------------------------------------------------------------------------------- 12/27/93 [L-S document 478144, 58 FR 68343, 1166 lines] ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 80 [AMS-FRL-4817-9] Regulation of Fuels and Fuel Additives: Renewable Oxygenate Requirement for Reformulated Gasoline AGENCY: Environmental Protection Agency. ACTION: Notice of proposed rulemaking. ----------------------------------------------------------------------------- SUMMARY: This proposal concerns a program to maximize the energy and other benefits from the reformulated gasoline program, while obtaining significant emission reductions in ozone forming volatile organic compounds and toxic air pollutants. Specifically, the program would require that 30 percent of the oxygen content of reformulated gasoline come from renewable oxygenates. Technical analyses show that the production of such oxygenates is more energy efficient than that of other potential oxygenated additives and the use of such oxygenates would offset the use of imported crude with fuels produced from corn, grain, wood, and even organic waste. As a result, the program would reduce foreign oil imports, create investment and jobs in America, reduce fossil energy use, and lower emissions of harmful greenhouse gases. This proposal also contains a description of the proposed enforcement mechanisms associated with this requirement. DATES: The comment period will close on February 14, 1994. EPA will hold a public hearing on this proposal on January 14, 1994, in the Washington, DC area beginning at 9 a.m. ADDRESSES: Send comments to Public Docket A-93-49 at the address below. Materials relevant to this NPRM are contained in Public Dockets A-91-02, A- 92-12, and A-93-49 located at room M-1500, Waterside Mall (ground floor), U.S. Environmental Protection Agency, 401 M Street SW., Washington, DC 20460. The docket may be inspected from 8 a.m. until 12 noon and from 1:30 p.m. until 3 p.m. Monday through Friday. A reasonable fee may be charged by EPA for copying docket materials. The public hearing will be held at the Hyatt Regency, Crystal City, 2799 Jefferson Davis Highway, Arlington, VA 22202. Telephone: 703-418-1234. 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 action 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: Background The federal reformulated gasoline program is designed 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 emission reductions of ozone forming volatile organic compounds (VOC) and air toxics. In addition, Section 211(k)(1) directs EPA to promulgate regulations establishing requirements for reformulated gasoline, and 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. To obtain the benefits described below from this proposal, and to make sure these emission standards are met in such a way as to properly reflect these statutory criteria, today's action proposes a year-round requirement that thirty percent of the statutory oxygen compositional specifications for reformulated gasoline be obtained from renewable oxygenates. To ensure that the ozone benefits of the reformulated gasoline program are unaffected by today's proposal, it is EPA's expectation that only renewable oxygenates that do not exhibit volatility related commingling effects when mixed with gasoline (e.g. ETBE) will be acceptable during the VOC control period (summer months) to comply with the requirements being proposed today. Both ETBE and ethanol are expected to be acceptable during the non summer months. Also included in today's proposal are provisions for averaging and credit trading in order to provide maximum flexibility for refiners and fuel importers. There is considerable history behind EPA's decision to propose a renewable oxygenate requirement. In response to EPA's April 1992 publication of the Supplemental Notice of Proposed Rulemaking (SNPRM) (57 FR 13416, April 16, 1992) for reformulated gasoline, members of the ethanol industry submitted comments to EPA which expressed their concern that the proposed reformulated gasoline rulemaking, would effectively exclude ethanol from the reformulated gasoline market. In an attempt to address the role of ethanol, the Agency proposed a renewable oxygenate program (ROP) (58 FR 11722, February 26, 1993) at the direction of former President Bush to promote the use of ethanol and other renewable oxygenates in reformulated gasoline. The objective of the ROP was to promote the use of renewable oxygenates in the reformulated gasoline program in the summer while, theoretically, maintaining the overall environmental benefits of the program. As explained in the preamble and RIA for the reformulated gasoline final rule, EPA had a number of concerns with respect to the ROP proposal, and decided not to promulgate the ROP. The ROP proposal created an increase for the use of renewables but in no way assured their use. Also, EPA's analysis indicated that the proposal would not maintain the environmental benefits instead VOC emissions would increase significantly under such a proposal. The commingling effect of mixing ethanol blends with non-ethanol blends in consumers' fuel tanks, the effect of ethanol on the distillation curve of the blend, and unrestricted early use of the complex model would have sacrificed 40 to 50 percent of the VOC control that is required under section 211(k)(3) for reformulated gasoline during the summer. The final rulemaking for reformulated gasoline, consistent with the agreement reached through regulatory negotiation, does not include additional provisions to promote the use of renewable oxygenates. Therefore, uncertainty remains regarding the magnitude of the role renewable oxygenates will play in reformulated gasoline. EPA believes a number of arguments support a program to ensure a minimum level of participation of renewable oxygenates in reformulated gasoline. The U.S. now imports nearly half of the oil we use. Half of our trade deficit is from imported oil, and it is getting worse. Since 1972 we have spent 1.3 trillion dollars on imported oil--money which could have provided investment and jobs in America. Growing oil consumption not only diminishes a limited primary energy source but also increases emissions of greenhouse gases. Expanding the use of renewable fuels, such as ethanol, from resources such as corn, grain, wood, organic waste products, and even garbage can help clean up our air, cut dependence on foreign oil, create investment and jobs in America, reduce primary energy use by 20% or more as compared to nonrenewable oxygenates, and lower emissions of harmful greenhouse gases. Today's proposal is intended to address the role of renewable oxygenates in reformulated gasoline by introducing a program to increase the use of such oxygenates in a manner that ensures environmental, energy, and economic benefits. As just summarized, EPA believes there are significant benefits for renewable oxygenate use in reformulated gasoline, and today's proposal is based on EPA's general authority in Section 211 (k)(1) to establish requirements for RFG and the directive in section 211(k)(1) to consider such environmental, energy, and economic benefits in structuring the emission reduction requirements for the reformulated gasoline program. Today, the United States imports nearly half of all oil used, with two-thirds of this oil being used for transportation. Dependence on imported oil costs the U.S. $40-80 billion each year, and the cumulative cost over the last 20 years has reached $1.3 trillion (in current dollars). Payments for imported oil are the largest single cause of the U.S. international trade deficit, a deficit which reached $84 billion in 1992 and is expected to exceed $100 billion in 1993. Payments for imported oil represent a transfer of wealth from the United States to oil-exporting countries. Absent policies to reverse current trends, projected U.S. dependence on imported oil will increase to 60-70% by the year 2010. Money now spent on imported oil or oxygenates could instead be spent for renewable fuels made from feed stocks currently grown or processed in the United States. This would keep capital in the U.S., provide domestic jobs, strengthen our national security, and support a wide variety of American agricultural and fuel industries. Economists have estimated that 25,000 to 30,000 jobs are lost for every billion dollars which is sent abroad to pay for imports. To the extent that the renewable component of the reformulated gasoline program keeps American money in the country, it will keep American jobs here as well. Assuming that the renewable component is met with ETBE in the summer months and ethanol during the rest of the year, and also assuming this 30% renewable component displaces imports for foreign oxygenates, the program will create and sustain in excess of 10,000 new domestic jobs. As discussed below, reformulated gasoline made with renewable oxygenates requires the use of less imported crude oil and less energy. In addition, EPA believes there is a justification for a renewable oxygenate program based on environmental benefits from renewable fuels. There is growing concern about greenhouse gas emissions, particularly from fossil fuels; in fact, the Climate Change Action Plan identified transportation as the sector with the greatest potential for growth in greenhouse emissions. The number of vehicle miles traveled in the United States has doubled over the last twenty years and is expected to continue to grow at a rapid rate. Expanding the use of renewable fuels from feed stocks such as corn, grain, wood, organic waste products, and even garbage, can potentially yield large reductions in the emissions of greenhouse gases. Today's proposal is consistent with current national efforts to stabilize greenhouse gas emissions by the year 2000. EPA believes that the use of renewable fuels also reduces consumption of primary energy sources such as petroleum and natural gas. The Agency believes that the 30 percent requirement for renewable oxygenates is an appropriate level. This requirement ensures that renewables will not be excluded from the market, yet it allows the remaining 70 percent of the market to be open to all fuels, regardless of point of origin or renewable content. As a result of concerns with the February 26, 1993 ROP, other options considered for simplifying that proposal, and other alternatives recommended by commenters, EPA has rejected them and is instead proposing today's renewable oxygenate program. (The reader is referred to Section II of the Preamble and Section I of the RIA for the reformulated gasoline final rulemaking for a description of the options and alternatives to the ROP considered.) Today's proposal is for a program to be applied in conjunction with the reformulated gasoline program and is designed to supplement the agreement for reformulated gasoline reached through regulatory negotiation. It does not alter the performance standards or other provisions for the reformulated gasoline outlined in the final rulemaking for reformulated gasoline. In addition, the program does not mandate the use of any particular oxygenate, but rather ensures some use of a certain subset of oxygenates. The reader is referred to the technical support document contained in the docket for additional discussion of today's proposal. The reader may also refer to the 1993 NPRM (58 FR 11722, February 26, 1993), the Final Rule, the February 1993 Draft Regulatory Impact Analysis (DRIA), the Final Regulatory Impact Analysis (RIA), and Public Dockets A-91-02 and A-92-12 for a thorough description of the goals and regulatory development of the reformulated program as it relates to today's action. The remainder of this preamble is organized into the following sections: II. Renewable Oxygenate Proposal for Reformulated Gasoline III. Enforcement of the Renewable Oxygenate Requirement IV. Federal Preemption V. Environmental, Energy, and Economic Impacts VI. Public Participation VII. Compliance with Regulatory Flexibility Act VIII. Statutory Authority IX. Administrative Designation and Regulatory Analysis X. Compliance with the Paperwork Reduction Act II. Renewable Oxygenate Proposal for Reformulated Gasoline A. Description of the Proposed Program Reformulated gasoline is required to contain 2.0 weight percent oxygen (Section 211(k)(2)(B) of the CAA). A number of oxygenates have or are currently being used in gasoline, such as methyl tertiary butyl ether (MTBE), ethanol, ethyl tertiary butyl ether (ETBE), tertiary butyl alcohol and tertiary amyl methyl ether (TAME). All of these oxygenates involve the use of alcohols in their production, and most involve methanol or ethanol. Based on a study conducted by the Department of Energy (DOE) (submitted to EPA as a comment on the ROP proposed on February 26, 1993) and EPA's own analysis, all oxygenates reduce the amount of crude oil needed to produce gasoline on essentially a gallon per gallon basis (i.e., each gallon of oxygenate used saves a gallon of crude oil). The lack of incremental supply of domestic crude means that essentially all of this crude oil savings applies to crude oil imports, with important energy, national security, and balance of trade impacts. Of all the oxygenates evaluated, ETBE shows the greatest crude oil savings at 13 percent per gallon of reformulated gasoline, since it must be used at the greatest volume percentage to meet the minimum oxygen content. However, the DOE study implicitly assumed that all oxygenates would be produced domestically. While the use of imported oxygenates would still reduce crude oil use and oil imports, it would merely substitute importing one form of energy for another. In fact, importing oxygenates worsen the current situation from an economic point of view. The new imports would be high value products involving a significant amount of processing and labor in their production, but which can then be added directly to gasoline. The supplanted imported crude is a more basic energy source and requires processing and labor prior to its use. Therefore, only an increase in the use of domestic oxygenates would reduce both the amount of crude oil and oxygenate imports to the U.S. This broader evaluation of basic energy requirements is important in interpreting the study's results regarding ethanol. The DOE study shows that crude oil use increases slightly with the use of renewable ethanol blends relative to domestic MTBE blends. However, as mentioned above, this ignores the importation of both methanol and MTBE. It also assumes that all of the butanes required to produce MTBE come from natural gas, while in practice as much as a third of the incremental MTBE is expected to use refinery (i.e., crude oil) based isobutylene. Consideration of this refinery-based isobutylene would eliminate any benefit of MTBE blends over ethanol blends. Also, the use of domestic, renewable ethanol would clearly reduce high value energy imports relative to imported methanol or MTBE. A second aspect of the energy impact of the reformulated gasoline program is the total amount of fossil energy needed to produce reformulated gasoline with the various oxygenates. Total fossil energy is important because it tends to correlate with total carbon dioxide (CO2) emissions and global warming impact. The DOE study shows that the ethers made from renewable alcohols (in this case corn based ethanol) can save nearly 15 percent of the total fossil energy per gallon of ether or about 1.6 percent of the total fossil energy needed per gallon of reformulated gasoline containing 2.0 weight percent oxygen, relative to using MTBE made from natural gas-based methanol (See Technical Support Document in the docket for derivation of the above figures). The DOE study also shows that the blending of renewable ethanol also saves total fossil energy relative to natural gas based MTBE, if the increase in Reid vapor pressure (RVP) associated with ethanol need not be counteracted. However, the summer VOC emission performance standards require ethanol blends to generally have the same RVP as other blends, which requires the base gasoline to have a lower RVP than the base gasoline that can be blended with other oxygenates. The additional energy needed to lower the base gasoline RVP for ethanol blends is greater than the energy saved by producing ethanol instead of MTBE. Thus, while generating energy savings in the non summer months, ethanol used in summer reformulated gasoline would not be expected to produce an energy savings. Furthermore, the use of ethanol directly in summer reformulated gasoline increases VOC emissions in two ways not reflected in either the simple or complex models. First, the commingling of ethanol and non-ethanol blends in vehicle fuel tanks causes an increase in RVP over and above the simple averaging of the fuels' RVPs, leading to a further increase in evaporative VOC emissions. Second, ethanol increases fuel evaporation at 130 deg.F, a temperature typically reached in the vehicle fuel tank during summer driving, more than other oxygenates. While some of the non-commingling ethers also increase fuel evaporation at 130 deg.F, the increase caused by ethanol is much greater. Based on an analysis contained in the Regulatory Impact Analysis (RIA) for the final rule implementing the reformulated gasoline program, the commingling and distillation effects could increase total VOC emissions by 5 percent (relative to MTBE blends) when ethanol blends comprise 30 percent of the market. Thus, it would not be appropriate to encourage ethanol (or other commingling alcohol) blends through the renewable oxygenate program during the summer high ozone season when the VOC emission performance standards apply. However, outside of the ozone season, when VOC reductions are not required in reformulated gasoline for ozone control, EPA believes domestic ethanol blends would produce both imported and total fossil energy savings and potential CO2 emission reductions. Both EPA and DOE analyses also show that methanol produced from biomass, such as wood or organic waste products, would save fossil energy relative to natural gas-based methanol and would require essentially no use of crude oil. (See Technical Support Document). This savings would occur with the direct use of methanol or through the production of methanol-based ethers. Again, if not encouraged for use during the high ozone season, the use of methanol should not raise VOC emission performance concerns (methanol, like ethanol, produces commingling related RVP increases and increases in fuel evaporation at 130 deg.F). Based on the above analysis, EPA believes that the use of renewable oxygenates would reduce the need for imported crude oil or oxygenates in the production of reformulated gasoline. It is also clear that the use of renewable oxygenates, or at least the alcohol portion of the oxygenates, would reduce the total fossil energy needed to produce reformulated gasoline, and could provide greenhouse gas emission reductions. EPA therefore proposes to require that 30 percent of the required 2.0 weight percent oxygen content of all reformulated gasoline be produced using renewable oxygenates. This level of renewables should increase the crude oil, greenhouse gas emission, and domestic economic benefits of the program. The majority of the oxygenate projected to be used to produce reformulated gasoline absent this program is expected to be domestic ethers made from domestic methanol. Significant amounts of ethanol are also expected to be used, but primarily in the winter when the VOC emission requirements do not apply. However, significant amounts of ethers are also expected to be imported or domestically produced from imported methanol. The proposed 30 percent renewable requirement should have minimal impact on the domestic methanol-based ethers, since these ethers should have the lowest cost structure of all the oxygenates not qualifying under this requirement. In other words, the domestic methanol based ethers are expected to compose the majority of the 70 percent of reformulated gasoline not affected by the program. The proposed program should have the greatest impact on imported ethers and imported methanol, since their capacity would not likely be needed to fulfill the 70 percent of the reformulated gasoline market not required to be renewable. Supplanting this imported oxygenate supply would be domestic renewable alcohols (in the winter) and ethers produced from these alcohols (year round). The great majority of the renewable alcohol is expected to be domestic ethanol, since it is the only alcohol produced from renewables in any great quantity. However, EPA expects that this program could generate significant interest in domestic renewable methanol processes and over time both alcohols could be produced in significant quantities. Thus, the combination of domestic nonrenewable ethers and domestic renewable ethers and alcohols should provide a combination of reduced high value energy imports (with the attendant improvement in the nation's balance of trade and employment status) and a potential reduction in CO2 emissions, while maintaining substantial competition between oxygenate sources to ensure competitive market pricing. EPA is proposing to define renewable oxygenates to include all ethers if these ethers are produced from renewable ethanol or methanol. These ethers can be used anytime during the year. Renewable oxygenates are also proposed to include domestically produced renewable ethanol and methanol, but only if used during the non-high ozone season. Renewable ethanol and methanol are proposed to be methanol and ethanol produced from feed stocks other than petroleum, natural gas, coal, or peat. EPA is considering adopting a performance based requirement to ensure a net reduction in total fossil energy utilization of between 5 and 20% and net greenhouse gas emission reductions up to 20% associated with the production and use of renewable oxygenates. EPA requests comments on the above definitions, as well as on the desirability of a performance based definition and on the possible content of such a performance based definition. EPA is aware that it is possible that some ethers produced from natural gas-based methanol may utilize less energy than certain other ethers produced from corn-based ethanol. For example, this could be true for TAME produced from refinery isoamylenes versus ETBE produced from field butanes. However, this is due to the difference in the source of the isoolefins used in the ether production process. Use of corn-based ethanol with refinery isoamylenes should save energy relative to TAME using natural gas-based methanol, just as ETBE from field butanes will save energy relative to MTBE. Therefore, EPA is not proposing that ethers such as TAME from natural gas-based methanol with potentially low energy usage be included in the program. EPA is also aware that the production of higher alcohols, such as propanols and butanols, from renewable feedstock may also produce energy and crude oil savings. However, we are not aware of technical analyses which detail the necessary and likely production processes, nor the resulting energy and crude oil balances. We will consider their inclusion if it can be demonstrated that they also provide similar energy and crude oil benefits. EPA requests comments on the crude oil and energy savings associated with renewable oxygenates. EPA also requests comment on the adequacy of health effects testing to date for all of the potential renewable oxygenates. B. Extent and Duration of the Program EPA proposes that the renewable oxygenates requirement apply to 30 percent of the oxygen content of reformulated gasoline and apply year round. The 30 percent requirement would be measured on an oxygen-equivalent basis and would be applied to the minimum oxygen content of 2.0 weight percent oxygen. This means that on average all reformulated gasoline would be required to have at least a 0.60 weight percent oxygen content (2.0 times 30 percent) provided by renewable oxygenates. This requirement would be applied to all refiners or importers of reformulated gasoline and/or reformulated blend stock for oxygenate blending (RBOB) on average throughout the year, excluding oxygenate blenders. Refiners and importers of reformulated gasoline would also be able to generate and trade any excess use of renewable oxygenates to other producers desiring to use less renewable oxygenates. Therefore, all the current methods that provide flexibility to fuel producers in meeting the oxygen requirement for reformulated gasolines would be extended to meeting the renewable oxygenates requirement. In addition, for purposes of this proposed program averaging and trading would be expanded to allow such activities to occur year round and between various non-attainment areas, since the emissions performance of the various reformulated gasolines would be unaffected. EPA requests comment on the extension and expansion of the oxygen averaging and trading concepts contained in the reformulated gasoline program to this proposed renewable oxygenate program. EPA considered requiring greater and lesser levels of renewable oxygenates. EPA believes the 30 percent level produces a significant level of the benefits mentioned above while still ensuring feasibility and a diverse supply of oxygenates (i.e., low cost through competition). EPA requests comment, however, on the proposed 30 percent level and on the advantages and disadvantages of different levels. Given the current absence of bio-methanol capacity, renewable oxygenates would likely be ethanol based. The 30 percent level would require an average production of roughly 630 million gallons of ethanol per year. This is about 60 percent of ethanol's current production capacity of roughly one billion gallons per year. As the vast majority of ethanol is currently sold outside of the reformulated gasoline areas, this would mean a significant near-term geographic shift of ethanol use (in the form of ETBE or ethanol). Additional ethanol capacity on the order of 0.5-1.0 billion gallons per year could likely be added in a couple of years, as many current plans for additional capacity exist, but have been on hold pending resolution of the likely future demand for ethanol. With respect to ether production, near-term supply problems could also arise from the substitution of corn-based ethanol for natural gas-based methanol. ETBE production utilizes both ethanol production capacity and ether production capacity. This reduces the amount of MTBE and ethanol which can be blended directly into gasoline, while only replacing roughly one-half of this reduction with ETBE. The increased methanol capacity cannot be easily used in gasoline, because of methanol's very high RVP blending value and its water sensitivity. However, the inclusion of ethanol in the program during the winter should eliminate the need for any reduction in total national oxygenate capacity during this time. Summer oxygenate demand is lower than winter demand due to the absence of demand from the oxyfuel program. Projected 1995 MTBE capacity was expected to be sufficient for summer reformulated gasoline. Therefore, ETBE capacity should also be sufficient. EPA requests comments on the technical feasibility of the 30 percent required level for the 1995 program and on whether the requirement should be phased in over time. Also, EPA considered proposing different renewable oxygenate levels between gasolines meeting the Region 1 and 2 VOC performance standards. (Region 1 refers to those areas of the U.S. where temperatures are relative high during the summer and where 7.8 RVP gasoline is required to be sold (in ozone non- attainment areas) under EPA's Phase II RVP program. Region 2 refers to the rest of the nation, which is relatively cooler and where 9 RVP gasoline is required.) EPA's previous proposed ethanol incentive program encouraged up to 30 percent ethanol blends in Region 2, but only 20 percent in Region 1. EPA rejected such differential levels here, as the cost of producing Region 1 fuel with non-renewable oxygenates could be less than the cost of producing Region 2 fuel with renewable oxygenates, despite the latter's higher RVP. Differential renewable oxygenate levels could therefore encourage the over- production of Region 1 fuel and its sale in Region 2 as a way to reduce the amount of renewable oxygenates required. In Phase II of the reformulated gasoline program, the RVP distinction between Regions 1 and 2 essentially disappears, so the incentive to overproduce Region 1 fuel would be even greater. EPA requests comments on the absence of a distinction in the required levels for Regions 1 and 2. EPA considered nominal oxygen levels other than 2.0 weight percent oxygen when applying the 30 percent criteria. EPA's previous ethanol incentive proposal used 2.7 weight percent oxygen, based primarily on the fact that most ethanol blends were produced at a higher level of 3.5 weight percent oxygen, but the simple model generally restricted oxygen levels to 2.7 weight percent. Ethers currently may not lawfully be used at 3.5 weight percent oxygen and the average requirement for reformulated gasoline is only 2.0 weight percent oxygen. Therefore, use of the 2.0 weight percent oxygen level would result in the use of renewable oxygenates for not only 30 percent of the oxygen, but also in roughly 30 percent of the volume of reformulated gasoline, at least for summer gasoline when commingling alcohols are not allowed. Comments are requested on this value. EPA also considered and rejected limiting the renewable oxygenate requirement to the summer, or high ozone season. EPA's previously proposed ethanol incentive program applied only during this time, in part because we projected that a significant fraction of reformulated gasoline would likely contain ethanol in the winter even without an incentive. However, EPA believes that the benefits discussed earlier occur regardless of the time of year the renewable oxygenate is used and assurance of its use, even in the winter, seems warranted. Therefore, the requirement is being proposed as applying year round. EPA requests comment on this aspect of the program. One consequence of the year round requirement is that renewable oxygenates could be used preferentially during one season or the other. In particular, since ethanol would qualify as a renewable oxygenate during the winter and is generally cheaper than ETBE (particularly without the need to adjust RVP), ethanol could be used in more than 30 percent of winter reformulated gasoline and renewable ethers used in much less than 30 percent of summer gasoline. By allowing such year round averaging the same overall benefits to the nation are provided while at the same time minimizing the cost and maximizing the flexibility for refiners to comply with the requirements. EPA requests comment on the desirability of these outcomes, particularly on how it might affect the workings of the oxygenate markets. The final feasibility issue relates to the initial implementation of the program. The reformulated gasoline program will be in effect on January 1, 1995. Even with a very aggressive rulemaking schedule, EPA does not foresee being able to promulgate this renewable oxygenates program earlier than June of 1994. Some time is necessary for ethanol producers to adjust their production schedules, for ether suppliers to set up contracts for the purchase of renewable alcohols and for fuel producers to set up supplies of renewable ethers. Reformulated gasoline producers may also have to adjust their gasoline production plans for a different oxygenate, though use of ETBE may simplify those plans due to its low RVP and higher volume per unit oxygen. Regarding ether producers, EPA believes that at least half of current MTBE capacity is capable of producing ETBE with no addition of equipment. If this is true, then conversion of current MTBE capacity to ETBE production should not be a limitation on implementation. Refiners and importers of reformulated gasoline also need to begin distribution of their fuel prior to January 1, 1995 in order to have turned over the distribution system in time to meet the 1995 requirements. EPA requests comment on the amount of time needed for the various preparatory actions described above to occur in order to avoid high transition costs and possible disruption in supply and on the earliest possible date this program could be implemented. EPA also requests comment on the advantages and disadvantages of a staged implementation, where the amount of required renewable oxygenate would be increased in increments over identifiable time periods (i.e., gradually increasing levels for the period prior to the 1995 high ozone season, the 1995 high ozone season, and thereafter). III. Enforcement of the Renewable Oxygenate Requirement The proposed enforcement scheme for the renewable oxygenate requirements would be similar to the enforcement scheme used for the reformulated gasoline requirements. The proposed renewable oxygenate average standard, 0.60 wt% oxygen from renewable oxygenate, would apply to importers, and to refiners separately for each refinery,1 and would have a calendar year averaging period.2 No per-gallon standard would be included, however. Renewable oxygen credits could 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. Note 1 The 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. Note 2 Reformulated 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. Under the proposal, the definition for renewable oxygenate is different in the case of oxygenate used with reformulated gasoline and RBOB that is VOC- controlled versus that used with reformulated gasoline and RBOB that is not VOC-controlled. In the case of VOC-controlled gasoline and RBOB, the oxygenate would have to be an ether, while in the case of non-VOC-controlled gasoline and RBOB the oxygenate could be either an ether, or ethanol or methanol. The reasons for these distinctions are discussed in Section II of this preamble. In either case, the proposal would require that the ether or alcohol be derived from a source other than petroleum, coal, natural gas, or peat. Mechanisms are being proposed for establishing the renewable nature of oxygenate. These proposed mechanisms are that the refiner would have to purchase the methanol or ethanol from its producer, and would have to retain documents obtained from that person that certify the renewable source of the methanol or ethanol feed-stock. In the case of any methanol- or ethanol-based ether claimed to be renewable oxygenate, the refiner would have to obtain documents that state the name and address of the ether production facility, and the specific nature and source of the feedstock used to produce the methanol or ethanol. EPA requests comment on this proposal on the mechanisms required for establishing the renewable source of oxygenate. EPA is considering a petition process whereby EPA could expand the definition of renewable oxygenate to include alcohols other than ethanol and methanol, and ethers other than those produced using ethanol and methanol. Possible criteria that could be used in such a petition process include factors such as the renewable nature of the alcohol or ether, the amount of energy used in producing the alcohol or ether, and any air quality implications of using the alcohol or ether with gasoline. EPA is requesting comment on such a petition process generally, and in particular on any criteria that would be appropriate for use in guiding EPA's decisions on a petition. Under the proposal, refiners would be required to include in renewable oxygenate compliance calculations all reformulated gasoline and RBOB produced during the averaging period. RBOB would be included in the compliance calculations even though refiners are not required to account for oxygen in the case of RBOB under the reformulated gasoline program. EPA is proposing that refiners be the party responsible for meeting the renewable oxygenate standard for RBOB for several reasons. Refiners control the type and amounts of oxygenate that may be added to RBOB. As a result, if oxygenate blenders were required to meet the renewable oxygenate standard they would be required not only to obtain an adequate supply of RBOB suitable for blending with renewable oxygenate, but also must obtain the particular renewable oxygenate included by the refiner in the RBOB product transfer documents. EPA believes that in many situations adequate supplies of these specific forms of RBOB and/or oxygenate would not be available to downstream oxygenate blenders, and that in consequence it often would not be feasible for downstream oxygenate blenders to achieve the renewable oxygenate standard. This availability concern is due in part to the fact that downstream oxygenate blenders in many cases are small entities, who may lack the market force necessary to compel adequate supplies of the appropriate RBOB's and oxygenates at the appropriate time. Trading in renewable oxygen credits potentially could aid oxygenate blenders in meeting the renewable oxygenate standard. However, this would require a multitude of small entities to trade renewable oxygen credits and with significant transaction costs. EPA does not believe there are any significant benefits that result from applying the renewable oxygenate standard to downstream oxygenate blenders that would justify these additional costs. EPA's proposal would allow refiners to include in renewable oxygenate compliance calculations the renewable oxygenate that is added by downstream oxygenate blenders, provided the refiner carries out an appropriate quality assurance program over the downstream oxygenate blender. Absent such a program, the refiner would have to assume that a non-renewable oxygenate was blended downstream. Even where a refiner is able to include renewable oxygenate blended downstream, however, the refiner could not use this oxygen to meet the reformulated gasoline oxygen standard applicable to the refinery, under Sec. 80.41, because under the existing reformulated gasoline requirements the reformulated gasoline oxygen standard must be met by the downstream oxygenate blender for RBOB used by the oxygenate blender. The proposed conditions restricting when refiners could include in compliance calculations the renewable oxygenate added downstream are similar to the restrictions contained in the downstream oxygenate provisions under the reformulated gasoline program. The proposed conditions deal with refiner control and oversight over the downstream blending operation, and are 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 requests comments on its proposal to apply the renewable oxygenate standard to refiners and importers of RBOB, and to not apply this standard to downstream oxygenate blenders. The renewable oxygenate requirements would apply to reformulated gasoline sold in the two covered areas in the State of California, Los Angeles and San Diego. This raises enforcement-related complications because in most cases refiners who produce gasoline for use in California, beginning in March, 1996 are exempt from most reformulated gasoline enforcement mechanisms. See Sec. 80.81. The 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 State standards ("California gasoline"), which EPA has concluded are at least as stringent as the federal Phase I reformulated gasoline 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, record keeping /3/ and reporting. Refiners of California gasoline are not exempt, however, from meeting the federal reformulated gasoline standards. The exemption for California gasoline is described in detail in the reformulated gasoline final rule preamble. Note /3/ Refiners of California gasoline are required to keep records required by California State law for five years, however. As a result of this exemption in the reformulated gasoline rule, refiners who produce California gasoline will not be required to follow procedures necessary to establish the volume of gasoline that is sold into the two federal reformulated gasoline covered areas located in California. It is the volume of gasoline used in these two covered areas that is subject to the renewable oxygenate requirement. EPA proposes to resolve this difficulty by requiring refiners of California gasoline to meet the renewable oxygenate standard for a specified percentage of their volume of California gasoline. This specified percentage would be derived from the historic volumes of gasoline used in Los Angeles and San Diego (which EPA believes to be 7 billion gallons per year), as compared to the historic volume of gasoline used in other portions of the State of California (which EPA believes to be 6 billion gallons per year). Using this approach, each refiner who produces California gasoline would be required to meet the renewable oxygenate standard for 54% of their volume of California gasoline. An additional enforcement complication for California gasoline relates to the different definitions of renewable oxygenate that apply to reformulated gasoline that is VOC-controlled versus the gasoline not designated as VOC- controlled. This complication arises because, under the exemption for California gasoline refiners are exempt from the designation requirements of Sec. 80.65(d). It is this designation of reformulated gasoline that is proposed as the mechanism for distinguishing the gasoline for which renewable ethers only may be used (VOC-controlled gasoline) versus the gasoline for which renewable ethers, plus ethanol and methanol may be used (non-VOC- controlled gasoline). This designation approach is not possible in the case of California gasoline unless the reformulated gasoline designation requirements are imposed on refiners of California gasoline. EPA request comment on the appropriate approach for resolving this dilemma. In addition, refiners who produce California gasoline would be required to keep records and submit reports necessary to establish compliance with the renewable oxygenate standard. EPA is seeking comment on this proposed approach for applying the renewable oxygenate requirement to California gasoline, including the assumption about the percentage of California gasoline sold in the federal reformulated gasoline covered areas, and the record keeping and reporting that is necessary for refiners of California gasoline to establish compliance with the renewable oxygenate standard. The renewable oxygenate proposal would require several types of record keeping beyond that otherwise required for reformulated gasoline: Records associated with establishing the source of alcohol or ether claimed to be renewable oxygenate, records associated with California gasoline, and records associated with use of oxygenate blended by downstream oxygenate blenders. Refiners also would be required to submit reports that are not included in the reformulated gasoline program, dealing with the renewable oxygenate content of reformulated gasoline, the compliance calculations for the renewable oxygenate standard, and the transfer of renewable oxygen credits. EPA is proposing attest provisions dealing with the renewable oxygenate requirements, that would be carried out in conjunction with the attest requirements for reformulated gasoline. Compliance by refiners with the renewable oxygenate requirements would be verified through these attest requirements. Provisions contained in the reformulated gasoline regulations not discussed in this preamble would apply to the renewable oxygenate standard in the same manner they apply to other reformulated gasoline standards. These include, inter alia, the definitions of parties; the dates the requirements apply; the designation requirements; testing requirements, including independent sampling and testing; and controls, prohibitions, liabilities, and defenses. There are no gasoline survey requirements proposed for renewable oxygenates, because there is no air quality implication if any covered area receives greater than or less than the average amount of reformulated gasoline produced using renewable oxygenate. IV. Federal Preemption This proposal 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. V. Environmental, Energy, and Economic Impacts The environmental impacts of this program are beneficial. Since the proposed renewable oxygenate requirement would not modify any of the emission performance standards applicable to reformulated gasoline, the only environmental impacts would be those not covered by the simple or complex models used to determine compliance. There are three such emission impacts. The first is the current potential for an increase in the RVP of the gasoline pool due to fuel commingling in vehicle fuel tanks and the second is the effect of mid-range fuel distillation (e.g., the fraction of fuel evaporated at 130 deg.F) on non-exhaust emissions. Both of these effects which concern the formation of ozone were addressed in the Regulatory Impact Analysis for the Final Rule for the reformulated gasoline program. Regarding the commingling RVP effect, ethanol blends are the only fuels which cause this increase. (Methanol blends would also produce such an RVP increase, but they are not expected to be used in reformulated gasoline during the high ozone season.) Based on the analysis in the RIA, the commingling resulting from a 30% ethanol blend market share would increase the effective average RVP of the gasoline pool and increase total VOC emissions (including both exhaust and non-exhaust VOC emissions) by 5% percent. The use of ethanol blends in the summer is expected to be very small under this proposal, since ethanol would not qualify as a renewable oxygenate, but ethanol use would be strongly encouraged as an ETBE feedstock. However, ethanol use without this proposal was expected to be somewhat less than 30 percent of the reformulated gasoline sold during the high ozone season absent an incentive, the actual reduction in VOC emissions due to this proposal would be somewhat less than 5 percent. Regarding mid-range distillation, ETBE reduces this effect relative to ethanol blends and even relative to MTBE. For example, ETBE blends qualifying under the Complex Model in the year 2000 are projected to reduce total VOC emissions by 2 percent relative to MTBE blends. As ETBE is expected to be the dominant renewable oxygenate used in the near term during the high ozone season, this reduction should translate directly into in-use VOC emissions from gasoline fueled vehicles in reformulated gasoline areas. This represents 14,000 annualized tons of VOC control in these areas. The third emission impact relates to greenhouse gas emissions, and in particular, CO2 emissions. Because more fossil energy is generally used in the production of methanol from natural gas than is used in producing ethanol from corn, net CO2 emission reductions are expected under the program proposed here. However, since there are no assurances that the most efficient processes will be used to produce the oxygenates required through this proposal, comments are requested on the desirability of adding CO2 emission reduction criteria for oxygenates to qualify as "renewable". In particular, comments are requested on the proposed option of requiring that the production of renewable oxygenates demonstrate up to a 20% reduction in CO2 emissions as compared to reformulated gasoline from crude oil and nonrenewable oxygenates. Since CO2 emissions are not the only emission from the production of renewable oxygenates (CFCs, NOx, N2O, Methane, etc.) that may effect global warming, EPA also requests comment specifically on the magnitude of these emissions from the production of current renewable oxygenates, and how best to incorporate other such emissions into such a CO2 reduction criteria. The primary economic impacts of this proposal include the crude oil savings, the added cost of producing and using the renewable oxygenate, the reductions in revenues to the U.S. Highway Trust Fund, and the impacts on the various oxygenate and fuel industries affected. It was already mentioned above that the use of ETBE in lieu of MTBE should reduce crude oil consumption by 1.8% per gallon of reformulated gasoline. Assuming half of all crude oil is used to produce gasoline, 32.1 percent of all gasoline will have to be reformulated and that 45.8 percent of this will be sold during the high ozone season, the summer portion of this program would reduce total U.S. consumption of crude oil by 0.13 percent over and above the savings already occurring through the reformulated gasoline program, or roughly 9000 barrels per day. Since the U.S. imports roughly half of its crude oil and all of the savings can be expected to apply to imports, total imports of crude oil should decrease by 0.26 percent. In the winter, ethanol use will likely predominate and produce slightly lower benefits due to its higher oxygen content per volume. Also, its primary benefit is relative to imported methanol and MTBE. While the impact of this program is expected to be positive, EPA lacks sufficient information to project the size of these imports absent this program. Therefore, EPA requests comment on the energy impacts of this proposed program during the winter months. In the Regulatory Impact Analysis to the final rule for the reformulated gasoline program, EPA estimated that the production and use of ETBE in reformulated gasoline would cost $0.073 per gallon more than that for MTBE. Reformulated gasoline at 2.1 weight percent oxygen must contain 12.8 volume percent ETBE. Therefore, ETBE containing reformulated gasolines are projected to cost $0.0093 per gallon more than those with MTBE. This figure includes the differences in octane, RVP and oxygen content of the two ethers. Extending this cost to 30 percent of all reformulated gasoline used during the high ozone season, the total annual cost to the nation would be $48 million. During the winter, EPA expects much of the renewable oxygenate will be ethanol. When its octane and diluting properties are taken into account, and its high RVP need not be counteracted, ethanol is much cheaper than MTBE or ETBE. At the same time, there tend to be additional costs to distributing ethanol and its gasoline blendstock due to the water soluble nature of ethanol. While these may balance any savings in production costs, EPA does not project any net additional costs in the winter due to this proposed program. Regarding lost Highway Trust Fund receipts, EPA projects that 630 million gallons of ethanol would be used per year under this program, if ethanol were the only renewable oxygenate used. At a tax credit of $0.54 per gallon, this amounts to $340 million of lost highway related revenue. Finally, there could be economic impacts on a number of industries and economic sectors due to this program. The revenues and net incomes of both corn farmers and ethanol producers should rise significantly, due to higher corn and ethanol demand and prices, respectively. Expenditures for government farm price supports could decrease. Revenues and net incomes of domestic methanol producers and overseas producers of both methanol and MTBE would likely decrease due to reduced demand and prices. Oil refiners could experience transitional costs due to an additional requirement and would likely face higher oxygenate costs. However, their crude processing costs would likely decrease due to ETBE's greater volume (and diluting properties) and lower RVP. If the oil industry is able to pass on higher oxygenate costs to the consumer, the net income of the oil industry would not be affected. VI. Public Participation EPA invites comment on all aspects of today's action. EPA has specifically requested comments on a number of specific areas throughout the previous discussion. A list of these and other specific areas for comment follows: --EPA's statutory authority. --The extent to which renewable oxygenates will be used in reformulated gasoline absent today's proposal. --The economic, energy, and crude oil import benefits to the nation resulting from today's proposal. --Any other approaches which could be used to achieve the same objective. --Likelihood that the renewable oxygenate requirement will be met with domestically produced oxygenates absent a requirement to this effect and whether such a requirement would be desirable and legally permissible and any other suggested approaches to ensure the domestic benefits of this program. --The climate change aspects of the proposal. --The definition of renewable oxygenates. --The need for performance based standards for fossil energy or greenhouse gas emissions. --Health effects data regarding renewable oxygenates that may potentially be used as a result of the program. --The appropriate level for the renewable oxygenate requirement, its feasibility, lead-time requirements, the potential need for a phase-in period, and any other supply related issues. --The need and justification for a year-round program in lieu of a summer only program. --The allowance for year-round averaging of renewable oxgenate content. --The applicability of the program only to producers of reformulated gasoline rather than including downstream blenders. --The enforcement related provisions. --Its impact on the already promulgated reformulated gasoline program. --A petition process to include additional renewable oxygenates. A public hearing regarding today's proposal will be held on January 14, 1994 beginning at 9 a.m. in the Washington DC area. See ADDRESSES. The comment period for today's proposal will close on February 14, 1993. VII. Compliance With Regulatory Flexibility Act The Regulatory Flexibility Act (RFA) of 1980 (Pub.L. 96-354), requires Federal regulatory agencies to consider the impact of rulemaking on "small entities." If a rulemaking will have a significant impact on small entities, agencies must consider regulatory alternatives that minimizes economic impact. The Regulatory Flexibility Act (RFA) of 1980 requires federal agencies to examine the effects of the renewable oxygenate regulation 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 businesses.4 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. Note 4 U.S. Environmental Protection Agency, Memorandum to Assistant Administrators, "Compliance with the Regulatory Flexibility Act," EPA Office of Policy, Planning, and Evaluation, 1984. In addition, U.S. Environmental Protection Agency, Memorandum to Assistant Administrators, "Agency's Revised Guidelines for Implementing the Regulatory Flexibility Act," Office of Policy, Planning, and Evaluation, 1992. The Agency believes that the renewable oxygenate program being proposed today is unlikely to have a significant economic impact on a substantial number of small entities. The renewable oxygenate program will secure a market in the reformulated gasoline program for oxygenate producers while simultaneously allowing refiners flexibility in fulfilling the statutory oxygenate requirement. In addition EPA decided against applying the requirement to downstream oxygenate blenders, many of which are small entities. As discussed above, this would have required each blender to maintain at least two sources of oxygenate, one renewable and one not. Such an approach would prove to be either uneconomical or involve significant transaction costs related to averaging and trading. Administrator certifies that this proposal will not have a significant impact on small entities. However, EPA invites comment on the question of significant impacts on small entities. EPA also requests all relevant data which justify any conclusions submitted. VIII. Statutory Authority Section 211(k)(1) provides that EPA is to promulgate regulations "establishing requirements for reformulated gasoline" in specified ozone nonattainment areas (the first sentence of Section 211(k)(1)), and that such regulations must require the "greatest reductions achievable through the reformulation of gasoline, taking into consideration" various factors such as cost, available technology, health and environmental impacts, and energy requirements (the second sentence of Section 211(k)(1)). EPA interprets the first sentence of Section 211(k)(1) as broadly providing EPA with the authority to establish any and all reasonable requirements that are designed to achieve the results stated in the second sentence. As discussed previously, EPA believes that the reformulated gasoline emission performance standards combined with a requirement that refiners and importers use a specified percentage of renewable oxygenates tends to maximize achievement of the objectives of Section 211(k)(1)--it should result in the greatest reductions achievable while tending to optimize the combination of energy requirements, costs, and health and environmental impacts. In effect, EPA believes that the second sentence of Section 211(k)(1) does not limit it to promulgation of emission reduction standards. It requires that EPA's regulations ensure a certain result, and provides EPA with the discretion to adopt appropriate requirements designed to achieve that result. In addition, the first sentence of Section 211(k)(1) would appear to grant EPA broad general authority to promulgate reasonable requirements for reformulated gasoline, independent of and in addition to the obligation to require the greatest achievable VOC and toxics emissions reductions under the second sentence of Section 211(k)(1). For the reasons described earlier, EPA believes it appropriate to exercise this general authority by proposing to require the use of renewable oxygenates. This interpretation of Section 211(k)(1) is consistent with the oxygen content requirements of Section 211(k)(2). EPA does not believe compliance with the renewable oxygenate provisions will interfere with the ability of refiners to comply with the oxygen content requirements of Section 211(k)(2). While EPA believes that Section 211(k)(2) would not appear to provide independent authority for the renewable oxygenate requirement, EPA is instead relying primarily on the general grant of authority in Section 211(k)(1). While the legislative history of Section 211(k)(2) indicates that in general Congress believed several oxygenates could be used to meet its requirements,5 this does not indicate an intention to limit EPA's otherwise broad grant of authority under Section 211(k)(1). EPA also invites comment on whether Section 211(k)(2) would provide an independent source of authority for a renewable oxygenate requirement. Note 5 See, e.g., 136 Cong. Rec. S 16937 (October 27, 1990) (Sen Durenberger); 136 Cong. Rec. H 2852 (May 23, 1990) (Rep. Richardson, noting among other things the energy and other benefits expected from the use of domestic renewable oxygenates). 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 (1)." 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 (2) 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. IX. Administrative Designation and Regulatory Analysis Pursuant to Executive Order 12866, [58 FR 51735 (October 4, 1993)] the Agency must determine whether the regulatory action is "significant" and therefore subject to OMB review and the requirements of the Executive Order. The Order defines "significant regulatory action" as one that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) Materially alter the budgetary impact of entitlement, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order. Pursuant to the terms of Executive Order 12866, the Administrator has determined that this proposed 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 will appear in the Final Rule and be documented in the public record: EPA Air Docket A-92- 12. X. Compliance with the Paperwork Reduction Act The information collection requirements in this proposed rule will be submitted for approval to the Office of Management and Budget (OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. A separate Federal Register notice will be published requesting comments on the information collection requirements. The final rule will respond to any OMB or public comments on the information collection requirements contained in this proposal. List of Subjects in 40 CFR Part 80 Environmental protection, Air pollution control, Fuel additives, Gasoline, Motor vehicle pollution, Penalties, Reporting and recordkeeping requirements. Dated: December 15, 1993. Carol M. Browner, Administrator. For the reasons set forth in the preamble, part 80 of title 40 of the Code of Federal Regulations is proposed to be amended as follows: PART 80--REGULATIONS OF FUELS AND FUEL ADDITIVES 1. The authority citation for part 80 continues to read as follows: Authority: Sections 114, 211 and 301(a) of the Clean Air Act as amended, 42 U.S.C. 7414, 7545 and 7601(a). 2. EPA proposes that Sec. 80.83 be added to read as follows: Sec. 80.83 Renewable oxygenate requirements. (a) Definition of renewable oxygenate. (1) For purposes of subparts D and F of this part 80, a renewable oxygenate is defined: (i) In the case of oxygenate added to reformulated gasoline or RBOB designated as VOC-controlled, as any ether that is produced using produced ethanol or methanol that is derived from a source other than petroleum, coal, natural gas, or peat; and (ii) In the case of oxygenate added to reformulated gasoline or RBOB not designated as VOC-controlled, as any produced ether, or produced ethanol or methanol, that is derived from a source other than petroleum, coal, natural gas, or peat. (2) Reserved. (b) Renewable oxygenate standard. (1) During each calendar year the reformulated gasoline and 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 RBOB, on average, has an oxygen content from such renewable oxygenate that is equal to or greater than 0.60 wt%. (2)(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. In the case of any refiner that produces RBOB, or any importer that imports RBOB, the oxygenate that is blended with the RBOB may not be included with the refiner's or importer's compliance calculations under paragraph (d) of this section unless: (1) The oxygenate meets the applicable renewable oxygenate definition under paragraph (a) of this section; and (2) The refiner or importer meets the downstream oxygenate blending oversight requirements specified in Secs. 80.69(a) (5) through (7). (d) Compliance calculation. (1) Any refiner for each of its refineries, and any importer shall, for each calendar year averaging period, determine compliance with the renewable oxygenate standard by calculating: (i) The renewable oxygen compliance total using the following formula: n CTro = (SUM Vi) * 0.60 i=1 where CTro=the compliance total for renewable oxygen Vi=the volume of gasoline or RBOB batch i n=the number of batches of gasoline and RBOB produced or imported during the calendar year averaging period and (ii) The renewable oxygen actual total using the following formula: n ATro = SUM (Vi * ROi) i=1 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 (iii) 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 refiner 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; and (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 another 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 Sec. 80.67(h)(1) (i) through (iv) and Sec. 80.67(h) (2) and (3). (f) Use of methanol or ethanol as a renewable oxygenate. Methanol or ethanol, or an ether produced using methanol or ethanol, may be treated as renewable oxygenate only if: (1) The methanol or ethanol meets the renewable oxygenate definition under paragraph (a) of this section; and (2) The refiner or importer is able to establish in the form of documentation obtained from the person who produced the methanol or ethanol, that the methanol or ethanol was produced from a source other than petroleum, coal, natural gasoline, or peat. (g) Record keeping. Any refiner or importer shall for a period of five years maintain the record specified in this paragraph (g) 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) The use of methanol or ethanol as a renewable oxygenate documents required under paragraph (f) of this section; and (2) The volume, type, purity, and sources of any renewable oxygenate used. (h) 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 weight percent oxygen in the form of renewable oxygenate contained in the gasoline, or 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 (3) The date of transaction. (i) Renewable oxygenate requirements for reformulated gasoline used in the State of California. Notwithstanding the provisions contained in Sec. 80.81, any refiner or importer of California gasoline, as defined in Sec. 80.81, shall: (1) Meet the renewable oxygenate standard specified in paragraph (a) of this section, for a portion of the volume of the California gasoline produced by the refiner or imported by the importer, equal to the total volume produced or imported multiplied times 0.54; and (2) With regard to any renewable oxygenate content of any California gasoline produced or imported, meet: (i) The determination of properties requirements of Sec. 80.65(e); (ii) The independent analysis requirement of Sec. 80.65(f); (iii) The record keeping requirements of Sec. 80.74; and (iv) The reporting requirements of Sec. 80.75. [FR Doc. 93-31361 Filed 12-23-93; 8:45 am] BILLING CODE 6560-50-P