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Regulation of Fuels and Fuel Additives: Renewable Oxygenate Requirement for Reformulated Gasoline Publication: Federal Register Agency: Environmental Protection Agency Byline: Carol M. Browner Date: 2 August 1994 Subject: American Government  , The Environment, Petroleum
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[Federal Register Volume 59, Number 147 (Tuesday, August 2, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-17649]
[[Page Unknown]]
[Federal Register: August 2, 1994]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 80
[AMS-FRL-5017-1]
Regulation of Fuels and Fuel Additives: Renewable Oxygenate
Requirement for Reformulated Gasoline
AGENCY: Environmental Protection Agency.
ACTION: Final rule.
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SUMMARY: EPA's regulations for reformulated gasoline (RFG) based on the
Clean Air Act, as amended, requires that gasoline sold in certain areas
be reformulated to achieve the greatest possible reductions in vehicle
emissions of toxic and ozone-forming compounds. Among other things,
EPA's regulations establish standards requiring a specified oxygen
content in reformulated gasoline. This rule promulgates additional
regulations which require that 30 percent of the oxygen required by the
Clean Air Act to be used in reformulated gasoline be derived from
renewable feedstocks. This renewable oxygenate requirement will assure
that implementation of the RFG program is consistent with the
longstanding federal policy of promoting renewable fuels. The renewable
oxygenate requirement is expected to have a positive energy impact by
reducing the amount of fossil energy needed to meet the requirements of
the reformulated gasoline program. In addition, this program is
expected to stimulate the development of new technologies which would
lead to reduced emissions of greenhouse gases and further reductions in
fossil energy consumption.
EFFECTIVE DATE: This rule is effective on September 1, 1994, except
Secs. 80.83 (g) and (h) are not effective until OMB has approved the
Information Collection Requirements contained in them. EPA will publish
a document in the Federal Register following OMB approval of the
information collection requirements.
ADDRESSES: Materials relevant to this final rule (FRM) are contained in
Public Docket A-93-49, located at Room M-1500, Waterside Mall (ground
floor), U.S. Environmental Protection Agency, 401 M Street SW.,
Washington, DC 20460. Information relevant to this rulemaking may also
be found in dockets A-91-02 and A-92-12, which are hereby incorporated
into docket A-93-49 for the purposes of this rulemaking. The docket may
be inspected from 8 a.m. until 4 p.m. Monday through Friday. A
reasonable fee may be charged by EPA for copying docket materials.
FOR FURTHER INFORMATION CONTACT:
Paul Machiele, Regulation Development and Support Division, U.S. EPA
(RDSD-12), 2565 Plymouth Road, Ann Arbor, MI 48105, Telephone: (313)
668-4264.
Joann Jackson Stephens, Regulation Development and Support Division,
U.S. EPA (RDSD-12), 2565 Plymouth Road, Ann Arbor, MI 48105, Telephone:
(313) 668-4276.
To request copies of this rule contact: Delores Frank, Regulation
Development and Support Division, U.S. EPA (RDSD-12), 2565 Plymouth
Road, Ann Arbor, MI 48105, Telephone: (313) 668-4295.
SUPPLEMENTARY INFORMATION: A copy of this action is 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:
(M) OMS
(K) Rulemaking and Reporting
(3) Fuels
(9) Reformulated gasoline.
A list of ZIP files will be shown, all of which are related to the
reformulated gasoline rulemaking process. Today's action, as well as
the Regulatory Impact Analysis & Response to Comments Document, will be
in the form of ZIP files and can be identified by the following titles:
ROXY-PRE.ZIP, ROXY-REG.ZIP, and ROXY-RIA.ZIP. To download these files,
type the instructions below and transfer according to the appropriate
software on your computer:
ownload,
rotocol, xamine, ew, ist, or elp Selection
or to exit: D filename.zip
You will be given a list of transfer protocols from which you must
choose one that matches with the terminal software on your own
computer. The software should then be opened and directed to receive
the file using the same protocol. Programs and instructions for de-
archiving compressed files can be found via ystems Utilities from
the top menu, under rchivers/de-archivers.
Please note that due to differences between the software used to
develop the document and the software into which the document may be
downloaded, changes in format, page length, etc. may occur.
I. Background
A. Clean Air Act Requirements
The primary purpose of the federal reformulated gasoline program is
to improve air quality by reducing motor vehicle emissions of toxic and
tropospheric ozone-forming compounds, as prescribed by section 211(k)
of the Clean Air Act as amended (CAA or the Act). The Act mandates
certain requirements for the reformulated gasoline program. Section
211(k)(2) requires a minimum content of 2.0 weight percent oxygen and
maximum content of 1.0 volume percent benzene, and section 211(k)(3)
sets minimum performance standards for emissions of ozone forming
volatile organic compounds (VOC), oxides of nitrogen (NOX), and
air toxics. To meet the oxygen content requirement, oxygenates must be
added to gasoline. The two most common oxygenates used today are methyl
tertiary-butyl ether (MTBE) and ethanol. MTBE is an ether derived
primarily from isobutylene, a product typically produced from natural
gas or petroleum, and methanol, which in turn is also produced
primarily from natural gas. Ethanol is an alcohol produced primarily
from corn, though it can be produced from other feedstocks as well. A
third oxygenate, ethyl tertiary butyl ether (ETBE), is an ether derived
from ethanol and isobutylene. A number of other oxygenates such as
tertiary amyl methyl ether (TAME) and tertiary amly ethyl ether (TAEE)
are currently under consideration by the industry as well. Their
ultimate use will depend on their relative economics compared to those
oxygenates currently in use.
Section 211(k)(1) of the Act directs EPA to promulgate regulations
establishing requirements for reformulated gasoline. It also provides
that such regulations require the greatest reductions in VOC and toxics
emissions, taking into consideration the cost of achieving such
emission reductions, non-air-quality and other air-quality related
health and environmental impacts and energy requirements.
B. Historical Background
There is considerable history behind EPA's decision to promulgate a
renewable oxygenate requirement. Congress and both the past and the
present Administrations have long supported the development and use of
renewable fuels for a variety of reasons, including a desire to reduce
oil imports, save fossil energy, reduce global warming emissions, and
develop domestic sources of fuel. This support has taken the form of a
number of legislative and policy initiatives. For example, since 1978
renewable fuels have been eligible for an excise tax credit which today
is set at 54 cents/gallon. The Departments of Energy and Agriculture
have invested hundreds of millions of dollars in research and
development related to the production and commercialization of
renewable fuels. As a result of these programs, the ethanol industry
developed into a significant industry which by 1990 represented roughly
one percent of the nation's gasoline consumption.
The 1990 amendments to the Clean Air Act provided ethanol blends
with a limited waiver from vapor pressure limits placed on the
volatility of conventional gasolines, in order to maintain the ease
with which ethanol could be blended with gasoline. Furthermore, the
1990 amendments to the Clean Air Act included several provisions which
many expected to further stimulate demand for renewable oxygenates such
as ethanol. These provisions included the wintertime oxygenated fuels
program which began in 1992 and has already considerably increased the
demand for ethanol, and the year-round reformulated gasoline program
which is to begin in December of 1994. EPA promulgated final
regulations for RFG on December 15, 1993 (59 FR 7716, February 16,
1994).
In the process of developing the regulations for the RFG program,
EPA entered into a regulatory negotiation with interested parties
shortly after passage of the Clean Air Act Amendments of 1990. Included
in the negotiations were representatives of the States, oxygenate
producers, farm interests, environmental groups, the oil industry, the
automobile industry, the driving public, the EPA, and the Department of
Energy. (See 56 FR 31176, July 9, 1991, for an explanation of the
members of the negotiating committee and a discussion of the process
for selecting them.) After extensive discussions, an Agreement in
Principle was signed by all members of the advisory committee in August
of 1991.
The 1991 regulatory negotiation agreement formed the basis for
EPA's April 1992 Supplemental Notice of Proposed Rulemaking (SNPRM) (57
FR 13416, April 16, 1992) for reformulated gasoline. In order to ensure
compliance with the minimum reductions in ozone forming volatile
organic compounds (VOCs) required by Congress for the RFG program, this
proposal did not extend the volatility waiver for ethanol-blended
conventional gasoline to RFG. In response, members of the ethanol
industry submitted comments to EPA which expressed their concern that
the proposed reformulated gasoline rules would effectively exclude
ethanol from the reformulated gasoline market.
Ethanol, when added to gasoline in the amount needed to satisfy the
oxygen content requirement of the Act, raises the Reid vapor pressure
(RVP) of the resulting blend by about 1 psi, making it more difficult
for ethanol blends to meet the mass VOC performance standards than
blends using other oxygenates. For ethanol to be used in summertime
RFG, a gasoline blendstock with an RVP low enough to offset the
increase resulting from adding ethanol would have to be obtained. The
contention was that obtaining such blendstocks would be both difficult
and expensive, because ``sub-RVP'' blendstocks would be more costly to
refine and distribute and because blendstock production would be
controlled by petroleum refiners. The ethanol industry representatives
believed that the oil industry would have a tendency to rely almost
exclusively on MTBE over ethanol because MTBE does not boost a fuel's
RVP and is readily blended at the refinery and distributed through the
existing gasoline infrastructure, since, unlike ethanol, it does not
raise materials compatibility or water adsorption concerns with the
existing gasoline distribution infrastructure. Thus, there would be
little incentive to make the sub-RVP blendstock necessary for ethanol
blending into summertime RFG. The ethanol industry representatives also
contended that refiners would not want to switch oxygenates during the
course of the year and would therefore utilize MTBE year-round, thereby
eliminating any RFG market for ethanol.
For this reason, ethanol and farm interests sought a summer
volatility waiver for ethanol-based reformulated gasolines. Other
signatories to the regulatory negotiation agreement, such as the oil
industry, methanol and ether producers, states, and environmental
groups, opposed such a waiver because it could eliminate most or all of
the VOC benefits of the RFG program if ethanol was used in large
volumes. At the request of ethanol and farm interests, the Agency held
a public hearing to receive testimony on this and other issues in June
of 1992 in Chicago.
In an attempt to address the role of ethanol, the Agency
subsequently proposed a renewable oxygenate program (ROP) (58 FR 11722,
February 26, 1993) to provide incentives for the use of ethanol and
other renewable oxygenates in reformulated gasoline. The objective of
the ROP was to provide incentives for the use of renewable oxygenates
in the reformulated gasoline program in the summer while maintaining
the overall environmental benefits of the program. Ethanol was
considered a renewable oxygenate because it is produced primarily from
agricultural sources such as corn, which can be regenerated. Other
oxygenates such as MTBE are produced primarily from nonrenewable
resources, such as petroleum and/or natural gas.
For a variety of reasons, as explained in section II of the
preamble and section I of the Regulatory Impact Analysis (RIA) for the
reformulated gasoline final rule, EPA decided not to promulgate the
ROP. First, EPA received comments from virtually all constituencies
affected by the rulemaking, including the ethanol industry, stating
that the ROP as proposed was neither feasible nor workable. While EPA
believed that a feasible program could be structured, EPA also
acknowledged that it could represent a considerable burden on the
industry. Second, the ROP would have reduced the RFG program's VOC
emission control benefits because it provided an incentive for the use
during the summer months of an oxygenate which exhibited commingling-
related emission increases. (Combining ethanol blends and non-ethanol
blends in consumer fuel tanks, even if both have identical low RVPs,
results in a mixture with significantly higher fuel volatility and
hence significantly higher VOC emissions. This effect is referred to as
commingling.) The commingling effect, along with other unique
distillation effects of ethanol on evaporative emissions and other
provisions of the ROP as proposed, were estimated in the RIA for the
RFG final rule to result in approximately a 6.0-7.5 percent increase in
VOC emissions compared to an RFG program without such incentives. While
difficult to estimate due to uncertainty in future ethanol and ETBE
market shares and lack of sufficient data to reliably quantify the
distillation effects, such an increase in VOC emissions amounts to a
loss of about 40 to 50 percent of the minimum VOC control that is
required under section 211(k)(3) for reformulated gasoline during the
summer, even though the average RVP of the RFG produced by refiners
remained the same. Thus, EPA's analysis indicated that the proposal
would not maintain the environmental benefits of reformulated gasoline.
A third concern with the ROP was that the program would have created an
incentive for the use of renewables but in no way assured their use.
Upon consideration of these and other factors, the Agency decided not
to finalize the ROP. Other options considered did not resolve the
concerns raised with the ROP as proposed. (The reader is referred to
section II of the Preamble and section I of the RIA for the
reformulated gasoline final rule for a description of the options and
alternatives to the ROP considered.)
Hence, the final rule for reformulated gasoline does not include
provisions to provide incentives for the use of renewable oxygenates.
This left substantial uncertainty regarding the magnitude of the role
renewable oxygenates would play in the roughly 35 percent of the U.S.
gasoline market expected to be covered by the RFG program.
C. Renewable Oxygenate Requirement Proposal
To address the issues discussed above, at the same time EPA issued
the final rules for RFG, it also proposed (58 FR 68343) a year-round
requirement that 30 percent of the mandatory oxygen content
specification for reformulated gasoline be obtained from renewable
oxygenates. To ensure that the ozone benefits from the reformulated
gasoline program are not adversely affected by that requirement, EPA
proposed that during the VOC control period (i.e., the summer months)
only renewable oxygenates that do not exhibit volatility-related
commingling effects when mixed with gasoline would receive renewable
oxygenate credit. All approved renewable oxygenates, including ethanol,
were expected to be acceptable during the non-summer months when
commingling-related volatility increases have relatively little effect
on VOC emissions and when ozone exceedances are rare. Also included in
the proposal were provisions for averaging and credit trading in order
to provide maximum flexibility to refiners and fuel importers in
complying with the program.
EPA presented several justifications for proposing a renewable
oxygenate requirement for reformulated gasoline. The Agency concluded
that expanding the use of renewable fuels produced from resources such
as corn, grain, wood, organic waste products, and municipal solid waste
could help cut dependence on foreign oil and reduce primary energy use
by 20% or more as compared to nonrenewable oxygenates. The Agency also
believed that renewable oxygenates offered potential air quality
advantages (such as lower emissions of VOCs and greenhouse gases) as
well as jobs-creation benefits. The Agency also stated its belief that
the 30 percent requirement for renewable oxygenates was an appropriate
level to ensure that renewables were not excluded from the reformulated
gasoline oxygenate market while allowing the remaining 70 percent of
the market to be open to all fuels, regardless of their renewables
content.
The proposed renewable oxygenate requirement would be applied in
conjunction with the reformulated gasoline program. It did not alter
the performance standards or other provisions for the reformulated
gasoline outlined in the final rulemaking for reformulated gasoline. In
addition, the proposal did not mandate the use of any particular
oxygenate, but rather ensured some minimum use of the class of
oxygenates deemed renewable, defined in the proposal as ethanol and
methanol from renewable sources, and their ether derivatives. This
proposal was designed to supplement and not negate the Agreement in
Principle arrived at through regulatory negotiation.
EPA received over 12,000 comments in response to the renewable
oxygenate proposal. The vast majority of these comments were letters
supporting the proposal written by farmers, ethanol producers, and
their supporters. Several hundred responses containing detailed,
substantive, technical comments were received from representatives of
the oil industry, the ethanol industry, corn farming and other
agricultural interests, methanol producers, environmental groups,
federal agencies, and state and local governments. Some of these
comments supported the proposal while others opposed it. Detailed
responses to many of the comments are provided in subsequent sections
of this preamble and in the Regulatory Impact Analysis (RIA) in the
docket.
The remainder of this preamble is organized into the following
sections:
II. Overview of the Renewable Oxygenate Requirement
III. Renewable Oxygenate Requirement for Reformulated Gasoline
IV. Enforcement of the Renewable Oxygenate Requirement
V. Federal Preemption
VI. Environmental, Energy, and Economic Impacts
VII. Public Participation
VIII. Compliance with Regulatory Flexibility Act
IX. Statutory Authority
X. Administrative Designation and Regulatory Analysis
XI. Compliance with the Paperwork Reduction Act
II. Overview of the Renewable Oxygenate Requirement
EPA is hereby promulgating a renewable oxygenate requirement for
reformulated gasoline similar to that proposed on December 15, 1993 (58
FR 68343, December 27, 1993). EPA believes that this action will ensure
that the requirements for the reformulated gasoline program promulgated
on December 15, 1993 (59 FR 7716, February 16, 1994) are consistent
with existing government programs and initiatives supporting renewable
fuels. For many years, both Congress and the Executive Branch have
promoted through various actions the use of renewable fuels and the
development of the renewable fuels industry for various energy,
economic, environmental, and agricultural policy objectives. Renewable
fuels have been viewed as a key element of policies to enhance domestic
energy security, reduce oil imports, conserve fossil energy resources,
and reduce emissions of greenhouse gases.
Congress, along with present and past Administrations, has
supported these goals through a variety of mechanisms. The Departments
of Energy (DOE) and Agriculture (USDA) have invested hundreds of
millions of dollars over the past 20 years to research and develop
renewable fuel feedstocks and production techniques. Congress has
supported the increased use of renewable fuels since the late 1970's
through various legistative actions. The Energy Security Act of 1980
established a number of federal policies to expand fuel ethanol
production and use. The Omnibus Budget Reconciliation Act of 1987
stated the intent of Congress to expand ethanol use. Under the
Alternative Motor Fuels Act (AMFA) of 1988, the Alternative Fuels
Council identified a significant role for ethanol. The National Energy
Policy Act (EPACT) of 1992 includes provisions to stimulate the use of
a wide-range of alternative (nonpetroleum) fuels, including several
renewable fuels. Congress and prior Administrations have also
stimulated renewable fuel use through mechanisms such as the 1.0 psi
volatility waiver in the CAAA for gasoline (other than reformulated
gasoline) blended with ethanol (the major renewable fuel in use today),
the oxygen content requirements of the wintertime oxygenated gasoline
and reformulated gasoline programs, and various economic incentives
such as tax credits since 1978 (currently equal to 54 cents per gallon
of renewable fuel).
These programs, combined with additional tax incentives in many
states and continued innovation in production techniques, have helped
the renewable fuels industry develop and grow. It has become
economically attractive to add ethanol to conventional gasoline in many
areas of the country, primarily by splash-blending ethanol with
gasoline. This process involves mixing ethanol into finished gasoline
at the terminal. (Due to materials compatibility concerns and the
hygroscopic properties of ethanol, ethanol generally is not added into
the existing gasoline distibution system at the refineries.) The
resulting ethanol blend, commonly known as gasohol, has higher
volatility than either the ethanol or the original gasoline in
isolation.
Until EPA's Phase I volatility controls went into effect in 1989,
gasoline volatility was essentially unregulated. EPA's volatility
control program reversed the upward trend in gasoline volatility, and
the resulting considerable increase in evaporative VOC emissions, by
establishing limits on the volatility of summer gasoline. In
promulgating the volatility control program, however, EPA granted a one
pound per square inch (psi) volatility waiver for ethanol-containing
blends. This waiver permitted continuation of splash blending of
ethanol into gasoline without regulatory impediment, thereby avoiding
what could have been a significant disruption to the existing market
for fuel ethanol. For ethanol to continue to be blended in the absense
of the waiver, refiners would have had to produce and market a special
low volatility gasoline specifically for blending with ethanol. Since
there was no assurance refiners would be willing to do so, the rule
could have caused a dramatic decrease in the market share for ethanol
blends that had developed under the existing Congressional and
Administration programs. EPA believed it was important to avoid such a
disruption to the ethanol industry, and as a result, granted a 1.0 psi
volatility waiver.
EPA believed that such a waiver would not significantly jeopardize
the rule's air quality objectives for several reasons. First, even with
the waiver the volatility of ethanol blends would be reduced
considerably. In fact, the volatility of the ethanol blends would be
reduced by the same amount (though not to the same level) as that of
non-ethanol blends. Second, ethanol's market share was small,
particularly in most ozone nonattainment areas, so the potential impact
on ozone levels was thought to be small. At the then existing market
share for ethanol, the waiver reduced by only about 3 percent the
volatility control that otherwise would have been achieved by both
phases of the volatility control program. Third, the rulemaking neither
required the use of oxygenates such as ethanol in gasoline nor was it
expected to increase their use. Were this not the case, the
environmental impacts of the waiver could have been considerably
greater. Congress later incorporated a similar volatility waiver in the
1990 amendments to the Clean Air Act, when it established statutory
limits on the volatility of conventional gasoline.
As a result of the Federal and State initiatives and with the
continued blending flexibility afforded by the volatility waiver, the
market for ethanol grew from a fledgling industry in 1978 to a market
which stabilized at approximately 0.8 billion gallons per year by 1990,
an amount equivalent to slightly less than 1% of nationwide gasoline
consumption.
With the passage of the CAAA of 1990, the industry once again began
to expand considerably. The oxygenated fuels program required by
section 211(m) of the CAA requires that, during the winter months, all
gasoline sold in certain cities with a history of exceedences of EPA's
national ambient air quality standard (NAAQS) for carbon monoxide (CO)
must contain oxygenates. Under this program (which began with the
winter of 1992-93), ethanol has captured approximately 30% of the
resulting oxygenate market. As a result, the demand for ethanol has
grown by roughly 50% to an estimated 1.25 billion gallons in 1993.
The oxygenate requirements of the reformulated gasoline program
contained in section 211(k) of the CAA also provide the potential to
expand considerably the market for ethanol and other renewable
oxygenates. RFG is required in the nine cities with the nation's worst
ozone pollution problem and has been adopted for many other ozone
nonattainment areas as well as a key component in their efforts to
improve air quality. The areas which will use RFG are estimated to
represent 35% of all gasoline sold in the United States.
The VOC emission performance standards for reformulated gasoline
raised concerns in the ethanol industry that just as under the gasoline
volatility control program, they will be unable to compete in the RFG
market without a volatility waiver. However, section 211(k)(3) of the
CAA establishes minimum emission performance standards that RFG must
meet, with no allowance for a volatility waiver for ethanol-blended
RFG. Furthermore, as discussed in the RFG final rule (59 FR 7716),
providing such a waiver for ethanol-containing RFG would have
jeopardized the emission benefits which Congress mandated the RFG
program to achieve. For these reasons, the final regulations for
reformulated gasoline do not contain such a volatility waiver for
summer RFG.
Thus, ethanol cannot be splash-blended into unmodifed gasoline
blendstocks and still have the resulting blend comply with the RFG
emission performance standards. Instead, either special reduced-
volatility (``sub-RVP'') blendstocks would be necessary during the
summer, or the ethanol would have to be converted into ETBE. Many in
the ethanol industry have continued to express concern that refiners
would not produce such blendstocks. If that were to occur, ethanol
producers would lose access during the summer months to those current
markets which will be covered by the RFG program. This loss of access,
the ethanol industry contends, could also lead to a reduced market
share in RFG areas in the winter months, even though no volatility
restrictions apply during those months. EPA has received numerous
letters from various members of Congress emphasizing their belief that
the RFG program was intended to provide a significant new market for
ethanol and other renewable oxygenates. EPA has also received numerous
letters from members of Congress opposing a renewable oxygenate
requirement. In general, they were not opposed to the use of renewable
oxygenates, but rather to EPA requiring their use. As discussed in
section III.A, there was also a considerable amount of discussion
concerning this issue during the Congressional debate over the 1990
CAAA.
As stated in the RFG final rule, EPA continues to believe that
ethanol will not be excluded from the oxygenate market under the RFG
program. Rather, EPA believes that many refiners will find it
economically attractive to blend ethanol in RFG. As a result, EPA
believes a market for ethanol will continue following implementation of
the RFG program. The RFG program represents a major new market for
oxygenates such as ethanol. Nevertheless, EPA has received comments
stating that without promulgation of today's rulemaking or other
similar measures, creation of additional ethanol and renewable
oxygenate blending capacity beyond that currently underway is in doubt.
EPA recognizes that concerns over the marketability of ethanol in RFG
have created substantial uncertainty for ethanol producers and
investors.
EPA believes that today's action will reduce that uncertainty and
make the RFG program consistent with long-running Congressional and
Administration policies to promote renewable fuels. This program
represents an attempt to harmonize the goals of greater reliance on
renewable fuels and air quality improvements through the use of RFG.
Specifically, the renewable oxygenate requirement will ensure that RFG
regulations do not inappropriately limit the growth of the renewable
oxygenate industry. It will ensure that several oxygenates will be used
in the RFG program and provide the renewable oxygenates a minimum
market.
It should be noted that the program encourages the use of all
renewable oxygenates, not any one renewable oxygenate (as discussed
more fully in section III). By providing market certainty the program
will encourage expanded private investment in new, more efficient and
environmentally beneficial renewable fuel production technologies. Such
potential renewable oxygenates include ethanol from cellulosic plant
material and waste cellulose and MTBE derived from methanol which was
produced from municipal solid waste, landfill gas, or sewage sludge.
The program establishes a minimum 30% market share for renewable
oxygenates. This level represents a market share for renewables that
EPA believes would likely have been achieved through open competition
with nonrenewable oxygenates in the absence of VOC emission
restrictions, based on experience under the oxygenated fuels program.
At this market share an estimated 1.7 volume percent (on an ethanol
equivalent basis) of reformulated gasoline will be derived from
renewable resources.
EPA is promulgating the renewable oxygenate program because of the
important benefits of the program. First, EPA believes the program will
help conserve fossil energy resources and minimize any detrimental
effects the reformulated gasoline program may have on energy
consumption. Second, EPA believes that the program has the potential to
provide global warming benefits by providing stimulus to the market to
develop new, more efficient production processes for renewable
oxygenates and their feedstocks. In addition, EPA believes that the
program as structured maintains the environmental benefits of the
reformulated gasoline program as promulgated on December 15, 1993, and
has the potential to increase these benefits through the incentives it
provides for increased ETBE use during the summer months.
The reformulated gasoline program promulgated in December of 1993
is projected to cause an increase in fossil energy consumption, as
discussed in more detail in sections III.H and VI of this notice.
Today's action is intended to mitigate to some extent the increase in
fossil fuel consumption that otherwise would result from implementation
of the RFG program. Today's action also provides the certainty needed
to encourage private investment in more advanced and energy-efficient
production facilities and more diverse feedstock utilization. This will
not only increase the fossil energy benefits of this program, but also
provide the opportunity for reductions in greenhouse gas emissions.
Today's action will also create incentives to utilize ETBE during
the summer months. Its use, relative to MTBE or ethanol, has the
potential to achieve slightly greater VOC emission reductions beyond
those required by the final rule for RFG. Ethanol-containing gasoline,
when mixed with other gasoline, causes the mixture to produce greater
VOC emissions than the original fuels would produce. This can occur
even in a vehicle fuel tank. This effect is called commingling and is
discussed in sections III.C and VI of this notice and in the Regulatory
Impact Analysis for the reformulated gasoline final rule. The effect of
such commingling on VOC emissions is not controlled directly by the RFG
program. As a result, to the extent that ETBE use displaces ethanol use
during the summer months, additional VOC emission benefits are
possible. In addition, ETBE possesses front-end distillation
characteristics relative to both ethanol and MTBE which are also not
controlled in the reformulated gasoline final rule, and which may
provide further (though not quantifiable with any certainty at the
present time) VOC emission benefits during the summer should its use
increase as a result of the incentives created by today's program.
Finally, EPA believes that this program is designed in a way which
provides maximum compliance flexibility for refiners and minimizes
their burden. The program is an annual program with provisions for a
refiner to average over the course of the year or trade credits with
other refiners anywhere in the country. EPA believes that by designing
the program in such a way, the objectives can be met at a minimum cost.
These provisions are especially important during the initial startup of
the program. While the renewable oxygenate program takes effect for
refiners beginning December 1, 1994, individual refiners do not need to
blend any renewable oxygenate into their gasoline until later in the
year or at all if they so desire. They will just have to demonstrate
that they met the requirements over the course of the entire year
through either the blending of greater than 15% renewable oxygenates in
the latter part of the year, or the purchase of credits from other
refiners. As a result, the averaging and trading provisions effectively
provide refiners with additional time to meet the initial requirements
of the program.
III. Renewable Oxygenate Requirement for Reformulated Gasoline
A. Legal Authority
1. Introduction
The final rule adopted today is a reasonable exercise of the
discretionary authority granted the agency under section 211(k)(1) of
the Act. EPA interprets the first sentence of section 211(k) as broad
authority to adopt reasonable requirements for reformulated gasoline,
unless otherwise prohibited by the Clean Air Act or other statutory
provision. EPA interprets the second sentence of section 211(k)(1) as
authorizing EPA to adopt regulations for the reformulated gasoline
program that result in the greatest emission reductions achievable, and
at the same time tend to optimize the resulting impacts on cost, energy
requirements, and other health and environmental impacts. In effect,
EPA has full authority to adopt emission reduction standards and other
requirements that achieve this result.1
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\1\Various commenters argued that statements in the Regulatory
Impact Analysis supporting the FRM signed on 12/15/93 showed that
EPA believed it did not have the legal authority to require the use
of renewable oxygenates. To the contrary, EPA's proposal, also
signed on 12/15/93, clearly described EPA's view that it did have
the authority to require the use of renewable oxygenates. The
statements in the RIA address renewable oxygenate requirements that
would be significantly different from that proposed in December and
would raise many of the same concerns described in the preamble to
the final rule, such as increased emissions in the summertime from
increased use of ethanol in the summertime. The prior statements in
the RIA are not relevant to the proposal issued by EPA in December.
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2. Analysis of the Text of the Statute
An analysis of EPA's authority starts with the text of the statute.
Under the first sentence of that paragraph, EPA is authorized to:
promulgate regulations under this section establishing requirements
for reformulated gasoline to be used in gasoline-fueled vehicles in
specified nonattainment areas.
Under the second sentence of section 211(k)(1), EPA's regulations are
to:
require the greatest achievable reduction in emissions of ozone
forming volatile organic compounds (during the high ozone season)
and emissions of toxic air pollutants (during the entire year)
achievable through the reformulation of conventional gasoline,
taking into consideration the cost of achieving such emission
reductions, any nonair-quality and other air-quality related health
and environmental impacts and energy requirements.
Section 211(k)(1) provides EPA general authority to establish
reasonable requirements for reformulated gasoline, including emissions
reduction requirements. Other provisions in section 211(k) address
various specific elements of the program, such as minimum requirements
for various fuel parameters (section 211(k)(2)), minimum emissions
reduction requirements (section 211(k)(3)), certification requirements
(section 211(k)(4)), prohibited acts (section 211(k)(5)), state opt-
ins, (section 211(k)(6)), and credit programs (section 211(k)(7)).
This interpretation of section 211(k)(1) is supported by the plain
meaning of that provision. On its own terms, the first sentence stands
as a general grant of authority to establish any reasonable requirement
for reformulated gasoline, with no explicit restriction on this
authority other than a one year deadline for agency action.
The first sentence of section 211(k)(1) both grants authority to
the agency and establishes a deadline for agency action. This structure
is not at all uncommon, and was employed by Congress in several similar
provisions adopted in 1990. See, e.g., section 211(h)(1) (regulation of
Reid vapor pressure), section 211(i)(2) (regulation of motor vehicle
diesel fuel), section 211(l) (regulation of gasoline detergent
additives), and section 202(a)(6) (regulation of refueling emissions
from motor vehicles). The general framework of section 211(k) is also
not unique--a grant of broad general authority in (k)(1) followed by
several detailed provisions that ensure certain minimum actions are
taken. This is consistent with the approach taken by Congress in
various other provisions of Title II of the Clean Air Act. For example,
Congress granted EPA broad, general authority to regulate motor
vehicles and their fuels, as in section 202(a) and section 211(c)(1).
These grants of broad, general authority were then supplemented by
detailed provisions providing specific actions that Congress expected
in these areas. See, e.g., section 202(b), (f), (g), (h), and (i), as
well as sections 211(c)(2), 211(g), prior to the 1990 amendments, and
the various paragraphs of section 211 cited above.
The regulations adopted today are a reasonable exercise of this
discretionary authority. They further Congressional goals by fostering
achievement of the important benefits that Congress expected to flow
from this program. They are not prohibited by any provision of the Act
or any other law, and are well within the range of authority granted by
Congress.
The plain meaning of the second sentence of section 211(k)(1)
corroborates EPA's view on it authority to issue this rule. This
provision requires promulgation of regulations that require a certain
result. The result desired by Congress is clear--the greatest
achievable reductions, taking into consideration cost, energy,
environmental and other impacts. There is no indication that EPA's
authority is limited to establishing emissions reduction standards. In
fact, this provision would authorize EPA to adopt all reasonable
requirements designed to achieve the required result. The regulation
adopted today is designed to ensure that the emissions reduction
requirements for reformulated gasoline are achieved in a manner that
reasonably optimizes the energy, cost, environmental, and other impacts
of this program. The regulations adopted today, in combination with the
regulations promulgated in December 1993, act together to achieve this
result.
Finally, EPA believes that section 211(k)(4) does not preclude the
renewable oxygenate provisions proposed herein. Section 211(k)(4)
states that the Administrator ``shall certify a fuel formulation or
slate of fuel formulations as complying with this subsection if such
fuel or fuels--(i) comply with the requirements of paragraph (2), and
(ii) achieve equivalent or greater reductions * * * than are achieved
by a reformulated gasoline meeting the applicable requirements of
paragraph (3).'' This could be interpreted as requiring certification
of a fuel that met the oxygen and other requirements of paragraph (2)
and the emissions requirements of paragraph (3) even if it did not
comply with the proposed renewable oxygenate requirement. Section
211(k)(1), however, authorizes EPA to establish requirements above and
beyond those required under paragraph (2) and (3), and section
211(k)(1) and (4) must be read together to provide a meaningful
interpretation to both provisions. EPA believes that a reasonable
interpretation requires certification of a fuel as reformulated as long
as it complies with the requirements of paragraphs (2) and (3), as well
as any additional requirements established under paragraph (1). Since
the renewable oxygenate provision is an additional requirement
established under section 211(k)(1), certification is not required
under section 211(k)(4)(B) unless a fuel or slate of fuels complies
with the requirement.
3. Analysis of the Legislative History
The legislative history of the reformulated gasoline provision
supports and is consistent with EPA's interpretation of section 211(k).
Changes made to various bills during the course of congressional
review, as well as floor debates in the respective houses, indicate EPA
was provided broad general authority to adopt requirements designed to
achieve the objectives for this program. EPA's renewables requirement
does just that, without inappropriately impinging on refiners' and
importers' operational flexibility.
a. House of Representatives--The bill reported by the House
Committee on Energy and Commerce included provisions on reformulated
gasoline that roughly paralleled the current provisions of section
211(k)(1). Under that provision, EPA was required to:
promulgate regulations under section 211 establishing specifications
for cleaner gasoline to be used in conventional gasoline fueled
vehicles. Such standards shall require the greatest reduction in
ozone-forming volatile organic compounds and air toxic emissions
achievable through the reformulation of conventional gasoline,
taking into consideration the cost of achieving such emission
reductions, and health, environmental and energy impacts.2
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\2\H. Rep. No. 101-490, 101st Cong. 2d Sess. 60 (1990);
reprinted at 1 A Legislative History of the Clean Air Act Amendments
of 1990 at 3021 (1993) (`` Leg. Hist.'').
This provision is similar to current section 211(k)(1) in that it
provides general authority to establish ``specifications'' for
reformulated gasoline, and separately requires that these regulations
include requirements to obtain the greatest achievable reductions in
VOCs and air toxics. The Committee Report's description of this
provision is fairly brief, with no indication that this general
authority is limited to establishing emission reduction
requirements.3
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\3\2 Leg. Hist. at 3321-21.
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Certain changes were made to this provision prior to its adoption
by the House, reflecting an intent to expand at least somewhat the
scope of agency authority. First, while the Committee bill authorized
EPA to establish ``specifications'' for cleaner gasoline, the House
bill used broader language authorizing EPA to establish
``requirements,'' as currently found in section 211(k)(1). Likewise,
the second sentence of the Committee bill provision referred to ``such
standards,'' while the House bill broadened this to ``such
requirements.''4 The House intended to broaden EPA's authority,
not limit it, and these changes were eventually adopted by Congress.
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\4\S.1630 as passed by the House of Representatives; 2 Leg.
Hist. at 2059.
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The Committee bill was amended in several other significant ways
prior to final passage by the House. For example, many of the specific
reformulated gasoline requirements now found in section 211(k)(2)
through (10) were first debated and adopted on the floor of the House.
Nonetheless, the general structure of section 211(k)(1) stayed the same
with the exceptions noted above. This indicates that from the very
beginning the House intended to provide EPA with broad general
authority to establish reasonable requirements for a reformulated
gasoline program. The vast bulk of the legislative history in the House
is directed at the subsequent adoption of fairly specific minimum
requirements for reformulated gasoline, with no indication that
Congress intended to otherwise limit this broad, general grant of
agency authority.
b. Senate--The legislative history in the Senate likewise shows a
desire to broaden EPA's authority in this area. The bill reported out
of the Senate Committee on Environment and Public Works started from a
more restrictive position and authorizing EPA to:
(1) * * * promulgate regulations establishing specifications for
fuel quality which will minimize, to the extent economically and
technically achievable, emissions [of various pollutants] * * *. (2)
In order to achieve and maintain attainment of ambient air quality
standards, the Administrator may promulgate regulations * * *
establishing specifications for fuels (including regulations
requiring the availability or sale of fuels meeting the
specifications in a nonattainment area or areas) to reduce emissions
of pollutants subject to a standard under this title or hazardous
air pollutants from motor vehicles. In establishing such
specifications and availability requirements the Administrator shall
consider other environmental effects which would result from
production and use of fuels meeting the specifications.5
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\5\S. Rep. at 639-40. The relevant portions of the Mitchell-Dole
substitute, Amendment No. 1293, debated on the floor of the Senate,
were identical to the bill reported out of the Senate Committee. 5
Leg. Hist. at 7552-54.
This provision is much narrower than that reported out of the House
Committee. The authority to establish ``specifications'' is clearly
limited to specifications to reduce emissions of specified pollutants,
and the specifications are limited to those aimed at achieving and
maintaining attainment of the NAAQS. It also clearly requires that such
specifications and requirements be written as performance standards.
Most of the amendments and debate on this provision focused on a
number of detailed minimum requirements that parallel the current
reformulated gasoline provisions found in section 211(k)(2) though
(10). However, certain very important changes were made to the general
authority provisions. First, the second paragraph of the provision was
replaced in its entirety with broader language that more closely
parallels the version adopted by the House. The Senate approved a floor
amendment by Senator Daschle requiring that:
The Administrator, pursuant to paragraph (1) * * * promulgate
regulations establishing specifications for reformulated gasoline to
be used in conventional gasoline fueled vehicles [in specified ozone
nonattainment areas].6
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\6\3 Leg. Hist. at 4383-88, 4 Leg. Hist. at 6816-18.
This amendment removed the limitation that the specifications could
only be designed to reduce emissions and achieve and maintain
attainment, significantly broadening EPA's authority. Nonetheless, the
provision passed by the Senate was narrower than the House bill. Even
though paragraph one of the provision was somewhat similar to the
second sentence of current section 211(k)(1), the Senate bill did not
contain a general grant of authority as found in the first sentence of
section 211(k)(1). It also more narrowly authorized EPA to establish
specifications, instead of requirements.
c. Conference Committee Bill--The Conference Committee on the House
and Senate bills rejected the Senate's narrower limits on general
authority and instead reported out the broader, more general authority
provision found in the House bill.7 This provision was then
adopted in the final bill. This legislative history indicates that both
houses, to different degrees, moved to broaden the agency's authority
to implement the reformulated gasoline program. The final bill adopted
by Congress rejected the narrower approach from the Senate and instead
approved the more general language from the House. While there was
little discussion of this, the textual changes described above lead to
the conclusion that Congress intended to provide EPA with broad general
authority to establish regulatory requirements for reformulated
gasoline. There are no indications that Congress intended otherwise.
EPA's interpretation is therefore fully consistent and supported by
this legislative history.
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\7\1 Leg. Hist. at 1548.
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d. Floor debates in the two houses--The legislative history does
contain extensive floor debate about the reformulated gasoline
provisions. While these focus primarily on the specific requirements
found in section 211(k)(2) though (10), they still provide important
insight on overall Congressional intent for this program.8 First,
Congress expected that this motor vehicle fuel program would provide
several important benefits for the nation. Most obviously it would lead
to major reductions in air pollution in the largest metropolitan areas
with the worst ozone nonattainment problems, reducing ozone forming
VOCs and toxic pollutants. Reformulating the gasoline used in
conventional vehicles would constitute a significant component of the
federal program to control motor vehicle pollution. There was a clear
concern that gasoline had gotten more polluting over the prior twenty
years, primarily through increased levels of aromatic compounds in
gasoline, used to replace the octane previously obtained from lead
additives. Benzene and aromatics were seen as the predominant air toxic
threat.
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\8\The Conference Committee Report contains limited discussion
of the reformulated gasoline program, and the Reports for the bills
reported out of the respective House and Senate Committee's are of
limited use as these bills were changed significantly prior to
passage. The floor debates, however, do contain extensive discussion
of the bills.
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Second, Congress emphasized that reformulated gasoline would
provide benefits in the form of improving our energy security, reducing
our reliance on foreign oil, and providing a major opportunity for the
agricultural sector of our economy to market renewable alcohols and
their derivatives. This would come from the use of oxygenates as
gasoline additives, including renewable oxygenates like ethanol and
ETBE. In effect, Congress intentionally designed the reformulated
gasoline program to obtain emissions reductions benefits in a way that
would promote these other very important benefits.9
---------------------------------------------------------------------------
\9\For example, the following statements are from the floor
debate on the Conference Committee bill: 1 Leg. Hist. at 851-856
(Sen. Durenberger); 1 Leg. Hist. at 1154-71 (Sen. Simpson); 1 Leg.
Hist. at 969 (Sen. Baucus); 1 Leg. Hist. at 1073 (Sen. Dole); 1 Leg.
Hist. at 1187 (Rep. Dingell); 1 Leg. Hist. at 1195 (Rep. Waxman); 1
Leg. Hist. at 1209 (Rep. Sharp); 1 Leg. Hist. at 1263-67 (Rep.
Madigan); 1 Leg. Hist. at 1315 (Rep. Hall); 1 Leg. Hist. at 1435
(Rep. Richardson). Similar statements were made during consideration
of the respective House and Senate bills.
---------------------------------------------------------------------------
Third, the structure developed by Congress to obtain these various
benefits involved a complex balance between imposing detailed
requirements and preserving refiner flexibility.10 The floor
debates include detailed responses by individual members of Congress to
various arguments that Congress was mandating ``government gas'' or a
``recipe,'' or was mandating use of only one oxygenate, such as
ethanol.11 The floor debates also show there was no common
understanding of terms such as ``fuel neutral,'' or ``government gas,''
or even whether certain provisions did or did not require the use of a
specific oxygenate such as ethanol. These debates do make clear,
however, that Congress designed the detailed provisions in section
211(k)(2) through (10) to ensure achievement of various benefits from
this program, while retaining an appropriate degree of refiner
flexibility.
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\1\0This complex balance can be seen in the various specific
requirements of section 211(k). Congress established both specific
content requirements (section 211(k)(2)) and minimum requirements
for either a performance standard or a ``formula,'' whichever EPA
determined to be more stringent (section 211(k)(3)(A) and (B)). A
certification program was also established, with EPA to certify any
fuel that obtained emissions reductions of a fuel that met the
requirements of section 211(k)(2) and (3). A credit program was also
established for the three specific content requirements established
in section 211(k)(2) and (3). Both the emissions performance
standards and content requirements of section 211(k)(2) and (3) act
as performance standards in light of the certification equivalency
provision of section 211(k)(4). For example, the ``formula'' of
section 211(k)(3)(A) acts as a performance standard based on section
211(k)(4).
\1\1From the debate on the Conference Committee: 1 Leg. Hist. at
853, 855 (Sen. Durenberger); 1 Leg. Hist. at 1233 (Rep. Fields); 1
Leg. Hist. at 1263 (Rep. Madigan); 1 Leg. Hist. at 1270 (Rep.
Synar); 1 Leg. Hist. at 1325 (Rep. Hall); 1 Leg. Hist. at 1395-7
(Rep. Moorehead). From the debate on the House bill: 2 Leg. Hist. at
2606, 2694-7, 2701-2, 2750-58 (Rep. Richardson); 2 Leg. Hist. at
2716 (Rep. Dingell); 2 Leg. Hist. at 2717 (Rep. Lent); 2 Leg. Hist.
at 2722 (Rep. Michel); 2 Leg. Hist. at 2733-34 (Rep. Synar). From
the debate on the Senate bill: 4 Leg. Hist. at 6812, 15, 19 (Sen.
Daschle); 4 Leg. Hist. at 6820-21 (Sen. McClure); 4 Leg. Hist. at
6824 (Sen. Grassley); 4 Leg. Hist. at 6825 (Sen. Nickles); 4 Leg.
Hist. at 6829-30 (Sen. Wirth); 4 Leg. Hist. at 6836 (Sen. Dole); 4
Leg. Hist. at 6836 (Sen. Johnston).
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Various statements were made by different members of Congress that
any oxygenate could be used that met the oxygen content and emissions
reduction requirements for reformulated gasoline.12 These
statements reflect Congress' interest in retaining appropriate refiner
flexibility. However, they only address compliance with the oxygen
content requirement mandated under section 211(k)(2) and the emissions
reduction requirements mandated under section 211(k)(1) and (3), and do
not address compliance with additional requirements established under
section 211(k)(1). They do not indicate an intention to preclude EPA
from appropriately exercising its authority under section 211(k)(1) to
either require greater than the minimum reductions called for in
section 211(k)(3) or to establish additional requirements like the
renewable requirements. Given the ambiguity in the debates on this
issue and the Act's provision that the requirements of (k)(2) be issued
under the (k)(1) rulemaking authority, EPA believes this rule may also
be considered a reasonable implementation of the (k)(2) oxygen content
requirement.
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\1\2See, e.g., 4 Leg. Hist. at 6812 (Sen. Daschle), and 1 Leg.
Hist. at 1216 (Rep. Sharp, noting that ``[t]he Administrator may not
discriminate among these different oxygenates, and should encourage
fair competition among them. As long as the percentage weight
requirement is met, and other requirements of new 211(k) . . . are
satisfied, any oxygenate should be allowed to satisfy new United
States needs.'') Also see 1 Leg. Hist. at 1325 (Rep. Hall). EPA's
renewables requirement is fully consistent with this--refiners may
use any oxygenate as long as the resulting gasoline meets the oxygen
content and renewable requirements established under section 211(k).
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This legislative history indicates that while Congress itself did
not choose to mandate any one oxygenate or class of oxygenate, it also
did not restrict EPA's ability to require the use of a class or
category of oxygenates if that would reasonably ensure achievement of
these benefits and would not inappropriately limit the operational
flexibility of refiners and importers. The renewables requirement is
entirely consistent with this approach. It is designed to achieve
important goals, and includes provisions specifically designed to
maximize the flexibility of refiners in meeting the requirement.13
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\1\3Certain commenters claimed that the requirement was
inconsistent with Congressional intent as expressed in the debate
over the Energy Policy Act of 1992. Congress rejected an amendment
to that bill which would have required that an increasing portion of
the octane in all gasoline be obtained from domestically produced,
renewable, nonpetroleum sources. The floor debate on this amendment
indicates several reasons various members of Congress were opposed
to this amendment, including concern that there would not be enough
supply of ethanol, concern over possible interference with
implementation of the Clean Air Act (based on a confusing provision
addressing the interrelationship of the two laws and authority under
the amendment for DOE to waive the requirement for air quality
reasons), as well as concern over not being fuel neutral. EPA
therefore believes that the rejection by the House of
Representatives in 1992 of an amendment to an unrelated statutory
provision, apparently based on a wide number of different reasons,
is not relevant to Congress's prior intent in 1990 when it amended
the Clean Air Act. Section 1508 of the Omnibus Budget Reconciliation
of 1987 is much more relevant on the issue of Congressional intent
and supports EPA's interpretation and rule. 42 U.S.C. 7545. In that
provision, Congress found that the United States was increasingly
dependent on the Middle East for its energy needs, that ethanol
could be used in gasoline to produce a cleaner burning fuel and
reduce pollution, and that ethanol was a renewable resource and its
increased use would reduce farm program costs and grain surpluses
and create new jobs. That bill explicitly states the sense of
Congress that EPA should use its authority under the Clean Air Act
to require greater use of ethanol as a motor fuel. EPA's renewable's
requirement is fully consistent with this statutory provision.
---------------------------------------------------------------------------
Most of the congressional debate focused on the various detailed
requirements of section 211(k) such as the content requirements of
section 211(k)(2), and the emissions standards of section 211(k)(3).
There was relatively little debate or discussion concerning the scope
of EPA's general authority in section 211(k)(1). However, there are
indications that this was considered a reservoir of broad, general
authority.14 There was no indication that section 211(k)(1) did
not mean what its plain language indicates--that Congress provided EPA
with broad, general authority to establish the requirements for
reformulated gasoline, including requirements that tend to optimize the
energy and other benefits obtained by the emission reductions
requirements.
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\1\4From the debate on Conference Committee bill: 1 Leg. Hist.
at 855-6 (Sen. Durenberger noted that the performance standards and
the formula were minimum requirements, and EPA had authority to
require greater emissions reductions if appropriate); 1 Leg. Hist.
at 968-69 (colloquy between Sen. Durenberger and Sen. Baucus on same
point); 1 Leg. Hist. at 1219 (Rep. Sharp discusses the threat that
EPA could exercise its authority to reinstate a program akin to the
1970's oil price and allocation controls); 1 Leg. Hist. at 128-9
(Rep. Bliley) (``It is vital that [section 211(k)(1)] be viewed as
residual authority to modify the more specific requirements
throughout. . . .''). From the debate on the Senate bill: 4 Leg.
Hist. at 5052-3 (Sen. Symms recognized that the bill reported out of
the Committee on Environment and Public Works provided EPA broad,
general authority when he noted that ``the bill directs the
Administrator . . . to promulgate regulations establishing
specifications for fuel quality. This, in essence, would give the
Administrator the authority to mandate specific fuel formulations. .
. .'').
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4. Conclusion
EPA's interpretation of its authority under section 211(k)(1) is a
reasonable interpretation based on the plain language of the provision.
The legislative history supports this interpretation and fails to show
a contrary intent. The changes made in the reformulated gasoline
provisions, and textual changes made in the two houses and in
conference indicate an intent to broaden EPA's general authority. The
floor debates support this and fail to show a contrary intent.
EPA's exercise of authority under section 211(k)(1) also helps to
obtain the important benefits identified by Congress for reformulated
gasoline. The legislative history makes it clear that in addition to
emissions reductions, Congress expected that reformulated gasoline
would benefit the nation by obtaining various energy and other benefits
from the expanded use of oxygenates, including specifically the
benefits from using renewable oxygenates like ethanol and ETBE. EPA's
interpretation and this rule are fully consistent with this
Congressional goal.
Congress established a complex statutory structure to ensure
achievement of these various goals while retaining an appropriate
degree of refiner flexibility. EPA's final rule is carefully designed
with refiner flexibility in mind, and draws an appropriate balance
between obtaining the benefits from using renewable oxygenates and
retaining refiner flexibility. For example, the rule establishes as
close to a performance standard as is currently possible, does not
mandate one specific fuel or fuel additive, allows for a phase-in over
two years to minimize disruption, allows averaging over a long time
period, and allows for generation, use and trading of credits to show
compliance. It also is carefully designed to minimize any adverse
environmental impacts.
EPA's interpretation of its authority is consistent with the plain
language of the statute and its legislative history, and furthers the
goals identified by Congress for this program. As such it is a lawful
exercise of agency authority under section 211(k).
B. Program Overview
The renewable oxygenate requirement is one component of the
reformulated gasoline program. It does not alter the emission
performance standards or other provisions for the reformulated gasoline
program contained in the final rule for reformulated gasoline (See 59
FR 7716; February 16, 1994). In addition, it does not mandate the use
of any particular oxygenate, but rather ensures a specified minimum use
of a range of oxygenates derived from renewable resources.
As mentioned previously, EPA is requiring that 30 percent of the
required 2.0 weight percent oxygen content of all reformulated gasoline
be produced using renewable oxygenates. Renewable oxygenates must meet
two criteria for them to be used to comply with the requirements of the
program. First, they must be produced from non-fossil fuel feedstocks
(i.e., other than petroleum, natural gas, coal, or peat), or their
oxygen content must derive from oxygenates produced from such
feedstocks, as described more fully in section III.C.1 of this notice.
Second, to be considered ``renewable'' when blended into VOC-controlled
RFG, the oxygenate must not cause commingling-related increases in fuel
volatility (i.e., the oxygenate must have a linear vapor pressure
blending curve). In addition to the requirements of this program,
renewable oxygenates must also be approved for use in gasoline in
keeping with the provisions of section 211(f) of the Act, and must be
approved for use in reformulated gasoline (i.e., certifiable under
either the Simple or Complex Model, as discussed in the final rule for
the RFG program).
The oxygenates which are expected to meet these requirements, at
least in the near term include: (1) Any alcohols derived from biomass
or waste products other than untransformed fossil fuels, except when
used in RFG designated as ``VOC-controlled,'' and (2) all approved
ethers produced from renewable feedstocks, when used in either VOC-
controlled or non-VOC-controlled RFG. EPA recognizes that some non-
ether oxygenates, including some alcohols, may not cause commingling-
related increases in fuel volatility. Upon submittal of sufficient data
demonstrating that addition of a non-ether renewable oxygenate does not
cause a nonlinear increase in RVP, the Administrator may permit the
oxygenate in question to receive credit under today's renewable
oxygenate program when blended into VOC-controlled RFG. However,
methanol and ethanol will not be granted such permission, since the
nonlinearity of their effect on RVP is well-established at the present
time.
The program will be phased in over the course of two years. Fifteen
percent of the minimum 2.0 weight percent oxygen content of
reformulated gasoline is required in the form of renewable oxygenates,
as defined above, from December 1, 1994 through December 31, 1995
(hereafter referred to as the ``first year of the program''). Thirty
percent of the minimum oxygen content in reformulated gasoline is
required to be from renewable oxygenates in 1996 and each year
thereafter. As a result, on average reformulated gasoline will be
required to have at least 0.30 weight percent oxygen content (15
percent of 2.0 weight percent) provided by renewable oxygenates in the
first year of the program and 0.60 weight percent oxygen content
provided by renewable oxygenates in subsequent years.
A program phase-in is necessary because the reformulated gasoline
program takes effect at refineries December 1, 1994. As discussed more
fully in section III.F of this notice, EPA is concerned that
insufficient time is available for ethanol producers to adjust their
production schedules, for ether suppliers to set up contracts for the
purchase of renewable alcohols, for fuel producers to obtain supplies
of renewable oxygenates for addition at the refinery or for blending
with refinery-produced reformulated blendstock for oxygenate blending
(RBOB), and for terminal operators to build and obtain permits for
sufficient ethanol and ether storage and blending facilities in order
to meet the full 30 percent requirement in 1995. Reformulated gasoline
producers may also have to adjust their gasoline production plans to
accommodate a different mix of oxygenates than they might have used in
the absence of today's rule. The phase-in addresses these leadtime
concerns, ensures a more orderly startup of the program, and minimizes
the risk of any market disruptions.
The applicable renewable oxygenate requirement (15 percent or 30
percent) applies year-round. The requirement is measured on an oxygen-
equivalent basis (i.e., credit given according to the oxygenate content
of the RFG) and is based on a per gallon oxygen content of 2.0 weight
percent which is consistent with the minimum per gallon oxygen content
standard in the RFG program. However, the renewable oxygenate
requirement must be met on an annual average basis and need not be met
on a per-gallon basis. This requirement applies to all refiners or
importers of reformulated gasoline and/or RBOB. It does not apply to
oxygenate blenders, pipeline operators, or terminal operators, though
such parties are required to abide by any restrictions regarding the
type of oxygenate that may be blended into RBOB provided by refiners.
Specifically oxygenate blenders, pipeline operators and terminal
operators will have to adhere to the RBOB blending limitations not only
of the RFG final rulemaking, but also the additional limitations
resulting from today's rulemaking. If a state exercises the option
discussed in section III.G of this notice to address shoulder season
concerns, the enforcement requirements on terminal operators may be
slightly altered.
Refiners and importers of reformulated gasoline are also permitted
to generate and trade, on a nationwide basis, credits earned from use
of renewable oxygenates in excess of the applicable minimum requirement
to other producers desiring to use a lesser volume of renewable
oxygenates. Such credits can be used to satisfy part or all of a
refiner's renewable oxygenate requirement for the same calendar year
that the credits are earned. No banking of credits between calendar
years is allowed. The averaging and trading provisions established
today for the renewable oxygenate program will have no adverse
environmental impact since today's action does not alter the VOC,
toxics, and NOX emission performance standards for reformulated
gasoline.
The effect of these averaging and trading provisions is to greatly
expand the flexibility afforded refiners, particularly during the
initial startup of the program. While the renewable oxygenate program
takes effect for refiners beginning December 1, 1994, individual
refiners do not need to blend any renewable oxygenate into their
gasoline until later in the year or at all if they so desire. They will
just have to demonstrate that they met the requirements over the course
of the entire year through either the blending of greater than 15%
renewable oxygenates in the latter part of the year, or the purchase of
sufficient credits from other refiners. As a result, the averaging and
trading provisions effectively provide refiners with additional time to
meet the initial requirements of the program, and allows them to
smoothly ramp up their use of renewable oxygenates during the course of
the first year to the full 30% requirement in 1996.
The renewable oxygenate requirements are placed at the refinery
level and will apply to reformulated gasoline sold in all the covered
areas, including the opt-in areas and the two covered areas in the
State of California (Los Angeles and San Diego). Details of the
enforcement program are discussed in section IV of this notice.
Refiners who produce reformulated gasoline for use in California
beginning in March 1996 are exempt from most federal reformulated
gasoline reporting, recordkeeping, and similar enforcement
requirements. As a result, refiners producing California reformulated
gasoline are not currently required to distinguish between gasoline
volumes sold in Los Angeles or San Diego and gasoline sold in other
parts of California. However, the renewable oxygenate provisions
promulgated today will apply to reformulated gasoline sold in Los
Angeles and San Diego, as discussed in section IV of this notice in
greater detail.
The Agency received a number of comments concerning impacts of the
program on VOC emissions during the ``shoulder season.'' After
considering the issue, EPA has decided that a limited change to the
program to address the shoulder season concerns is warranted. As
discussed in section III.G, EPA has included in the final rule a
provision which would allow EPA to extend the limitations on the
blending of certain renewable oxygenates which exhibit volatility-
related commingling effects to the shoulder season within individual
states upon receipt of a petition from the Governors of the states if
certain requirements are met.
C. Renewables Requirement and Definition
1. Renewables Definition
The definition of renewable oxygenates adopted in this final rule
has been expanded from that contained in the proposal, but nevertheless
it is intended to limit credit toward the renewable oxygenate
requirement to those oxygenates which EPA expects to yield net fossil
fuel savings. The final definition is structured so as to exclude from
the renewables definition oxygenates produced in their entirety from
nonrenewable sources such as coal, oil, peat, and natural gas due to
their non-renewable, fossil nature. The definition includes oxygenates
derived wholly from renewable biomass sources including but not limited
to corn and other grains, other food products, and cellulosic plant
material. It also includes oxygenates derived from waste products such
as waste cellulose and plastics, sewage, sawdust, scrap tires, and
methane recovered from landfills. EPA recognizes that some of these
waste products may have been derived from fossil hydrocarbon sources.
Including these sources in the set of permissible feedstocks will not
by itself result in increased generation of such wastes, however, and
hence will not increase consumption of materials which can be used as
fossil fuels.
The definition excludes waste products that are untransformed from
their original fossil fuel form. As a result, methane captured from
landfills would qualify as a renewable feedstock but natural gas
currently flared at the wellhead or refinery would not qualify as a
renewable feedstock, since it would be used in its untransformed state
as an oxygenate feedstock and is in fact a fossil fuel.
It should be noted, however, that the definition includes
oxygenates whose oxygen content comes from another renewable oxygenate.
As a result, ethers derived from renewable alcohols and isobutylene
which was produced from oil or natural gas would qualify as a renewable
oxygenate, whereas ethers derived from nonrenewable alcohols would not
qualify regardless of the source of isobutylene.
Like all gasoline additives, renewable oxygenates must meet the
requirements of section 211(f) of the Clean Air Act or be waived from
those requirements. In addition, reformulated gasoline containing
renewable oxygenates must be certifiable under the appropriate RFG
emission model (as set forth in Sec. 80.42 and Sec. 80.45 of the Code
of Federal Regulations).
2. Renewable Oxygenates for Summer RFG
Alcohols and other oxygenates which cause commingling-related
volatility increases used in VOC-controlled reformulated gasoline will
not receive credit toward the 30 percent renewable oxygenate
requirement for two reasons. First, EPA does not want incentives
created by the renewable oxygenate program to diminish the VOC benefits
of the RFG program during the high ozone season. As discussed in the
RFG final rule and RIA and elsewhere in this notice, a program which
would encourage increased use of ethanol (and by extension any other
oxygenates with a similar non-linear vapor pressure blending curve) in
summer RFG introduces a number of serious concerns related to increased
VOC emissions. Second, as discussed in the proposal, the process energy
needed to offset the direct vapor pressure boost from ethanol, the
primary renewable oxygenate used in gasoline today, negates the fossil
energy savings from ethanol. The vapor pressure boost must be offset to
comply with the VOC emission performance standards for summer RFG. EPA
would expect a similar situation to apply to other oxygenates that
increase the vapor pressure of gasoline.
Direct RVP increases are controlled and accounted for in summer
reformulated gasoline by the RFG program. However, alcohols such as
ethanol and methanol can create commingling problems in vehicle fuel
tanks which are not reflected in the RFG emission models. Commingling
can significantly increase average in-use fuel volatility which leads
to higher emissions of VOCs, an ozone precursor. EPA believes that by
not granting credit toward the renewable oxygenate requirement during
the summer for commingling oxygenates, today's program will not
encourage increased use of these oxygenates during the high ozone
season, thereby avoiding the VOC emission increases that would result
from such increased use. In fact, today's provision has the potential
to stimulate the use of ETBE during the summer months, which could
displace ethanol use that otherwise may have existed under the RFG
program, thereby reducing commingling related emission increases during
the high ozone season.
As discussed in the Regulatory Impact Analysis\15\ (RIA) for the
RFG Final Rule, a thirty percent ethanol blend market share in a Phase
I VOC-controlled gasoline pool in VOC Control Region 1 would increase
the effective average RVP of the gasoline pool (even if the ethanol
blends and non-ethanol blends have the same RVP) and thereby increase
total VOC emissions (including both exhaust and non-exhaust VOC
emissions) relative to a scenario in which ethanol blends had zero
market share. EPA estimated in the RIA for the RFG Final Rule that the
commingling-related increase in VOC emissions from a thirty percent
market share for ethanol-blended RFGs would result in a VOC increase of
approximately two to three percent. In other words, the commingling
effect would reduce RFG's Phase I VOC benefits by up to twenty percent.
While EPA was aware of the commingling effect during the development of
the Complex Model, the effects could not be reliably estimated in time
for proposal and, since adding the commingling effect to the Complex
Model would have represented a considerable change to the model, EPA
deferred adding the effect to the Complex Model at the time of the RFG
final rule.
---------------------------------------------------------------------------
\15\Final Regulatory Impact Analysis for the Reformulated
Gasoline Program, FSSB, RDSD, OMS, OAR, US EPA, December 1993,
document number V-B-1, EPA Docket A-92-12.
---------------------------------------------------------------------------
The commingling effect does not occur when ethers are blended with
gasoline. Furthermore, such blends are projected by DOE\16\ to require
less fossil energy than would RFG containing nonrenewable oxygenates.
As a result, this program allows renewable ethers blended into VOC-
controlled RFG to receive renewable oxygenate credit during the high
ozone season. Under the final rule, the Administrator may allow
renewable alcohols other than ethanol and methanol and renewable
oxygenates other than alcohols and ethers to receive such credit if
sufficient information demonstrating the absence of any commingling
effects is submitted for the approval of the Administrator. As with any
fuel additive, they would also have to meet the requirements of section
211(f) of the CAA, and the RFG containing such an additive must be
certifiable under the Simple Model or Complex Model, whichever is
applicable.
---------------------------------------------------------------------------
\16\``Energy Requirements and CO2-Equivalent Emissions of
RFG,'' U.S. Department of Energy, June 6, 1994 and March 17, 1994
(draft).
---------------------------------------------------------------------------
Outside of the ozone season, VOC reductions are not required in
reformulated gasoline for ozone control and RVP is not controlled. At
such times, renewable alcohol blends would produce the desired fossil
energy savings and potential greenhouse gas emission reductions.
Therefore, EPA will give credit to renewable alcohols blended into non-
VOC-controlled RFG, the use of which is restricted to the non-high
ozone season. The only exception to this, as discussed in section
III.G, is during shoulder season months where based on a request from
the Governor of a State, EPA has extended the non-commingling season
beyond the VOC control season. Should that occur, oxygenates which
exhibit commingling effects would not be given credit toward the
renewables requirement in that State during the shoulder season as
well.
3. Performance-Based Definition of Renewable
In its proposal, EPA solicited comments on the proposed definition
of renewable oxygenates and, in particular, on the potential for
establishing a performance requirement based on energy consumption and/
or greenhouse gas emissions to define renewable oxygenates. After
further consideration and evaluation of the comments received, EPA has
decided not to promulgate a numerical type of performance-based
standard for renewable oxygenates for a number of reasons. First, the
degree of scientific uncertainty associated with quantifying energy
consumption and emissions of different greenhouse gases throughout the
entire life cycle of various oxygenates is considerable. Second, even
if life cycle emissions could be estimated, based on comments on the
proposal and discussions with EPA's Global Change Division there is
currently insufficient scientific consensus on the relative warming
potential of various greenhouse gases, notably VOC and NOX (the
bulk of the emissions other than CO2), to provide reliable
comparisons. Third, EPA has concluded that at the present time it would
be difficult and costly to collect and verify the necessary data to
implement a performance-based standard for renewable oxygenates, to the
point where the recordkeeping and reporting burden could discourage
new, more efficient feedstock and oxygenate production practices.
Fourth, EPA believes that the definition of renewable oxygenates
contained in this rule is sufficient to provide certainty that fossil
energy savings are being achieved without the establishment of a
numerical performance standard. As discussed below in section III.C.4,
the group of oxygenates derived from renewable sources are expected to
achieve energy and greenhouse gas emission performance levels roughly
equivalent to or better than those achieved by ethanol alone. For these
reasons, EPA does not believe it to be appropriate at the present time
to institute a performance standard for renewable oxygenates. However,
the Agency reserves the right to alter its definition of ``renewable''
to a performance-based standard in the future if a reasonable,
workable, and enforceable definition can be developed.
4. Renewable Alcohols/Ethers Limitation
In the December NPRM, the only oxygenates included in the proposed
definition of renewable oxygenates were ethanol and methanol produced
from renewable feedstocks and their ether derivatives. However, EPA
recognizes that for a number of reasons the production of other
oxygenates from renewable feedstocks is likely to produce fossil energy
savings similar to that for renewable methanol and ethanol. First, many
of these other oxygenates may at times be produced as co-products or
by-products of methanol or ethanol production. As a result, they should
have similar fossil energy balances. In fact, if by including them in
today's definition they are not forced to be separated out from the
ethanol and/or methanol to make them pure, it could help reduce energy
expenditures. Second, even if not co-products, they are likely to be
produced from similar feedstocks using similar production practices as
those currently used for renewable ethanol and methanol. As a result,
the energy balance should not be significantly different. In fact, the
energy balance could very well be better, since the energy balance of
either the oxygenate production itself, or that associated with
blending it into RFG, may be the reason prompting the production of the
other oxygenates in lieu of ethanol or methanol. Third, in order for
these other oxygenates to compete in the marketplace with renewable
ethanol or methanol they will need to be cost competitive. Since the
energy inputs represent a significant portion of the costs of renewable
oxygenate production, these other oxygenates are unlikely to be
produced (unless they are co-products as discussed above) unless they
are at least as energy efficient as the alternatives. Furthermore, if
they are able to compete, the oxygenate they are likely to displace
from the marketplace will be the marginal renewable oxygenate
production which is the most costly and inefficient to produce and
therefore provides the least energy savings to begin with. Fourth,
while EPA does not expect these oxygenates to represent a large portion
of the renewable oxygenate market, their exclusion from the definition
might hinder their entry into the market and hinder the development of
new, energy efficient renewable oxygenate production technologies.
As a result, EPA is including other oxygenates produced from
renewable feedstocks in its definition of permitted renewable
oxygenates under today's rule. As discussed above, however, such
oxygenates cannot be blended during the high ozone season unless either
they are converted to an ether form, or it can be demonstrated that
they do not cause a volatility increase when commingled with other
gasoline blends.
Although several commenters supported the petition process which
EPA proposed as an optional means to respond to future developments in
oxygenate technology, the Agency is limiting this petition process to
determining whether the renewable oxygenate exhibits commingling
effects which are relevant to their use under this program during the
summer months. As discussed above, EPA is extending the definition of
renewable oxygenate based on its determination that all oxygenates
derived from renewable sources and expected to be used to comply with
this program should exhibit energy benefits similar to those resulting
from ethanol use.
D. Averaging and Trading
EPA is promulgating averaging and trading provisions, as proposed,
for the oxygenates in reformulated gasoline receiving renewable credit
under today's program. Refiners are allowed to average the renewable
oxygen content of reformulated gasoline over the calendar year. During
the first year, however, the averaging period will run for 13 months,
from December 1, 1994 through December 31, 1995, to track the time
period for the other RFG requirements. Refiners are also allowed to
trade credits earned by exceeding the renewable oxygenate requirement
to other refiners. No banking of credits from one year to the next,
however, is allowed, in order to keep the program as simple as
possible.
Averaging and trading provide refiners many benefits. For example,
averaging provides refiners with production flexibility, since every
gallon need not meet the renewable oxygenate requirement. Trading
provides additional flexibility by permitting refiners to specialize:
it may be more cost-effective for some refiners than others to produce
reformulated gasoline with a renewable oxygenate content. Trading
enables those refiners for whom it is less cost-effective to buy
renewable credits from those who find it more cost-effective to blend
renewable oxygenates. Averaging and trading also allow refiners to
avoid any cost associated with compliance margins, since refiners will
not need to blend renewable oxygenates in excess of the 30 percent
requirement to assure compliance.
These provisions are especially important during the initial
startup of the program. While the renewable oxygenate program takes
effect for refiners beginning December 1, 1994, individual refiners do
not need to blend any renewable oxygenate into their gasoline until
later in the year, or at all if they so desire. They will just have to
demonstrate that they met the requirements over the course of the
entire year through either the blending of greater than 15% renewable
oxygenates in the latter part of the year, or the purchase of credits
from other refiners. As a result, the averaging and trading provisions
effectively provide refiners with additional time to meet the initial
requirements of the program, and allows them to smoothly ramp up their
use of renewable oxygenates during the course of the first year to the
full 30% requirement in the second year (1996).
1. Averaging Period
USDA submitted comments to the Agency encouraging a season-specific
averaging program, rather than an annual averaging program. USDA argued
that requiring the renewables requirement to be met separately for VOC-
controlled and non-VOC-controlled gasoline would increase the energy
and environmental benefits. Specifically, USDA suggested that a season-
specific program would provide additional incentives to convert ethanol
that would otherwise have been blended directly into summer RFG into
the form of ETBE. USDA argued that the resulting reduction in summer
ethanol use would further reduce commingling effects and lead to
additional VOC emission reductions due to the distillation
characteristics of ETBE. USDA suggested that a season-specific program
would provide the potential for ethanol market share to expand beyond
30 percent in future years. The reader is referred to the RIA for a
detailed discussion of the seasonal averaging program suggested by
USDA.
EPA has considered the issues raised by USDA, and has decided to
retain the annual averaging period proposed in the December NPRM, based
on an analysis of the logistical, energy, environmental, and cost
impacts of splitting the summer and winter seasons. First, seasonal
averaging would require ETBE use in VOC-controlled reformulated
gasoline, which presents serious capacity problems in the short-term.
Although only minor modifications are necessary in order to produce
ethers from ethanol rather than methanol, it will take some time to
make those ether production facility conversions and to acquire the
necessary construction and operating permits. EPA's analysis indicates
that insufficient ETBE capacity would be available to fully meet the
summer requirements of a season-specific renewable program in 1995 and
likely also 1996. As a result, a seasonal averaging program would have
to be delayed and/or phased in. Since, as discussed below, EPA
anticipates the Phase II RFG requirements to stimulate the use of ETBE,
a phased-in requirement might have little actual impact on ETBE use. In
addition, a split season program would introduce additional complexity
and expense to the renewable oxygenate and reformulated gasoline
programs. ETBE is more expensive on an oxygen content basis than either
MTBE or ethanol, and ETBE provides smaller toxics emission reductions
than other oxygenates included in EPA's RFG emission models, which
refiners would have to offset through other fuel controls. Thus,
forcing ETBE use in summer gasoline in order to meet a season-specific
renewable oxygenate requirement could have increased the cost of
compliance with the annual toxics requirement of the reformulated
gasoline rule, especially under Phase I of the RFG program, and
complicated implementation of the RFG program given the short leadtime
available. This problem would have been particularly severe during the
initial years of the program, since the refinery modifications
necessary to offset the increase in toxics emissions can require
several years to complete, and since the value of ETBE's RVP benefits
will increase only when the Phase II RFG standards are implemented.
Furthermore, EPA concluded that the purposes of the program could
be achieved without a season-specific program. The renewable oxygenate
program is being promulgated to provide two primary benefits: reducing
the fossil energy impact of RFG, and stimulating the development of
renewable fuels which can lead to greenhouse gas emission benefits,
this would supplement the VOC and toxics emissions reduction benefits
from RFG. ETBE use per se is not required to obtain these benefits.
Based on the DOE analysis, ETBE use during the summer does not provide
any additional fossil energy benefit than ethanol use in the winter,
and in fact, results in a slightly smaller fossil energy savings. The
program may also achieve some marginal crude oil savings and some
additional VOC emission benefits with the use of ETBE during the summer
months (due to the favorable front-end distillation characteristics of
ETBE relative to ethanol and MTBE). However, EPA does not believe a
split season is necessary to stimulate the use of ETBE in the summer
months, particularly when the Phase II RFG standards take effect.
In summary, EPA believes that a season-specific program would offer
minimal energy and environmental benefits, would increase complexity
and impair compliance flexibility resulting in increased costs in
complying with the program, would likely run into near-term capacity
limitations, and would have no impact on the overall use of renewable
fuels. As a result, EPA considers a season-specific program to be
unnecessary in order to achieve the objectives of this program.
E. Level of Renewables Required
1. Existing Renewables Market Share
During the rulemaking process, EPA considered requiring greater and
lesser levels of renewable oxygenates and requested comment on the
appropriateness of the proposed 30 percent level for renewables. Under
the winter oxygenated fuels program, which began in 1992, ethanol has
been used in approximately 30 percent of the oxygenated gasoline. That
program includes certain areas that will require RFG, but in general it
focuses on non-RFG areas with wintertime carbon monoxide (CO) problems.
Based on this experience, it appears that splash-blended ethanol can be
expected to be used in at least thirty percent of the oxygenate market
when the RVP increase resulting from the blend is not constrained,
given existing incentives for the use of ethanol and other renewable
oxygenates. The 30 percent requirement for the renewable oxygenate
program helps assure that, at minimum, renewable oxygenates will be
used to an extent similar to what would have occurred in the RFG-
related oxygenate market had the air quality imperatives of the RFG
program not required constraints on RVP levels. This will avoid a
situation where the requirements and complexity of the RFG program
limit the growth of renewable oxygenate use. Today's renewable
oxygenate requirement will in effect set a floor to avoid reduced use
of renewable oxygenates in the future. It does not set a ceiling, and
should not interfere with growth of renewable oxygenate use. There are
no similar restrictions placed on the remaining 70 percent of the RFG
oxygenate market. As discussed below in section III.E.4, if MTBE
dominates this portion of the RFG oxygenate market as anticipated, MTBE
use will still grow dramatically over its current demand.
2. Renewables Production Capacity
In the December proposal, EPA stated that given the current absence
of renewable methanol capacity, ethanol and its ether derivatives were
likely to be the primary oxygenates used to meet the renewable
oxygenate requirement in the short term. Based on 1990 data, EPA
estimated that the 30 percent renewable oxygenate requirement would
require an average production of roughly 630 million gallons of ethanol
per year, or about 60 percent of EPA's estimate of current ethanol
production capacity of roughly one billion gallons per year. EPA has
updated these estimates, as discussed more fully in the RIA, and now
estimates that approximately 670 million gallons per year of ethanol
will be needed to meet the requirements of the renewables program alone
in the 1995-1996 time frame. Other analyses have reached similar
conclusions; for example, USDA's analysis indicates that the 30 percent
renewable oxygenate requirement would require an average production of
680 million gallons per year. As discussed below in section III.F, EPA
believes that this new demand can be met, provided there is a phase-in
of the program in 1995. A phase-in will give oxygenate producers,
refiners, and terminals one additional year to obtain permits,
construct facilities and negotiate contracts before the full program
goes into effect in 1996.
3. Comments Regarding the Level of Renewables
The majority of comments from ethanol suppliers and feedstock
producers who addressed the appropriate level of renewable oxygenates
supported the 30 percent requirement. The primary rationale for their
support was that the current market share for ethanol in the oxygenated
fuels program should be maintained.
Comments were received recommending both higher and lower levels of
renewable oxygenates. Higher levels were suggested in the belief that
the ethanol industry needed the additional encouragement through just
such an incentive to grow at a more desirable rate. At this point in
time, however, the 30 percent renewables requirement in those areas
covered by the RFG program represents a considerable stimulus to the
renewable oxygenate industry. EPA believes that a larger renewable
oxygenate requirement would call into question the near-term
feasibility of the renewables program. Furthermore, EPA believes that
the 30 percent level is all that is necessary to overcome the ethanol
blending limitations in RFG caused by the VOC performance standard,
since this is the level ethanol was able to achieve absent any blending
restrictions under the winter oxygenated fuels program. In addition,
the 30 percent renewables requirement being promulgated today is a
minimum requirement. It does not prevent renewable oxygenates from
increasing their share of the gasoline oxygenate market.
Many of those opposing the 30 percent requirement argued that it
could create the potential for supply disruption and significant cost
increases in the short-term. The oil and MTBE industries objected to
the necessity for a renewable oxygenate program out-of-hand. They
argued that since ethanol already has a large portion of the current
wintertime oxygenated fuel market and since the market for ethanol
would likely increase when the RFG program begins in 1995, the 30
percent renewable oxygenate program was unnecessary. Others, notably
state air pollution control officials, recommended that the 30 percent
requirement be lowered to 10 percent in order to mitigate any
potentially negative environmental and energy impacts, as well as to
allow the market more input in selecting the oxygenates used in the
program. EPA has considered these comments but continues to believe
that the 30 percent requirement is appropriate and feasible given the
energy and environmental benefits of the renewables requirement and
long-running governmental policies to promote renewable fuels. The
basis for these conclusions is discussed elsewhere in this notice and
in the RIA.
4. Implications for Non-Renewable Oxygenates
EPA believes the 30 percent level will provide the benefits
identified above and stimulate the development of a diverse supply of
oxygenates for the oxygenate market. The 30 percent requirement will
ensure a strong role for renewable oxygenates in the RFG program while
still permitting the majority of the RFG oxygenate market share to be
open to any oxygenate, regardless of the feedstocks used to produce it.
Even with today's rule, production of MTBE and its methanol feedstock
is projected to increase because of the increased demand for oxygenates
in the United States as the RFG program takes effect. MTBE demand would
increase by 3.1 billion gallons annually if it is used in all of the
remaining 70 percent of the RFG oxygenate market. Such an expansion
equals an approximate increase of 170 percent from current MTBE usage
levels. While EPA acknowledges that MTBE and methanol demand might be
even greater in the absence of today's rule, it is important to note
that the RFG program is likely to result in dramatic growth in MTBE,
methanol, and ethanol production. Furthermore, MTBE producers can
modify their facilities at relatively modest expense to produce ETBE if
its use should prove economically advantageous given the requirements
of the RFG program and today's rule.
Similar conclusions hold true for the natural gas industry. Natural
gas is used to produce methanol and isobutylene, which in turn are used
to produce MTBE. Since MTBE production is projected to grow from
current levels as a result of the RFG program, EPA expects the demand
for natural gas for oxygenate production to grow as well. Furthermore,
isobutylene derived from natural gas is expected to play a major role
in ETBE production. It should also be noted that oxygenate production
represents a small portion of total demand for natural gas.
For these reasons, EPA does not believe that today's action will
result in significant adverse effects on the MTBE, methanol, or natural
gas industries, as their markets will dramatically increase with or
without today's action. This is particularly the case since a
considerable amount of ethanol was likely to have been used to satisfy
the RFG program requirements absent today's rule. As discussed in
section III.F, based on the expansion of ethanol production capacity
planned prior to this rule, ethanol could potentially have been used to
fulfill 15 percent of the oxygenate requirement of the RFG program.
F. Timing and Phase-In
1. Introduction
In the NPRM, EPA proposed to require that renewable oxygenates be
used to meet 30 percent of the 2.0 weight percent oxygen requirement
for the RFG program. However, at that time EPA was concerned whether
adequate supplies of renewable oxygenates would be available and
whether the distribution infrastructure was sufficient during the
initial years of the program without disrupting existing markets for
such oxygenates or incurring excessive costs. With that in mind, the
proposal requested comments concerning these issues. More specifically,
comments were requested on the appropriate level of the renewable
oxygenate requirement, leadtime requirements associated with providing
adequate renewable oxygenate supplies, the potential need for a phase-
in period, and any other supply-related issues. In response, EPA
received considerable information on the current and projected supply
of renewable oxygenates, as well as less complete information regarding
the logistics of renewable oxygenate distribution. The detailed
analysis is contained in the Regulatory Impact Analysis (RIA), and is
summarized below. Based on the projected supply of renewable oxygenates
over time and the leadtime required to establish blending and storage
facilities, EPA has concluded that, while the market can readily bear a
30 percent requirement given adequate leadtime, a phase-in of the 30
percent requirement is necessary. Therefore, EPA is requiring that 15
percent of the RFG program's 2.0 weight percent oxygen requirement be
met from renewable oxygenate sources in 1995, and that the full 30
percent of the oxygen requirement be met from such sources in 1996 and
thereafter.
The purpose of EPA's analysis was to determine whether sufficient
renewable oxygenate supply, distribution, tankage, and blending
capacity would be available in 1995 and 1996 to meet the program
requirements. Failure to have sufficient supply, distribution, tankage,
or blending capacity for the considerable increase in renewable
oxygenate demand could result in shortages or price spikes and could
interfere with the orderly implementation of the reformulated gasoline
program.
In addition, EPA considered it to be desirable for a variety of
reasons to limit to the extent possible any need to displace
substantial amounts of ethanol from existing markets. First, displacing
ethanol from existing markets would do nothing to expand the use of
renewable oxygenates and achieve the resulting benefits. Second,
shifting ethanol from existing markets to RFG markets would not
stimulate the introduction of more advanced renewable fuels production
technology. Third, as described in sections III.H and VI of this
notice, the use of ethanol from new or expanded plants is projected to
displace more fossil energy than would ethanol from existing plants.
Fourth, relatively high prices for ethanol would be needed to displace
it from existing markets, leading to higher than necessary price
increases for RFG during the initial years of the program. Ethanol
purchase contracts may already be established for 1995, and breaking
such agreements in order to shift ethanol from existing gasoline
markets to RFG markets might be difficult and costly. Furthermore,
approximately half of current ethanol consumption occurs in states
which offer substantial tax credits for ethanol blends. These credits
are equal in value to between 10 and 20 cents per gallon of ethanol. To
induce ethanol suppliers to shift ethanol from such markets to
unsubsidized markets would likely require a purchase price in excess of
current market prices for ethanol equal to or greater than the value of
the tax credits available in existing markets. In addition, ethanol is
currently used in many markets to provide the added octane for mid-
grade and premium gasolines. These gasoline grades enjoy a considerable
retail price premium which can be reflected in the price paid for the
ethanol. These price premiums for ethanol blended mid-grade and premium
gasolines may not be available to the same extent in the new renewable
oxygenate markets, particularly for the full amount of ethanol expected
to be blended under the renewable oxygenate program.
The analysis examined each element of the renewable oxygenate
supply process separately. First EPA evaluated which renewable
oxygenates would be likely to be used to fulfill the program
requirements during the early years of the program and what volume of
oxygenate that represented. Second, feedstocks for the production of
these oxygenates were examined to determine whether sufficient
feedstock supplies would be available. Third, EPA examined the adequacy
of projected production capacity for the dominant oxygenates for the
first years of the program. Fourth, EPA investigated whether
transportation and distribution networks were adequate to support the
program during the initial years. Fifth, EPA examined the projected
storage and blending capability during this time frame. EPA examined
the capability over time of each link in the renewable oxygenate
production and distribution chain to handle the demands of the
renewable oxygenate program, and concluded that a phase-in of the 30
percent requirement is necessary and that the phase-in being
promulgated today is an appropriate response to leadtime concerns.
2. Likely Renewable Oxygenates
Ethanol is likely to be the dominant renewable oxygenate used to
meet the renewable oxygenate requirements, especially during the
initial years of the program, since it is the only renewable oxygenate
currently produced in large quantities. Since ethanol cannot be blended
during the summer months to meet the requirements of the program, its
use will be concentrated during the winter months. ETBE, the simplest
ether derived from ethanol, also is likely to be used in significant
quantities since it, unlike ethanol, can be blended during the summer
months to meet the requirements of the program. As discussed below in
section III.F.6, however, ETBE production capacity is expected to be
virtually non-existent in 1995 due to construction and permitting time
constraints. Its use is expected to increase by 1996 through the
conversion of existing MTBE facilities so that the requirements of the
program are met by a combination of ethanol use in the winter and ETBE
use year-round. Other renewable oxygenates are not expected to be
available in significant quantities before 1997 given the leadtime
required to design and construct new renewable production facilities.
ETBE use is expected to increase further during the summer months once
the Phase II RFG standards take effect in the year 2000, since ETBE use
will make it easier (relative to MTBE) for refiners to achieve the more
stringent VOC performance standards.
3. New Renewable Oxygenate Demand
Before EPA could evaluate the adequacy of the renewable oxygenate
supply, distribution, and blending capacity, it was necessary to
estimate the program's demand for renewable oxygenates. The estimate
was derived in terms of new ethanol demand, since as discussed above
only ethanol or ETBE are expected to be used in significant quantities
during the first few years of the program, and since the use of ETBE
would not alter the total amount of ethanol required by today's rule
because the oxygen in ETBE is derived solely from ethanol. The ethanol
demand created by the program was estimated by multiplying the
projected 1995 volume of reformulated gasoline covered by the Federal
RFG program (including the two covered California areas) of 38.7
billion gallons per year by the volume percent of ethanol (5.76
percent) necessary to meet to 2.0 weight percent oxygen requirement in
30 percent of RFG. As a result, today's program is estimated to require
about 670 million gallons of ethanol to meet the full 30 percent
requirement. In actual practice, refiners may blend greater or lesser
amounts of ethanol in any individual gallon of RFG, depending on such
factors as tax credits and price and availability of various
oxygenates.
The actual amount of new ethanol production required by today's
rule is smaller than 670 million gallons because some ethanol is
currently sold in areas covered by the RFG program. Based on the
monthly reporting by Information Resources, Inc. (IRI) for 1993, it
appears that as much as 280 million gallons of ethanol is already being
used in areas covered by the reformulated gasoline program (State-wide
data was weighted based on population to reflect ethanol consumption
only in the RFG areas within the State). Not all of this can be
credited toward the renewable oxygenate program, however, unless the
summertime use is converted to ETBE. Based on the IRI data, as much as
180 million gallons of ethanol is currently being used during those
months of the year in which EPA would expect non-VOC-controlled
gasoline to be produced (on average September 15 through March 31).
Thus, the amount of additional wintertime ethanol production required
to meet a 30 percent renewable oxygenate requirement in 1995 would be
approximately 490 million gallons (390 million gallons in new, year-
round capacity in later years once ETBE production capacity can be
brought on-line). A 15 percent phase-in of the program would require
approximately 155 million gallons of additional ethanol production.
While this volume of ethanol could be met using existing capacity by
displacing ethanol from existing ethanol markets, EPA believes, for
reasons discussed earlier, it is desirable to minimize displacing
significant amounts of ethanol from existing markets.
4. Feedstock Capacity
The next step in EPA's analysis was to determine whether sufficient
feedstocks were available to permit this increase in renewable
oxygenate production. According to comments received from agricultural
interests, corn is the feedstock for 90 percent of current ethanol
production and is expected to provide the vast bulk of the feedstock
for new ethanol capacity added in the near term. Of the total 8.7
billion bushels of corn produced in an average year,17
approximately 360 million bushels (approximately 4 percent of average
annual corn production) was used to produce an estimated 900 million
gallons of ethanol. Therefore, the estimated 490 million gallons of new
ethanol demand resulting from today's rule would increase corn demand
by approximately 195 million bushels, or about 2 percent. Based on this
analysis, EPA has concluded that the feedstock demands for this program
can be satisfied solely with corn without significant difficulty. In
addition, other feedstocks can be used to produce renewable oxygenates,
including waste products from farms, dairy operations, bakeries, and
the soft drink industry; from cellulosic sources such as grasses and
fast-growing energy crops, and from such sources as municipal solid
waste. Based on the diversity and immense supply of these potential
feedstocks, EPA has concluded that feedstock supplies are sufficient to
support the requirements of the renewable oxygenate program being
promulgated today.
---------------------------------------------------------------------------
\1\7According to information provided by John W. McClelland of
USDA, ``Memorandum for Richard Wilson, Director, Office of Mobile
Sources, U.S. Environmental Protection Agency,'' June 20, 1994.
---------------------------------------------------------------------------
5. Ethanol Supply and Production Capacity
Current (1993) ethanol operating production capacity nationwide has
been estimated by DOE to be approximately 1.15 billion gallons. Data
from IRI for 1993 estimates ethanol consumption at roughly 1.25 billion
gallons, and EPA received comments from an ethanol producer that 1994
ethanol production was projected to be 1.25 billion gallons. As a
result, current ethanol production would be more than sufficient to
meet the requirements of today's rulemaking as long as no constraints
were placed on the volume of ethanol that could be diverted from
existing markets. However, as discussed above, there are several
reasons why EPA considers it appropriate to minimize to the extent
possible diverting ethanol from existing markets to satisfy the
renewable oxygenate program. As a result, EPA examined the amount of
current excess ethanol capacity and projected new ethanol capacity to
determine the amount of renewable oxygenates that would be available to
supply the needs of the program being promulgated today during the
initial years of the program.
The U.S. Department of Agriculture estimates that the current
ethanol production capacity is as high as 1.4 billion gallons per year.
One commenter representing the ethanol industry submitted a list of
existing ethanol plants and their operational capacity which suggested
that current ethanol production capacity is also nearly 1.4 billion
gallons per year. Based on this production capacity information and on
the current domestic ethanol consumption estimates, it appears that
there may be approximately 150 million gallons of excess ethanol
production capacity (some of which may currently be exported) currently
available that could be used to supply the requirements of the
renewable oxygenate program. However, not all of this production could
be used to supply ethanol for blending during the winter; only
approximately 80 million gallons could be supplied from current excess
capacity during the winter months.
In addition to current excess capacity, a considerable amount of
new capacity is expected to come on-line in the remainder of 1994,
1995, and 1996, according to information supplied by the Renewable
Fuels Association and USDA. This information suggests that
approximately 305 million gallons per year of additional ethanol
capacity is currently under construction and will become available in
1995. (Additional amounts are possible, but more speculative.)
Furthermore, plans were being made for another 304 million gallons of
annual capacity to be brought on line in 1996, though much of that
apparently depended on the outcome of today's rulemaking. USDA
estimated similar increases in ethanol capacity over this time period.
It should be noted that not all of the additional capacity available in
1995 would be available at the beginning of the year, and not all of it
could be dedicated to production only during the winter months as would
be required until ETBE production capacity comes on-line. A similar
situation would occur in 1996. After considering these factors, EPA has
concluded that approximately 93 million gallons of additional ethanol
production from new capacity will be available for blending during the
winter months to meet the program requirements in 1995, and an
additional 157 million gallons to meet the program requirements during
the winter months in 1996.
It should be noted that additional ethanol capacity also may become
available from corn processors, many of whom already have feedstock
processing facilities in operation and would only need to install the
capital equipment necessary to ferment the starch and separate the
ethanol. Such processors may be able to install ethanol production
capacity relatively quickly. Based on comments received, however, EPA
cannot conclude with any degree of assurance that such additional
capacity will become available.
Based on the foregoing analysis, EPA believes that as much as 173
million gallons of new ethanol production can be made available during
the winter months to meet 1995 program requirements and 330 million
gallons during the winter months to meet the 1996 requirements. After
taking into consideration the 180 million gallons of ethanol currently
blended in the RFG markets during the winter months, a total of 353
million and 510 million gallons of ethanol should be available for
blending during the winter months in both 1995 and 1996, respectively.
As shown in the following table, absent a phase-in and ETBE production
capacity, 317 million gallons of ethanol would have to be diverted from
existing markets in 1995 and 160 million gallons would have to be
diverted in 1996.
Summary of Ethanol Supply/Demand (MM gal) and Need for Displacement
------------------------------------------------------------------------
1995 (15% 1995 (No
Phase-in) Phase-in) 1996
------------------------------------------------------------------------
New Renewable Oxygenate Ethanol
Demand.......................... 335 670 670
Existing EtOH Demand in RFG Areas
During Winter\1\................ 180 180 180
Net New Winter Capacity Required. 155 490 490
Current Winter Excess Capacity... 80 80 80
1995 New Winter Capacity\2\\3\... 93 93 164
1996 New Winter Capacity\2\\3\... 0 0 89
Shortfall (Displaced from
Existing Markets)............... ........... 317 157\4\
------------------------------------------------------------------------
\1\Based on IRI estimates.
\2\If additional summer production can be stored until the winter, then
this estimate could be increased slightly.
\3\Annual available new capacity is derived from expected capacities of
ethanol plants under design/construction prorated by their projected
start-up dates.
\4\Will be reduced to the extent ETBE capacity can come online.
To the extent that existing ethanol storage capacity can be used to
store ethanol produced during the summer for use in the winter, and to
the extent that ETBE can be produced from ethanol produced during the
summer and be blended into summer RFG, the amount of ethanol displaced
from existing markets would be reduced. Based on comments received by
EPA, the amount of ethanol storage capacity appears to be approximately
116 million gallons. If this storage capacity were devoted to storing
summer ethanol for use in winter RFG, then ethanol displacements from
existing markets would fall to 201 million gallons in 1995 (with no
phase-in) and 41 million gallons in 1996. As discussed in the next
section, EPA does not anticipate that significant amounts of ETBE can
be available in 1995, though sufficient amounts to meet the needs of
the program could potentially be available in 1996. ETBE blended into
VOC-controlled RFG receives credit under today's rule, so its
availability would allow the new summer ethanol production capacity to
satisfy part of the renewable oxygenate requirement and would reduce
the displacement of winter ethanol from existing, non-RFG markets.
Based on this analysis, EPA believes that insufficient renewable
oxygenate production capacity is likely to be available to supply the
30 percent renewables requirement by 1995 without a considerable shift
of supply from existing markets, but that adequate capacity should
exist by 1996.
6. ETBE Capacity
ETBE, the simplest ether derived from ethanol, offers several
advantages to refiners over ethanol or MTBE. Unlike ethanol blends,
ETBE blends can be shipped through pipelines. ETBE has a higher octane
value than MTBE or ethanol, which would be valuable to refiners
struggling to satisfy octane demand while simultaneously reducing high-
octane components such as aromatics and olefins in order to comply with
the RFG toxics and NOx requirements. Like MTBE, ETBE does not produce
commingling-related increases in RVP levels and hence is eligible for
credit year-round under today's rule. ETBE also has a lower blending
RVP than ethanol or MTBE, which in the near term would permit refiners
who use ETBE to remove less butane to reach a desired RVP level.
Beginning in the year 2000, ETBE's low blending RVP should be even more
attractive when the more stringent Phase II performance requirements
for RFG take effect. Finally, larger amounts of ETBE than MTBE or
ethanol are needed to satisfy RFG's oxygen requirement, and these
larger amounts of ETBE would dilute undesirable gasoline properties
such as sulfur to a greater extent than would the other two oxygenates.
However, ETBE typically costs more to produce than MTBE or ethanol
per unit oxygen. Because of these cost disadvantages current ETBE
production levels are very low. EPA expects ETBE production to grow
even without today's rule in order to achieve the low RVP levels needed
to meet RFG's Phase II VOC performance standards. Today's rule will
make ETBE production even more attractive, since ETBE-blended RFG can
receive renewables credit throughout the year. However, EPA has
concluded that large amounts of additional ETBE capacity cannot be
expected for 1995. At least one year and perhaps longer is expected to
be required before significant volumes of ETBE become available.
According to current ether producers, existing MTBE plants are likely
to require one to three years to convert to ETBE production. Up to a
full year is needed to acquire construction permits and complete the
requisite engineering work. Conversion of the MTBE plant to produce
ETBE is estimated to require from six months to two years, and several
months of trial production may be needed before full production of ETBE
can commence. Furthermore, ETBE production is also dependent on the
development of adequate ethanol production, unless the ethanol is
merely diverted from existing markets. Based on this information, EPA
does not expect significant amounts of ETBE production to be possible
until the summer of 1996.
Furthermore, ether production process licensers also indicated that
plant conversion to ETBE production could reduce throughput (relative
to MTBE throughput), depending on the plant and the type of equipment
installed. The reduction is caused by differing reaction conditions and
the different nature of the reactants involved. Since considerable MTBE
capacity would have to be converted to ETBE production to satisfy the
full 30 percent renewables requirement, EPA is concerned that this loss
of throughput might create shortages of oxygenates during the first
year of the RFG program. EPA believes that phasing in the renewables
requirement will reduce the risk of such shortages and allow a more
orderly phase-in of ethanol and ETBE production capacity.
7. Transportation
EPA has also analyzed whether the additional ethanol produced under
today's rule can be transported from where it would be produced to
where it would be consumed. According to the Army Corps of Engineers
(Corps), water-based transportation is the most economical method of
shipping ethanol both within the Midwest and from the Midwest to East
Coast and West Coast markets. For plants and markets without access to
water-based transportation, railway transportation is the most likely
transportation mode. EPA has analyzed each piece of the transportation
network, specifically: (1) The river barge capacity on the Mississippi
River, (2) the ship or ocean barge capacity between the Gulf of Mexico
and East and West Coast markets, and (3) the transportation capacity
for ethanol movement from ports to retail markets.
Based on a 1992 report by the Army Corps of Engineers regarding
barge traffic on U.S rivers, it appears that transportation by barge of
all of the new ethanol production resulting from today's renewable
oxygenates program would represent less than 1 percent of U.S. river
barge capacity. As a result, EPA has concluded that today's program is
unlikely to cause noticeable changes in shipping patterns or shipping
prices. Based on current barge shipping prices, the cost for shipping
ethanol from the Midwest to the Gulf of Mexico is estimated to cost 4-5
cents per gallon.
The barges used on inland waterways cannot be used on the open
ocean. Hence ethanol destined for East Coast or West Coast markets must
be transferred to ocean-going freighters or tankers. Nevertheless,
based on conversations with New Orleans port officials, current
shipping capacity should be more than adequate to supply the shipping
requirements demanded by today's rule. Transportation from the Gulf to
either Coast is expected to cost 5-7 cents per gallon.
Not all the ethanol shipped from the Midwest to other markets would
have to be shipped by ocean-going vessels, however, since some of the
ethanol could be used in ether plants located in the Gulf area to
produce ETBE, which then would be blended into gasoline and shipped by
pipeline to markets in Texas, the Midwest, or the East Coast. Pipelines
are considered the most economical method of transporting liquids, and
the costs of shipping ETBE to RFG markets by pipeline would be
comparable to the costs of shipping MTBE to such markets.
Furthermore, the averaging and trading provisions incorporated into
today's action can be used to limit to some extent the amount of
oxygenate transportation that is necessary. As much as 12 percentage
points out of the total 30% renewable oxygenate requirement could
theoretically be met with ethanol blended in the Midwest RFG markets
where transportation constraints are limited, and the credits traded to
refiners marketing RFG in more distant markets.
Given the foregoing analysis (which is discussed more fully in the
RIA), EPA does not believe that transportation presents a bottleneck to
implementation of today's rule, although there are cost implications.
Furthermore, EPA did not receive any comments suggesting that
transportation would present implementation problems for the renewable
oxygenate rule.
8. Storage and Blending Capacity
Given sufficient production of ethanol and adequate transportation
from the point of production to their final markets, the remaining
lead-time issue is that associated with adequate ethanol storage and
blending capacity at the terminals where it is blended with gasoline.
When the ethanol is offloaded at its end-use market, it must be stored
in large terminal storage tanks. The capacity of these tanks must be
sufficient to offload the entire shipment. Once offloaded, the ethanol
then must be blended with gasoline. Some terminals splash-blend ethanol
with essentially no additional equipment or facilities, while others
use more sophisticated blending equipment. EPA did not receive comments
of a nature sufficient to evaluate the adequacy or inadequacy of
current ethanol storage and blending facilities. In order to determine
whether adequate storage and blending capacity to support the renewable
oxygenates program exists, EPA estimated the storage and blending
capacity being used to meet the current demand for ethanol in the RFG
areas and compared that with the storage and blending capacity that
would be necessary to meet the program requirements. In order to
estimate the current storage and blending capacity, EPA examined the
peak monthly ethanol blending rates reported by IRI for each RFG market
during 1993. EPA extrapolated this peak blending rate over the entire
non-VOC control season to estimate the current blending capacity
available to support the renewable oxygenate program. The results of
this analysis are shown in the following table.
Ethanol Storage and Blending Capacity in RFG Markets
------------------------------------------------------------------------
Winter % of
Ethanol total RFG
Peak Market Blending that
State (RFG areas only) Share\1\\4\ Capacity contains
(MM renewable
gals)\2\\3\ O2\5\
------------------------------------------------------------------------
Illinois/Indiana................... 36 59 2.6
Kentucky........................... 16 9 0.4
Wisconsin.......................... 13 18 0.8
Midwest Total.................... ........... 86 3.8
------------------------------------
Connecticut........................ 13 10 0.5
Delaware........................... 36 7 0.3
D.C................................ 36 5 0.2
Maryland........................... 3 4 0.2
New Jersey......................... 8 10 0.5
New York........................... 29 60 2.7
Pennsylvania....................... 19 38 1.7
Virginia........................... 17 19 0.9
Northeast Total.................. ........... 153 7.0
------------------------------------
Texas.............................. 4 9 0.4
California......................... 5 20 0.9
Total........................ ........... 268 12.1
====================================
------------------------------------------------------------------------
\1\Peak market share for ethanol blended in any month in 1993 based on
IRI data (assuming ethanol blended at 10 vol%).
\2\Wintertime ethanol only and no ETBE capacity.
\3\Peak ethanol volume blended in any month in 1993 (based on IRI data)
extrapolated over the winter season, expressed as millions of gallons.
\4\Assumes ethanol blended at 3.5 wt% oxygen.
\5\Phase-in would require total of 15% in 1995 and 30% in 1996;
percentages are based on proration of ethanol content to 2.0 wt%
oxygen.
Based on this analysis, adequate tankage and blending equipment
exists for roughly 12 percent of the oxygenate required by the
reformulated gasoline program to be supplied by ethanol during the
winter months only. This is well short of the total 30 percent required
by the program, and even short of a 15 percent phase-in level. In order
to implement the program smoothly, this shortfall will have to be made
up by one of three means: first, pass a greater volume of ethanol
through existing tankage and blending equipment; second, construct new
ethanol storage and blending capacity at terminals; or third,
supplement ethanol blended at terminals with ETBE blended at
refineries.
It is reasonable to assume that some additional ethanol could be
blended at the existing facilities by increasing the throughput of
storage tanks and blending equipment, particularly in the Midwest where
the close proximity to ethanol production facilities allows for greater
flexibility in receiving and blending ethanol shipments. EPA does not
believe it unreasonable to assume that ethanol throughput could be
increased by 25 percent or more in 1995, since it is unlikely that
existing facilities were all designed to operate at their current peak
levels with no provisions made for market growth. To the extent
throughput can be increased by even more than 25 percent in some
markets it could be used to offset (through credit trading) any
shortfall in other markets. As a result, a phase-in level of 15 percent
should be achievable in 1995 even without expanding ethanol storage and
blending facilities. Even if this were not the case, it is reasonable
to assume that some additional storage and blending capacity beyond
that available in 1993 may have been planned to be available in 1995 to
keep up with the planned increases discussed above in ethanol
production by 1995.
It is not reasonable, however, to assume that existing facilities
could increase their throughput by the 150 percent necessary to achieve
the full 30 percent requirement of today's program. Furthermore, as
discussed above, no appreciable ETBE production capacity is expected to
be available until the summer of 1996. As a result, the only way to
meet the full 30 percent requirement of the program in 1995 would be
through the addition of new ethanol storage and blending capacity.
Current estimates of the time necessary to obtain permits, construct
new storage and blending facilities, and make them fully operational
vary, but range between approximately 6 and 18 months. Thus, sufficient
time would not be available to bring on-line additional ethanol storage
and blending facilities for use until the fall of 1995. The expanded
ethanol blending capacity available by this time is unlikely to be
sufficient to supply the full 30 percent requirement over the course of
the entire year. Even if it were sufficient, it would not have been
available for the entire year and hence would not be sufficient to
satisfy the 30 percent requirement. In order to meet the full 30
percent requirement in 1995, storage and blending capacity in excess of
what would be needed in subsequent years would have to be built in
1995. While it is very difficult to predict specific market responses,
especially given the compliance flexibilities built into the program,
it does not appear that sufficient ethanol storage and blending
capacity is likely to exist for 1995 without either a phase-in of the
program or extraordinary measures to provide additional blending
capacity (e.g., tanker truck shipments from terminals outside the RFG
areas).
The situation is different for 1996, however. It may be possible by
1996 for a considerable amount of ETBE to be blended at the refineries
during both summer and winter months. Since refinery-blended ETBE would
not require specialized blending facilities at terminals, increased
ETBE use might reduce considerably the 150% increase in ethanol
blending capacity that would otherwise be necessary. Furthermore, the
additional time provided by a phase-in would allow for the construction
of additional ethanol storage and blending facilities, most of which
could be in place at the beginning of the annual averaging program in
January of 1996. Much of this additional ethanol blending capacity is
likely to be added in the Midwest to take advantage of lower ethanol
transportation costs and State tax exemptions. However, even if every
gallon of RFG in the Midwest contained 10 volume percent ethanol, only
40% of the renewable oxygenates required by the program could be met by
Midwest ethanol usage in RFG. As a result, until a significant amount
of ETBE production comes on-line, ethanol storage and blending capacity
in RFG markets outside the Midwest will have to expand by as much as
100 percent (i.e., capacity would have to double).
9. Summary and Conclusions
Based on the foregoing analyses, EPA believes that given the
compliance flexibilities built into the program it is feasible for
sufficient feedstocks, production capacity, transportation capacity,
and blending capacity to be available to meet the full 30 percent
renewables requirement by 1996. However, EPA is concerned that neither
supply nor blending capacity will be adequate in 1995 to satisfy the
full 30 percent requirement. While a supply shortfall could be filled
by diverting ethanol from its current markets to RFG markets, such
diversions would be costly and would not meet any of the objectives of
today's rule, as has been discussed earlier in this notice.
Furthermore, even if such diversions were to occur, EPA is concerned
that insufficient blending capacity would be in place in 1995 to blend
the requisite volumes of ethanol into non-VOC-controlled RFG. The risks
of this are significant and the consequences could be dramatic with
shortages, price spikes, and other market disruptions. For these
reasons, EPA has decided that a phase-in of the 30 percent renewables
requirement is both necessary and prudent. During the first year of the
program (December 1, 1994 through December 31, 1995), 15 percent of the
RFG program's minimum 2.0 weight percent oxygen requirement must be met
by renewable oxygenates. In 1996 and subsequent years, the minimum
renewables content will increase to 30 percent of the RFG program's
minimum oxygen content. Even with such a phase-in, it is still likely
that some shifting will occur from current markets into the markets
created by today's program as a result of local economic conditions and
logistical considerations. However, these shifts are likely to be small
relative to the overall size of the renewable oxygenate program and
would not materially alter the benefits of today's rule.
G. Shoulder Season/Non-commingling Season
1. Summary of the Issue and Comments
EPA received comment on the ozone impacts of the renewable
oxygenate proposal, particularly during the ``shoulder season'' periods
of April 1 through May 31 and September 16 through October 31 when the
reformulated gasoline high ozone period is not in effect. During these
periods, VOC-controlled RFG is not required at the retail level.
Commenters expressed concern that the likely increase in ethanol market
share in non-VOC-controlled RFG would increase VOC emissions both
directly (since the RVP increase from splash-blended ethanol would not
be constrained by vapor pressure limits in non-VOC-controlled RFG) and
indirectly (since greater commingling effects would occur as the market
share for ethanol-blended RFG increases). Commenters representing state
air quality regulators (NESCAUM, STAPPA/ALAPCO, and CARB), argued that
the net result of such increases in average RVP levels during the
shoulder season would be increased VOC emissions and higher ozone
levels, especially in the Northeast and California. NESCAUM suggested
that EPA extend the season in which volatility-increasing alcohols
would not receive renewable credit to April 1st through October 31st in
order to eliminate the risk of any potential ozone increases.
Other commenters such as the Clean Fuels Development Coalition and
the Ethanol Ad-Hoc Committee argued that the use of ethanol-blended
RFGs during the shoulder season would not cause additional ozone
exceedances for two reasons. First, the spillover of VOC-controlled
RFG, primarily ether-containing RFG, would reduce shoulder season RVP
levels below current levels. Second, they believed other pollution
reduction programs being implemented over the next several years would
reduce ozone precursor emissions during the shoulder season. The
combined effect would reduce such precursors by more than any increases
due to increased ethanol use, thereby negating any detrimental
environmental effects.
2. EPA Analysis of the Renewable Program's Shoulder Season Emission
Impact
Although EPA agrees that increased ethanol use in non-VOC-
controlled gasoline is likely, the Agency's analysis indicates that any
detrimental environmental effects should be negligible. The
reformulated gasoline program requires VOC-controlled fuel at the
terminal from May 1-September 15. Refiners have indicated that they
would begin shipping such fuel as early as March 1 in order to assure
that low-volume terminals and retail stations have fully converted to
VOC-controlled RFG by May 1 and June 1, respectively, as required by
the RFG program.
Since most fuel is sold at high-turnover retail outlets, EPA's
analysis shows that many vehicles will begin operating on VOC-
controlled RFG during April. Also, most vehicles will continue to
operate on VOC-controlled RFG until late September or early October,
since the fuel distribution system requires some time to replace summer
fuel with winter fuel after terminals are permitted to switch to winter
fuel on September 16. Experience with the federal volatility program
supports these conclusions, as discussed in the RIA.
EPA concludes that while increased ethanol use is likely in RFG
sold from mid-October through late March, increased ethanol use
resulting from this program will be essentially zero in May and will be
minimal in April, late September, and early October. Furthermore,
ethanol's commingling effect changes relatively little at ethanol
market shares between 30 and 70 percent and decreases at higher market
shares. As discussed in section III.F, a number of States in the
Midwest and Northeast which will participate in the RFG program already
have peak ethanol market shares approaching or even above 30 percent.
In addition, experience with the winter oxygenated fuels program
indicates that ethanol blends may well have represented 30 percent or
more of the winter RFG demand in some RFG markets without today's rule
(including some midwestern and northeastern RFG markets), suggesting
that any increase in ethanol use which might occur during the shoulder
season would cause little if any increase in commingling effects. Both
of these factors suggest that emission impacts resulting from ethanol's
vapor pressure boost and commingling effects during the shoulder season
will be less than otherwise anticipated. Since ETBE use in summer RFG
would likely reduce ethanol use in winter RFG, the extent of any
ethanol-related VOC increase during the shoulder season is likely to
decrease as ETBE capacity and usage increase. Finally, it should be
noted that VOC emissions are unconstrained during the non-VOC control
season under both the RFG and volatility control programs since such
emissions are not associated with ozone exceedances because they do not
occur outside the summer months in most of the country. Thus, today's
rule is unlikely to result in increased VOC emissions during the period
when such emissions are controlled under current EPA fuel programs.
3. EPA Analysis of the Extent of the Shoulder Season Air Quality
Problem
In examining the shoulder season issue, EPA evaluated the extent of
the air quality problem during the shoulder season. EPA has found that
ozone violations outside the May 1 to September 15 period (the period
during which all gasoline at terminals, and much of the gasoline at
retail stations, is expected to be VOC-controlled) are minimal for
those RFG areas outside of California and Texas. Ozone monitor
exceedances during September 16-October 31 and the month of April in
the Northeast comprised fewer than 4 percent of all such exceedances
recorded in RFG areas in 1986-1988. More recent 1990-1992 data for the
Northeast confirm the earlier results: less than 2 percent of all ozone
monitor exceedances recorded in RFG areas occurred in the Northeast in
April, late September, and October (and none in other winter months).
Further examination of the 1990-1992 data revealed that the documented
ozone violations involve just two distinct ozone episodes. These
episodes (one in late April and one in mid-September) happened very
near the time of year when much of the RFG sold at retail stations is
expected to be VOC-controlled. The various control measures that apply
year-round that will be implemented to attain the ozone standard on the
highest exceedance days should reduce ozone concentrations below the
National ambient air quality standard for ozone in the shoulder season.
Furthermore, given the analysis of fuel turnover discussed previously,
EPA believes that the renewable oxygenate program is unlikely to
contribute to increased ozone exceedances or additional high ozone
episodes in the Northeast.
However, the 1990-1992 data also indicate that a substantial number
of ozone violations occurred during the shoulder seasons in the
reformulated gasoline areas in California and Texas. Violations appear
to occur throughout the year in both states. However, the state of
California has imposed additional fuel regulations within its borders
to address air quality problems, and more stringent volatility
requirements go into effect throughout the state of California in 1996.
These controls will already cover the April-October time frame in
southern California, and the state of California can extend this if
they believe additional volatility controls during the period are
appropriate.
Although Texas did not submit comments to the Agency on this issue,
the possibility does exist that the renewable oxygenate program may
increase VOC emissions outside the high ozone season in Houston and
Dallas-Fort Worth. To address this problem, EPA has considered further
restricting the times during which ethanol would receive renewables
credit in this rule. However, the year-round nature of Texas' current
ozone exceedances could make such a solution impractical. Furthermore,
EPA's analysis of ethanol production and blending capacity indicates
that further restrictions on the times when ethanol would receive
renewables credit could exacerbate the supply, distribution, and
blending concerns for 1995 and 1996 discussed in section III.F. As a
result, EPA does not believe at this time that revising the design of a
national program (through such means as extending the period when
alcohols do not receive credit toward the renewables requirement on a
nationwide basis) is appropriate. Furthermore, EPA believes that
revising the design of the program on less than a national basis (e.g.,
just for Texas and/or California), would be inappropriate at this point
in time without taking into consideration the unique requirements
within each State.
4. Provisions of Today's Rule Regarding the Shoulder Season
As discussed above, EPA does not expect today's rule to result in
increased ozone exceedances during the shoulder season. However, EPA
recognizes that States may wish to further restrict the times during
which ethanol blended into RFG would receive credit toward the
renewable oxygenate requirement in order to address their unique air
quality problems. As a result, EPA will extend the non-commingling
season, during which oxygenates such as ethanol which demonstrate
commingling-related increases in RVP will not receive credit toward the
renewable oxygenate requirement, to any or all covered areas within a
State at the State's request, subject to certain limitations as
discussed below.
California is not subject to the preemption of state and local fuel
controls under section 211(c)(4) of the Act and, therefore, has broad
flexibility in adopting its own state fuel control programs. While
other states are subject to these provisions, they can also implement
their own fuel control programs if they are approved as part of their
state implementation plan (SIP) as being necessary to attain the
national ambient air quality standards. As a result, the states could
take action on their own without petitioning EPA to modify its program.
However, this petition provision allows the states the additional
flexibility of having the federal fuel control program modified (in
this limited manner) to adjust to their unique air quality needs.
The request for extension of the non-commingling season must be
signed by the Governor of the State for which the extension is to
apply. The petition must include evidence demonstrating that each of
four criteria have been met. First, the petition must include data
collected subsequent to the implementation of the renewable oxygenate
program showing that an increase in oxygenates which produce
commingling-related RVP increases (such as ethanol) has occurred in the
fuel sold in the petitioning State during the shoulder season, and that
this increase is likely to continue. Second, the petition must include
evidence demonstrating a pattern of violations during the shoulder
season of the ozone National Ambient Air Quality Standards over the
previous three years, based on ozone monitoring data, which would
warrant the extension being requested. In effect, this second criterion
would require that the pattern of ozone violations extend into the
shoulder season. Third, the petition must include an analysis
demonstrating that the pattern of ozone violations is likely to
continue even with implementation of all other ozone air quality
control measures and programs currently planned by the State. Fourth,
the petition must demonstrate that its findings were made by the
Governor through a process that was responsive to public input and that
included public notice and an opportunity for a public hearing. These
provisions are intended to provide States with air quality concerns the
ability to prevent any direct or indirect increase in VOC emissions
during the non-summer season, while simultaneously providing assurance
that any such extension is granted only for those areas where
restrictions on blending ethanol and other commingling oxygenates may
help address a genuine air quality problem.
Once a valid petition is received satisfying the noted criteria,
EPA will publish a notice in the Federal Register and tentatively
establish the non-commingling season as requested by the governor and
the effective date for the new restrictions on blending of commingling
oxygenates. These restrictions will take effect on the first day of the
next complete non-commingling season beginning one full year after the
petition is received. If a petition is received within three months of
the publication of the notice in the Federal Register which
demonstrates to the satisfaction of the Administrator either that the
four criteria were not met or that the change to the non-commingling
season is not feasible by the effective date in the notice, EPA retains
the right to either reject the State's request for an extension or
extend the effective date by up to two additional years, based on
analysis of the information contained in both petitions (the State
petition and the opposing petition). For example, a satisfactory
request to extend the non-commingling season to encompass April which
is received by the Administrator on April 20 of, say, 1997 would take
effect on April 1, 1999 if no opposing petitions were submitted.
Any changes in the duration of the non-commingling season as a
result of these provisions will be enforced at the terminal, as
discussed in section IV. It should be noted that the criteria discussed
above imply that the non-commingling season will not be extended prior
to 1997 for any State.
H. Program Benefits
The reformulated gasoline program promulgated December 15, 1993
will increase fossil energy use due to the need to reduce RVP, the
increased production and use of oxygenates, and fuel economy losses
resulting from fuel reformulation (as discussed in 59 FR 7716, February
16, 1994, and the Regulatory Impact Analysis found in Public Docket No.
A-92-12). As explained below, the use of renewable oxygenates in
reformulated gasoline under the renewable oxygenate program being
promulgated today should reduce the fossil energy used by the
reformulated gasoline program, particularly in the long term. Today's
renewable oxygenate program also helps assure that the RFG program is
compatible with long-running national policies and programs to obtain
the benefits associated with the use of renewable fuels and could,
according to the Renewable Fuels Association, result in decreased
imports of MTBE. Furthermore, the renewable oxygenate requirement will
help assure that the environmental benefits of the reformulated
gasoline program will be achieved and has the potential to enhance
those benefits, as discussed more fully below. And finally, the
renewable oxygenate program offers the potential for reduced greenhouse
gas emissions in the future as more efficient renewable oxygenate
production technologies are introduced.
1. Energy Benefits
The energy benefits of the renewable oxygenate program are strongly
dependent on the oxygenates used and the timeframe considered.
Technical and economic factors suggest that in the early years of the
program, the renewable oxygenate requirement will be met primarily with
ethanol. According to a study prepared by the Department of
Energy,18 if the 30 percent renewables requirement is met by
either using ethanol produced in current-technology ethanol plants in
winter RFG, or ETBE in summer RFG, the overall fossil energy consumed
in RFG production and use would be smaller than would be the case if
nonrenewable MTBE (the other oxygenate currently expected to capture a
large share of the RFG oxygenate market) were the only oxygenate used
in RFG.
---------------------------------------------------------------------------
\1\8``Analysis Memorandum: Energy Requirements and CO2-
Equivalent Emissions of RFG,'' prepared by Margaret Singh, Argonne
National Laboratory, for Barry McNutt, U.S. Department of Energy,
June 6, 1994 and March 17, 1994 (draft). Other comments and studies
were also provided to EPA claiming vastly different energy and
global warming impacts than the DOE report. However, these other
comments tended to focus on comparisons of ethanol and ETBE-blended
RFG with conventional gasoline, instead of focusing on comparisons
of ethanol and ETBE-blended RFG with MTBE-blended RFG. As a result,
the DOE analysis contains the most relevant information regarding
the impact of today's rule on fossil energy consumption and global
warming emissions.
---------------------------------------------------------------------------
The renewable oxygenate program will also help to diversify the
country's transportation energy supply away from fossil energy
(predominantly oil and natural gas) towards renewable energy by
stimulating production of renewable fuels such as ethanol and renewable
methanol. This program will have a large impact on the renewable energy
industry in general and the ethanol industry in particular because the
amounts of renewable fuels involved are large relative to historical
production levels.
The energy benefits of this program become more pronounced in later
years. Improvements in the energy efficiency of ethanol production,
achieved through such means as the use of cogeneration or waste
products to provide process energy, will further reduce the fossil
energy required to produce ethanol. Additional gains can be achieved by
reducing energy consumption and fertilizer use in corn farming through
changes in farming practices, using more energy-efficient equipment,
increasing per-acre crop yields, and decreasing fertilizer use.
Comments submitted by the Department of Agriculture and others, as well
as previous studies by DOE and EPA cited in the proposal, indicate that
as new feedstocks for ethanol such as cellulose are commercialized, and
as renewable methanol production becomes viable, the fossil energy
benefits of this program would increase substantially relative to
nonrenewable MTBE use. By providing a secure minimum market for
renewable oxygenates, today's program will help provide the certainty
needed to encourage private investments in modern, high-efficiency
agricultural practices and renewable oxygenate production technology.
2. Environmental Benefits
a. Summer Ozone-Related Benefits. In addition to the energy
benefits cited above, EPA believes this program has the potential to
provide environmental benefits in the near term, with the potential for
even greater environmental benefits in the future. These potential
benefits stem from the incentives this program creates for the use of
ETBE in summer RFG. Short-term limitations in ETBE capacity suggest
that most of the near-term program requirements will be met through the
use of ethanol blended into winter RFG. In the short term, summer RFG
will not be affected by the program except to the extent that (1)
renewable MTBE is substituted for nonrenewable MTBE, and (2) small
amounts of ETBE capacity become available. Replacing nonrenewable MTBE
with renewable MTBE would not alter the emission benefits of the RFG
program. However, ETBE use helps assure that the VOC emission
reductions sought by the RFG program are achieved or exceeded in-use.
Since ETBE production consumes ethanol, ETBE use in summer RFG is
likely to reduce direct ethanol use in summer RFG. (Even though ethanol
used in summer RFG would not receive credit toward the 30% renewables
requirement, such use is still permitted under the RFG program.)
Ethanol's commingling effect discussed in section I tends to increase
VOC emissions, so conversion of summer ethanol to ETBE (which does not
have a commingling effect) should reduce VOC emissions.
Replacing summer ethanol with ETBE may yield other benefits as
well. ETBE-blended fuels with a given Reid vapor pressure (RVP) produce
less vapor (and hence smaller nonexhaust VOC emissions) when heated
above 100 degrees Fahrenheit than do ethanol fuels with the same RVP. A
large fraction of summer VOC emissions are generated when gasoline is
heated beyond 100 degrees Fahrenheit, so replacing ethanol or MTBE with
ETBE in summer reformulated gasolines may yield additional VOC emission
reductions. These reductions, which are related to the front-end
distillation properties of different oxygenated fuel blends, have not
been included in EPA's Simple or Complex Models for reformulated
gasoline since sufficient data to quantify accurately the size of these
reductions is not yet available. However, sufficient data is available
to confirm expectations based on scientific theory that such reductions
would occur.
The size of the commingling and distillation benefits resulting
from substitution of ETBE for ethanol in summer RFG depends on the
market share of ethanol-blended gasolines in each market. As discussed
above, EPA cannot quantify such benefits with certainty; however, the
Agency estimates that if a 30 percent market share for ethanol blends
in summer RFG were replaced entirely by ETBE blends, total VOC
emissions could be reduced by as much as 5 percent beyond the
reductions that would have occurred without changes in the market share
for ethanol blends. Thus, by encouraging the conversion of summer
ethanol into ETBE, the renewable oxygenate requirement will help assure
that the RFG program achieves the maximum possible VOC reduction.
b. Shoulder Season Environmental Impacts. EPA received comments
raising the concern that the use of ethanol in the ``shoulder season''
(the months bordering the high-ozone season) could lead to ozone
violations in certain areas. The comments raise two separate mechanisms
by which ethanol use could increase emissions of ozone precursors.
First, ethanol addition to gasoline causes fuel volatility to increase
by approximately 1 psi, and during the shoulder season this increase is
not constrained by the RFG program. Second, ethanol-blended fuels can
produce emission increases due to the commingling and distillation
effects described in the preceding section.
EPA has considered the shoulder season issue in detail and has
concluded that the emission reductions anticipated as a result of the
RFG program should in most cases more than offset any emission
increases due to the increased use of ethanol in the shoulder season.
The basis for this conclusion is presented in section III.G of this
notice and is discussed in detail in the RIA. Nevertheless, EPA has
decided to allow States to petition the Administrator to extend the
season during which ethanol blended into gasoline would not receive
credit toward today's rule. The provisions governing the petition
process are described in detail in sections III.B and III.G of this
notice.
c. Global Warming Benefits. In addition to the potential to reduce
summer VOC emissions, the proposal for this rule stated that the
renewable oxygenate requirement has the potential to reduce emissions
of carbon dioxide (and possibly other greenhouse gases) resulting from
the production and use of reformulated gasolines. However, the study by
the Department of Energy cited previously indicates that with current
technology, the use of renewable oxygenates leads to similar carbon
dioxide-equivalent emissions (global warming potential of all emissions
expressed as an equivalent mass of CO2 emissions) as those
resulting from the use of nonrenewable MTBE. Testimony from the Oak
Ridge National Laboratory on behalf of the National Corn Growers
Association given at the January 14, 1994 public hearing on this rule
also indicated that the use of renewable oxygenates (ethanol in
particular) would have no impact on, and in some cases could lead to a
reduction in, the greenhouse gas emissions associated with the use of
gasoline. Overall, current technologies for ethanol production and use
appear to have at best minimal benefits relative to nonrenewable MTBE
production and use.
But as noted by EPA in the proposal and as supported by comments
received from the Department of Agriculture (see sections II and VI of
this notice) and others, the use of new feedstocks (particularly
agricultural and municipal waste products) and new, more efficient
production technologies is likely to result in reduced emissions of
CO2 related to fuel ethanol use. In addition, improved farming
techniques can reduce emissions of other greenhouse gases, particularly
N2O. EPA expects that expanding the market for renewable
oxygenates such as ethanol will accelerate the introduction of more
efficient feedstock and oxygenate production technologies. Improved
efficiencies in these processes would result in reduced emissions of
CO2 and other greenhouse gases. Hence, EPA believes that while the
renewable oxygenate program may not provide global warming benefits
currently, it will help stimulate the implementation of more efficient
agricultural and oxygenate production practices, leading to reduced
emissions of greenhouse gases than would occur with nonrenewable
oxygenates.
IV. Enforcement
A. Overview of Enforcement Scheme
1. General Requirements
The enforcement scheme for the renewable oxygenate requirements is
similar to that used for the other reformulated gasoline requirements.
The renewable oxygenate average standard applies to importers, and to
refiners separately for each refinery,19 and has a calendar year
averaging period.20 No per-gallon standard is included. Renewable
oxygen credits may be created by any refiner who uses more renewable
oxygenate than is required, and renewable oxygen credits could be used
by any refiner to achieve compliance with this standard. The conditions
and requirements for credit creation, transfer and use that would apply
to renewable oxygen credits are the same as the conditions and
requirements that apply under reformulated gasoline for benzene and
oxygen credits.
---------------------------------------------------------------------------
\1\9The remainder of this preamble section refers to refiners
and importers collectively as refiners, but all references to
refiners apply equally to importers unless otherwise noted. Note
that downstream oxygenate blenders would not be not subject to the
renewable oxygenate requirements.
\2\0Reformulated gasoline produced during 1994 for use in 1995
will be averaged with gasoline produced in 1995 under the
reformulated gasoline regulations. This approach to averaging of
gasoline produced during 1994 would be followed for renewable
oxygenate averaging, creating an averaging period that is longer
than one year for 1994-1995 only.
---------------------------------------------------------------------------
The renewable oxygenate standard will be subject to a phase-in
schedule. Under Sec. 80.83(b)(1), reformulated gasoline and
reformulated gasoline blendstock for oxygenate blending (RBOB), on
average, must have an oxygen content from renewable oxygenate that is
equal to or greater than 0.30 weight percent from December 1, 1994
through December 31, 1995. The 0.60 weight percent standard shall apply
beginning on January 1, 1996.
The renewable oxygenate regulation adds two types of RBOB that were
not included previously in the reformulated gasoline regulation. These
two generic RBOB types are ``any renewable oxygenate,'' and ``renewable
ether only'' RBOB. A third type of RBOB, ``non VOC controlled renewable
ether only'' RBOB has also been added and is appropriately used in
those areas which have been granted extended non-commingling seasons
(see ``D. Shoulder Season,'' below). The proposed renewable oxygenate
rule allowed refiners to take credit for downstream blending of
renewable oxygenate only if a contractual relationship between blender
and refiner exists and if the refiner conducted a quality oversight and
sampling program. EPA received several comments from parties who felt
that the renewable oxygenate regulation could contain more flexibility.
EPA agrees with these comments and adopted the approach described in
the following paragraphs.
Refiners are responsible for meeting the renewable oxygen standard
for reformulated gasoline and RBOB and have two options for including
renewable oxygenate in the compliance calculations required by
Sec. 80.83(d). Under the first option, a refiner may claim credit for
downstream renewable oxygenate blending only if there is a contractual
relationship between the refiner and blender and the refiner carries
out a suitable oversight program over the blender. The requirements for
a downstream oxygenate blending oversight program are the same as those
contained in Secs. 80.69 (a) (5) through (7) of the reformulated
gasoline regulations. Among other requirements, the refiner must have a
contractual relationship with the oxygenate blender and must comply
with sampling and testing requirements.
Under the second option, a refiner may assume that 2.0 weight
percent oxygen from ethanol is blended with ``any renewable oxygenate''
RBOB. For ``renewable ether only'' RBOB, the refiner may assume that
ETBE resulting in 2.0 oxygen by weight is to be blended. EPA has chosen
the 2.0 weight percent assumption because it is consistent with the
final reformulated gasoline RBOB provisions at Sec. 80.69(D).
Additionally, a refiner may chose to produce ``any renewable
oxygenate'' RBOB in lieu of ``any oxygenate'' RBOB for blending with
ethanol, effectively reducing the number of RBOBs it produces to three
types.
Under the final reformulated gasoline regulation, downstream
blenders are prohibited from violating the assumptions/instructions for
RBOB used by refiners. Blenders, although not responsible for
compliance with the renewable oxygenate mandate, are still responsible
for adding appropriate oxygenate of the type specified in the RBOB
transfer documentation under the final renewable oxygenate regulations.
Under Sec. 80.83(c)(2)(i)-(ii), no person may combine any oxygenate
with ``any renewable oxygenate'' RBOB, ``non-VOC controlled renewable
ether only'' RBOB, ``renewable ether only'' RBOB unless the oxygenate
meets the ``renewable oxygenate'' definition. The ``renewable
oxygenate'' definition is discussed in greater detail in section III of
this preamble.
Sections 80.83 (d) and (e) specify compliance calculations and
conditions for the creation and transfer of credits. These criteria for
creation of credits are the same as those specified in
Secs. 80.67(h)(1)(i) through (iv) and Secs. 80.67(h) (2) and (3) of the
reformulated gasoline regulations.
The renewable oxygenate rule includes recordkeeping requirements,
specified in Sec. 80.83(f). Refiners are required to maintain records
demonstrating the renewable nature, volume, type, and purity of the
oxygenate used and product transfer documentation for all renewable
oxygenate, reformulated gasoline, or RBOB for which the refiner is the
transferor or transferee. These same recordkeeping requirements also
apply to oxygenate blenders who blend oxygenate with RBOB designated as
``any renewable oxygenate,'' ``non-VOC controlled renewable ether
only'' or ``renewable ether only.'' The records required by
Sec. 80.83(f) must be retained for a period of five years and must be
delivered to the Administrator or the Administrator's designated
representative upon request.
In today's final rule, EPA is requiring that refiners maintain
records showing the renewable nature of all oxygenates. Under the
proposed rule, records demonstrating the renewable nature of renewable
ethanol were not required. However, today's final rule seeks to ensure
that all oxygenates claimed as renewable do, in fact, come from
renewable sources.
Section 80.83(g) deals with reporting requirements. All refiners
are required to submit reports related to compliance with the renewable
oxygenate standard for reformulated gasoline, compliance calculations
for the renewable oxygenate standard, and the transfer of renewable
oxygen credits. These renewable oxygenate reports go beyond the
reporting requirements included in the reformulated gasoline final rule
issued in December 1993.
Refiners are required to report, on a per-batch basis, the total
weight percent oxygen and weight percent oxygen attributable to
renewable oxygenates contained in the gasoline they produce. For all
types of renewable RBOB, the refiner must report the weight percent
oxygen subsequent to oxygenate blending, subject to the conditions set
forth in Sec. 80.83(c). These requirements supplement the quarterly
reports requirements found in existing Sec. 80.75(a) of the
reformulated gasoline regulations.
Refiners are also required to submit, on an annual basis, a report
for all reformulated gasoline and RBOB produced during the previous
calendar year averaging period. These requirements supplement the
fourth quarterly report requirements found in existing Sec. 80.75(a).
The fourth quarterly report must include (among other specified items)
information regarding the total volume of reformulated gasoline and
RBOB, the compliance total for renewable oxygen, the actual total for
renewable oxygen, information about credits generated and transferred,
and information about the party to whom (or from whom) credits were
transferred.
EPA intends that the attest engagement requirements for
reformulated gasoline will apply to the renewable oxygenate standard.
Sections 80.128 and 80.129 contain agreed upon procedures for refiners
and importers and downstream blenders, respectively. These new
provisions supplement the reformulated gasoline attest engagement
requirements found in subpart F of that regulation. Furthermore, other
provisions contained in the reformulated gasoline regulations, and not
specifically discussed in this preamble, would apply to the renewable
oxygenate standard in the same manner as they apply to other
reformulated gasoline standards. These include, among other things, the
definitions of parties; the designation requirements; testing
requirements, including sampling and testing; and controls,
prohibitions, liabilities, and defenses.
There are no gasoline survey requirements associated with the
renewable oxygenate requirement, because there is no covered area-
specific standard associated with this program.
2. Requirements Specific to the State of California
Today's renewable oxygenate rule also applies to all gasoline that
is sold in the Federal reformulated gasoline areas of Los Angeles and
San Diego. Refiners of California gasoline, as defined in Sec. 80.81 of
the reformulated gasoline regulation, are responsible for all renewable
oxygenate provisions (including recordkeeping and reporting), except
where a specific enforcement exemption has been granted under
Sec. 80.81 of the reformulated gasoline regulation. Today's regulation
specifically provides that California gasoline must meet, to the extent
the requirements relate to the renewable oxygenate rule, the
designation of gasoline requirements for the two types of renewable
RBOB; the annual attest engagement requirements; and downstream
blending requirements of Sec. 80.69. Section 80.84(h) of the renewable
oxygenate regulation includes specific provisions for California
gasoline sold within reformulated gasoline covered areas as specified
in Sec. 80.70. Under Sec. 80.83(h)(2), California gasoline is presumed
to be used in the Los Angeles or San Diego covered area if the gasoline
is produced by a refinery located within Los Angeles or San Diego.
Gasoline is also presumed to be used in the Los Angeles or San Diego
covered area if the gasoline is transported to a facility within one of
these areas or to a facility from which gasoline is transported within
one of these areas. Refiners may refute these presumptions through the
production of appropriate documentation showing that the gasoline, in
fact, is transported for use outside of the Los Angeles or San Diego
reformulated gasoline areas. These areas are specified in Sec. 80.70.
Under Sec. 80.83(h)(3), California gasoline is considered to be
designated as VOC-controlled if the Reid Vapor Pressure (RVP) of the
gasoline, or RBOB subsequent to oxygenate blending, is or is intended
to meet a standard of 7.8 pounds per square inch (psi) or less in the
case of gasoline intended for use before March 1, 1996, or 7.0 psi or
less in the case of gasoline intended for use on or after March 1,
1996.21
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\2\1 Beginning March 1, 1996, the California Air Resources Board
(CARB) will enforce regulations which set the maximum RVP for the
air basin containing the Federal reformulated gasoline areas of Los
Angeles and San Diego at 7.0 pounds per square inch (psi). These
requirements apply during the period of April 1 through October 31
(March 1 for upstream parties).
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B. Blendstock Issues
EPA's proposed oxygenate rule would have only allowed refiners to
include in renewable oxygenate compliance calculations the renewable
oxygenate that is added by downstream oxygenate blenders where the
refiner carried out an appropriate quality assurance program over
downstream oxygenate blenders. A quality assurance program is intended
to ensure that when refiners claim credit for downstream blending of
renewable oxygenate that the oxygenate added is renewable, that the
renewable oxygenate is added to the RBOB produced by the refiner, and
that the volume of renewable oxygenate claimed is correct.
EPA received several comments from refiners regarding renewable
oxygenate blendstocks in response to this proposal. Some commenters
felt that the proposed renewable oxygenate requirement would be
difficult, if not impossible, to implement as it would force refiners
and importers to implement costly oversight programs over independent
blenders.
A commenter also stated that the proposed renewable oxygenate
rule's reliance on RBOB availability is ``at odds with'' the
reformulated gasoline program requirements for RBOB production and
handling. Under the final reformulated gasoline rule, the commenter
notes, RBOBs having different oxygenate requirements are segregated to
the point of oxygenate blending. For example, the commenter points out,
``any oxygenate'' RBOB must be segregated from ``ether-only'' RBOB. The
segregation requirements, combined with the renewable oxygenate
mandate, will (according to the commenter) exacerbate the problems
associated with supplying the needed amount of RBOB.
EPA agrees for the most part with these comments and has provided
for greater downstream oxygenate blending of renewables similar to the
final reformulated gasoline rule. As explained in greater detail in the
general overview section (``A,'' above), the final renewable oxygenate
regulations allow for two compliance options. The first option permits
the refiner to claim the actual amount of renewable oxygenate added by
the downstream blender and requires that both a contractual
relationship and a testing and oversight program exist. The second
option allows the refiner to designate RBOB as one of two generic
renewable types22 and to claim credit for downstream blending of
renewable oxygenate based on specified assumptions.
---------------------------------------------------------------------------
\2\2 For areas which have been granted an extended non-
commingling season, there are three generic RBOB types.
---------------------------------------------------------------------------
Under Sec. 80.83(f), oxygenate blenders are required to maintain
and, upon request, deliver to the EPA Administrator, or the
Adminstrator's designated representative, records demonstrating the
renewable nature and source of the oxygenate used; characteristics in
terms of volume, type, and purity; and product transfer documentation
for renewable oxygenate, reformulated gasoline, or RBOB for which the
blender acts as transferor or transferee. Although these blender
recordkeeping requirements vary from the renewable oxygenate proposal,
they are consistent with recordkeeping requirements associated with
other reformulated gasoline requirements and will not impose a
significant additional recordkeeping burden. As discussed in greater
detail in ``A. Overview of the Enforcement Scheme,'' above, EPA has
created new categories of renewable RBOB to allow greater refiner
flexibility in the renewable oxygenate requirement.
C. The Renewable Oxygenate Requirement for California Areas
The renewable oxygenate requirements apply to Federal reformulated
gasoline sold in the two covered areas in the State of California, Los
Angeles and San Diego. However, refiners who produce reformulated
gasoline for use in California are exempt from most reformulated
gasoline enforcement mechanisms beginning in 1995. See Sec. 80.81. This
California exemption is based on the fact that beginning in March 1996,
all gasoline used in California will be subject to the California Phase
II reformulated gasoline standards (``California gasoline''), which EPA
has concluded are at least as stringent as the federal Phase I
reformulated gasoline emissions standards. As a result, refiners who
produce California gasoline are exempt from most federal reformulated
gasoline enforcement requirements, including designating gasoline as
either reformulated or conventional gasoline, recordkeeping23 and
reporting. Refiners of California gasoline are not exempt, however,
from meeting the federal reformulated gasoline standards, including the
renewable oxygenate standard.
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\2\3 Refiners of California gasoline are required to keep
records required by California State law for five years, however.
---------------------------------------------------------------------------
In the proposed rule, EPA suggested a simple method to ensure that
an appropriate volume of California gasoline meets the renewable
oxygenate requirement. Specifically, EPA proposed that each refiner who
produces California gasoline be required to meet the renewable oxygen
standard for 54% of its volume California gasoline. The 54% figure was
derived from the historical volume of gasoline used in the Los Angeles
and San Diego markets as a portion of the entire state's market.
EPA received several comments with respect to the ``54% proposal.''
Some commenters, including industry and trade associations, felt that
EPA has no legal authority under Sec. 211(k) of the Clean Air Act to
require all California refiners to meet the renewable oxygenate
standard for 54% of their entire volume of California gasoline. These
commenters argued that imposing the renewable oxygenate requirement in
this manner would amount to requiring renewable oxygenate in Federal
non-reformulated as well as reformulated gasoline. Two other commenters
expressed support for EPA's 54% proposal, however, as a simple solution
to a difficult program issue.
EPA also received comments indicating that the Northern and
Southern California markets are truly distinct and that the burden on
refiners to account for gasoline they market in the Los Angeles and San
Diego area would not be great. One commenter stated that EPA may be
able to make a rebuttable presumption that all gasoline produced in the
Los Angeles and San Diego areas or imported into those areas is
reformulated gasoline for the purpose of the renewable oxygenate
mandate. However, this commenter also stated that refiners should be
able to rebut the presumption with respect to gasoline exported out of
the Los Angeles and San Diego area.
After consideration of the comments received, and as discussed
above, EPA has decided to impose the renewable oxygenate requirement
only for gasoline used in the Los Angeles and San Diego areas. EPA
believes that it is possible to have an effective renewable oxygenate
program for the two Federal reformulated gasoline program areas, and
recognizes that its authority under section 211(k)(1) is limited to
reformulated gasoline areas.
EPA received comments from a California state agency which
recommended a change in the proposed implementation date of January 1,
1995 to coincide with the March 1, 1996 refinery production deadline
for California reformulated gasoline. Combined with this was a request
to phase in the proposal over a 22 month period as follows: 10% on
March 1, 1996, 20 percent on January 1, 1997, and 30% on January 1,
1998. EPA does not believe that a three year phase-in or delay is
necessary and has received no compelling evidence that California
refiners would be particularly disadvantaged with respect to lead time.
EPA has included a phase-in schedule in today's rule for all covered
areas.
Various comments related to California's air quality outside of the
Federal VOC-controlled gasoline season are discussed elsewhere in this
preamble. One commenter suggested that, since California has been
allowed to develop its own reformulated gasoline regulations ``it might
make sense'' to let California decide which renewable oxygenates
qualify for the renewable oxygenate requirement and when they qualify.
The commenter felt that California officials might conclude, after
modeling air quality effects, to allow ethanol even during the summer
months.
EPA responds that California is subject to the reformulated
gasoline requirements of Sec. 211(k) of the Clean Air Act, although an
exemption from certain recordkeeping and enforcement requirements has
been granted for purposes of the California program. To ensure that the
objectives of the renewable oxygenate program are met, EPA believes
that it is important that the Federal reformulated gasoline areas
located within the State of California to be subject to this program.
EPA has a strong interest in consistent application of the renewable
oxygenate requirements across all reformulated gasoline areas and does
not believe that it is appropriate for state officials to decide which
oxygenates satisfy the Federal requirement.
EPA received other comments specifically related to application of
the renewable oxygenate rule to California. A few commenters felt that
California should be exempt from the renewable oxygenate requirement as
an outgrowth of California's exemption from most reformulated gasoline
enforcement mechanisms. EPA does not agree. Although refiners of
California gasoline have been exempted from many enforcement
requirements, they are not exempt from the requirement that their
gasoline meet Federal reformulated gasoline standards. Likewise, EPA
believes that Federal reformulated gasoline in California should be
subject to the renewable oxygenate standard, with appropriate exemption
from certain enforcement procedures.
Comments received from a California state agency indicated that
oversight should rest with the California Air Resources Board (CARB).
EPA responds that there is currently no state mandate to correspond to
the renewable oxygenate mandate contained in these regulations, thus,
this appears to be a moot issue.
D. Shoulder Season
EPA received some comments from parties concerned that the
renewable oxygenate requirement might lead to exceedances of the ozone
standard during the ``shoulder season'' (i.e. the time period
immediately before and after the Federal VOC control season) due to
increased use of ethanol. These comments, and EPA's response, i.e., a
petition process which would allow the Governor of any state affected
by the reformulated gasoline program to request an extension of the
non-commingling season beyond the VOC control season, are addressed
elsewhere in section III.G of this preamble.
To ensure that the state shoulder season petitions are implemented
effectively, Sec. 80.83(i) creates a category of RBOB, called ``non VOC
controlled renewable ether only'' which may be blended with ETBE or
another oxygenate that does not exhibit commingling effects when
blended with other gasolines. If a Governor's petition for an extended
non-commingling season is granted, terminals will be required to keep
``non VOC controlled renewable ether only'' RBOB on hand for blending
with appropriate oxygenates during the extended non-commingling season.
E. Other Issues
Some commenters asserted that EPA should allow temporary ``good
faith exemptions'' to refiners that make a showing that complying with
this proposal would ``result in extraordinary economic hardship.'' The
reformulated gasoline rule contains an exemption for ``inability to
produce conforming gasoline in extraordinary circumstances.'' See
Sec. 80.73 of the reformulated gasoline regulations. This exemption
does cover extreme and unusual circumstances outside of the control of
the refiner and would encompass such circumstances as ``Acts of God''
or natural disasters. EPA recognizes that this exemption may apply to
the renewable oxygenate mandate. EPA does not believe that an
additional exemption for purely economic reasons is appropriate,
particularly given that the renewable oxygenate mandate is a year
'round credit program.
V. Federal Preemption
This program is based on section 211(k) of the CAA. The provisions
for the prohibition of state and local controls under section 211(c)(4)
therefore do not apply.
VI. Environmental, Energy, and Economic Impacts
A. Environmental Impacts
1. Overview
Today's renewable oxygenate rule is projected to have a number of
direct and indirect environmental impacts resulting from changes in the
type of oxygenates that likely would have been used to fulfill the
requirements of the RFG program. Determining the precise nature of
these impacts is difficult because the renewables program provides
considerable flexibility in meeting the 30 percent renewables
requirement. In the case of VOC, NOx and air toxics, however, the
impact of today's rule is constrained because the renewables program
will take place within the context of the reformulated gasoline
program. Today's rule may also have effects on carbon monoxide, global
warming, and non-air quality aspects of the environment since these
effects are not constrained by the RFG emission models or performance
standards.
Today's rule does not alter the VOC, NOx, or toxics emission
performance standards for reformulated gasoline. Therefore, the
emission performance of reformulated gasoline as measured using the
relevant RFG emission model (the Simple Model in 1995-1997 or the
Complex Model in 1998 and beyond) will remain essentially unchanged.
Today's rule will affect VOC, NOx, or toxics emissions only to the
extent that the effects of fuel changes resulting from today's rule are
not included in the applicable RFG certification models. These effects
(predominantly the commingling and front-end distillation effects of
adding oxygenates to gasoline) should be beneficial for VOC emissions
to the extent that ETBE displaces either ethanol or MTBE use during the
summer months. Exact quantification of these benefits is difficult
because the changes in ETBE use and the quantification methodology are
both uncertain.
Health studies of ETBE are being initiated, since virtually no
health data exist at present. These studies in conjunction with studies
of potential ETBE related exposures would contribute to our
understanding of potential public health risk. This work is designed to
resolve existing uncertainties as to whether unique concerns may exist
with ETBE as compared to the ethanol, MTBE, and/or other compounds it
could displace.
Concerns with respect to potential VOC emission increases outside
of the VOC control season were raised in the comments on the proposal.
However, VOC emissions are not directly controlled outside of the VOC-
control season under the RFG program (although some control due to
early compliance with the requirements is expected based on past
experience with other programs). The issue of VOC emission increases
during the ``shoulder season'' is addressed in detail in section III.G.
The remainder of this section is divided into four parts. First,
the air quality effects of the renewable oxygenate rule in 1998 and
later years (when the Complex Model is in effect) are discussed.
Second, the air quality effects of today's rule during the Simple Model
years (1995-1997) are discussed. Third, the global warming impact of
today's rule is discussed. Fourth, the non-air quality effects of
today's rule is discussed.
2. Air Quality Impacts Under the Complex Model
As discussed in section III, the renewable oxygenate program is
expected to stimulate the use of ETBE during the summer months and
increase the use of ethanol during the winter months. According to the
Complex Model, these oxygenates provide smaller toxics benefits than do
MTBE or TAME when used at identical oxygen content levels. Any changes
in oxygenate type resulting from today's rule will have no effect on
overall air toxics emission performance, however, since the Complex
Model will account for the effects of changes in oxygenate type and the
emission performance standards are unchanged by today's rule. As
discussed in section VI.C of this notice, however, the increase in
ethanol and ETBE use may increase the cost of complying with the RFG
toxics emission performance standards.
In addition to impacts on toxics compliance, any shifts in
oxygenate use resulting from today's program will also cause changes in
the concentrations of other fuel parameters in the final gasoline
blend, since different oxygenates require different volumes to meet the
same oxygen content requirement. Changes in these other fuel parameters
(referred to as the dilution effect) can affect VOC, NOX, and air
toxics performance. However, the RFG performance standards remain
unchanged by today's rule, and the Complex Model will account for the
VOC, NOX, and toxics emission effects of any dilution-related
changes in the level of aromatics, olefins, sulfur, E200, E300, or
benzene. As a result, EPA has concluded that today's rule will not
alter the VOC, NOX, and toxics emission benefits of the RFG
program. As discussed in section VI.C of this notice, however, refiners
may experience positive or negative economic impacts in maintaining the
required emission performance of their reformulated gasoline as a
result of today's rule.
Two other effects of today's rule are not reflected in the Complex
Model and may affect summer nonexhaust VOC and toxics emissions,
however. First, commingling-related emissions during the VOC control
season would be reduced to the extent that ETBE replaces ethanol in
summer RFG.
Second, increased summer ETBE use (and reduced summer ethanol use)
would improve the front-end distillation characteristics of summer RFG,
thereby potentially reducing summer nonexhaust VOC and toxics emissions
to some degree. These effects, however, are contingent upon changes in
the amounts of ETBE and ethanol that are blended into RFG during the
summer months as a result of this rulemaking. Since it is uncertain how
much ETBE and ethanol would have been used during the summer months
absent today's rulemaking, and is still uncertain how much of each
oxygenate will be used as a result of today's rulemaking, it is not
possible to quantify these benefits. Furthermore, even if the volumes
of oxygenate use were known, the effect of front-end distillation
changes (other than RVP) on nonexhaust VOC emissions is not yet
quantifiable with a sufficient degree of certainty. Limited data and
scientific theory suggest it is a real effect, as discussed in the
Regulatory Impact Analysis for the RFG final rule, but reliable
quantification is not yet possible.
Carbon monoxide emissions are not regulated directly by either the
RFG program or today's rule. However, carbon monoxide emissions can be
affected by gasoline properties. Higher oxygen levels are known to
result in large reductions in carbon monoxide emissions, and lower RVP
levels are known to result in small reductions in carbon monoxide at
temperatures above 45 degrees Fahrenheit. Both of these effects are
currently incorporated in EPA's MOBILE5a in-use emission model.
Since the oxygen content requirements of the RFG program are not
altered by today's rule and since summer RVP levels are controlled by
the RFG performance standards, no change in CO emission levels is
anticipated during the summer months. Furthermore, based on EPA's
MOBILE5.a emission factor model, there would be no effect on CO
emissions of an increase in RVP levels during the winter months (when
RVP is not constrained by the RFG program) due to increased ethanol use
on the colder days when most carbon monoxide exceedances occur, since
the model does not show an effect of RVP on CO emissions below 45
degrees Fahrenheit. The only effect of today's rule on CO emissions
would be a potential small increase due to increased RVP levels
resulting from increased ethanol use on those winter days with
temperatures above 45 degrees Fahrenheit.
Other fuel parameters may also affect carbon monoxide emissions.
However, a model for CO incorporating other fuel parameters is not yet
available. Any such effects would be limited by the constraints placed
on these fuel parameters by the VOC, NOX, and air toxics RFG
emission performance standards.
3. Air Quality Impacts Under the Simple Model
The air quality effects of today's rule under the Simple Model are,
for the most part, expected to be similar to those under the Complex
Model, since the effects on fuel composition are expected to be similar
with two main exceptions. First, significant ETBE use is not expected
to be possible before the summer of 1996. Second, EPA anticipates that
in order to meet the requirements of today's program and the existing
RFG program, refiners may find it necessary for the first few years to
blend additional oxygenates into their RFG beyond the level necessary
to meet the 2.0 weight percent oxygen requirement. In particular,
refiners may find it necessary to blend up to 10 percent ethanol by
volume during the winter months in RFG markets with the supply,
distribution, and blending capacity to do so. Until the distribution
and blending infrastructure for ethanol use is expanded, it is unlikely
that this increase in ethanol use will be offset through oxygenate
trading given the limitations of the RFG program. Since ETBE use will
be limited, and since the volume of ethanol used will be similar to the
volume of MTBE displaced during the winter (10 vs. 11 volume percent),
dilution effects may be small during the first few years of the
program.
While the effects of dilution on emission performance may not be
reflected fully in Simple Model compliance calculations since it does
not account for all the fuel effects included in the Complex Model, EPA
would expect any resulting air quality effects to be minimal for
several reasons. First, as discussed above, EPA expects the dilution
effects to be minimal during the first years of the program. Second,
RFG producers are required under the Simple Model to not exceed their
1990 baseline levels of sulfur, T90, and olefins. These caps limit the
risk of any detrimental air quality effects related to differences in
dilution. Furthermore, the economic incentives of gasoline production
may result in refiners producing at or near these caps, regardless of
the type or volume of oxygenate used. Third, refiners are unlikely to
invest in processing equipment to produce gasoline during 1995-1997
which will make it more difficult for them to comply with the 1998
requirements under the Complex Model. Fourth, any remaining risks are
limited to the three-year period during which the Simple Model is in
effect. Fifth, some refiners may opt to use the Complex Model prior to
1998, which would have the effect of controlling any detrimental
environmental effects related to changes in dilution or oxygenate type.
As discussed above with regard to the impacts on air toxics
emissions resulting from changes in oxygenate type, today's rule does
not alter the performance standards under the Simple Model.
Nevertheless, EPA does recognize that the reduced toxics emission
benefits of ethanol and ETBE relative to MTBE under the Simple Model
(as under the Complex Model) may increase toxics compliance costs, as
discussed in section III.C. In addition, depending on how refiners
chose to adjust their fuels to offset the loss in air toxics
performance, the complex model may suggest some degradation in in-use
(as opposed to certification) air toxics emissions performance with the
use of ethanol or ETBE instead of MTBE which is not accounted for by
the Simple Model. As explained in more detail in the RIA, this
situation arises due to differences between how the Simple Model and
Complex model predict air toxics emission performance. If some refiners
choose to maintain air toxics emission performance by reducing
aromatics instead of benzene, then the complex model suggests less in-
use emission performance is achieved in-use with ethanol or ETBE than
with MTBE. However, EPA expects few refiners to choose to maintain air
toxics emission performance by reducing aromatics for two reasons.
First, aromatics control is, in general, believed to be the more costly
of the two approaches. Second, refiners are unlikely to invest in
processing equipment to comply with the simple model for 1995-1997
which will not also provide compliance under the complex model in 1998.
Regardless of which approach refiners take, however, this issue does
not exist for that fuel certified under early use of the complex model,
and disappears entirely in 1998 with mandatory use of the complex
model.
EPA also believes the commingling and distillation-related emission
effects of today's rule to be minimal under the first few years of the
program. The renewable oxygenate program does not provide incentives to
increase summer ethanol, so commingling- and distillation-related
nonexhaust VOC and toxics emissions from summer RFG should be
unaffected.
As discussed previously, today's rule is not expected to
significantly increase carbon monoxide emissions in the long term. In
the short term, however, today's rule may reduce carbon monoxide
emissions as refiners blend additional oxygenates during the first few
years of the renewable oxygenate program (as discussed above). This
increase in oxygenate content would reduce carbon monoxide emissions,
and such reductions would occur during the winter months when carbon
monoxide exceedances are most common.
4. Global Warming Impacts
According to the DOE report, today's rule is unlikely to result in
global warming benefits in the near term. In the longer term, however,
today's rule is expected to stimulate investment in higher-efficiency
renewable oxygenate production processes which could offer significant
global warming benefits. Additional discussion of the potential global
warming benefits of today's program is contained in section III.H of
this notice.
5. Non-Air Quality Impacts
The Agency is concerned about other environmental impacts of the
renewables requirement such as water pollution and soil erosion.
Comments were submitted to the Agency stipulating that, as a result of
the renewables program, corn may be grown in place of soybeans and hay
plant rotations which could result in decreased soil quality including
compaction, salination, acidification, and loss of biological activity.
New corn production to support increased ethanol demand in response to
today's rule could also increase soil erosion and affect water quality
and water flow. Corn farming was alleged to be the primary cause of
agro-chemical contamination of groundwater. In addition, the increased
barge shipments of ethanol resulting from this program were alleged to
increase the environmental risks and clean-up costs associated with
potential ethanol spills.
As discussed in section III.F, EPA has concluded that the renewable
oxygenate program is unlikely to have a significant impact on total
corn output in the near term. The expected 490 million gallons of new
ethanol demand resulting from today's rule would require an increase in
corn production of only approximately 2 percent. Thus, the
environmental impacts associated with increased corn production are
also expected to be small. In addition, future farming efficiency
improvements are expected to reduce the environmental impact of corn
production. Furthermore, the commercialization of ethanol production
techniques which rely on agricultural wastes or cellulosic feedstocks
would eliminate the need to increase corn production to support this
program. As mentioned previously, EPA expects the renewables
requirement to help stimulate development and commercialization of such
technologies.
EPA also believes that any adverse soil and water impacts from
today's rule will be adequately addressed through means other than the
renewable oxygenate program. Concerns related to the water impacts of
ethanol production will be controlled under the provisions of the Clean
Water Act. USDA has several programs in place to address soil erosion,
and the Coastal Zone Act of 1990, which requires a nutrient management
plan for covered areas, has helped increase farm efficiency and reduce
nutrient and agrochemical runoff.
B. Energy Impacts
The energy benefits of the renewable oxygenate program depend on
the oxygenates used and the production processes used to produce them,
which can vary depending on the timeframe of interest. As described
above, in the early years of the program the renewable oxygenate
requirement is expected to be met primarily with ethanol blended into
winter RFG. For at least the first two years, this ethanol would be
produced in existing plants or new plants equipped with current
technology. Some diversion of ethanol currently being blended into
conventional gasoline may also occur. Small additional quantities of
ETBE may be used in summer RFG and ethanol use in summer RFG may
decrease, but these shifts and their energy impacts will be very small
relative to the effects of the increase in wintertime ethanol use.
According to a study prepared by the Department of Energy,24 if
the 30 percent renewables requirement is met by blending ethanol
produced from new ethanol plants and ethanol plant expansions (as
opposed to ethanol produced in existing facilities and displaced from
its current markets) into winter RFG, the overall fossil energy
consumed in RFG production and use would be 0.7 percent lower than
would be the case if MTBE produced from natural gas were the only
oxygenate used in RFG. This estimate by DOE was reduced to as low as
0.5 percent when more conservative energy input assumptions were
incorporated into their calculational methodology, and was increased to
as high as 0.9% when energy input assumptions from USDA were
incorporated. The even greater reduction in natural gas use would be
partially offset by a 2.0 percent increase in crude oil use. It should
be noted that even with this increase in crude oil use, the total
amount of crude oil used to produce RFG under today's rule would still
be 8.6 percent lower than if conventional gasoline were produced
instead.
---------------------------------------------------------------------------
\2\4``Analysis Memorandum: Energy Requirements and CO2-
Equivalent Emissions of RFG,'' prepared by Margaret Singh, Argonne
National Laboratory, for Barry McNutt, U.S. Department of Energy,
June 6, 1994.
---------------------------------------------------------------------------
DOE projected that as ETBE capacity becomes available, its use in
summer RFG would reduce fossil energy use by 1.7 percent relative to
MTBE used in summer RFG. The DOE study indicates that if ETBE is
blended into VOC-controlled RFG to meet the 30 percent requirement in
the summer, and ethanol is still used to meet the requirement during
the winter, the fossil energy benefits of the program being promulgated
today program would be approximately 0.6 percent (0.4 to 0.8 using the
range of input assumptions evaluated in their final report) lower than
would be the case if MTBE produced from natural gas were the only
oxygenate used in RFG.
The energy benefits of this program are expected to become more
pronounced in later years. Improvements in the energy efficiency of
ethanol production will further reduce the fossil energy required to
produce ethanol. Further gains can be achieved by reducing energy
consumption in corn farming through changes in farming practices, using
more energy-efficient equipment, increasing per-acre crop yields, and
decreasing fertilizer use. Comments submitted by USDA and others, as
well as previous studies by DOE and EPA cited in the proposal, indicate
that as new feedstocks for ethanol such as cellulose are
commercialized, and as renewable methanol production becomes viable,
the fossil energy benefits of this program would increase substantially
relative to nonrenewable MTBE use. Using current estimates of the
energy inputs relative to the energy outputs for ethanol from cellulose
(approximately 1:5), the fossil energy benefits of the program being
promulgated today program would increase to approximately 1.3 percent
relative to the case if MTBE produced from natural gas were the only
oxygenate used in RFG. By providing a secure market for renewable
oxygenates, today's program will help provide the certainty needed to
encourage private investments in modern, high-efficiency renewable
oxygenate production technology.
C. Economic Impacts
1. Oxygenate and Blending Costs of the Program
The renewable oxygenate program is projected to add $4 million to
$60 million in cost to the RFG program annually prior to the year 2000
and $16 million to $60 million in cost to the RFG program annually in
2000 and beyond. These costs involve three major components: the cost
of renewable oxygenates relative to nonrenewable oxygenates,
transportation and blending costs, and toxics compliance costs. The
cost estimates include the impact of this rule on fuel economy. These
costs also assume that ethanol is blended at a concentration of 6.04
volume percent (2.1 weight percent oxygen); to the extent that ethanol
is blended at higher concentrations, costs (particularly the toxics
compliance costs) would be reduced. In addition, the renewable
oxygenate program is projected to add one-time costs of $17.6 million
for additional tankage, storage, and blending capacity. The derivation
of the various components of the cost for the renewable oxygenate
program are described below and in more detail in section IV of the
Regulatory Impact Analysis for this rule.
Before estimating the costs for the renewable oxygenate program,
however, it is necessary to estimate how much additional ethanol will
be used in RFG compared to the amount of ethanol that would have been
used in the absence of today's rule. Only those costs resulting from
the new ethanol demand required by the renewable oxygenate program
alone are included in the cost estimates determined here. Deriving
estimates for that amount of ethanol that would have been used under
the RFG program in the absence of the renewables requirement is
extremely difficult. However, the amount of new ethanol capacity
planned or under construction prior to the December proposal, combined
with the ethanol currently blended in the winter months in RFG areas
would have enabled ethanol to be used in up to 15 percent of the RFG
oxygenate market without displacing ethanol from existing markets.
Based on this information, EPA estimates that today's rule is likely to
increase ethanol's share of the total oxygenate market by approximately
15 percentage points, which amounts to 335 million gallons of ethanol.
With regard to the first component of the cost analysis, renewable
oxygenate costs, ethanol used in winter RFG is projected to be the low-
cost oxygenate on a per unit oxygen basis (based on EPA's cost analysis
for the RFG final rule and excluding any additional transportation and
blending costs as discussed below). Hence EPA expects that if winter
ethanol is used to meet the the renewable oxygenate requirement,
today's rule will not impose additional direct costs for oxygenates on
the RFG program. In fact, assuming 335 million gallons of new ethanol
demand, today's rule will reduce direct oxygenate costs by $22-72
million annually.
To the extent that ETBE is used to meet part of the renewable
oxygenate requirement, however, today's rule could increase the cost of
the program. EPA projects that ETBE-blended RFG would cost 0 to 0.8
cents per gallon more than ethanol-blended or MTBE-blended RFG. This
estimate, which is highly sensitive to MTBE and ethanol costs, includes
ETBE's value in reducing RVP and increasing octane but does not fully
reflect its value in diluting the levels of aromatics and sulfur in
gasoline. It also assumes that ETBE producers can take advantage of the
reduced gasoline excise tax for fuels containing ethanol. Without this
tax reduction, the cost of ETBE-blended RFG would be 3.1 to 3.9 cents
per gallon higher than MTBE-blended RFG.
With regard to the second component of the cost analysis, ethanol
is produced primarily in the Midwest, but RFG will be required in
California, the Northeast, and Texas in addition to several Midwestern
markets. As a result, additional transportation costs may be incurred.
EPA estimates the cost of transporting ethanol to range from 3 to 11
cents per gallon of ethanol, depending on the markets to which it is
being shipped. As discussed in detail in the RIA, EPA estimates the
average cost of transporting a gallon of ethanol to RFG markets to be
6-8 cents per gallon. Based on the estimate that the renewable
oxygenate program will increase ethanol demand by 335 million gallons
per year, the total transportation-related cost due to today's rule
would range from $20 million to $27 million annually.
In many parts of the nation, facilities to store and blend ethanol
have already been constructed. However, adequate facilities are not
currently in place in many RFG markets. Based on information obtained
from a draft DOE report,25 EPA estimates the cost of building
sufficient storage and blending capacity to meet the renewable
oxygenate requirement to be approximately $17.6 million. This
represents a one-time cost for additional tankage, storage, and
blending capacity, however, and not a continuous cost. There may be
some additional cost for blending beyond the costs of the facilities
and equipment, however, that is believed to be small.
---------------------------------------------------------------------------
\2\5''Assessment of Costs and Benefits of Flexible and
Alternative Fuel Use in the U.S. Transportation Sector, Progress
Report Three: Vehicle and Fuel Distribution Requirements (DRAFT),''
United States Department of Energy, Office of Policy, Planning, and
Analysis, July 1989.
---------------------------------------------------------------------------
With regard to the third component of the cost analysis, under both
the Simple and Complex reformulated gasoline emission models, ethanol
and ETBE provide smaller toxics emission reduction benefits than do
MTBE and TAME, the primary nonrenewable oxygenates expected to
participate in the RFG program. To offset the increase in toxics
emissions, refiners will have to alter other gasoline properties such
as aromatics, benzene, or sulfur. Assuming that refiners lower benzene
levels to offset any worsening in toxics performance, EPA estimates
that the additional cost could range as high as 0.89 cents per gallon
of RFG blended with ethanol in 1995-1999 and from 0.32 to 0.88 cents
per gallon of RFG blended with ethanol in 2000 and beyond. The higher
minimum costs in 2000 and beyond stem from the more stringent toxics
standards and the larger contribution of exhaust toxics to total
toxics; see the RIA for further details. These increased costs would be
incurred only for the volume of RFG blended with ethanol in excess of
the volume that would have been blended with these two oxygenates in
the absence of today's rule. Assuming that ethanol volume increases by
335 million gallons (as discussed previously and in the RIA) and that
ethanol is blended at 6.04 volume percent (or 2.1 weight percent
oxygen), the total volume of RFG involved would be approximately 5.55
billion gallons. This translates into an annual cost for the program of
up to $49 million in 1996-1999 and $18 million to $49 million in 2000
and beyond.
According to EPA's fuel economy analysis (as discussed in the RIA
for the RFG final rule), ethanol-blended RFGs provide slightly poorer
fuel economy than otherwise-identical RFGs which use MTBE or ETBE as
the oxygenate. The fuel economy penalty amounts to approximately 0.2
percent for the additional 5.55 billion gallons of RFG that would be
blended with ethanol as a result of the renewable oxygenate program.
Based on current wholesale gasoline prices, this reduction in fuel
economy would add approximately $5.55 million in annual costs to the
RFG program.
2. Impact on Renewable Fuels Industry
As discussed in section III of this notice, the renewables program
will require blending approximately 490 million additional gallons of
ethanol (or its equivalent) in RFG over and above the amount of ethanol
blended into gasoline in RFG areas in 1993. This increase represents a
growth of approximately 40 to 50 percent in renewable fuel demand from
current levels. EPA is phasing in the renewable oxygenate requirement
in order to avoid disrupting existing ethanol markets and the RFG
program. If the renewable oxygenate program causes ethanol to shift out
of its current markets into RFG markets, the benefits to the renewable
fuels industry would be reduced and the long-term growth prospects for
the industry would be jeopardized. Phasing the program in over two
years permits a more orderly expansion of renewable oxygenate
production capacity and helps assure that the additional demand created
by today's rule will occur without causing undesirable logistical
problems, which could result in supply problems and price spikes and
might not help stimulate the use of renewable fuels in the United
States.
In addition, the certainty provided by today's rule is expected to
stimulate considerable private investment in renewable fuel production
technology and capacity. EPA expects this investment to accelerate the
development and implementation of advanced, high-efficiency production
processes, which in turn are expected to provide global warming
benefits and larger fossil fuel energy savings than can be provided by
existing ethanol production facilities.
3. Impact on Farm Economy
According to comments submitted by USDA, the renewable oxygenate
program is expected to increase farm incomes by increasing demand for
farm products and creating a market for agricultural waste products.
Based on USDA estimates, the renewable oxygenate program will increase
corn prices by approximately 4.0-6.7 cents per bushel when fully
implemented. Based on average annual corn production of 8.7 billion
bushels, such a price increase would increase farm income by
approximately $348-583 million.26 However, USDA projects a
decrease in farm deficiency payments as a result of the increase in
corn prices of $220-369 million, so the net increase in farm income
would be $128-214 million per year.27 The reader is referred to
the RIA for a more detailed discussion of this estimate.
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\2\6According to information provided by John W. McClelland of
USDA, ``Memorandum for Richard Wilson, Director, Office of Mobile
Sources, U.S. Environmental Protection Agency,'' June 20, 1994.
\2\7According to information provided by John W. McClelland of
USDA, ``Memorandum for Richard Wilson, Director, Office of Mobile
Sources, U.S. Environmental Protection Agency,'' June 20, 1994.
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To the extent that this increase in farm incomes results from
higher prices for corn and other crops, some of the farm income
benefits may be lost as feed costs for livestock producers increase.
However, it is unlikely that price increases will account for the
entire increase in farm incomes. Utilization of agricultural waste
products and increased crop production are also expected to increase
farm incomes without increasing the price per bushel for corn and other
ethanol feedstocks. Hence the impact of the renewable oxygenate program
is expected to have a net beneficial effect on the farm economy.
4. Impact on Natural Gas, Methanol, and MTBE Sectors
EPA recognizes that the renewable oxygenate program may affect the
growth prospects for the natural gas, methanol, and MTBE sectors. To
the extent that today's rule leads to larger market shares for ethanol
and other renewable oxygenates than otherwise would occur, the market
share for nonrenewable oxygenates would be smaller than otherwise would
occur.
However, EPA does not believe that today's rule will have a
significant adverse impact on the natural gas, methanol, and MTBE
industries for several reasons. First, EPA always has expected ethanol
and its derivatives to play a role in the RFG program even in the
absence of today's rule. Second, the advent of the Phase II RFG
standards in 2000 will create powerful incentives to reduce the RVP of
summer reformulated gasoline to very low levels. As a result, EPA had
expected that ETBE and ETAE would be used beginning in 2000 even
without the promulgation of today's rule. EPA considers it unlikely
that MTBE, methanol, and natural gas producers would install expensive
capital equipment to satisfy demand only for Phase I of the program;
instead, EPA has expected these industries to build capacity to satisfy
the long-term demand for their product. Since such long-term demand
would be limited by the growth in ETBE and ETAE demand for Phase II
RFG, it is not clear to EPA that today's rule will reduce the growth of
the methanol, MTBE, and natural gas industries below what it otherwise
would have been.
Third, even with today's rule, methanol and MTBE production is
projected to grow quite rapidly. If MTBE captures 70 percent of the RFG
oxygenate market, annual MTBE demand will grow from 2.3 billion gallons
in 1993 to 4.1 billion gallons in 1995 and to 4.8 billion gallons by
1997 (when the Phase II California RFG program takes full effect), an
increase of approximately 110 percent. As a result, annual methanol
production is projected to grow by 600 million gallons in 1995 and 1996
and an additional 200 million gallons by 1997. The demand for natural
gas will grow even more dramatically in absolute terms, since natural
gas is an economically attractive source of the isobutylene used to
produce ETBE and is also used as an energy source in ethanol
production, according to USDA.
5. Impact on Highway Trust Fund and General Fund
Renewable fuels blended directly into gasoline qualify either for
income tax credit or reduced excise tax rates. The reduced excise tax
rate is the form of the tax subsidy used most frequently and
effectively reduces the flow of revenue into the Federal Highway Trust
Fund. The income tax credits reduce the General Fund. At present,
renewable ethanol and methanol derived from sources other than oil,
natural gas, coal, and peat qualify for the reduced excise tax rates if
they are blended into finished gasoline. Renewable ethers may also
qualify for the reduced excise tax rates, although the mechanism by
which the tax reduction is received makes it difficult and often
uneconomical to obtain for potential blenders.
To the extent that today's rule increases ethanol use in non-VOC-
controlled RFG, it will reduce highway trust fund revenues. As
discussed above, the amount of new ethanol capacity planned or under
construction prior to the December proposal, combined with the ethanol
currently blended in the winter months in RFG areas, would have enabled
ethanol to be used in up to 15 percent of the RFG oxygenate market
without displacing ethanol from existing markets. Based on this
information, EPA estimates that today's rule is likely to increase
ethanol's share of the total oxygenate market by approximately 15
percentage points, which amounts to 335 million gallons of ethanol.
With a $0.54 per gallon tax subsidy for ethanol, EPA has concluded that
today's rule will result in a loss of highway trust fund revenues of
approximately $181 million annually once the program is fully
implemented. In addition, up to 176 million gallons of the currently-
planned additions to ethanol capacity will be eligible for an
additional tax credit of $0.10/gallon under the small ethanol producer
credit, which could reduce General Fund revenues by as much as $17.6
million. Finally, if ethanol is blended at 10 volume percent to meet
the requirements of the renewable oxygenate program (which is
especially possible in the early years of the program, as discussed
elsewhere in this Preamble), then an additional $0.06 per gallon of
ethanol would be diverted from the highway trust fund to to the General
Fund. Hence the total loss in annual tax revenues resulting from the
renewable oxygenate program would be as large as $199 million, while
the loss in annual highway trust fund revenues is expected to range
from $181 million to $201 million. These values could change as the
level of ETBE use changes; depending on the extent to which the
renewable oxygenate requirement is met via ETBE use, today's rule may
have less of an impact on highway trust fund revenues. Beginning in
2000, EPA expects the Phase II RFG requirements to stimulate expanded
use of ETBE in VOC-controlled gasoline to take advantage of its RVP-
lowering properties. EPA believes this would have happened to some
extent regardless of the renewable oxygenate requirement. Hence, EPA
anticipates that beginning in 2000, the reduction in highway trust fund
revenues resulting from the renewable oxygenate requirement itself
could decrease significantly below the estimates cited above. A more
detailed discussion of the highway trust fund impact of today's rule
can be found in the RIA.
6. Impact on Farm Support Payments
EPA received comments from farm interests and USDA claiming that
the renewable oxygenate program would reduce government expenditures on
farm income and farm price support payments. To the extent that this
program increases crop prices, it should reduce farm program payments.
As discussed in section VI.C.3, USDA projects that farm deficiency
payments will decrease by $220-369 million per year.
VII. Public Participation
In its NPRM for this rule, EPA requested comment on all aspects of
the proposal. In addition, EPA specifically invited public comment on
the following issues: (1) EPA's statutory authority to promulgate this
rule; (2) the extent to which renewable oxygenates would be used in
reformulated gasoline absent the proposal; (3) the economic, energy,
and crude oil import benefits to the nation resulting from the
proposal; (4) any other approaches which could be used to achieve the
same objectives; (5) the likelihood that the renewable oxygenate
requirement would be met with domestically produced oxygenates absent a
requirement to this effect, whether such a requirement would be
desirable and legally permissible, and any other suggested approaches
to ensure the domestic employment benefits of this program; (6) the
climate change aspects of the proposal; (7) the definition of renewable
oxygenates; (8) the need for performance-based standards for renewable
oxygenates based on fossil energy impact or greenhouse gas emissions;
(9) health effects data regarding renewable oxygenates whose use may be
encouraged as a result of the program; (10) the appropriate level for
the renewable oxygenate requirement, the feasibility of the
requirement, lead-time requirements, the need for a phase-in period,
and any other supply-related issues; (11) the need and justification
for a year-round program in lieu of a summer-only program; (12) the
allowance for year-round averaging of renewable oxygenate content; (13)
the applicability of the program only to producers of reformulated
gasoline rather than including downstream blenders; (14) the
enforcement-related provisions; (15) the impact of the program on the
already-promulgated reformulated gasoline program, and (16) a petition
process to include additional renewable oxygenates.
During the comment period and at the January 1994 public hearing,
EPA received comments and testimony on various aspects of the proposal
from numerous parties such as environmental organizations, states,
environmental regulatory associations, corn growers, and farmers, as
well as the petroleum, ethanol, and oxygenated fuels industries. The
Agency has diligently reviewed and considered all written and oral
comments on the renewable oxygenate proposal.
For those readers interested in reviewing the comments related to
the renewable oxygenate proposal for reformulated gasoline, all
comments received by the Agency are located in the EPA Air Docket,
Docket A-93-49 (See ``ADDRESSES''). All significant comments were
considered in revising the provisions in the proposal and/or are
responded to in the Regulatory Impact Analysis and Response to Comments
document contained in Docket A-93-49.
VIII. Compliance With Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) of 1980 requires federal
agencies to examine the effects of regulations and to identify
significant adverse impacts of federal regulations 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 businesses28.
For purposes of the renewable oxygenate requirement 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.
---------------------------------------------------------------------------
\2\8U.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.
---------------------------------------------------------------------------
Pursuant to section 605(b) of the Regulatory Flexibility Act, 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 renewable oxygenate program will secure a market for
oxygenate producers while simultaneously allowing refiners flexibility
for small refiners to comply with the program's requirements. In
addition, EPA decided against applying the renewable oxygenate
requirement to downstream oxygenate blenders (except as discussed
below), many of which are small entities. As discussed in the proposal,
this would have required each blender to maintain at least two sources
of oxygenate, one renewable and one not. Such an approach would have
proven either uneconomical or to involve significant transaction costs
related to averaging and trading.
However, today's program will require additional reporting
requirements of blenders (beyond the reformulated gasoline
requirements). The renewable oxygenate program requires that blenders
maintain records on two additional RBOB categories: any renewable
oxygenate and renewable ethers. The additional reporting requirements,
however, are economically insignificant and will not unduly burden
small entities such as blenders.
IX. Statutory Authority
EPA believes that the final rule adopted today is a reasonable
exercise of the discretionary authority granted the Agency under
sections 211(k) and 301 of the Act. EPA interprets the first sentence
of section 211(k)(1) as broad authority to adopt reasonable
requirements for reformulated gasoline, unless otherwise prohibited by
the Clean Air Act or other statutory provision. EPA interprets the
second sentence of section 211(k)(1) as authorizing EPA to adopt
regulations for the reformulated gasoline program that result in the
greatest emission reductions achievable, and at the same time tend to
optimize the resulting impacts on cost, energy requirements, and other
health and environmental impacts. In effect, EPA has full authority to
adopt emission reduction standards and other requirements that achieve
this result. For further discussion of the statutory authority for the
renewable oxygenate program the reader is referred to section III.A.
X. Administrative Designation and Regulatory Analysis
Under Executive Order 12866, (58 FR 51,735 (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 entitlements, grants,
user fees, or loan programs or the rights and obligations of recipients
thereof; or
(4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
the Executive Order.
Pursuant to the terms of Executive Order 12866, the Administrator
has determined that this rule is a ``significant regulatory action''
based on the above criteria. As such, this action was submitted to OMB
for review. Changes made in response to OMB suggestions or
recommendations have been documented in the public record: EPA Air
Docket A-93-49.
A Regulatory Impact Analysis (RIA) for the reformulated gasoline
program has been prepared and placed in Public Docket No. A-93-49 to
accompany this EPA notice of final rulemaking. A draft version of the
Regulatory Impact Analysis was submitted to the Office of Management
and Budget (OMB) for review as required by Executive Order 12866. Any
written comments from OMB and EPA response to those comments have also
been placed in the public docket for this rulemaking. A final version
of the analysis is available in the docket cited above.
XI. Compliance With the Paperwork Reduction Act
The information collection requirements in this rule were submitted
for approval to the Office of Management and Budget (OMB) under the
Paperwork Reduction Act, 44 U.S.C. 3501 et seq. These requirements are
not effective until OMB approves them and a technical amendment to that
effect is published in the Federal Register. An Information Collection
Request document has been prepared by EPA (ICR No. 1591.05) and a copy
may be obtained from Sandy Farmer, Information Policy Branch; EPA, 401
M Street, SW. (Mail Code 2136); Washington, DC 20460 or by calling
(202) 260-2740.
This collection of information has an estimated reporting burden
averaging 0.64 hours per response and an estimated annual recordkeeping
burden averaging 3.44 hours per respondent. If the burden associated
with quality assurance testing is included these estimates increase to
22.44 and 5.44, respectively. These estimates include 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 and
Regulatory Affairs, Office of Management and Budget, Washington, DC
20503, marked ``Attention: Desk Officer for EPA.'' EPA will respond to
any OMB or public comments on the information collection requirements
prior to OMB issuing approval.
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: June 30, 1994.
Carol M. Browner,
Administrator.
For the reasons set forth in the preamble, part 80 of title 40 of
the Code of Federal Regulations is 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 80.2 is amended by adding paragraph (ss) to read as
follows:
Sec. 80.2 Definitions.
* * * * *
(ss) Extended non-commingling season means the period during which
oxygenates which demonstrate commingling-related increases in Reid
Vapor Pressure (RVP) will not be permitted to receive credit toward the
renewable oxygenate requirements of Sec. 80.83. Any extended non-
commingling season is limited to that period of time determined by the
Administrator pursuant to Sec. 80.83(i).
3. Section 80.65 is amended by revising paragraph (d)(2)(vi) to
read as follows:
Sec. 80.65 General requirements for refiners, importers, and oxygenate
blenders.
* * * * *
(d) * * *
(2) * * *
(vi) In the case of RBOB, as RBOB that may be blended with:
(A) Any oxygenate;
(B) Ether only;
(C) Any renewable oxygenate;
(D) Renewable ether only;
(E) Non-VOC controlled renewable ether only.
* * * * *
4. Section 80.81 is amended by revising paragraphs (c)(2), (c)(5),
(c)(6), and (c)(10) to read as follows:
Sec. 80.81 Enforcement exemptions for California gasoline.
* * * * *
(c) * * *
(2) The designation of gasoline requirements contained in
Sec. 80.65(d), except in the case of RBOB that is designated as ``any
renewable oxygenate,'' ``non-VOC controlled renewable ether only'', or
``renewable ether only'';
* * * * *
(5) The annual compliance audit requirements contained in
Sec. 80.65(h), except where such audits are required with regard to the
renewable oxygenate requirements contained in Sec. 80.83;
(6) The downstream oxygenate blending requirements contained in
Sec. 80.69, except where such requirements apply to the renewable
oxygenate requirements contained in Sec. 80.83;
* * * * *
(10) The compliance attest engagement requirements contained in
subpart F of this part, except where such requirements apply to the
renewable oxygenate requirements contained in Sec. 80.83.
* * * * *
5. Section 80.83 is added to read as follows:
Sec. 80.83 Renewable oxygenate requirements.
(a) Definition of renewable oxygenate. For purposes of subparts D
and F of this part, renewable oxygenate is defined as provided in this
paragraph (a).
(1) In the case of oxygenate added to reformulated gasoline or RBOB
that is not designated as VOC-controlled or that is not subject to the
additional requirements associated with an extended non-commingling
season pursuant to Sec. 80.83(i), renewable oxygenate shall be:
(i) An oxygenate that is derived from non-fossil fuel feedstocks;
or
(ii) An ether that is produced using an oxygenate that is derived
from non-fossil fuel feedstocks.
(2) In the case of oxygenate added to reformulated gasoline or RBOB
that is designated as VOC-controlled or that is subject to the
additional requirements associated with an extended non-commingling
season pursuant to Sec. 80.83(i), renewable oxygenate shall be an ether
that meets the requirements of paragraph (a)(1)(ii) or (a)(3) of this
section.
(3) An oxygenate other than those ethers specified in paragraphs
(a)(1) or (a)(2) of this section may be considered a renewable
oxygenate if the Administrator approves a petition to that effect. The
Administrator may approve such a petition if it is demonstrated to the
satisfaction of the Administrator that the oxygenate does not cause
volatility increases in gasoline that are non-linear in nature (i.e., a
non-linear vapor pressure blending curve). The Administrator may
approve a petition subject to any appropriate conditions or
limitations.
(4)(i) Oxygenate shall be renewable only if the refiner, importer,
or oxygenate blender who uses the oxygenate is able to establish in the
form of documentation that the oxygenate was produced from a non-fossil
fuel feedstock.
(ii)(A) Any person who produces renewable oxygenate, as defined in
paragraph (a)(1) of this section, or who stores, transports, transfers,
or sells such renewable oxygenate, and where such renewable oxygenate
is intended to be used in the production of gasoline, shall maintain
documents that state the renewable source of the oxygenate, and shall
supply to any transferee of the oxygenate documents which state the
oxygenate is from a renewable source.
(B) Any person who imports oxygenate that is represented by the
importer to be renewable oxygenate, as defined in paragraph (a) of this
section, shall maintain documents, obtained from the person who
produced the oxygenate, that include a certification signed by the
owner or chief executive officer of the company that produced the
oxygenate that states:
(1) The nature of the feedstock for the oxygenate; and
(2) A description of the manner in which the oxygenate meets the
renewable definition under paragraph (a) of this section.
(iii) No person may represent any oxygenate as renewable unless the
oxygenate meets the renewable definition under paragraph (a) of this
section.
(5) For purposes of this section, an oxygenate shall be considered
to be derived from non-fossil fuel feedstocks only if the oxygenate is:
(i) Derived from a source other than petroleum, coal, natural gas,
or peat; or
(ii) Derived from a product:
(A) That was produced using petroleum, coal, natural gas, or peat
through a substantial transformation of the fossil fuel;
(B) When the product was initially produced, it was not commonly
used to generate energy (e.g. automobile tires); and
(C) The product was sold or transferred for a use other than energy
generation, and was later treated as a waste product.
(b) Renewable oxygenate standard. (1) The reformulated gasoline and
reformulated gasoline produced using RBOB that is produced by any
refiner at each refinery, or is imported by any importer, shall contain
a volume of renewable oxygenate such that the reformulated gasoline and
reformulated gasoline produced using RBOB, on average, has an oxygen
content from such renewable oxygenate that is equal to or greater than
0.30 wt% for the period of December 1, 1994 through December 31, 1995,
and 0.60 wt% beginning on January 1, 1996.
(2) The averaging period for the renewable oxygenate standard
specified in paragraph (b)(1) of this section shall be:
(i) Each calendar year; except that
(ii)Any reformulated gasoline and RBOB that is produced or imported
prior to January 1, 1995 shall be averaged with reformulated gasoline
and RBOB produced or imported during 1995.
(3) (i) The oxygenate used to meet the standard under paragraph
(b)(1) of this section may also be used to meet any oxygen standard
under Sec. 80.41; except that
(ii) The renewable oxygenate added by a downstream oxygenate
blender shall not be used by any refiner or importer to meet the oxygen
standard under Sec. 80.41, except through the transfer of oxygen
credits.
(c) Downstream oxygenate blending using renewable oxygenate. (1) In
the case of any refiner that produces RBOB, or any importer that
imports RBOB, the oxygenate that is blended with the RBOB may be
included with the refiner's or importer's compliance calculations under
paragraph (d) of this section only if:
(i) The oxygenate meets the applicable renewable oxygenate
definition under paragraph (a) of this section; and
(ii) The refiner or importer meets the downstream oxygenate
blending oversight requirements specified in Secs. 80.69(a)(6) and (7);
or
(iii) (A) In the case of RBOB designated for ``any renewable
oxygenate'' the refiner or importer assumes that ethanol will be
blended with the RBOB;
(B) In the case of RBOB designated for ``renewable ether only'' or
``non-VOC controlled renewable ether only ``, the refiner or importer
assumes that ETBE will be blended with the RBOB; and
(C) In the case of ``any renewable oxygenate,'' ``non-VOC
controlled renewable ether only'' and ``renewable ether only RBOB,''
the refiner or importer assumes that the volume of oxygenate added will
be such that the resulting reformulated gasoline will have an oxygen
content of 2.0 wt%.
(2) (i) No person may combine any oxygenate with RBOB designated as
``any renewable oxygenate'' unless the oxygenate meets the criteria
specified in paragraph (a) of this section.
(ii) No person may combine any oxygenate with RBOB designated as
``renewable ether only'' or ``non-VOC controlled renewable ether only''
unless the oxygenate meets the criteria specified in paragraph (a) of
this section.
(d) Compliance calculation. (1) Any refiner for each of its
refineries, and any importer shall, for each averaging period,
determine compliance with the renewable oxygenate standard by
calculating:
(i) Prior to January 1, 1996, renewable oxygen compliance total
using the following formula:
TR02AU94.000
(ii) Beginning on January 1, 1996, the renewable oxygen compliance
total using the following formula:
TR02AU94.001
where
CTro=the compliance total for renewable oxygen
Vi=the volume of reformulated gasoline or RBOB batch i
n=the number of batches of reformulated gasoline and RBOB produced or
imported during the averaging period
(iii) The renewable oxygen actual total using the following
formula:
TR02AU94.002
where
ATro=the actual total for renewable oxygen
Vi=the volume of gasoline or RBOB batch i
ROi=the oxygen content, in wt%, in the form of renewable oxygenate
of gasoline or RBOB batch i
n=the number of batches of gasoline or RBOB produced or imported during
the averaging period
(iv) Compare the renewable oxygen actual total with the renewable
oxygen compliance total.
(2) (i) The actual total must be equal to or greater than the
compliance totals to achieve compliance, subject to the credit transfer
provisions of paragraph (e) of this section.
(ii) If the renewable oxygen actual total is less than the
renewable oxygen compliance total, renewable oxygen credits must be
obtained from another refinery or importer in order to achieve
compliance.
(iii) The total number of renewable oxygen credits required to
achieve compliance is calculated by subtracting the renewable oxygen
actual total from the renewable oxygen compliance total.
(iv) If the renewable oxygen actual total is greater than the
renewable oxygen compliance total, renewable oxygen credits are
generated.
(v) The total number of renewable oxygen credits which may be
traded to a refiner for a refinery, or to another importer, is
calculated by subtracting the renewable oxygen compliance total from
the renewable oxygen actual total.
(e) Credit transfers. Compliance with the renewable oxygenate
standard specified in paragraph (b)(1) of this section may be achieved
through the transfer of renewable oxygen credits, provided that the
credits meet the criteria specified in Secs. 80.67(h)(1) (i) through
(iv) and Secs. 80.67(h) (2) and (3).
(f) Record keeping. Any refiner or importer, or any oxygenate
blender who blends oxygenate with any RBOB designated as ``any
renewable oxygenate,'' ``non VOC controlled renewable ether only'' or
``renewable ether only'' shall for a period of five years maintain the
records specified in this paragraph (f) in a manner consistent with the
requirements under Sec. 80.74, and deliver such records to the
Administrator upon request. The records shall contain the following
information:
(1) (i) Documents demonstrating the renewable nature and source of
the oxygenate used, consistent with the requirements of paragraph
(a)(3) of this section;
(ii) The volume, type, and purity of any renewable oxygenate used;
and
(iii) Product transfer documentation for all renewable oxygenate,
reformulated gasoline, or RBOB for which the party is the transferor or
transferee.
(2) The requirements of this paragraph (f) shall apply in addition
to the recordkeeping requirements specified in Sec. 80.74(e).
(g) Reporting requirements. (1) Any refiner for each refinery, or
any importer, shall for each batch of reformulated gasoline and RBOB
include in the quarterly reports for reformulated gasoline required by
Sec. 80.75(a) the total weight percent oxygen and the weight percent
oxygen attributable to renewable oxygenate contained in the gasoline,
or contained in the RBOB subsequent to oxygenate blending if allowed
under paragraph (c) of this section.
(2) Any refiner for each refinery, or any importer, shall submit to
the Administrator, with the fourth quarterly report required by
Sec. 80.75(a), a report for all reformulated gasoline and RBOB that was
produced or imported during the previous calendar year averaging
period, that includes the following information:
(i) The total volume of reformulated gasoline and RBOB;
(ii) The compliance total for renewable oxygen;
(iii) The actual total for renewable oxygen;
(iv) The number of renewable oxygen credits generated as a result
of actual total renewable oxygen being greater than compliance total
renewable oxygen;
(v) The number of renewable oxygen credits required as a result of
actual total renewable oxygen being less than compliance total
renewable oxygen;
(vi) The number of renewable oxygen credits transferred to another
refinery or importer;
(vii) The number of renewable oxygen credits obtained from another
refinery or importer; and
(viii) For any renewable oxygen credits that are transferred from
or to another refinery or importer, for any such transfer:
(A) The names, EPA-assigned registration numbers and facility
identification numbers of the transferor and transferee of the credits;
(B) The number of renewable oxygen credits that were transferred;
and
(C) The date of the transaction.
(h) Renewable oxygenate requirements for reformulated gasoline used
in the State of California. (1) Any refiner or importer of California
gasoline, as defined in Sec. 80.81, shall meet the renewable oxygenate
standard specified in paragraph (a) of this section for all
reformulated gasoline or RBOB used in any reformulated gasoline covered
area as specified in Sec. 80.70.
(2) Any California gasoline shall be presumed to be used in a
reformulated gasoline covered area:
(i) (A) If the gasoline is produced at a refinery that is located
within a reformulated gasoline covered area; or
(B) If the gasoline is transported to a facility that is located
within a reformulated gasoline covered area, or to a facility from
which gasoline is transported by truck into a reformulated gasoline
covered area; unless
(ii) The refiner or importer is able to establish with
documentation that the gasoline was used outside any reformulated
gasoline covered area.
(3) Any California gasoline shall be considered to be designated as
VOC-controlled (for purposes of paragraph (a)(1) of this section) if
the Reid vapor pressure of the gasoline, or RBOB subsequent to
oxygenate blending, is intended to meet a standard of:
(i) 7.8 psi or less in the case of gasoline intended for use before
March 1, 1996; or
(ii) 7.0 psi or less in the case of gasoline intended for use on or
after March 1, 1996.
(i) Special provisions for shoulder season. (1) The Governor of any
state may petition for an extension of the non-commingling season for
any or all reformulated gasoline covered areas within the state
pursuant to Sec. 80.70.
(i) Such petition must satisfy the following criteria:
(A) Evidence showing an increase in the market share and/or use of
oxygenates which produce commingling-related RVP increases in the
area(s) that are covered by the petition;
(B) Evidence demonstrating a pattern of exceedances for the period
for which the extension is sought, including ozone monitoring data for
the preceding three(3) years of the reformulated gasoline program;
(C) An analysis showing that the pattern of ozone exceedances is
likely to continue even with implementation of other ozone air quality
control measures and/or programs currently planned by the State; and
(D) Evidence that the responsible State agency or authority has
given the public an opportunity for a public hearing and the submission
of written comments with respect to the petition.
(ii) Effective data and publication of decision.
(A) If the Administrator determines that the petition meets the
requirements of paragraph (i)(1)(i) of this section, to the
satisfaction of the Administrator, then EPA shall publish a notice in
the Federal Register announcing its intention to establish the non-
commingling season as requested by the Governor, and specifying a
tentative effective date.
(1) The Administrator shall provide the public with an opportunity
for a hearing and the submission of written comments.
(2) The tentative effective date will correspond with the first day
of the next complete non-commingling season beginning not less than one
year after receipt of the petition.
(B) If the Administrator receives adverse comments or information
demonstrating to the satisfaction of the Administrator that the
criteria of paragraph (i)(1)(i) of this section have not been met, that
the tentative effective date is not reasonable, or that other good
reasons exist to deny the petition, then the Administrator may reject
the Governor's request for an extended non-commingling season, in whole
or in part, or may delay the effective date by up to two (2) additional
years. Absent receipt of such adverse comments or information, EPA
shall publish a notice in the Federal Register announcing its approval
of the petition and specifying an effective date for the extended non-
commingling season.
(2) In the case of any refiner that produces RBOB, or any importer
that imports RBOB, the oxygenate that is blended with the RBOB may be
included with the refiner's or importer's compliance calculations under
paragraph (d) of this section only if:
(i) The oxygenate meets the applicable renewable oxygenate
definition under paragraph (a) of this section; and
(ii) In the case of RBOB designated for ``non VOC controlled ether
only'' the refiner or importer assumes that ETBE or other oxygenate
that does not exhibit volatility-related commingling effects when mixed
with other gasolines and approved by the EPA Administrator under
subparagraph (a)(3) of this section will be blended with the RBOB and
so labels the transfer documentation.
6. Section 80.128 is amended by revising paragraphs (a) and (e)(2);
removing ``and'' at the end of paragraph (e)(4); removing the period at
the end of paragraph (e)(5) and adding ``; and'' in its place; and
adding paragraph (e)(6) to read as follows:
Sec. 80.128 Agreed upon procedures for refiners and importers.
* * * * *
(a) Read the refiner's or importer's reports filed with EPA for the
previous year as required by Secs. 80.75, 80.83(g), and 80.105.
* * * * *
(e) * * *
(2) Determine that the requisite contract was in place with the
downstream blender designating the required blending procedures, or
that the refiner or importer accounted for the RBOB using the
assumptions in Sec. 80.69(a)(8) in the case of RBOB designated as ``any
oxygenate,'' or ``ether only,'' or using the assumptions in
Secs. 80.83(c)(1)(ii) (A) and (B) in the case of RBOB designated as
``any renewable oxygenate,'' ``non VOC controlled renewable ether
only,'' or ``renewable ether only'';
* * * * *
(6) In the case of RBOB designated as ``any renewable oxygenate,''
``non VOC controlled renewable ether'' or ``renewable ether only'',
review the documentation from the producer of the oxygenate to
determine if the oxygenate meets the requirements of Sec. 80.83(a).
* * * * *
7. Section 80.129 is amended by revising paragraphs (a) and (d)(3)
(iii) and (iv), and by adding paragraph (d)(3)(v) to read as follows:
Sec. 80.129 Agreed upon procedures for downstream oxygenate blenders.
* * * * *
(a) Read the oxygenate blender's reports filed with the EPA for the
previous year as required by Secs. 80.75 and 80.83(g).
* * * * *
(d) * * * *
(3) * * * *
(iii) In the case of RBOB designated as ``any renewable
oxygenate,'' ``non VOC controlled renewable ether only,'' or
``renewable ether only,'' review the documentation from the producer of
the oxygenate to determine if the oxygenate meets the requirements of
Sec. 80.83(a);
(iv) Recalculate the actual oxygen content based on the volumes
blended and agree to the report to EPA on oxygen; and
(v) Review the time and place designations in the product transfer
documents prepared for the batch by the blender, for consistency with
the time and place designations in the product transfer documents for
the RBOB (e.g., VOC-controlled or non-VOC-controlled, VOC region for
VOC-controlled, OPRG versus non-OPRG, and simple or complex model).
* * * * *
[FR Doc. 94-17649 Filed 8-1-94; 8:45 am]
BILLING CODE 6560-50-P