutory baselines are required to clean up to that baseline. While the Final Rule would not allow the average quality of foreign produced gasoline to degrade below the statutory baseline, it might in fact require that foreign gasoline be cleaner on average than would be required if all refiners did establish individual baselines.10 --------------------------------------------------------------------------- \1\0This would occur if the average quality of all gasoline imports in 1990 was dirtier than the statutory baseline. --------------------------------------------------------------------------- One concern regarding the approach used in the Final Rule is that it treats all foreign refiners as a class (by assigning the statutory baseline to all imported gasoline), yet the factors that led to grouping foreign refiners as a class may not apply equally to all foreign refiners. The result of the class approach to resolving the foreign refiner baseline issue could be considered unfair to any particular foreign refiner who would be able to accurately establish refinery baselines, and who would be able to establish with certainty the refinery of origin for gasoline imported into the United States. On the other hand, and as has been discussed above, allowing each foreign refiner to choose whether to establish individual refinery baselines creates the potential for gaming with consequent adverse environmental effects. The challenge for EPA, then, is to create a regulatory mechanism for imported gasoline baselines that is as fair as possible to each foreign refiner, but that also achieves the environmental goals intended for reformulated gasoline. The proposed revisions would allow certain foreign refiners the option to petition for the right to establish individual baselines under carefully controlled circumstances. As discussed above, this proposed scheme has a potential for adverse air quality effects, in comparison to the current Final Rule, because some importers would have an option as to which baseline would apply to imported reformulated gasoline. Presumably, foreign refiners and their U.S. importer business partners would elect to seek to establish individual foreign refinery baselines only if the foreign refinery produced gasoline in 1990 that was ``dirtier'' than the statutory baseline alternative to an individual foreign refinery baseline. In the case of foreign refineries that produced gasoline in 1990 that was ``cleaner'' than the statutory baseline, on the other hand, the foreign refiners and their U.S. importer business partners presumably would use the less stringent and less costly statutory baseline option. EPA's ``gaming'' concern would result from these likely decisions by ``dirtier'' and ``cleaner'' foreign refiners. The potential adverse air quality consequence would result from the volume of imported gasoline during 1995 through 1997 that would use a ``dirtier''-than-statutory baseline, and the loss to the U.S. gasoline pool during 1995 through 1997 of gasoline produced to meet a ``cleaner''-than-statutory baselines. There may or may not be an adverse air quality impact in relation to the ``ideal'' scenario described above, depending on whether the average quality of gasoline imported from foreign refiners in 1990 was different from the statutory baseline and how much reformulated gasoline is imported in 1995 through 1997. EPA has been unable to identify any foreign refiners other than PDVSA who intend to produce any reformulated gasoline,11 though there nevertheless could be some because there is no requirement that refiners must announce their intentions at this time. The absence of identified foreign reformulated gasoline refiners (other than PDVSA) does present the possibility that there will be few, if any, foreign reformulated gasoline refiners who would have a ``cleaner''-than statutory baseline (but who would opt for the statutory baseline). If true, this would resolve EPA's gaming concern. --------------------------------------------------------------------------- \1\1EPA does expect some imports of reformulated gasoline under the Final Rule's provision that applies to a foreign refinery that is owned by the U.S. importer and where at least 75% of the refinery's 1990 production was imported into the U.S. These refineries are relevant to this discussion. --------------------------------------------------------------------------- Moreover, even to the extent there are foreign refiners who would qualify for ``cleaner''-than-statutory baselines EPA believes there is a possibility that their gasoline would nevertheless be cleaner than the statutory baseline, which would limit the likelihood for adverse air quality effects. This possibility was presented to EPA by a foreign refiner who argued that such ``clean'' refiners may in fact be technologically incapable of relaxing production parameters so as to realize a benefit from the statutory baseline. To the extent this may be true, such ``clean'' refiners might reduce any adverse air quality impact associated with providing an option to establish individual baselines. The principal reason limiting the potential for adverse air quality effects from gaming under today's proposal is, however, that use of ``dirtier''-than-statutory individual baselines would be restricted. It has been argued that this would in turn limit any adverse air quality effects, in relation to the current final rule.12 At the same time, any reformulated gasoline imported under an individual baseline would be required to meet the same standards that apply to any other refiner, foreign or domestic, with the same baseline. For the three parameters of interest under the simple model for reformulated gasoline, sulfur, olefins, and T-90, reformulated gasoline produced by a foreign or domestic refiner with an individual baseline would have to meet an annual average limit set at 100% of the individual baseline level for those parameters. This effectively requires that the gasoline stay as clean as it was in 1990, for those three specific parameters. --------------------------------------------------------------------------- \1\2It is important to note that the potential for adverse air quality effects discussed in this preamble is in relation to gasoline that would be imported under the approach contained in the Final Rule, i.e., to imported gasoline that meets the statutory baseline. That comparison may not be fair. Another comparison that may be more appropriate would be with imported gasoline that is produced to each foreign refinery's individual baseline, like is done for domestic refiners. When imported gasoline is compared based on individual foreign refinery baselines, there may be no potential for adverse air quality effects from today's proposal. --------------------------------------------------------------------------- EPA has considered the level of emissions that would result from gasoline imported under the approach contained in the final rule, versus gasoline imported under the approach described in today's proposal. While no baselines have been established yet for any refiner or importer, PDVSA has submitted to the reformulated gasoline docket a record that describes the baseline it would be able to establish if given the opportunity. The baseline it describes is dirtier than the statutory baseline for some parameters, and cleaner for other parameters. In the case of sulfur and olefins, PDVSA's stated baseline levels would be significantly higher than the statutory baseline: PDVSA's claimed sulfur level is 644 parts per million (ppm), and the statutory baseline level is 339 ppm; PDVSA's claimed olefin level is 22 vol% and the statutory baseline level is 9.2 vol%. The environmental implication is that NOX emissions are higher with larger sulfur and olefin levels. Taking into account the volume of PDVSA's gasoline that is used in the Northeast U.S.--its primary market, EPA's preliminary analysis shows that PDVSA's 1995 gasoline would increase overall NOX emissions there by only 0.08% during the high ozone season,13 in comparison to the case where PDVSA would produce gasoline to meet the statutory baseline for sulfur and olefins. --------------------------------------------------------------------------- \1\3The high ozone season is the appropriate period for evaluating NOX emissions, because NOX is of primary concern as an ozone precursor. --------------------------------------------------------------------------- Also, PDVSA's 1995 gasoline quality will be approximately equal to the quality of statutory gasoline in terms of VOC emissions, and will be much cleaner in terms of toxics emissions.14 --------------------------------------------------------------------------- \1\4EPA has placed in the docket an analysis of the environmental impacts of the use of gasoline having properties equal to those described by PDVSA. --------------------------------------------------------------------------- The proposed program elements that would help to limit the impact of ``dirtier''-than-statutory baselines are the limited volume of a foreign refinery's reformulated gasoline that could use the individual baseline, the limited time period during which the individual baseline could be used, the fact that the individual baseline could be used only for reformulated gasoline, and EPA's belief that the individual baseline option would not be attractive to most foreign refiners. 1. The Volume Limitation on Use of Individual Refinery Baselines An importer's use of a foreign refinery's individual baseline is proposed to be limited to volumes of reformulated gasoline equivalent to the foreign refinery's 1990 volume of gasoline imports to the U.S. This volume constraint is described above. The volume cap limiting use of an individual baseline for reformulated gasoline production (until January 1, 1998) to a foreign refiner's 1990 import volumes ensures that the use of an individual baseline is constrained by historical import volumes. Volumes imported above the 1990 constraint would be subject to the importer's statutory baseline. Foreign-produced reformulated gasoline subject to an individual baseline, within the 1990 volume cap limitation, would be measured for compliance against gasoline produced in 1990, and therefore would be at least as clean as the foreign refiner's 1990 gasoline. However, any reformulated gasoline produced by a foreign refiner above the 1990 volume would be evaluated relative to the statutory baseline and therefore would be at least as clean as reformulated gasoline produced using the statutory baseline. 2. The Time Limitation on the Use of Individual Foreign Refinery Baselines A further constraint on potential adverse air quality effects is the time limit on an importer's use of a foreign refiner's individual baseline. It would be limited to the period commencing when reformulated gasoline is first imported into the U.S. and continues through December 31, 1997. After 1997, individual baselines have no further relevance to the requirements for reformulated gasoline, and all importers and domestic refiners are required by the Final Rule to measure compliance with the reformulated gasoline standards against the statutory baseline. Therefore, the effect of this regulation would be limited to this three year period only. 3. The Number of Foreign Refiners Who Would Seek to Use Individual Foreign Refinery Baselines Would be Limited This proposal is predicated on the assumption that the costs inherent in producing reformulated gasoline and meeting the requirements of the reformulated gasoline program, including those costs necessary to establish an individual baseline, will deter most foreign refiners from selecting the individual baseline option, thereby further limiting any potential adverse air quality impact. These costs include extensive refinery modifications; costs associated with petitioning EPA for an individual baseline and providing adequate information to establish with certainty that the baseline determination is accurate; a baseline audit; and the record keeping and product tracking associated with complying with the proposed annual compliance audits. EPA believes that few refiners have made the requisite capital investments necessary to produce reformulated gasoline. Therefore, it currently appears that the number of foreign refiners who would take advantage of this proposed amendment would be limited. In addition, the limited time period during which individual foreign refinery baselines could be used may limit the number of foreign refiners that would take advantage of this option, because the costs associated with exercising this option described above, could only be recouped within the 1995 through 1997 time frame. 4. Conventional Gasoline Not Affected by This Proposed Amendment EPA's concern for gaming in the case of conventional gasoline is substantially greater than its concern with respect to reformulated gasoline. First, there is likely to be significantly more conventional gasoline imported into the U.S. than reformulated gasoline. Second, the Final Rule provides that individual baseline will be the basis for conventional gasoline compliance into the foreseeable future while an individual baseline for reformulated gasoline is applicable only until December 31, 1997. Accordingly, due to these volumetric and long term distinctions between reformulated gasolines and conventional gasolines, the potential for adverse air quality impact is significantly larger if individual foreign refinery baselines could be used with conventional gasoline, as compared with the potential if individual foreign refinery baselines could be used with reformulated gasoline. The Final Rule requires that domestic refiners apply their individual baselines to conventional gasoline production. EPA anticipates that nationwide use of individual baselines will result in gasoline quality that approximately equals the statutory baseline. However, EPA believes that an option to use individual baselines by foreign refiners in the production of conventional gasoline would result in significant skewing, in a negative direction, of the average quality of imported gasoline based on the gaming scenario described above. A skewing in a negative direction of the average of baselines with respect to foreign conventional gasoline, is of significant concern because EPA anticipates that most foreign sources of gasoline will provide conventional gasoline to the U.S. This assumption is based on EPA's belief that few foreign producers of gasoline have invested in the capital equipment necessary for complying with the reformulated gasoline program. Further, the increased costs of capitalization realized by a refiner entering the reformulated gasoline market would be exacerbated by the continuing costs of overseas shipping under the segregated fuels requirement proposed in this amendment. Accordingly, there appears to be few economic incentives for foreign refiners to reallocate production from conventional to reformulated gasolines. Thus, EPA is not proposing to change the approach contained in the Final Rule pertaining to baselines for imported conventional gasoline, and EPA expects all or almost all importers to default to the statutory baseline. EPA requests comment as to the magnitude of any potential adverse air quality consequences that would result from gaming under today's proposal. D. EPA's Compliance Oversight Authority The preamble to the Final Rule expresses EPA's concern that it would lack adequate compliance monitoring and enforcement techniques to ensure that foreign refineries comply fully with the reformulated gasoline program. This concern arose out of the perceived need to bring any enforcement actions against importers that would rely on baseline audits and inspections of foreign refiners, and that these foreign refiners may not be subject to the full panoply of enforcement mechanisms available with domestic corporations. Today's proposed amendment, however, provides for compliance monitoring and enforcement pertaining to foreign-produced reformulated gasoline to focus on domestic importers. Such foreign-produced reformulated gasoline would be subject to the full array of monitoring and enforcement devices available to EPA. It has been argued that importers' potential liability, including but not limited to exposure to potential relegation to compliance with the statutory baseline, will be adequate to ensure that importers would import gasoline using an individual foreign refinery's baseline only where the importer has sufficient confidence the requirements of this program would be met, including the compliance monitoring provisions that require the cooperation of the foreign refiner and the government of the country in which the foreign refiner is located. These compliance monitoring and enforcement provisions appears to be equivalent to EPA's compliance monitoring and enforcement authority over domestic refiners. The proposal provides that, as a condition for the use of a foreign refinery's individual baseline, EPA would be guaranteed full and immediate access to conduct compliance oversight inspections, collect gasoline samples and perform compliance audits at the foreign refinery. EPA's compliance audits supplement the baseline certification and annual audits specified elsewhere in this proposal. EPA's compliance oversight authority is proposed to last until January 1, 2003, consistent with the statute of limitations governing violations of the reformulated gasoline program and associated statutes governing the submission of information to the U.S. government. In addition, foreign refiners electing to petition to use an individual baseline would be required to engage a domestic CPA to conduct a baseline certification audit and annual attest engagements. EPA anticipates that and is seeking comment on whether the professional standards governing the conduct of such audits, as well as the amenability of a U.S. CPA to EPA compliance monitoring and enforcement, is adequate assurance that EPA can effectively monitor foreign refiners for program compliance. E. EPA Seeks Comment on Today's Proposal, or Any Alternative Approaches Today's proposal is an attempt to resolve the issue of baselines for foreign refiners in a more appropriate manner, with the intent of achieving several important, but different, goals. One goal is that the environmental benefits intended for reformulated gasoline by the Clean Air Act be realized. The other goal is that all regulated parties who are similarly situated be treated alike, with the differences in treatment between domestic and foreign refiners limited to those measures necessary to appropriately accommodate differences in their situations and protect human health and environmental values. EPA recognizes that there may be other methods for regulating imported reformulated gasoline that resolve these two goals in ways that are preferable to the approaches contained both in the Final Rule and in today's proposal. EPA requests comment as to any alternative approaches to regulating imported reformulated gasoline that achieves the environmental benefits required by the Clean Air Act for reformulated gasoline, and that treats domestic and foreign refiners in a manner consistent with the provisions of the GATT. IV. Public Participation EPA invites comment on all aspects of today's notice. EPA has specifically requested comments on a number of areas throughout the previous discussion. A list of these and other areas for comment are the following: Any alternative approaches to regulating imported reformulated gasoline that achieve the environmental benefits required by the Clean Air Act for reformulated gasoline, and that treat domestic and foreign refiners in a manner consistent with the provisions of the GATT. The accuracy of any foreign refinery baseline that would be established under the proposal. The identification of the refinery of origin of any imported gasoline that would use an individual foreign refinery's baseline under today's proposal. Whether today's proposal would result in the environmental benefits that are intended by the reformulated gasoline provisions of the Clean Air Act. The issue of when foreign refinery baseline petitions would be due. The appropriate approach for correlating the volume determination at the foreign refinery and at the U.S. port of entry. The adequacy of the proposed attest procedures. The proposed requirement that independent laboratories and CPA's be U.S. corporations or citizens. The proposal for combining gasoline imports in 1994 and 1995 for purposes of applying the proposed volume constraint on use of an individual foreign refinery's baseline. The proposed mechanism for calculating an expanded 1990 individual foreign refinery baseline volume for use during 1994 and 1995. V. Administrative Designation and Regulatory Analysis A. Executive Order 12866 Under Executive Order 12866, (58 FR 51735 (October 4, 1993)) the Agency must determine whether the 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 rule is a ``significant regulatory action'' because of the potential impacts on portions of the domestic refining and gasoline importing industry. As such, this action was submitted to OMB for review. Changes made in response to OMB suggestions or recommendations will be documented in the public record. B. Regulatory Flexibility Act Pursuant to section 605(b) of the Regulatory Flexibility Act (RFA), 5 U.S.C. 605(b), the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities. The issue of baselines for imported reformulated gasoline is discussed generally in section VII-C of the Regulatory Impact Analysis that was prepared to support the Final Rule for reformulated gasoline. A copy of this document may be found in the reformulated gasoline docket, number A-92-12, at the location identified in the ADDRESSES section of this document. The RFA of 1980 requires federal agencies to examine the effects of proposed regulations and to identify significant adverse impacts on a substantial number of small entities. Because the RFA does not provide concrete definitions of ``small entity,'' ``significant impact,'' or ``substantial number,'' EPA has established guidelines setting the standards to be used in evaluating impacts on small businesses.15 For purposes of the proposed individual foreign refinery requirements for reformulated gasoline, a small entity is any business which is independently owned and operated and not dominant in its field as defined by SBA regulations under section 3 of the Small Business Act. --------------------------------------------------------------------------- \1\5U.S. Environmental Protection Agency, Memorandum to Assistant Administrators, ``Compliance with the Regulatory Flexibility Act,'' EPA Office of Policy, Planning, and Evaluation, 1984. In addition, U.S. Environmental Protection Agency, Memorandum to Assistant Administrators, ``Agency's Revised Guidelines for Implementing the Regulatory Flexibility Act,'' Office of Policy, Planning, and Evaluation, 1992. --------------------------------------------------------------------------- The Agency believes that the individual foreign refinery baseline requirements being proposed today are unlikely to have a significant economic impact on a substantial number of small entities. The businesses affected will be either a relatively small number of major domestic oil companies who would compete with imported gasoline that is produced at foreign refineries for which individual baselines are established, or importers who would import gasoline that is produced by foreign refineries for which individual baselines are established. EPA expects the number of foreign refineries for which individual baselines will be established will be small, with the result that the number of affected domestic refiners and importers also will be small. However, EPA invites comment on the question of significant impacts on small entities. EPA also requests all relevant data which justify any conclusions submitted. C. The Paperwork Reduction Act The information collection requirements in this proposal have been 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 document has been prepared by EPA (ICR No. 1591.04) and a copy may be obtained from Sandy Farmer, Information Policy Branch, EPA, 401 M St., SW. (Mail Code 2136), Washington, DC 20460 or by calling (202) 260-2740. This collection of information has an estimated recordkeeping and reporting burden averaging 4.1 hours per respondent. This estimate includes time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding the burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden to Chief, Information Policy Branch, EPA, 401 M St., SW. (Mail Code 2136), Washington, DC 20460, and to the Office of Information Regulatory Affairs, Office of Management and Budget, Washington, DC 20503, marked ``Attention: Desk Officer for EPA.'' The final rule will respond to any OMB or public comments on the information collection requirements contained in this proposal. VI. Statutory Authority The statutory authority for the rules proposed today is granted to EPA by sections 114, 211 (c) and (k), and 301 of the Clean Air Act, as amended, 42 U.S.C. 7414, 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, Penalties, Reporting and recordkeeping requirements. Dated: April 21, 1994. Carol M. Browner, Administrator. For the reasons set forth in the preamble, part 80 of title 40 of the Code of Federal Regulations are proposed to be amended as follows: PART 80--REGULATIONS OF FUELS AND FUEL ADDITIVES 1. The authority citation for part 80 continues to read as follows: Authority: Sections 114, 211 and 301(a) of the Clean Air Act as amended, 42 U.S.C. 7414, 7545 and 7601(a). 2. Section 80.84 is proposed to be added to subpart D to read as follows: Sec. 80.84 Individual baselines for foreign refineries. (a) Definitions. For purposes of this section, ``foreign refinery'' shall mean a specific refinery located outside the United States, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands. (b) Conditions for use of individual foreign refinery baselines. For purposes of compliance with the reformulated gasoline standards of Sec. 80.41, any importer may use a baseline established for a foreign refinery as the importer's individual baseline, but only for gasoline produced at that foreign refinery and provided that: (1) The Administrator has approved separate 1990 baseline properties and volume for the foreign refinery, as specified under paragraph (c) of this section; (2) The importer is able to establish that the imported gasoline was produced at the foreign refinery, as specified under paragraph (d) of this section; (3) An attest engagement is conducted of the foreign refinery operation for the calendar year during which the separate foreign refinery baseline is claimed by the importer, as specified under paragraph (e) of this section; and (4) Authorized representatives of the Administrator are given full and immediate access and are allowed to conduct inspections, review records and other documents, collect gasoline samples, and perform audits relating to the foreign refinery, as specified under paragraph (f) of this section. (c) Establishing individual foreign refinery baselines. (1) Any foreign refiner may seek a separate baseline for a foreign refinery by submitting a petition to the Assistant Administrator of EPA's Office of Air and Radiation, such petition to include the Method 1-, 2-, and/or 3-type data as specified in Sec. 80.91 for the foreign refinery, submitted as specified in Sec. 80.93, and verified as specified in Sec. 80.92 except that the baseline auditor shall be an individual who is a United States citizen. (2) The Assistant Administrator of EPA's Office of Air and Radiation may grant such petition if the properties and volume of the gasoline produced at the foreign refinery and imported for use in the United States in 1990 are established to the satisfaction of the Assistant Administrator. (3) Any petition under this paragraph (c) of this section shall: (i) Contain a declaration, signed by the owner or president of the foreign refiner business, that contains the following language: The information contained in this individual baseline petition is complete and accurate. I agree that any EPA inspector or auditor will be given immediate and complete access to the premises of [the name of foreign refinery for which an individual baseline is requested], to any other location where gasoline produced at [the name of the foreign refinery] for use in the United States during the period December 1994 through December 1997 is stored or transported, and to any other location where documents are kept which relate to this baseline petition or to the quality and/or quantity of the gasoline produced at the foreign refinery for use in the United States during the period December 1, 1994 through December 31, 1997, regardless of whether these inspections are announced in advance or are unannounced; and (ii) Be submitted by [insert date 6 months after publication of the Final Rule]. (d) Establishing refinery-of-origin. In order to establish the refinery-of-origin with regard to any batch of imported gasoline: (1) The gasoline to which the individual foreign refinery baseline would apply may not be combined with gasoline produced at any other refinery prior to arrival at the United States port-of-entry; (2)(i) A United States-based independent laboratory shall: (A) Collect a representative sample of the batch subsequent to loading on the ship that will transport the gasoline to the United States, and prior to departure of that ship from the port serving the refinery-of-origin; (B) Analyze such sample for each property specified in Sec. 80.65(e)(1) using the methodologies specified in Sec. 80.46; (C) Independently determine the volume of the batch; (D) Independently determine the refinery at which the subject gasoline was produced, and that the subject gasoline was not combined with gasoline produced at any other refinery before loading on the ship. (E) Obtain the EPA-assigned registration number of the refinery at which the batch was produced; (F) Determine the name and country of registration of the ship used to transport the batch to the United States port-of-entry; and (G) Determine the date the ship departs from the port serving the refinery-of-origin. (ii) A laboratory shall be considered independent only if it meets the criteria specified in Sec. 80.65(f)(2)(iii). (iii) In order to be considered United States-based, the laboratory must be a United States corporation engaged in the business of gasoline sampling and testing, or an individual who is a United States citizen who is engaged in the business of gasoline sampling and testing in the United States. (iv) The independent laboratory shall submit to the Administrator a report containing the information required under paragraph (d)(2)(i) of this section, within thirty days following the date of the independent laboratory's inspection. This report shall include a description of the method used to determine the identity of the refinery at which the subject gasoline was produced, that the subject gasoline was not mixed with gasoline produced at any other refinery, and a description of the gasoline's movement and storage between production at the source refinery and ship loading. (v) The refinery-of-origin sampling and testing required under paragraph (d)(2) of this section is in addition to the sampling and testing required at the port-of-entry under Secs. 80.65 (e) and (f). (3) The importer shall meet the sampling and testing requirement, under Sec. 80.65(f)(1)(i), whereby an independent laboratory samples and tests each batch of imported gasoline. (4)(i) The results of testing of the batch sample collected at the refinery-of-origin under paragraph (d)(2) of this section, when compared to the results of testing of the batch sample collected at the United States port-of-entry under Sec. 80.65(f)(1)(i), must for each parameter be within the range specified for the parameter under Sec. 80.65(e)(2)(i); (ii) The volume determination for the batch at the refinery-of- origin under paragraph (d)(2) of this section, when compared to the volume determination for the batch at the United States port-of-entry under Sec. 80.65(f), must be within 1% where such volume determinations are corrected for temperature and density; (iii) The ship identified under paragraph (d)(2) of this section must be the same ship that is used to transport the gasoline on arrival at the United States port-of-entry; and (iv) The refinery-of-origin, volume, shipment date, and ship name under paragraph (d)(2) of this section must be confirmed by the attest engagement under paragraph (f) of this section. (e) Attest requirements. (1) The attest engagement required under paragraph (b)(3) of this section shall be conducted by a United States- based CPA in accordance with the procedures specified in Secs. 80.126 and 80.127. (2) The CPA shall: (i) Obtain a gasoline inventory reconciliation analysis for the current year from the refinery which includes reformulated gasoline, RBOB, conventional gasoline, and other non- finished gasoline petroleum products, whether imported into the United States or not; (ii) Test the mathematical accuracy of the calculations contained in the analysis; and (iii) Agree the beginning and ending inventories to the refinery's perpetual inventory records. (3) The CPA shall: (i) Obtain a separate listing of all tenders during the current year of reformulated gasoline produced at the refinery for use in the United States, such listing to include the date the tender was transported from the refinery, the method of transportation of the tender from the refinery to the point of ship loading, the identification of any storage of the gasoline prior to the point of ship loading, and the name and country of registration of the ship used for transporting the gasoline from the refinery to the United States; (ii) Test the mathematical accuracy of the calculations contained in the listings; (iii) Agree the listing's tender volumes to the gasoline inventory reconciliation in paragraph (e)(2) of this section; and (iv) Confirm that the gasoline comprising the tender was not mixed with gasoline produced at any other refinery between its production and ship loading. (4)(i) The CPA shall prepare a report on the attest engagement summarizing the procedures performed and the findings in accordance with the Sec. 80.125(b), and shall include in the report, for each tender of reformulated gasoline, the volume, date shipped, and ship name and country of registration. (ii) The CPA report for each calendar year shall be submitted to EPA not later than May 31 of the following year. (5) In order to be considered a United States-based CPA, a CPA firm must be a United States corporation, or an individual CPA must be a United States citizen who is a licensed CPA in the United States. (f) EPA inspections. The inspections, reviews, collections, and audits under paragraph (b)(4) of this section may be conducted: (1)(i) At the foreign refinery; (ii) At any other location where gasoline produced at the foreign refinery for use in the United States is stored or transported; and (iii) At any other location where documents are kept which relate to the quality and/or quantity of the gasoline produced at the foreign refinery for use in the United States; (2) Either announced in advance, or unannounced; (3) At any time prior to January 1, 2003; and (4) With relation to any gasoline produced: (i) During 1990 and any other year for which data are submitted to EPA in support of an individual baseline; and (ii) For use in the United States during the period December 1994 through December 1997. (g) Failure to meet requirements. If any requirement specified in paragraphs (b) through (f) of this section is not fully met for any calendar year, or if the Administrator determines that the information submitted to EPA under paragraphs (b) through (f) of this section is inaccurate in whole or in part, then compliance with the requirements of Secs. 80.41 (h) and (i) by an importer shall be measured, ab initio and for each and every calendar year or for such other period of time as the Administrator may determine, from the baseline that otherwise would apply to the importer in the absence of the operation of this section. (h) Volume constraints. (1) During any calendar year the total volume of gasoline imported by one or more importers to which a foreign refinery's baseline applies shall not be greater than the refinery's 1990 baseline volume. (2) Where the volume of gasoline for which the foreign refinery's baseline is claimed by one or more importers during any calendar year exceeds the refinery's 1990 baseline volume, the refinery's baseline applies only to the first volume of that refinery's gasoline that is imported into the United States that equals the 1990 baseline volume. (3) In the event any importer uses a foreign refinery baseline in violation of the volume constraint specified in paragraphs (h) (1) through (2) of this section the importer shall, ab initio, calculate compliance using the baseline values that properly apply under paragraphs (h) (1) through (2) of this section. (4) In the event any gasoline is imported before January 1, 1995 for which a separate foreign refinery baseline is claimed: (i) Such gasoline shall be combined with gasoline imported during 1995 for which the separate foreign refinery baseline is claimed for purposes of the volume constraint specified in paragraphs (h) (1) through (2) of this section; and (ii) An adjusted 1990 baseline volume for the foreign refinery shall be calculated, for use during the combined 1994 and 1995 period only, by multiplying the 1990 baseline volume for the foreign refinery times 1.17. [FR Doc. 94-10434 Filed 5-2-94; 8:45 am] BILLING CODE 6560-50-P

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