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Regulation of Fuels and Fuel Additives: Adjustments to Individual Baselines for the Reformulated Gasoline and Anti-Dumping Programs
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[Federal Register: March 4, 1997 (Volume 62, Number 42)]
[Rules and Regulations]
[Page 9871-9884]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04mr97-16]
[[Page 9871]]
_______________________________________________________________________
Part III
Environmental Protection Agency
_______________________________________________________________________
40 CFR Part 80
Regulation of Fuels and Fuel Additives: Adjustments to Individual
Baselines for the Reformulated Gasoline and Anti-Dumping Programs;
Final Rule
[[Page 9872]]
ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 80
[AMS-FRL-5696-2]
Regulation of Fuels and Fuel Additives: Adjustments to Individual
Baselines for the Reformulated Gasoline and Anti-Dumping Programs
AGENCY: Environmental Protection Agency (EPA).
ACTION: Final rulemaking.
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SUMMARY: Under the Clean Air Act (CAA or the Act), as amended in 1990,
the Environmental Protection Agency (EPA or the Agency) promulgated
anti-dumping regulations for conventional gasoline, that is, gasoline
not certified as reformulated gasoline (RFG). These regulations require
that conventional gasoline not be more polluting than it was in 1990.
They also include provisions for the development of individual refinery
baselines. The regulations also include provisions which allow a
refinery to obtain an adjusted baseline under certain, limited
circumstances. Today's regulations modify the requirements of one
baseline adjustment and specify the requirements of two new baseline
adjustments.
Specifically, today's rulemaking modifies the requirements for
obtaining a baseline adjustment due to the production of JP-4 jet fuel
in 1990. This rule also allows a baseline adjustment for refiners who
are now unable to acquire extremely sweet crude oil (that is, crude oil
relatively low in sulfur) that had been available in 1990 and from
which the gasoline used to develop a 1990 individual baseline was
obtained. Finally, this rule allows a baseline adjustment for
refineries which have both extremely low baseline sulfur and olefin
levels.
The criteria for obtaining any baseline adjustment are stringent.
As a result, only those refineries which would experience a severe
economic burden due to the regulations are allowed the relief provided
by a baseline adjustment. Since few refineries qualify for these
adjustments and requiring compliance without a baseline adjustment
would be of minimal benefit to the environment, the environmental
impact of allowing the baseline adjustments is negligible.
DATES: This rule will be effective on April 22, 1997.
ADDRESSES: Materials relevant to this final rulemaking (FRM) are
contained in Public Docket No. A-95-03. Materials relevant to the RFG
final rule are contained in Public Dockets A-91-02 and A-92-12. These
dockets are located at Room M-1500, Waterside Mall (ground floor), U.S.
Environmental Protection Agency, 401 M Street SW., Washington, DC
20460. The docket may be inspected from 8:00 a.m. until 5:30 p.m.
Monday through Friday. A reasonable fee may be charged by EPA for
copying docket materials.
FOR FURTHER INFORMATION CONTACT: Christine M. Brunner, U.S. EPA, Fuels
and Energy Division, 2565 Plymouth Road, Ann Arbor, MI 48105.
Telephone: (313) 668-4287. To request copies of this document, contact
Delores Frank, U.S. EPA, Fuels and Energy Division, 2565 Plymouth Road,
Ann Arbor, MI 48105. Telephone: (313) 668-4295.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Electronic Copies of Rulemaking Documents
A. Technology Transfer Network Bulletin Board System (TTNBBS)
B. Internet
II. Regulated Entities
III. Introduction
IV. JP-4 Baseline Adjustment
A. Introduction
B. General Comments on the Proposal
C. Comments on the Proposed Ratio of JP-4 Production to Gasoline
Production
D. Comments on the Aggregation and RFG Production Restrictions
E. Comments Regarding the Effect of JP-4 Production on Refinery
Operation
V. Crude Oil Quality Baseline Adjustment
A. Introduction
B. General Comments on the Proposal
C. Comments on Crude Oil Quality Changes Since 1990
D. Comments on the Proposed Criteria for a Baseline Adjustment
E. Comments on the Proposed Options for a Baseline Adjustment
VI. Low Sulfur, Low Olefin Baseline Adjustment
A. Introduction
B. General Comments on the Proposal
C. Provisions of the Final Rule
VII. Environmental and Economic Impacts
VIII. Administrative Requirements
A. Administrative Designation
B. Impact on Small Entities
C. Paperwork Reduction Act
D. Unfunded Mandates Act
E. Submission to Congress and the General Accounting Office
IX. Statutory Authority
I. Electronic Copies of Rulemaking Documents
A. Technology Transfer Network Bulletin Board System (TTNBBS)
An electronic copy of this notice is available on the EPA's Office
of Air Quality Planning and Standards (OAQPS) Technology Transfer
Network Bulletin Board System (TTNBBS). The service is free of charge,
except for the cost of the phone call. The TTNBBS can be accessed with
a phone line and a high-speed modem per the following information:
TTNBBS: 919-541-5742
(1200-14400 bps, no parity, 8 data bits, 1 stop bit)
Voice Help-line: 919-541-5384
Off-line: Mondays from 8:00 AM to 12:00 Noon ET
A user who has not called TTN previously will first be required to
answer some basic informational questions for registration purposes.
After completing the registration process, proceed through the
following menu choices from the top menu to access information on this
rulemaking.
GATEWAY TO TTN TECHNICAL AREAS (Bulletin Boards)
OMS--Mobile Sources Information
Rulemaking and Reporting
<3> Fuels
<9> File Area #9 * * * Reformulated gasoline
At this point, the system will list all available files in the
chosen category in reverse chronological order with brief descriptions.
These files are compressed (i.e., ZIPped). Today's notice can be
identified by the following title: JP4FRM.ZIP. To download this file,
type the instructions below and transfer according to the appropriate
software on your computer:
>D>ownload, rotocol, xamine, ew, ist, or elp Selection
or to exit: D filename.zip
You will be given a list of transfer protocols from which you must
choose one that matches the terminal software on your own computer. The
software should then be opened and directed to receive the file using
the same protocol. Programs and instructions for de-archiving
compressed files can be found via ystems Utilities from the top
menu, under rchivers/de-archivers. After you have downloaded the
desired files, you can quit the TTNBBS with the oodbye command.
Please note that due to differences between the software used to
develop the document and the software to which the document is
downloaded, changes in page format may occur.
B. Internet
Rulemaking documents can also be located on the Internet as
follows:
World Wide Web
http://www.epa.gov/omswww
Telnet
telnet ttnbbs.rtpnc.epa.gov
[[Page 9873]]
FTP
ftp://ftp.epa.gov
Then change the directory (CD) to /pub/gopher/OMS/
Gopher
gopher://gopher.epa.gov:70/11/Offices/Air/OMS
Alternatively, go to the main EPA gopher and follow the menus:
gopher.epa.gov
EPA Offices and Regions
Office of Air and Radiation
Office of Mobile Sources
II. Regulated Entities
Entities that could be regulated by this action are those that
produced gasoline in 1990 and which have an individual baseline per
part 40 section 80.91 of the Code of Federal Regulations (CFR).
Regulated categories and entities include:
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Category Examples of regulated entities
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Industry............................... Oil refineries.
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This table is not intended to be exhaustive, but rather provides a
guide for readers regarding entities likely to be regulated by this
action. This table lists the types of entities that EPA is now aware
could potentially be regulated by this action. Other types of entities
not listed in the table could also be regulated. To determine whether
your facility is regulated by this action, you should carefully examine
the applicability criteria at 40 CFR 80.91. If you have questions
regarding the applicability of this action to a particular entity,
consult the person listed in the preceding FOR FURTHER INFORMATION
CONTACT section.
III. Introduction
The standards that a refiner must comply with for certain aspects
of the reformulated and conventional gasoline regulations are based on
the refiner's individual baseline.1An individual baseline is the
set of fuel parameter values, emissions values, and component volumes
which represent the quality and quantity of the refiner's 1990
gasoline. (See 40 CFR 80.91.) EPA's regulations establish requirements
for developing an individual baseline. For special situations, the
Agency has allowed the baseline fuel parameters, emissions values, and
component volumes to be adjusted. Such situations have included
unforeseen downtime of a gasoline blendstock producing unit, non-annual
maintenance, work-in-progress, and JP-4 jet fuel production.
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\1\ In general, the anti-dumping provisions apply to refiners or
importers of conventional gasoline. The baseline adjustment
provisions finalized in today's notice, however, are applicable only
to refiners and their refineries.
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This FRM allows baseline adjustments for three situations where
parties would suffer an extreme economic burden due to the original
regulations if relief were not granted. Specifically, this rule (1)
Revises the requirements for a baseline adjustment due to the
production of JP-4 jet fuel in 1990, (2) provides an adjustment to the
baseline sulfur values of certain refineries for instances where
extremely sweet crude oil (which is no longer available) was used in
1990 gasoline production, and (3) adds a provision for adjusting
refinery baselines which have very low values for both sulfur and
olefins.
In general, for refiners who qualify for one or more of the
baseline adjustments finalized today, EPA will apply the adjustments to
gasoline produced in 1996. In the August 1995 Notice of Proposed
Rulemaking (NPRM) EPA indicated that any adjustments finalized under
this rulemaking would apply to a refiner's 1995 compliance
determination. However, EPA cannot retroactively apply a rulemaking,
even one that provides a measure of regulatory relief. Many refiners
affected by today's rule received baseline adjustments under the stay
promulgated at 60 FR 40006 (August 4, 1995). Because these refiners
have the same adjusted baseline under the stay that they would receive
as a result of today's action, they are unaffected by whether or not
today's rule applies to 1995 compliance determinations. For those
refiners who did not receive an adjusted baseline, EPA will consider
this rule in its review of 1995 compliance determinations.
IV. JP-4 Baseline Adjustment
A. Introduction
JP-4 jet fuel, the use of which is being phased out by the U.S.
Department of Defense, was produced in 1990 by many refiners under
contract with the Defense Department. Because refineries will most
likely use the JP-4 blendstock in gasoline, the JP-4 fuel must first be
processed through a reformer to increase its octane to suitable
gasoline levels. Due to the high aromatic content of the reformer
streams, the toxic emissions of the ``new'' gasoline (calculated using
the Simple and Complex Models) will likely increase relative to the
gasoline's 1990 values. In addition, it is possible that gasoline
production will increase (relative to 1990 production) due to movement
of blendstocks directly and indirectly from JP-4 to gasoline. The
impact of the increase in aromatic content and/or additional volume due
to JP-4 phase-out will affect certain refiners more than others.
The December 1993 regulations 2 already provide for an
adjustment to a refiner's individual baseline due to production of JP-4
in 1990 if three criteria are met. These criteria were designed to
ensure that the original adjustment would result in de minimis
environmental impact and would remove the extreme burden on the
refiner.3 First, under the original adjustment, JP-4 baseline
adjustments are allowed only for refiners who do not or will not in the
future produce RFG. If a refiner granted such an adjustment
subsequently produces RFG, its conventional gasoline compliance will be
subject to its original unadjusted baseline during the current
averaging period and all subsequent years. Second, a JP-4 baseline
adjustment is available primarily to qualifying single-refinery
refiners. A multi-refinery refiner could also receive an adjustment if
each of its refineries produced JP-4 in 1990 and if each refinery also
meets the other requirements for obtaining the adjustment. Third, to
receive an adjustment, the refiner is required to show that a
significant burden would exist if no baseline adjustment was allowed.
The original regulations require that the ratio of a refinery's 1990
JP-4 production to its 1990 gasoline production must equal or exceed
0.5 in order to be defined as a significant burden on the refiner.
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\2\ 59 FR 7716, February 16, 1994.
\3\ Alabama Power Company vs. Costle, 636 F.2d 323-357 (D.C.
Cir. 1979).
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In the August 4, 1995 NPRM (60 FR 40009), EPA proposed modified
provisions related to JP-4 baseline adjustments. These provisions were
essentially the same as those contained in a direct final rulemaking
(DFRM) which was published at 59 FR 36944, July 20, 1994.4
Specifically, EPA proposed the following three conditions that would
have to be met by a refiner who petitions for a baseline adjustment due
to JP-4 production in 1990. The first condition applies to multi-
refinery refiners while the second and third
[[Page 9874]]
conditions apply to all refining companies.
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\4\ EPA withdrew this DFRM since EPA received adverse comments
on the changes specified in the DFRM with regard to JP-4 baseline
adjustments. As announced in the DFRM, such provisions would take
effect only if no persons submitted adverse comments or requested an
opportunity to comment. For more discussion, see the support
document, ``Regulation of Fuels and Fuel Additives: Standards for
Reformulated and Conventional Gasoline--Detailed Discussion and
Analysis'', Air Docket A-95-03.
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(1) The Qualifying Refiner Must Have Produced JP-4 at One or More of
Its Refineries in 1990
The original JP-4 baseline adjustment provisions for multi-refinery
refiners require that each refinery must have produced JP-4 in 1990.
This revision would allow a refiner to obtain this baseline adjustment
even if only one of its refineries produced JP-4 in 1990 (and if the
refiner and its refineries also meet the other criteria specified for
this baseline adjustment). EPA believes it may use its discretion to
provide relief for a multi-refinery refiner even if only one of the
refiner's refineries produced JP-4 in 1990 (provided that the refiner
or refinery meets the other requirements required for a JP-4 baseline
adjustment). If a multi-refinery refiner qualifies for a baseline
adjustment under this criterion, it must then calculate the adjusted
baseline of the refinery(ies) which actually produced JP-4 in 1990 and
determine its anti-dumping compliance on an aggregate basis.
(2) The Qualifying Refiner Must Have a 1990 JP-4 to Gasoline Ratio
Greater Than or Equal to 0.15 (See Discussion Below Regarding JP-4
Baseline Adjustment Ratio)
(a) For each individual refiner, if all of its refineries produced
JP-4 in 1990, the refiner may comply with the anti-dumping requirements
on an individual or aggregate basis; or
(b) On a refiner-wide basis, in which case the refiner must
determine an individual baseline for each of its refineries but must
comply with the anti-dumping requirements on an aggregate basis.
(3) The Qualifying Refiner Must Not Produce Reformulated Gasoline (RFG)
at Any of Its Refineries Now or in the Future
The comments received on this proposal are discussed below. None of
the comments provided new information or supportive data. Therefore,
EPA today finalizes this provision as proposed, for the reasons
described in the NPRM.
B. General Comments on the Proposal
Summary of Comments
Generally, many commenters felt the original eligibility
requirements for receiving a JP-4 baseline adjustment are unnecessarily
restrictive. They felt that EPA's overriding concern should be the
impact of the baseline adjustments on the environment, and they
suggested that most refineries meeting the JP-4 criteria operate in
rural, clean air (i.e., attainment) areas.
Several commenters opposed the regulation change, stating that it
would be more equitable for all JP-4 producers to get an adjustment,
regardless of ratio, aggregation, or RFG production. Commenters stated
that this position is based on the fact that all JP-4 producers were
meeting a market demand, and therefore should not be selectively
penalized. Furthermore, these commenters felt that elimination of post-
1995 demand for JP-4 causes all baselines to be unrepresentative of
current and future operations. Therefore the JP-4 phase-out and anti-
dumping regulations may have unintended adverse effects on the
regulated community of former JP-4 suppliers. These commenters
suggested that a better approach would be to allow an adjustment for
all JP-4 producers, and allow refiners to rethink aggregation
decisions. The commenters felt this would ``level the playing field''
and simplify the regulations.
Analysis and Conclusion
EPA's authority to grant exceptions to this requirement of the CAA
is very limited. EPA does not believe it is appropriate, given the
applicable facts and this limitation, to allow adjustments for all JP-4
producers. Exceptions to this requirement of the Act should only be
allowed for cases of extreme regulatory burden with minimal
environmental impact, and not all refiners who produced JP-4 in 1990
are extremely burdened by the requirements of the RFG and anti-dumping
programs. Today's action slightly broadens the JP-4 baseline adjustment
criteria, but continues to allow adjustment only where extreme burden
is demonstrated.
C. Comments on the Proposed Ratio of JP-4 Production to Gasoline
Production
Summary of Comments
Some commenters opposed the change in production ratio to 0.15,
stating that the 0.15 ratio is arbitrary and that EPA has provided no
evidence of hardship for the three or four refineries which would be
affected. One commenter felt that if the environmental impacts are
minimal at 0.15, they would be even less for those below the 0.15
production ratio. They stated that as little as two percent JP-4
production can be a significant aspect of refining operations;
adjusting for production, this low percentage may have little impact on
the baseline but would provide necessary relief for refiners who have
experienced increasing levels of benzene and aromatics. Commenters also
felt that refineries on the ``wrong side'' of the ratio will continue
to argue for special exemptions; any ratio arbitrarily provides relief
to some while denying it to others.
Commenters also stated that it is impossible for the public to
judge whether a hardship even exists. They felt that the ratio
criterion is only one of several criteria which should be used to
determine hardship. They argued that the regulation should not be
limited to just one criterion, but rather it should include alternative
tests for hardship. Several alternative criteria for determining
hardship were suggested by commenters. One commenter suggested that EPA
should evaluate the financial penalty of noncompliance relative to the
refiner's size and profit to determine extreme burden. One commenter
proposed that a straight production volume of 100,000 gallons of JP-4,
rather than a jet fuel-to-gasoline production ratio, would be a more
appropriate baseline adjustment criterion. In addition, commenters
suggested that EPA should consider the historical pattern of JP-4
production for a refinery, stating that a refinery that produces JP-4
over a long period will have greater hardship converting that product
to gasoline.
Finally, it was suggested that EPA needs to recognize that the
industry is capital-intensive and that refineries should be encouraged
to make the necessary capital investments.
Analysis and Conclusion
As stated before, in addition to minimal environmental impact,
regulatory burden must also be considered before an exception to the
regulations can be made, and a baseline adjustment allowed. As
discussed in the December 1993 Regulatory Impact Analysis (RIA), the
JP-4 to gasoline production ratio is the best measure found by EPA to
estimate and quantify this burden. However, based on information
received by EPA subsequent to the initiation of the RFG program, the
original 0.5 ratio does not provide the relief intended by the Agency.
Using industry data, EPA proposed a more appropriate ratio of 0.15, and
stated that a few more (three or four) refineries could potentially
benefit from this change in the ratio. Although EPA agrees with
commenters that other means of showing extreme burden of the
regulations may exist, EPA has not found any which seem as appropriate
(particularly with respect to providing a quantitative means of
establishing burden). Additionally, EPA believes that such alternative
tests would be difficult to implement at this
[[Page 9875]]
stage in the baseline approval process. Finally, EPA believes that
limiting this analysis to 1990 situations is most consistent with
statutory structure.
D. Comments on the Aggregation and RFG Production Restrictions
In the August 1995 NPRM, EPA proposed that a multi-refinery
refiner, could qualify for a JP-4 baseline adjustment even if only one
of its refineries produced JP-4 in 1990. However, that refiner would
have to determine its compliance on an aggregate basis and could
produce no RFG at any of its refineries. A detailed discussion of the
basis of these requirements can be found in the support document for
this rule, ``Regulation of Fuels and Fuel Additives: Standards for
Reformulated and Conventional Gasoline-Detailed Discussion and
Analysis,'' Air Docket A-95-03.
Summary of Comments
Commenters supporting the proposed modifications to the regulation
provided several points to support the changes. Primarily, they stated
that without these changes, it would be impossible for a multi-refinery
refiner to qualify for an adjustment. Thus, according to commenters,
the regulation would not provide the relief intended by EPA. Some
commenters supporting the proposed changes to the regulation endorsed
the need for change in the aggregation requirements of the JP-4
adjustment. Commenters felt that such requirements would further
restrict the business decisions of a multi-refinery refiner.
Many commenters addressed the RFG production restrictions placed on
a refiner that receives a JP-4 adjustment. Commenters felt that
prohibiting RFG production by these refiners may cause a refiner not to
produce RFG for areas where it is needed. Also, commenters argued that
some refiners who qualify for the JP-4 adjustment may have already
produced RFG. These commenters felt that the environmental impact of
allowing RFG production would be minimal.
Analysis and Conclusion
EPA is retaining the proposed requirement that a multi-refinery
refiner qualifying for a JP-4 baseline adjustment, for which not all of
its refineries produced JP-4 in 1990, must determine its compliance on
an aggregate basis. Under the regulations promulgated today, such a
refiner is able to obtain a JP-4 baseline adjustment because it has
determined its JP-4 to gasoline ratio on an aggregate basis. EPA
continues to believe that it is appropriate to thus require such a
refiner to determine its anti-dumping compliance on an aggregate basis
as well. A multi-refinery refiner for which each of its refineries
meets the JP-4 baseline adjustment criteria individually may determine
its compliance on an aggregate or non-aggregate basis.5
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\5\ However, as for all refiners, once the decision to
determine compliance on an aggregate basis is made, compliance must
be made on that basis for all future compliance periods.
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EPA continues to believe that prohibiting RFG production is a
critical criteria for this baseline adjustment as it is the best way to
ensure that no ``dumping'' will occur. EPA does not consider this
requirement to be unduly restrictive.
E. Comments Regarding the Effect of JP-4 Production on Refinery
Operation
Summary of Comments
Several commenters, including both those supporting the regulation
changes and those opposing them, stated that EPA should give full
consideration to the effects of JP-4 production on refinery operations.
These commenters pointed out that 1990 JP-4 production can limit
gasoline production at a refinery, and that premium gasoline, the most
profitable gasoline to produce, is most affected by baseline
limitations. Commenters stated that JP-4 production limited small
refiners with low conversion configurations who could not fractionate
excess gasoline into distillate.
Analysis and Conclusion
EPA recognizes that there are difficulties in the conversion of
refinery operations from JP-4 production to gasoline production, and
that production volumes may also be limited. EPA also recognizes that
the burden of the conversion and compliance with the RFG and anti-
dumping requirements differs from refiner to refiner. However, as
stated previously, EPA's authority in allowing exceptions to the
regulations in the form of baseline adjustments is limited.
Environmental impact and regulatory burden are the only factors EPA
considered in determining what type of baseline adjustment, if any,
should be allowed. EPA believes that the most appropriate measure of
the regulatory burden in this context is the JP-4 to gasoline ratio,
discussed above.
V. Crude Oil Quality Baseline Adjustment
A. Introduction
Crude sulfur content is increasing nationwide.6 The ability of
refiners to deal with this change varies. EPA is aware that the quality
of the crude oil (with regard to sulfur content) available to refiners
in PADD IV has been deteriorating faster than crude oil in other
regions of the U.S. since 1990.7 In addition, refiners in this
region do not have access to foreign crude oil imports other than those
from Canada. Thus, the quality of crude oil available to these
refiners, from conventional or alternative sources, is limited. Prior
to promulgation of the December 1993 final rule, EPA was not aware that
the deterioration of crude oil available to certain refiners (in regard
to increasing sulfur content) might force them to cease operation since
the burden of compliance might be prohibitively expensive.
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\6\ E.J. Swain, ``U.S. crude slate continues to get heavier,
higher in sulfur,'' Oil & Gas Journal, p. 37, January 9, 1995.
\7\ Ibid.
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The anti-dumping requirements contained in the December 1993
regulations generally do not allow baseline adjustments for changing
crude oil quality or availability. However, as discussed in the
preamble to the December 1993 final rule, EPA recognized that a
refiner's ability to comply with its individual baseline can be
difficult due to changes in crude oil supplies, markets, and fuel
specifications. As with the work-in-progress baseline adjustment (40
CFR 80.91) and the original JP-4 baseline adjustment (40 CFR 80.91),
EPA believes it is appropriate to provide baseline adjustments in
situations where the anti-dumping regulatory burden is extremely
onerous and where requiring compliance would yield little or no
environmental benefit. Thus, EPA is finalizing such a baseline
adjustment where a dramatic increase in crude sulfur content has
occurred which could severely affect the anti-dumping compliance of
refiners with extremely low baseline sulfur levels.
EPA expects a minimal environmental impact from allowing the low-
sulfur crude baseline adjustment (based on the criteria finalized
today) for two reasons. First, only a few refineries are expected to
qualify for the adjustment and second, the total production volume of
these refineries is marginal.
[[Page 9876]]
B. General Comments on the Proposal
Summary of Comments
Several commenters felt that EPA was unjustified in granting a
small number of refiners special treatment for what is a ``fact of
life'' for all refiners. They felt this proposal appears to satisfy
certain refiners at the expense of others. Some commenters claimed that
since sour crude oil is typically less expensive than sweet crude oil,
refiners can invest in the appropriate level of desulfurization
capacity to refine the crude into a competitive crude slate. On the
other hand, one commenter asserted that it is not appropriate to grant
a waiver to purchase sour crude oil supplies, and then allow the
production of gasoline which would not meet the anti-dumping standards.
Other commenters opposing the proposal felt that, although it is
very restrictive, they could not support concessions for only a few
regulated parties. They contended that EPA should force a capital
solution by the affected refiners, and not allow the adjustment.
Analysis and Conclusion
In finalizing the low-sulfur crude baseline adjustment, EPA is
using the authority granted to it by Congress to allow limited
exceptions under narrow circumstances. As with the other baseline
adjustments mentioned above, the appropriate criteria for obtaining an
adjustment are designed to be stringent in order to provide relief only
in cases of extreme burden and to maintain the environmental benefits
of the (anti-dumping) program. EPA is not allowing adjustments for all
refiners who have experienced increasing crude sulfur levels since 1990
or for refiners who will experience such increases in the future. Thus,
the existing provisions in part 40, section 80.91 of the regulations
still apply, i.e., no adjustments for crude oil quality or availability
changes are allowed unless the criteria finalized today are met.
C. Comments on Crude Oil Quality Changes Since 1990
In the NPRM, EPA requested comments on inherent crude oil
properties, other than sulfur, which have significantly deteriorated
since 1990 and which directly and significantly affect the values of
any fuel parameters for which an individual baseline value must be
determined. In addition, EPA requested comments on future crude oil
trends (i.e. whether crude sulfur content will continue to increase or
stabilize), specifically on a regional or PADD basis.
Summary of Comments
No commenter specified crude oil properties, other than sulfur,
which have significantly deteriorated since 1990 and which directly and
significantly affect the values of any fuel parameters for which an
individual baseline value must be determined. Additionally, no
commenter discussed future crude oil property trends. Commenters did
discuss the RFG and anti-dumping programs, specifically with regard to
individual baselines, as indicated below.
One commenter in support of a baseline adjustment commented that
the existing anti-dumping regulations have the unintended consequence
of placing a disproportionately heavy burden on producers of clean
gasoline which ultimately could lead to a deterioration of air quality.
Specifically, the commenter stated that refiners who produced clean
gasoline in 1990 are held to stricter standards than those who produced
dirtier gasoline in 1990. Furthermore, the difficulties of the more
stringent standards become more acute when the quality of a refiner's
gasoline is affected by circumstances beyond the refiner's control.
Another commenter indicated that driving the cleanest refiners out
of business was not an intended effect of the RFG and anti-dumping
programs, and would not promote protection of public health or the
environment. This commenter felt the regulations should recognize the
needs of the cleanest refiners and afford them the opportunity for
continued operation, by allowing a low sulfur crude adjustment. The
commenter stated that despite increased sulfur content, clean refiners
would still produce very clean gasoline. Furthermore, the commenter
indicated that without an appropriate and sufficient baseline
adjustment, clean refiners may have to cease operation which could
subsequently lead to fewer clean refineries in the petroleum industry.
In regard to standard pipeline procedures, one commenter felt that
certain crude oil properties were beyond the control of downstream
refiners. Therefore, the commenter stated that refiners should be
allowed to adjust baselines annually. As an example, the commenter
stated that perhaps such an adjustment would be based on the naphtha
fraction of the crude oil received from the Alaska North Slope.
Analysis and Conclusion
EPA disagrees with the comment that refiners who produced
relatively cleaner gasoline in 1990 are held to a stricter standard
than those who produced relatively dirtier gasoline in 1990. The same
basic standard applies to all refiners with an individual baseline,
that is, they must produce gasoline as clean as the gasoline they
produced in 1990.
As indicated above, the original regulations generally do not allow
baseline adjustments for changing crude oil quality or availability.
However, during the review and approval of baselines, EPA was informed
that the depleted supply of very sweet crude oil which had been
processed in 1990 could force one or more refiners to cease gasoline
production. If a refiner processed a very sweet crude (e.g., less than
500 ppm) in 1990, its baseline sulfur level could be 50 ppm or lower.
Because of increasing sulfur content in the crude oil supply, if that
refiner currently processes relatively sweet crude oil (e.g., less than
1200 ppm sulfur), it would likely be unable to comply with its
individual baseline without severe economic burden due to its extremely
low baseline sulfur level. It may also be extremely expensive for
refiners to add refinery units in order to ensure compliance. For
example, gasoline sulfur may be lowered by hydro-desulfurization of
gasoline components and/or by charging the gasoline to blendstock
producing units. This option is expensive and could require the
installation of considerable new refining equipment. It could also
require extensive volumes of hydrogen, which may be hard to produce
within a given refinery. Thus, compliance options for such a refiner
might be prohibitively expensive.
In response to the comment on standard pipeline procedures, the
purpose of the low-sulfur crude baseline adjustment is to provide
refiners limited relief in situations where the anti-dumping regulatory
burden is extremely onerous and where requiring compliance would yield
little or no environmental benefit. Although a few refiners will be
granted the low-sulfur crude baseline adjustment, these refiners must
realize that they (like all other refiners) will be responsible for
future adaptations to changing crude sulfur levels. Baseline
adjustments are intended to reduce, not eliminate, the burden
associated with regulatory compliance. If the burden were completely
eliminated, then the required criteria would no longer be met and the
goals of the anti-dumping program would no longer be fulfilled.
[[Page 9877]]
D. Comments on the Proposed Criteria for a Baseline Adjustment
In the NPRM, EPA proposed seven criteria that a refiner would have
to meet to qualify for the low-sulfur crude baseline adjustment.
Comments on these criteria are discussed below.
Criterion 1: The refinery produces no reformulated gasoline.
The anti-dumping requirements, in general, apply to all
conventional gasoline whether or not RFG is produced. Under this
adjustment, however, no dumping will result from RFG production. If a
refiner who receives this baseline adjustment subsequently produces
RFG, the refiner's conventional gasoline compliance will be subject to
its original unadjusted baseline during the current averaging period
and in all subsequent years. However, in the NPRM, EPA also proposed
that the eligibility of any refinery of a multi-refinery company for
this baseline adjustment is not dependent on the RFG production of the
refining company's other refineries.
Summary of Comments
Some commenters stated that if a baseline adjustment were made, the
prohibition of RFG production would be unnecessary and overly
restrictive. Commenters added that restrictions on baseline adjustment
qualification may limit a refiner's ability to adapt to future,
unforeseen market changes. Commenters stated that this restriction
would have an adverse impact on cleaner operations by limiting
flexibility and competition, and could lead to a future shortage of
RFG. It was pointed out that many refiners would be prevented from
producing RFG if they were forced to revert back to their unadjusted
baselines. Commenters argued that, if refiners were forced to choose
between RFG and conventional fuel production based on artificial
factors rather than a response to market demand, refiners with higher
sulfur baselines would be able to compete in both markets
simultaneously with less competition. Therefore, the commenters
suggested that EPA should allow the baseline adjustment for refiners
that meet the other proposed criteria, regardless of their RFG
production.
Analysis and Conclusion
EPA considered the above comments in its decision, but maintains
that a refiner must not produce RFG to qualify for a baseline
adjustment. EPA believes that refiners who were able to adjust refinery
operations (through capital investment or process modifications) to
produce RFG should be able to accommodate increases in crude sulfur
content. In addition, the Agency believes that prohibiting RFG
production is the best way to ensure that ``no dumping'' will occur.
EPA does not believe that this requirement is unduly restrictive.
Therefore, EPA is finalizing the proposed criterion that a refiner must
not produce RFG to qualify for this baseline adjustment.
Criterion 2: A refiner has an unadjusted baseline sulfur value less
than or equal to 50 ppm.
EPA believes that requiring a threshold sulfur content of 50 ppm is
appropriate because higher baseline levels would indicate that the
refiner's 1990 crude slate was not extremely low in sulfur. In
addition, a refiner with a higher baseline sulfur level should have
sufficient leeway, e.g., types of crude oil supplies used or available
and processing flexibility, to comply with its individual baseline. In
the NPRM, EPA requested comments on the appropriateness of requiring a
threshold sulfur content, and on the suitability of 50 ppm or another
concentration as a threshold level.
Summary of Comments
Most commenters opposing the baseline adjustment were concerned
that such an adjustment would not result in equal treatment for all,
and would give some refiners an unfair advantage. These commenters
contended that the rule should not be applied to only those with sulfur
levels below 50 ppm or any other number, because increased crude sulfur
impacts every refiner regardless of its baseline. Commenters added that
all refiners are faced with changing crude oil quality; refiners must
consider these changes when planning future capital investments and
product slates. Furthermore, many commenters asserted that there is no
basis for the 50 ppm threshold proposed by EPA. They indicated that
this level should be significantly raised or eliminated. In addition,
one commenter argued that requests for adjustment could go beyond crude
sulfur content, though the commenter did not specify which other crude
oil parameters could be investigated. Finally, commenters contended
that this rule could be challenged based on the competitive advantage
gained by exempt parties.
Analysis and Conclusion
As with any baseline adjustment, EPA's authority to allow
adjustments is limited. As stated previously, exceptions to this
requirement of the Act will only be allowed for cases of extreme
economic burden with minimal environmental impact. Not all refiners who
have experienced increases in crude oil sulfur levels are unduly
burdened. In order to quantify this burden, and for the reasons stated
earlier, EPA proposed a 50 ppm threshold value for the crude oil sulfur
content of a refiner's unadjusted baseline. Because commenters did not
suggest another threshold value and EPA is not aware of another value
that would be more appropriate, the Agency is finalizing an unadjusted
baseline sulfur level of 50 ppm. Refiners must comply with this sulfur
criterion to qualify for a low-sulfur crude baseline adjustment.
Criterion 3: The affected refinery of a multi-refinery refiner may not
be aggregated with the refiner's other refineries for compliance
purposes.
EPA proposed that this baseline adjustment would be available to
refineries of both single-refinery and multi-refinery companies.
However, EPA also proposed that the affected refinery of a multi-
refinery refining company may not be aggregated with the company's
other refineries for compliance purposes. If a refinery that is granted
a low-sulfur crude baseline adjustment is subsequently included in an
aggregate baseline, its conventional gasoline compliance will be
subject to its original unadjusted baseline during the current
averaging period and in all subsequent years. Therefore, to qualify for
a low-sulfur crude baseline adjustment, the affected refinery of a
multi-refinery company may not be aggregated with the refining
company's other refineries for compliance purposes.
Summary of Comments
Commenters opposing the baseline adjustment proposal suggested that
EPA should not tie eligibility for the adjustment to aggregation. If
there is a need for adjustment, it should affect the refinery only,
without the need to revert back to the unadjusted baseline.
Analysis and Conclusion
EPA agrees that allowing refiners to comply with the anti-dumping
requirements on an aggregate basis provides flexibility. However, the
Agency still believes that refiners should not be able to aggregate and
also receive a low-sulfur crude baseline adjustment for one of its
refineries. Because the ability to aggregate is limited to multi-
refinery refiners, such refiners have more flexibility than single
refiners in regard to baseline compliance. Thus, they already have
[[Page 9878]]
some means of reducing the effect of increasing crude sulfur on their
compliance. EPA believes it would be inappropriate, and possibly anti-
competitive, to allow a refinery receiving this baseline adjustment to
also be included in an aggregate baseline.
Criterion 4: The installation of the refinery units necessary to
process higher sulfur crude oil supplies to comply with the refinery's
actual (i.e., unadjusted) baseline would cost $10 million or be greater
than or equal to 10 percent of the depreciated book value of the
refinery as of January 1, 1995.
The purpose of this provision is to ensure that baseline
adjustments are limited to cases of extreme burden or economic
hardship. (This is the same requirement for economic burden that must
be met by a refiner seeking a work-in-progress baseline adjustment.)
EPA requested comments on this criterion and whether the specified
values of $10 million or 10 percent are adequate given the type of unit
(e.g., hydrotreater) that a refiner would have to install in order to
comply. EPA also requested comments on (1) the economic burden, if any,
of producing and selling gasoline blendstocks in lieu of finished
gasoline, and (2) the economic burden of complying with an unadjusted
baseline under the circumstances described above by modifying refinery
operations in ways other than installing major refinery units.
Summary of Comments
Most commenters supported the proposed criterion of $10 million or
10 percent and stated that this criterion is fair and appropriate. One
commenter stated that refining equipment is expensive and it is not
difficult for a refiner to spend $10 million. Furthermore, the
commenter indicated that the 10 percent depreciation value was not a
significant hurdle either.
Commenters also expressed concern that if this adjustment were not
allowed, refiners would be forced by the regulation to produce
blendstocks in lieu of gasoline. They stated that the discounts
refiners would be forced to give for at least some of those blendstocks
would be too great to remain viable; refiners could not profitably
produce blendstocks in lieu of gasoline. The commenters contended that
the decision to produce gasoline is dictated by refinery design and
marketing. One commenter added that restricting the ability to freely
choose the most profitable product mix would be an economic
disadvantage.
In response to the second request, nearly all commenters agreed
that increases in crude sulfur directly (but not linearly) lead to
increases in gasoline sulfur, unless major structural and operational
modifications are made to the refinery (assuming the necessary
equipment is not already in place.) Whether and how EPA should address
this situation, though, is a point of contention.
One commenter, however, stated that changes in crude sulfur are a
poor indicator of gasoline sulfur levels. This commenter suggested that
it would be more appropriate to consider catalytic cracking unit
(catcracker) feed sulfur. This suggestion applies to refineries without
vacuum units, which catcrack reduced crude. Catcracker sulfur can only
be reduced by either lowering the distillation end point or
hydrotreating the feed or the blendstock. The commenter also stated,
though, that lowering the end point artificially forces a refiner to
operate at less than optimum conditions. Furthermore, hydrotreating the
blendstock stream is impractical since it reduces the octane value of
the blendstock and forces higher reformer severity. The commenter added
that feed stream hydrotreatment is expensive.
Analysis and Conclusion
EPA agrees that a refiner could be subject to an extreme economic
burden if it were forced to produce blendstocks in lieu of gasoline or
to significantly modify refinery operations in order to comply with the
anti-dumping regulations (although some refiners may produce
blendstocks or modify operations at a high cost for other reasons). As
a result, EPA believes that limited relief from these potential burdens
is necessary and can be provided through a low-sulfur crude baseline
adjustment which the Agency is finalizing today.
EPA agrees that it may not be difficult for a refiner who meets the
other criteria specified for this baseline adjustment to spend $10
million to reduce sulfur in order to comply with the anti-dumping
requirements. Nonetheless, EPA believes this economic criteria is
essential for showing extreme economic burden, and thus is retaining
this provision as proposed.
EPA generally agrees with the comment that changes in crude sulfur
are a poor indicator of gasoline sulfur levels. However, given the
other criteria that a refiner must meet to obtain this baseline
adjustment, particularly the low threshold values for baseline gasoline
sulfur and crude sulfur changes, EPA believes that it is appropriate to
consider the influence of extremely low crude sulfur levels on
extremely low baseline sulfur levels. As will be discussed below, EPA
is not basing the actual adjustment on the relationship between crude
sulfur and baseline sulfur levels.
Criterion 5: The refiner has access to a geographically-limited crude
oil supply.
EPA proposed that a refiner must show that it could not reasonably
or economically obtain crude oil from an alternative source that could
be refined into conventional gasoline in compliance with the refiner's
unadjusted baseline. EPA requested comment on this proposed provision
and on criteria that should be used to evaluate ``reasonably and
economically available''.
Summary of Comments
Small refiners with restricted operational flexibility and limited
financial access supported the proposal. They felt that without more
than the 125 percent flexibility given in the original regulation
(i.e., simple model anti-dumping compliance for sulfur), crude sulfur
increases would force very clean small refiners with low baselines out
of business. One commenter stated that refiners in the Rocky Mountains
have traditionally relied on very sweet crude oil supplies which have
historically been available in the area. However, the sulfur content of
Rocky Mountain crude oil has increased at a greater rate than that of
crude oil in the rest of the country. This commenter stated that these
refiners realistically only have access, due to geography and
economics, to crude oil supplies imported at the Canadian border.
One commenter suggested that EPA should provide examples of
refiners meeting this requirement (e.g., all single-refinery refiners
in land-locked states). This commenter also suggested additional
criteria EPA could consider in allowing this adjustment, such as the
distance from a particular refinery to alternative sources of low
sulfur crude supplies, the size of the refinery, the ability of the
refiner to access and transport such crude oil supplies, and the extent
to which the viability of the refiner is threatened by the cost of
obtaining alternative crude oil supplies. Another criterion that was
suggested would be the increase in the average sulfur content of the
crude slate used for gasoline production between 1990 and 1994.
Analysis and Conclusion
Although EPA agrees with the importance of evaluating the
[[Page 9879]]
information described in the above suggestion, it does not believe it
is necessary to impose additional specific criteria for determining who
should qualify for a low-sulfur crude baseline adjustment. EPA will
consider these factors in determining whether a refinery meets this
criterion and will evaluate petitions for this low-sulfur crude
baseline adjustment on a case-by case basis. EPA is finalizing this
provision as proposed.
Criterion 6: The refiner has experienced an average crude sulfur
increase greater than or equal to 25 percent since 1990.
EPA proposed that the highest annual-average crude sulfur slate
used during the period 1991-1994, inclusive, be compared to the 1990
sulfur level to determine if the ``25 percent'' criterion is met.
Comments were requested concerning the level of difference between 1990
and post-1990 crude sulfur contents that should exist in order to
obtain an adjustment, and whether 1991-1994 is an appropriate
comparison period or whether some other comparison should be
established. The Agency also requested comments as to whether it would
be appropriate, and feasible, to distinguish crude oil supplies used
solely for gasoline production from crude oil supplies used to produce
other refinery products. If such distinction were possible, EPA
believes it would be appropriate to base all calculations (pertaining
to this adjustment) only on the volumes of each crude used to produce
gasoline.
Summary of Comments
Opponents to the proposal were concerned that this adjustment
rewards refiners that purchased higher sulfur crude oil supplies after
1990. They indicated that the trend toward sour crude oil supplies was
recognized during the Regulatory Negotiation, and that the annual
averaging and 125 percent compliance provisions for conventional
gasoline were created to address the situation. These commenters felt
that if the 125 percent compliance level is not sufficient, it should
be changed for all parties.
Some commenters supporting this baseline adjustment indicated that
it is feasible to distinguish crude oil supplies used solely for
gasoline production from crude oil supplies used to produce other
refinery products, and that it would be appropriate to evaluate this
criterion based only on the crude used for gasoline production.
Analysis and Conclusion
Although the trend toward sour crude oil supplies was recognized in
the Regulatory Negotiation, the quality of the crude oil available to
refiners in PADD IV has been deteriorating faster than the rest of the
U.S. since 1990. As a result, some refiners with very clean baselines
have found it very difficult to comply with the anti-dumping
regulations. EPA is finalizing the low-sulfur crude baseline adjustment
for those refiners who qualify for the adjustment based on the criteria
finalized today. However, EPA believes that the criteria are
necessarily stringent so that only those refiners who are extremely
burdened will qualify. In addition, EPA believes that because the
program is so restrictive, the environmental impact of the adjustment
will be minimal and will not negate the benefits of the anti-dumping
program.
Commenters supported EPA's belief (as stated in the NPRM) that it
is appropriate and feasible to base the low-sulfur crude baseline
adjustment only on crude used for gasoline production. EPA is
finalizing this criterion as proposed, with a correction to the
regulations (contained in the proposal) which reflects the Agency's
intent in both the proposal and today's final rule, as follows. In the
proposed regulations, one aspect of the equation associated with this
criterion was incorrectly defined, namely, the definition of the
variable ``CSHI''. In the proposed regulations, ``CSHI'' was defined as
the ``highest annual average crude slate per paragraph (e)(8)(ii)(B) of
this section.'' Paragraph (e)(8)(ii)(B) of that section referenced the
``* * * highest crude sulfur level (ppm) of the crude slate utilized in
the production of gasoline in the refinery in 1994 * * *.'' Thus, the
definition of ``CSHI'' in the proposed regulations was not consistent
with the discussion contained in the proposal preamble (60 FR 40012.
August 4, 1995) which referenced the years 1991-1994, as does today's
regulation. Today's regulation corrects this error to reflect the
Agency's intent in both the NPRM and today's final rulemaking
preambles.
Criterion 7: Gasoline sulfur changes are directly and solely
attributable to the crude sulfur change, and not due to alterations in
refinery operation nor choice of products.
No comments were received on this proposed criterion. EPA is thus
finalizing this requirement.
E. Comments on the Proposed Options for a Baseline Adjustment
EPA requested comments on the options proposed for determining the
adjusted baseline sulfur level if a refiner meets the proposed criteria
and is approved for a baseline adjustment. These options are summarized
below. EPA also requested comments on its view that a refiner should
not be exempt from its other anti-dumping compliance baselines, i.e.,
all other simple model requirements as well as exhaust benzene and
exhaust toxics emissions under the complex model since those emissions
are minimally affected by sulfur. See the support document for this
rule for more discussion related to the various proposed options.
(``Regulation of Fuels and Fuel Additives: Standards for Reformulated
and Conventional Gasoline--Detailed Discussion and Analysis'', Air
Docket A-95-03.)
Option 1: EPA proposed that the adjusted baseline sulfur value be
related to the ratio of the sulfur content of the highest sulfur crude
utilized in 1994 to the average sulfur content of the crude slate
utilized in 1990. Under this option, if a refiner used two crude oil
supplies in its gasoline production in 1994 with sulfur levels of 1000
ppm and 2100 ppm, the higher sulfur crude would be used in the
determination of the adjusted baseline sulfur value. If, for example,
the 1990 average crude sulfur content was 500 ppm (resulting in a
baseline sulfur value of approximately 20 ppm), the adjusted baseline
sulfur value would be 84 ppm {20 ppm x (2100/500)}. EPA specifically
requested comments on whether the highest sulfur crude from 1991-1994
should be used rather than just considering 1994.
Option 2: EPA proposed that the adjusted baseline sulfur value be
related to the ratio of the highest average sulfur content of the crude
slate used in 1991, 1992, 1993 or 1994 to the average sulfur content of
the crude slate used in 1990. Incorporating the 1990 baseline and crude
sulfur levels from Option 1, and average crude sulfur contents of 1000,
1100, 1400, and 1300 ppm for years 1991, 1992, 1993 and 1994,
respectively, the adjusted baseline sulfur value would be 56 ppm, i.e.,
20 ppm x (1400/500).
Option 3: EPA proposed that an adjusted baseline sulfur value be
determined for each year through 1999. Beginning January 1, 2000, the
adjusted baseline sulfur value would be the same as it was in 1999. EPA
proposed that the annual adjusted value be determined over the four
years prior to the year before the new value takes effect, except for
1995 and 1996 which would be determined as specified in Option 1 above
(and for which the adjusted baseline sulfur value would be the same).
EPA also proposed that if less than a 25 percent difference occurs
between the 1990 average crude sulfur level and the average crude
sulfur level over a four-year period, the refiner would receive no
additional
[[Page 9880]]
adjustments, and its most recent adjusted baseline sulfur value would
become its permanent baseline sulfur value at that point. For example,
the standard for 1997 would be based on the ratio of the average sulfur
content of the crude oil used in 1992, 1993, 1994 or 1995 to the
average sulfur content of the crude slate used in 1990. EPA proposed
that the resulting adjusted baseline sulfur value be submitted to the
Agency for evaluation and approval by June 1 of the year preceding the
year for which it would be the standard. In the example given, the
adjusted baseline value (and all supporting information) would have to
be submitted by June 1, 1996.
Option 4: For this option, EPA proposed requirements similar to
those presented for Option 3 except that adjustments would only be
allowed through 1997, i.e., the simple model years. Beginning in 1998,
the adjusted baseline sulfur value would be equal to the value in 1997.
Option 5: EPA proposed that the adjusted baseline sulfur value be
the unadjusted baseline sulfur value plus 50 ppm. EPA specifically
solicited comments on the appropriateness of using 100 ppm or 150 ppm
instead of 50 ppm.
In order to show that increasing gasoline sulfur is due solely to
increasing crude sulfur, EPA also requested comments as to whether
changes in refinery configuration or refinery operation should be
prohibited.
Summary of Comments
Commenters suggested that if a one-time baseline adjustment is
granted, refiners should be given the opportunity to estimate the
compliance burden over a five to ten year period. According to
commenters this concession would accommodate someone who meets the
requirements in the short term, but who would require more substantial
investment to implement a long term solution. Another commenter felt a
one-time adjustment would only benefit the refiner if it were large
enough to provide relief for the foreseeable future. Commenters
indicated that the EPA proposals did not provide adequate time for
adjustment. Furthermore, one commenter argued that proposing a one-time
adjustment for a dynamic situation (changing crude oil sulfur) is
illogical. The commenter explained that other adjustments allowed by
the regulation, such as the work-in-progress, were for temporary
events.
Of the options presented in the NPRM, most commenters who supported
any adjustment felt that Option 1 was too restrictive and would offer
little relief. They preferred Option 5 as the simplest and most
flexible approach. One commenter stated that Options 1 and 2 were
inappropriate since they include the assumption that crude sulfur and
gasoline sulfur increase at a constant ratio, which is not correct. The
commenter added that the sulfur content of gasoline depends on several
factors such as the crude oil composition, refinery operation, and the
type of gasoline produced. This commenter contended that Options 3 and
4 were also inappropriate, although Option 3 was preferable to Option 4
because of the additional time provided for obtaining a final
adjustment. This commenter supported continuing relief, but did not
support a limit beginning in 1997 or 1999. The commenter considered
Option 5 to be the most appropriate option for making a sulfur
adjustment, if the added amount was 150 ppm. This commenter also
expressed concern regarding the low repeatability of tests for sulfur
below 100 ppm. The commenter claimed that EPA appears to recognize the
low repeatability by defining a negligible quantity limit of 30 ppm.
Finally, this commenter proposed that EPA provide another opportunity
for adjustment in five years, if crude sulfur levels continue to
increase at faster rates than anticipated.
One commenter felt that if a refiner does not produce RFG, does not
aggregate, has a limited crude supply, and meets the ``financial
hurdles'', there is no need for arbitrary numbers, and such refiners
should be given the statutory baseline of 338 ppm.
In addition to these concerns, other commenters opposed the
continuation of the adjustment beyond the simple model time frame. They
stated the complex model provides enough flexibility for refiners, and
that EPA has neither the expertise to evaluate non-sulfur control
options for complying withNOXrequirements nor the ability to
shift from the simple model to the complex model for exhaust benzene.
Commenters also stated that the simple model sulfur cap can be avoided
by using the complex model. One commenter suggested that if EPA feels
that more flexibility is needed, it could allow separate use of the
simple and complex models for conventional fuel and RFG sulfur,
olefins, and T90. This approach would provide industry-wide flexibility
and would minimize the need to provide special relief to a limited
number of refiners.
EPA also received a suggested option from a commenter who proposed
that a refiner should be able to produce conventional gasoline which
does not meet, on average, the requirements of its individual baseline
if the refiner could show that deviation from its baseline was directly
and solely attributable to crude sulfur change, and not due to
alterations in refinery operation or choice of products. The suggested
option also contained other requirements, which are essentially those
finalized today by EPA, that are necessary for determining baseline
adjustment eligibility.
Analysis and Conclusion
All five proposed options would determine the adjusted baseline
sulfur value prior to the period of production, thus treating an
affected refiner like all other refiners. Although today's rule
provides some relief for refiners who are unduly burdened by baseline
compliance, these refiners may have to modify refinery operations in
the future to accommodate increasing crude sulfur levels. In the
future, however, refinery modifications will likely be required of most
refiners, without the benefit of a baseline adjustment.
After careful analysis of the proposed options, sulfur distribution
data, and comments, EPA is finalizing essentially Option 5 in today's
rule. Under this option, a refiner's one-time adjusted baseline sulfur
value will be equal to the refiners unadjusted baseline sulfur value
plus 100 ppm. EPA believes that a 100 ppm sulfur adjustment is
appropriate for the following reasons. First, 50 ppm, as suggested in
the NPRM, is too low. Upon further consideration, especially regarding
the criteria which must be met in order to obtain this adjustment, EPA
believes that a sulfur adjustment of 50 ppm would not provide
sufficient relief. Refiners who are severely burdened by the anti-
dumping regulations, and who meet the criteria, will likely need more
than a 50 ppm baseline adjustment in order to reduce the extreme burden
of the regulations. Second, a baseline adjustment value of 150 ppm
sulfur is too high. Although this value was proposed in the NPRM, the
Agency believes that an adjustment of this magnitude would negate the
intentions of this regulation (which is to provide reasonable relief
for extremely burdened refiners) and the goals of the anti-dumping
program. If an adjustment of 150 ppm sulfur was permitted, several
refiners not qualifying for the adjustment (due to the 50 ppm threshold
required in Criterion 2) would have lower baseline sulfur values than
some refiners who do qualify for the adjustment. Finally, EPA believes
that a sulfur adjustment of 100 ppm will provide adequate relief for
qualifying refiners while maintaining the
[[Page 9881]]
environmental benefits of the anti-dumping program.
Based on the above decision, 150 ppm is the maximum adjusted
baseline sulfur value that a refiner could be granted under today's
final rule (50 ppm threshold + 100 ppm additional sulfur = 150 ppm
maximum adjusted baseline value for sulfur). The Agency believes that
this option will provide refiners maximum flexibility with minimal
anti-competitive effects.
Regarding the comment that EPA should provide another opportunity
for adjustment in five years if crude sulfur levels continue to
increase at faster rates than expected, EPA believes this action would
be inappropriate. Baseline adjustments are intended to provide relief
where the burden is extreme. EPA expects that the refining industry
will develop means of dealing with increasing crude sulfur levels. The
cost of such means may be high, but given the lead time, and the
industry's knowledge of crude oil exploration and production, it is
unlikely that a well-prepared refiner would be extremely burdened by
future high sulfur levels.
As with other baseline adjustments, refiners receiving this
baseline adjustment will retain the adjustment even after the Simple
Model years, i.e., after 1997. Although the Complex Model does provide
more compliance flexibility than the Simple Model, EPA, via the
baseline adjustments, is providing relief for compliance with anti-
dumping requirements as a whole, and not just the Simple or Complex
Model requirements. In some cases, even the Complex Model does not
provide enough flexibility such that an extreme burden (when evaluated
under the Simple Model) is reduced. EPA also disagrees with commenters
who suggested that EPA allow compliance to be determined under one
model for conventional gasoline and under the other model for RFG. The
reasons for requiring the use of the same models for both conventional
and RFG were discussed at length in the December 1993 final rule.
Additionally, as stated several times previously, EPA does not have
authority and does not believe it is appropriate to provide a broad,
i.e., industry-wide, adjustment program.
EPA considered the suggested option, but is not finalizing it due
to some concerns about the concept and detail of the option. This
option would exempt a qualifying refiner from complying with its anti-
dumping compliance baseline if the refiner can show, at the end of the
compliance period, that deviation from its baseline was directly and
solely attributable to crude sulfur change. Thus, unlike all other
refiners, a qualifying refiner would have no clearly defined standard
prior to year of production. Furthermore, if EPA was not satisfied that
deviation from its baseline was directly and solely attributable to
crude sulfur change, the refiner would have to determine compliance
relative to its unadjusted baseline and would likely be out of
compliance.
VI. Low Sulfur, Low Olefin Baseline Adjustment
A. Introduction
Certain very clean individual baselines, i.e., those with extremely
low values for one or more fuel parameters, can make compliance for
refiners extremely difficult or impossible due to (1) limited
maneuverability about the clean baseline and (2) limited flexibility
with regard to annual averaging. During the review and approval of
individual baselines, EPA was informed that extremely low baseline
sulfur and olefin values could force a refiner to cease gasoline
production. In addition, refiners with very clean baselines presumably
produce the least polluting gasoline. It would be environmentally
harmful if these refiners ceased production and their volumes were then
produced by refiners with relatively dirtier baselines.
EPA believes it is appropriate to provide limited relief in the
form of a baseline adjustment in those few cases where the regulatory
burden is extremely onerous and where requiring compliance would yield
little or no environmental benefit.
B. General Comments on the Proposal
To provide some relief for those refiners who are severely burdened
by the combination of extremely low sulfur and olefin levels, EPA
proposed a baseline adjustment which set the annual average sulfur and
olefin values to 30 ppm and 1.0 volume percent (vol%), respectively. To
receive this adjustment, EPA proposed that a refiner must meet the
following criteria:
(1) Have an individual baseline sulfur level less than or equal to
30 ppm and an individual olefin level less than or equal to 1.0 vol%;
(2) Show that installation of the refinery units necessary for
compliance with an unadjusted baseline would cost $10 million or be at
least 10 percent of the depreciated book value of the refinery as of
January 1, 1995.
Additionally, EPA proposed that such an adjustment would be
available to both single-refinery and multi-refinery refining
companies. However, the affected refinery of a multi-refinery company
would not be allowed to be aggregated with the company's other
refineries for compliance purposes. If at any time a given refinery's
baseline is aggregated with another refinery's baseline for compliance
purposes, EPA proposed that the applicable individual baselines will
revert to the unadjusted baselines.
EPA also proposed that the summer and winter individual baseline
values for sulfur and olefins be set to 30 ppm and 1.0 vol%,
respectively.
Summary and Analysis of Comments
Several commenters supported this proposed adjustment and EPA's
statement that no environmental impacts would occur due to this rule.
Additionally, many commenters cited problems with the accuracy of
laboratory test methods at very low sulfur and olefin levels as further
justification for this baseline adjustment. Commenters stated that
errors in lab analysis, sample contamination, or product commingling
can incorrectly result in fuel parameter values which are greater than
the baseline values when those baseline values are extremely low. EPA
agrees that this baseline adjustment will provide flexibility for
qualifying refiners and will reduce the complications associated with
testing low sulfur and olefin levels.
While the majority of commenters supported this proposal, many of
them suggested changes in the criteria for the adjustment. One
commenter suggested that EPA remove the aggregation requirement. This
commenter stated that a conflict arises when a refiner also qualifies
for a JP-4 baseline adjustment (under the JP-4 baseline adjustments, in
certain instances, a qualifying multi-refinery refiner must determine
its anti-dumping compliance on an aggregate basis). EPA agrees with
this comment. EPA proposed the aggregation requirement because it
believed that, as for certain other baseline adjustments, it would be
inappropriate to provide a baseline adjustment and to also allow a
refinery receiving such an adjustment to be included in an aggregate
baseline for compliance purposes. Refiners who can comply with the
reformulated and anti-dumping regulations on an aggregate basis (i.e.,
multi-refinery refiners) already have a degree of flexibility over
single-refinery refiners, and EPA believed that allowing a refinery
both a baseline adjustment and the ability to be included in an
aggregate baseline might provide a competitive advantage to certain
refiners. However, EPA did not intend that one baseline adjustment
would eliminate use of another baseline
[[Page 9882]]
adjustment, and believes that this particular adjustment (because of
the extremely low sulfur and olefin levels involved), when coupled with
the ability to aggregate, would not create a significant competitive
advantage. Thus, EPA is not finalizing the requirement that refiners
who receive this low sulfur/low olefin adjustment must revert to the
unadjusted baseline if that refinery is included in an aggregate
baseline.
Several commenters suggested removing the economic criterion.
Commenters stated that requiring large capital expenditures as a
condition for this adjustment is unfair and devalues the investment in
all such refineries. Commenters felt that refinery modifications would
not guarantee compliance with an ultra-clean baseline. Commenters
stated that even the allowed 125 percent of such ultra-low values could
be less than the reproducibility and could approach the lower limit of
the test method. Additionally, commenters said that subtle changes in
the crude slate could affect compliance for these refiners.
EPA agrees that for extremely low sulfur or olefin values, it may
be almost impossible to install additional equipment or take other
actions to ensure compliance with 100 percent or even 125 percent of
the baseline values. In such cases, the burden would most likely exceed
$10 million or 10 percent of the depreciated refinery value as proposed
in the NPRM. To require demonstration of this would be of little
additional value. Thus, EPA is not finalizing that provision of this
baseline adjustment.
EPA proposed two options for assigning seasonal adjusted sulfur and
olefins values for summer and winter. The first option was to set these
values to 30 ppm and 1.0 vol%, respectively, as for the annual average
values. The other option was to use the refiner's own ratio of summer
and winter values to determine the seasonal values. Few commenters
indicated a preference for assigning seasonal baseline sulfur and
olefin levels. EPA is thus promulgating its first option, that is,
values of 30 ppm sulfur and 1.0 vol% olefins for both the annual
average and seasonal values. EPA believes this choice is appropriate
since, under this rule, baseline values for these two fuel parameters
are different from the actual unadjusted baseline values of qualifying
refiners. Additionally, based on comments mentioned earlier, testing of
extremely low sulfur and low olefin values could have resulted in
inaccurate unadjusted baseline values. Thus any ratio calculated from
those values would also be inaccurate.
One commenter felt that refiners should be allowed to use the 30
ppm sulfur and 1.0 vol% olefin levels as threshold values which would
also curtail testing of these trace parameters. This rule is only
concerned with baseline development, for which all testing has been
completed, and does not address compliance issues.
C. Provisions of the Final Rule
To obtain this baseline adjustment, a refinery must have a baseline
sulfur value less than or equal to 30 ppm and a baseline olefin value
less than or equal to 1.0 vol%. A refinery that meets this criteria
will have an adjusted baseline sulfur value of 30 ppm and an adjusted
baseline olefin value of 1.0 vol% as its summer, winter and annual
average values. Although for most baseline adjustments refiners are
required to petition EPA for the adjustment, in this case, since
baselines are already established, it is more efficient for EPA to
determine which refineries qualify for this baseline adjustment, rather
than require such refineries to petition EPA. Thus, refiners with
refineries that qualify for this adjustment will receive notification
from EPA in a timely manner.
VII. Environmental and Economic Impacts
EPA expects a negligible environmental impact from allowing
baseline adjustments under the criteria of this rule because (1) only a
few refiners are expected to qualify for the adjustments (about 16),
and (2) the total gasoline production of the qualifying refiners is
small (less than three percent of annual gasoline production).
To quantitatively illustrate this negligible impact, EPA used the
Complex Model (an emissions model that indicates changes in in-use
motor vehicle emissions based on changes in one or more of the gasoline
fuel parameters evaluated by the model) to determine the adjustments'
effects on harmful exhaust toxics andNOXemissions. Results from
the model indicate less than a one percent increase in exhaust toxics
emissions due to these three baseline adjustments (primarily due to the
JP-4 adjustment), and less than a 0.1 percent increase in NOX
emissions (primarily due to the low sulfur crude and low sulfur/low
olefins adjustments). The low sulfur crude and low sulfur/low olefins
baseline adjustments have almost no impact on exhaust toxics emissions,
and the JP-4 baseline adjustment will likely yield a decrease in annual
NOX emissions. Refineries affected by this rule are geographically
dispersed throughout the United States, mostly in ozone attainment
areas.
The economic impacts of this rule are generally beneficial to
affected refiners due to the additional flexibility provided by this
action. Minimal anti-competitive effects are expected.
A more comprehensive description of the environmental and economic
impacts of the RFG program is described in the Regulatory Impact
Analysis (RIA) supporting the December 1993 rule. This RIA is available
in Public Docket A-92-12 located at Room M-1500, Waterside Mall (ground
floor), U.S. Environmental Protection Agency, 401 M Street S.W.,
Washington, D.C. 20460.
VIII. Administrative Requirements
A. Administrative Designation
Pursuant to Executive Order 12866, (58 FR 51735, October 4, 1993)
the Agency must determine whether this regulatory action is
``significant'' and therefore subject to OMB review and the
requirements of the Executive Order. The Order defines ``significant
regulatory action'' as one that is likely to result in a rule that may:
(1) Have an annual effect on the economy of $100 million or more or
adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local or tribal governments or communities;
(2) Create a serious inconsistency or otherwise interfere with an
action taken or planned by another agency;
(3) Materially alter the budgetary impact of entitlement, grants,
user fees, or loan programs or the rights and obligations of recipients
thereof; or
(4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
the Executive Order.
Pursuant to the terms of Executive Order 12866, it has been
determined that this FRM is not a ``significant regulatory action.''
B. Impact on Small Entities
EPA has determined that this rule will not have a significant
economic impact on a substantial number of small entities, and that it
is therefore not necessary to prepare a regulatory flexibility analysis
in conjunction with this final rule. Because today's rule provides for
less stringent requirements than the December 1993 regulations for
qualifying refiners, small entities which qualify for one or more of
the baseline adjustments contained herein will find
[[Page 9883]]
it easier to comply with the requirements of the RFG and anti-dumping
programs.
C. Paperwork Reduction Act
The Paperwork Reduction Act of 1980, 44 U.S.C. 3501 et seq., and
implementing regulations, 5 CFR Part 1320, do not apply to this action
as it does not involve the collection of information as defined
therein.
D. Unfunded Mandates Act
Under section 202 of the Unfunded Mandates Reform Act of 1995
(``Unfunded Mandates Act''), signed into law on March 22, 1995, EPA
must prepare a budgetary impact statement to accompany any proposed or
final rule that includes a Federal mandate that may result in
expenditure by State, local, and tribal governments, in the aggregate;
or by the private sector, of $100 million or more. Under section 205,
EPA must select the most cost-effective and least burdensome
alternative that achieves the objectives of the rule and is consistent
with statutory requirements. Section 203 requires EPA to establish a
plan for informing and advising any small governments that may be
significantly or uniquely impacted by the rule.
EPA has determined that today's action does not include a Federal
mandate that may result in estimated costs of $100 million or more to
either State, local or tribal governments in the aggregate, or to the
private sector. This action has the net effect of reducing burden of
the RFG program on regulated entities. Therefore, the requirements of
the Unfunded Mandates Act do not apply to this action.
E. Submission to Congress and the General Accounting Office
Under 5 U.S.C. 801(a)(1)(A) as added by the Small Business
Regulatory Enforcement Fairness Act of 1996, EPA submitted a report
containing this rule and other required information to the U.S. Senate,
the U.S. House of Representatives and the Comptroller General of the
General Accounting Office prior to publication of the rule in today's
Federal Register. This rule is not a ``major rule'' as defined by 5
U.S.C. 804(2).
IX. Statutory Authority
The statutory authority for the action promulgated today is granted
to EPA by sections 211 (c) and (k) and 301 of the Clean Air Act, as
amended; 42 U.S.C. 7545 (c) and (k), and 7601.
List of Subjects in 40 CFR Part 80
Environmental protection, Air pollution control, Fuel additives,
Gasoline, Motor vehicle pollution, Reporting and recordkeeping
requirements.
Dated: February 21, 1997.
Carol M. Browner,
Administrator.
For the reasons set out in the preamble, part 80 of title 40 of the
Code of Federal Regulations is amended as follows:
PART 80--REGULATION OF FUELS AND FUEL ADDITIVES
1. The authority citation for part 80 continues to read as follows:
Authority: Sections 114, 211 and 301 of the Clean Air Act as
amended (42 U.S.C. 7414, 7545 and 7601).
2. Section 80.91 is amended by revising paragraph (e)(7)(i);
removing paragraph (e)(7)(iv) and by adding paragraphs (e)(8) and
(e)(9) to read as follows:
Sec. 80.91 Individual baseline determination.
* * * * *
(e) * * *
(7) * * *
(i) Baseline adjustments may be allowed, upon petition and approval
(per Sec. 80.93), if a refinery produced JP-4 jet fuel in 1990 and all
of the following requirements are also met:
(A) Refinery type.
(1) The refinery is the only refinery of a refiner such that it
cannot form an aggregate baseline with another refinery (per
Sec. 80.101(h)); or
(2) The refinery is one refinery of a multi-refinery refiner for
which all of the refiner's refineries produced JP-4 in 1990; or
(3) The refinery is one refinery of a multi-refinery refiner for
which not all of the refiner's refineries produced JP-4 in 1990.
(B) No refinery of a given refiner produces reformulated gasoline.
If any refinery of the refiner produces reformulated gasoline at any
time in a calendar year, the compliance baselines of all the refiner's
refineries receiving a baseline adjustment per this paragraph (e)(7)
shall revert to the unadjusted baselines of each respective refinery
for that year and all subsequent years.
(C) 1990 JP-4 to gasoline ratio.
(1) For a refiner per paragraph (e)(7)(i)(A)(1) of this section,
the ratio of its refinery's 1990 JP-4 production to its 1990 gasoline
production must be greater than or equal to 0.15.
(2) For a refiner per paragraph (e)(7)(i)(A)(2) of this section,
the ratio of each of its refinery's 1990 JP-4 production to its 1990
gasoline production must be greater than or equal to 0.15.
(3) For a refiner per paragraph (e)(7)(i)(A)(3) of this section,
the ratio of the refiner's 1990 JP-4 production to its 1990 gasoline
production must be greater than or equal to 0.15, when determined
across all of its refineries. Such a refiner must comply with its anti-
dumping requirements on an aggregate basis, per Sec. 80.101(h), across
all of its refineries.
* * * * *
(8) Baseline adjustments due to increasing crude sulfur content.
(i) Baseline adjustments may be allowed, upon petition and approval
(per Sec. 80.93), if a refinery meets all of the following
requirements:
(A) The refinery does not produce reformulated gasoline. If the
refinery produces reformulated gasoline at any time in a calendar year,
its compliance baseline shall revert to its unadjusted baseline for
that year and all subsequent years;
(B) Has an unadjusted baseline sulfur value which is less than or
equal to 50 parts per million (ppm);
(C) Is not aggregated with one or more other refineries (per
Sec. 80.101(h)). If a refinery which received an adjustment per this
paragraph (e)(8) subsequently is included in an aggregate baseline, its
compliance baseline shall revert to its unadjusted baseline for that
year and all subsequent years;
(D) Can show that installation of the refinery units necessary to
process higher sulfur crude oil supplies to comply with the refinery's
unadjusted baseline would cost at least $10 million or be greater than
or equal to 10 percent of the depreciated book value of the refinery as
of January 1, 1995;
(E) Can show that it could not reasonably or economically obtain
crude oil from an alternative source that would permit it to produce
conventional gasoline which would comply with its unadjusted baseline;
(F) Has experienced an increase of greater than or equal to 25
percent in the average sulfur content of the crude oil used in the
production of gasoline in the refinery since 1990, calculated as
follows:
[GRAPHIC] [TIFF OMITTED] TR04MR97.002
Where:
CSHI=highest annual average crude sulfur (in ppm), of the crude slates
used in the production of gasoline, determined over the years 1991-
1994;
[[Page 9884]]
CS90=1990 annual average crude slate sulfur (in ppm), of the crude
slates used in the production of gasoline;
CS%CHG=percent change in average sulfur content of crude slate;
(G) Can show that gasoline sulfur changes are directly and solely
attributable to the crude sulfur change, and not due to alterations in
refinery operation nor choice of products.
(ii) The adjusted baseline sulfur value shall be the actual
baseline sulfur value, in ppm, plus 100 ppm.
(iii) All adjustments made pursuant to this paragraph (e)(8) must
be accompanied by:
(A) Unadjusted and adjusted fuel parameters and emissions; and
(B) A narrative describing the situation, the types of
calculations, and the reasoning supporting the types of calculations
done to determine the adjusted values.
(9) Baseline adjustment for low sulfur and olefins.
(i) Baseline adjustments may be allowed if a refinery meets all of
the following requirements:
(A) The unadjusted annual average baseline sulfur value of the
refinery is less than or equal to 30 parts per million (ppm);
(B) The unadjusted annual average baseline olefin value of the
refinery is less than or equal to 1.0 percent by volume (vol%).
(ii) Adjusted baseline values.
(A) The adjusted baseline shall have an annual average sulfur value
of 30 ppm, and an annual average olefin value of 1.0 vol%.
(B) The adjusted baseline shall have a summer sulfur value of 30
ppm, and a summer olefin value of 1.0 vol%.
(C) The adjusted baseline shall have a winter sulfur value of 30
ppm, and a winter olefin value of 1.0 vol%.
* * * * *
Sec. 80.10 [Amended]
3. Section 80.101 is amended by removing paragraph (b)(1)(v).
[FR Doc. 97-5197 Filed 3-3-97; 8:45 am]
BILLING CODE 6560-50-P