[Federal Register Volume 67, Number 113 (Wednesday, June 12, 2002)]
[Rules and Regulations]
[Pages 40169-40185]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-13802]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[AMS-FRL-7221-9]
RIN 2060-AJ71


Control of Air Pollution from New Motor Vehicles; Second 
Amendment to the Tier 2/Gasoline Sulfur Regulations

AGENCY: Environmental Protection Agency (EPA).

ACTION: Direct final rule.

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SUMMARY: EPA is taking direct final action to clarify, correct, amend, 
and revise certain provisions of the Tier 2/Gasoline Sulfur regulations 
(February 10, 2000), hereinafter referred to as the Tier 2 rule. First, 
today's action corrects typographical errors and makes other minor 
revisions to clarify the regulations governing compliance with the Tier 
2 rule. Second, it modifies the effective date of the regulatory butane 
test method for determining the sulfur content of butane, a gasoline 
blendstock. Third, today's rule modifies the Geographic Phase-in Area 
(GPA) program by replacing the variable standard for GPA gasoline with 
a flat average standard of 150 ppm sulfur. Fourth, it allows an 
approved small refiner, under limited circumstances, to seek a 
temporary adjustment to its interim small refiner per-gallon cap 
standard. Finally, it amends certain provisions of the small refiner 
and Averaging, Banking, and Trading (ABT) programs as well as 
compliance and enforcement provisions to assist regulated entities with 
program implementation and compliance.

DATES: This direct final rule is effective September 10, 2002, without 
further notice, unless we receive adverse comments or a request for a 
public hearing by July 12, 2002. Should we receive any adverse comments 
on this direct final rule, we will publish a timely withdrawal in the 
Federal Register informing the public that this rule will not take 
effect.

ADDRESSES: Comments: All comments and materials relevant to today's 
action should be submitted to Public Docket No. A-97-10 at the 
following address: U.S. Environmental Protection Agency (EPA), Air 
Docket (6102), Room M-1500, 401 M Street, SW., Washington, DC 20460.
    Docket: Materials related to this rulemaking are available at EPA's 
Air Docket for review at the above address (on the ground floor in 
Waterside Mall) from 8 a.m. to 5:30 p.m., Monday through Friday, except 
on government holidays. You can reach the Air Docket by telephone at 
(202) 260-7548 and by facsimile at (202) 260-4400. You may be charged a 
reasonable fee for photocopying docket materials, as provided in 40 CFR 
Part 2.

FOR FURTHER INFORMATION CONTACT: Mary Manners, U.S. EPA, National 
Vehicle and Fuels Emission Laboratory, Assessment and Standards 
Division, 2000 Traverwood, Ann Arbor MI 48105; telephone (734) 214-
4873, fax (734) 214-4051, e-mail [email protected].

SUPPLEMENTARY INFORMATION: EPA is publishing this rule without a prior 
proposal because we view this action as noncontroversial and anticipate 
no adverse comment. However, in the ``Proposed Rules'' section of 
today's Federal Register publication, we are publishing a separate 
document that will serve as the proposal to adopt the provisions in 
this Direct Final rule if adverse comments are filed. This rule will be 
effective on September 10, 2002 without further notice unless we 
receive adverse comment or a request for a public hearing by July 12, 
2002. If we receive adverse comment on one or more distinct amendments, 
paragraphs, or sections of this rulemaking, we will publish a timely 
withdrawal in the Federal Register indicating which provisions are 
being withdrawn due to adverse comment. We may address all adverse 
comments in a subsequent final rule based on the proposed rule. We will 
not institute a second comment period on this action. Any parties 
interested in commenting must do so at this time. Any distinct 
amendment, paragraph, or section of today's rulemaking for which we do 
not receive adverse comment will become effective on the date set out 
above, notwithstanding any adverse comment on any other distinct 
amendment, paragraph, or section of today's rule.

[[Page 40170]]

Regulated Entities

    This action will affect you if you produce, distribute, or sell 
gasoline.
    The table below gives some examples of entities that may have to 
comply with the regulations. However, since these are only examples, 
you should carefully examine these and other existing regulations in 40 
CFR part 80. If you have any questions, please call the person listed 
in the FOR FURTHER INFORMATION CONTACT section above.

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                                                                                         Examples of potentially
               Category                    NAICS codes \a\           SIC codes \b\          regulated entities
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Industry.............................  324110.................  2911...................  Petroleum Refiners
Industry.............................  422710.................  5171...................  Gasoline Marketers and
                                       422720.................  5172...................   Distributors
Industry.............................  484220.................  4212...................  Gasoline Carriers
                                       484230.................  4213...................
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\a\ North American Industry Classification System (NAICS).
\b\ Standard Industrial Classification (SIC) system code.

Access to Rulemaking Documents Through the Internet

    Today's action is available electronically on the day of 
publication from EPA's Federal Register Internet Web site listed below. 
Electronic copies of this preamble, regulatory language, and other 
documents associated with today's final rule are available from the EPA 
Office of Transportation and Air Quality Web site listed below shortly 
after the rule is signed by the Administrator. This service is free of 
charge, except any cost that you already incur for connecting to the 
Internet.
    EPA Federal Register Web Site: http://www.epa.gov/docs/fedrgstr/epa-air/ (Either select a desired date or use the Search feature.)
    Tier 2/Gasoline Sulfur home page: http://www.epa.gov/otaq/tr2home.htm
    Please note that due to differences between the software used to 
develop the document and the software into which the document may be 
downloaded, changes in format, page length, etc., may occur.

Outline of This Preamble

I. Corrections of Typographical Errors and Other Minor Revisions
II. Effective Date for Butane Test Method
III. Standards and Compliance for Refiners, Importers, and 
Individual Refineries
    A. Parent Company Compliance with the Corporate Pool Average 
Standards
    B. Partially-Owned Refineries
    C. Using Credits and Allotments to Achieve Compliance in 2005
IV. Standards and Compliance for Refiners/Importers That Provide 
Gasoline to the Geographic Phase-in Area
    A. Standards for Gasoline Sold in the Geographic Phase-in Area
    B. Credit Generation Beginning in 2004
    C. Compliance with the Corporate Pool Average Standard by GPA 
Gasoline Producers
V. Small Refiners
    A. Subsidiary Ownership
    B. Adjustment of the Small Refiner Per-gallon Sulfur Standard
VI. Allotments and Credits
    A. Generation of Credits in 2000
    B. Generation of Allotments in 2003
    C. Oxygenate Blenders
    D. Conversion of Allotments to Credits
    E. Deletion of the Discount Factor for Type A Allotments
    F. Standard Applicable Under Sec. 80.310
VII. Downstream Standards and Compliance
    A. Test Requirements for S-RGAS and Non-S-GAS Combined to 
Produce Mid-Grade Gasoline
    B. Identifying S-RGAS Prior to Full Receipt Testing
    C. S-RGAS Product Transfer Documentation Requirements for 
Transfers of Custody
VIII. Compliance Requirements and Enforcement
    A. Liability for Geographic Phase-In Area (GPA) Gasoline
    B. Recordkeeping for Allotments
    C. Attest Engagement Requirements
IX. Administrative Requirements
    A. Administrative Designation and Regulatory Analysis
    B. Regulatory Flexibility
    C. Paperwork Reduction Act
    D. Intergovernmental Relations
      1. Unfunded Mandates Reform Act
      2. Executive Order 13084: Consultation and Coordination with 
Indian Tribal Governments
      3. Executive Order 13132 (Federalism)
    E. Executive Order 13211: Energy Effects
    F. National Technology Transfer and Advancement Act
    G. Executive Order 13045: Children's Health Protection
    H. Congressional Review Act
X. Statutory Provisions and Legal Authority

I. Corrections of Typographical Errors and Other Minor Revisions

    Today's rule finalizes corrections of typographical errors and 
other minor revisions as described in the following chart. These 
revisions do not change the substance or intent of the sulfur 
regulations.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Sec.  80.46(h)............................  Revised to add ASTM standard
                                             method D 3246-96,
                                             ``Standard Test Method for
                                             Sulfur in Petroleum Gas by
                                             Oxidative
                                             Microcoulometry,'' which
                                             was inadvertently removed
                                             in a prior rulemaking
                                             action.
Sec.  80.195(c)(4)........................  Revised the wording of Sec.
                                             80.195(c)(4) for clarity.
                                             This revision does not
                                             change the substance or
                                             meaning of this provision.
Sec.  80.205(a)...........................  Revised to change ``value''
                                             to ``level'' for purposes
                                             of consistency with the
                                             language of other
                                             regulatory provisions. This
                                             revision does not change
                                             the substance or meaning of
                                             this provision.
Sec.  80.216(f)(1)........................  Revised to change ``Sec.
                                             80.219'' to ``Sec.
                                             80.80.219(a)'' for clarity.
Sec.  80.216(f)(2)........................  Revised to change ``Sec.
                                             80.219'' to ``Sec.
                                             80.219(a)'' and add the
                                             words ``including GPA'' for
                                             clarity.
Sec.  80.275(a)(2)(i).....................  Revised to correct a
                                             typographical error in the
                                             equation. The equation
                                             includes the term ``SAa''
                                             which should be ``Sa''.
Sec.  80.275(a)(2)(v).....................  Revised to correct a
                                             typographical error in the
                                             equation. The equation
                                             includes the Term Sa, which
                                             should be Sa.
Sec.  80.275(h)...........................  Added paragraph (h) to
                                             clarify that allotments and
                                             credits under Sec.  80.275
                                             are expressed in ppm-
                                             gallons to be consistent
                                             with regulatory intent and
                                             other regulatory
                                             provisions.

[[Page 40171]]

 
Sec.  80.370(a)(4)........................  Revised to change the word
                                             ``content'' to ``level''
                                             for consistency with other
                                             regulatory provisions. This
                                             revision does not change
                                             the substance or meaning of
                                             this provision.
Sec.  80.410(h)(7)(ii)....................  Revised to add reference to
                                             Sec.  80.415 for clarity.
Sec.  80.415(g)(4)........................  Revised to add a parentheses
                                             at the end of the provision
                                             which was omitted in the
                                             final rule.
------------------------------------------------------------------------

II. Effective Date for Butane Test Method

    The Tier 2 rule amended 40 CFR 80.46(a) to require the use of ASTM-
D 3246-96 to determine the sulfur content of butane. However, we did 
not intend for this requirement to apply until January 1, 2004, when 
refiners that produce gasoline by blending butane into previously 
certified gasoline must comply with a butane sulfur content standard. 
As a result, today's rule modifies Sec. 80.46(a) to clarify that the 
compliance date of the regulatory butane test method, ASTM D 3246-96, 
is January 1, 2004. In the absence of today's clarification, the 
compliance date under the Tier 2 rule for the butane test method 
requirement would be incorrectly stated as April 10, 2000, the 
effective date of the Tier 2 rule.

III. Standards and Compliance for Refiners, Importers and Individual 
Refineries

A. Parent Company Compliance With the Corporate Pool Average Standards

    The preamble to the Tier 2 rule states that, for purposes of 
compliance with the corporate pool average standards in 2004 and 2005, 
a parent company is considered to be the refiner of any refinery 
facilities owned by wholly-owned \1\ subsidiaries of the parent 
company. As such, a parent company must comply with the corporate pool 
average standards for any gasoline produced at the refineries owned by 
its wholly-owned subsidiaries, as well any gasoline produced at any 
refineries it owns. See 65 FR at 6755 (February 10, 2000). The 
regulations at Sec. 80.195(c), however, do not contain language to 
implement this requirement. As a result, today's rule adds 
Secs. 80.195(c)(6)(i) and (ii) to include such language. We believe, 
however, in the situation described above (i.e., where refineries are 
wholly-owned by a parent company), the parties (i.e., parent and 
subsidiaries) should have the option to demonstrate compliance with the 
corporate pool average standards either on a corporate parent level or 
a subsidiary level. Under this approach, a parent company may: (1) 
Demonstrate compliance with the corporate pool average standards for 
all of the gasoline produced at refineries owned by its wholly-owned 
subsidiaries as well as the refineries owned by the parent company 
itself, or (2) be deemed in compliance if it demonstrates compliance 
for the gasoline produced at its own refineries and each wholly-owned 
subsidiary demonstrates compliance for the gasoline produced at its own 
refineries. The environmental benefits of the sulfur rule will not be 
compromised by allowing this option, since compliance on a subsidiary 
level would result in the corporate pool average standards being met by 
a greater number of pools with fewer refineries in each pool over which 
to average the sulfur content. Today's rule, therefore, also adds 
Sec. 80.195(c)(6)(iii) to provide for this option. Where the parent 
company opts to have each subsidiary comply individually, the parent 
company would remain liable for any violations by the subsidiary. See 
Sec. 80.395(a)(11).
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    \1\ Compliance with the corporate pool average standards for 
partially owned refineries is discussed in preamble section III.B. 
below. Note that while a parent company is responsible for its 
wholly-owned subsidiaries for purposes of compliance with the 
corporate pool average standards, subsidiaries in which a refiner 
has a 50 percent or greater ownership interest must be included in a 
refiner's employee and crude capacity data for purposes of meeting 
the employee and crude capacity criteria for small refiner status 
under Sec. 80.225(a). This difference in the way subsidiaries are 
treated under the corporate pool and small refinery provisions is 
due to the different purposes of these provisions. For a further 
discussion of the treatment of subsidiaries under the small refiner 
provisions, see preamble section V of today's rule.
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    A foreign parent company may demonstrate compliance with the 
corporate pool average standards for all of the gasoline produced at 
refineries owned by the foreign parent company's wholly-owned U.S. 
subsidiaries, or each U.S. subsidiary owned by the foreign parent 
company may demonstrate compliance for its own refineries. Where the 
foreign parent company opts to demonstrate compliance for its wholly-
owned U.S. subsidiaries, any gasoline imported into the U.S. that was 
produced at the foreign parent company's foreign refineries, or at 
foreign refineries owned by foreign subsidiaries of the foreign parent 
company, would not be included in the foreign parent company's 
corporate pool compliance calculations, since the regulations provide 
that the sulfur standards, including the corporate pool average 
standards, are to be met by the importer for all imported gasoline. See 
Sec. 80.195(a)(4). Like a domestic parent company, where parties opt to 
have each wholly-owned U.S. subsidiary comply individually, the foreign 
parent company would remain liable under Sec. 80.395(a)(11) for any 
violations by the subsidiary.
    Today's rule also adds language to the reporting provisions in 
Sec. 80.370(c) to address the corporate pool compliance options 
discussed above. Where a parent company chooses to comply for the 
refineries of its wholly-owned subsidiaries, today's rule requires such 
parent company to identify in its corporate pool average reports to EPA 
all refinery facilities and subsidiaries wholly-owned by the parent 
company, and any refinery facilities owned by the parent company's 
subsidiaries (in the case of a foreign parent company, any U.S. 
refinery facilities owned by the foreign parent company and any U.S. 
subsidiaries wholly-owned by the foreign parent company, and any 
refinery facilities owned by the foreign parent company's U.S. 
subsidiaries). Where the parent company's wholly-owned subsidiaries 
comply with the corporate pool average standards individually, each 
subsidiary must submit the required corporate pool annual compliance 
reports for its own refineries and identify in the reports the parent 
company and each refining facility owned by the subsidiary.

B. Partially-Owned Refineries

    In some situations a refinery may be owned by more than one party. 
The Tier 2 rule specifically addresses situations in which a refinery 
is owned by a joint venture. See Sec. 80.195(c)(5). EPA considers a 
joint venture to be a situation in which two or more parties 
collectively own and operate one or more refineries. See 65 FR 6755. 
EPA expects that most cases of shared refinery ownership will be 
considered joint ventures under the regulations. There are situations, 
however, where a refinery is owned by more than one party, but not all 
parties participate in the refinery's operation. Although in this 
situation the joint owners are not considered a joint venture under the 
regulations, such a refinery is considered a separate entity and the 
refiner of that refinery is the business entity consisting of the joint 
owners. We believe that, in such a situation, one of the owners should 
be allowed to include the refinery in its corporate pool for purposes 
of compliance with the corporate pool average standards, as the 
regulations allow in joint venture situations. As a result, today's 
rule adds Sec. 80.195(c)(5)(iii) to allow a refinery that is 
collectively owned to be included in

[[Page 40172]]

one of the owner's corporate pool for purposes of compliance with the 
corporate pool average standards. Today's rule also revises 
Sec. 80.395(a)(12) (providing for joint venture liability) to include 
liability for business entities consisting of joint owners of a 
refinery or refineries.

C. Using Credits and Allotments To Achieve Compliance in 2005

    The regulations currently require a refiner or importer, in 2005, 
to demonstrate compliance with the 90 ppm corporate pool average 
standard by calculating its actual corporate average sulfur level using 
the actual sulfur levels of each batch of gasoline and then applying 
allotments, as necessary, to meet the 90 ppm standard. Credits may not 
be used to achieve compliance with the corporate pool average standard. 
See Sec. 80.315(c)(4). The regulations also require a refiner for each 
refinery, or an importer, beginning in 2005, to demonstrate compliance 
with the refinery or importer average standard by calculating the 
actual refinery or importer sulfur level using the actual sulfur levels 
of each batch of its gasoline, and applying credits, as necessary, to 
meet the 30 ppm refinery average standard. The regulations identify the 
corporate pool average and refinery average standards as two separate 
standards and refiners and importers are required to comply with each 
standard independently.
    In 2005 only, refiners and importers may use allotments as well as 
credits to demonstrate compliance with the refinery or importer average 
standard.\2\ See Sec. 80.195(b)(4). These credits or allotments may be 
obtained from any source. A refiner with more than one refinery may use 
credits generated by one or more of its refineries that have an average 
sulfur level below 30 ppm toward meeting the refinery average standard 
at one of the other refineries in the refiner's corporate pool. 
Alternatively, the refinery may choose to bank or sell its credits, as 
permitted by the regulations. In 2005, the same allotments used to 
demonstrate compliance with the corporate pool standard may be used by 
a refinery in the pool toward its demonstration of compliance with the 
refinery average standard, or some of the allotments may be used by one 
refinery and the remainder used by another refinery or refineries in 
the pool. For example, a refiner with two refineries who obtains 30 
allotments to achieve compliance with the corporate pool standard may 
also apply all 30 allotments to one refinery, or some of the allotments 
to each of the two refineries, toward meeting the refinery average 
standard (e.g., 15 allotments to each refinery; 20 allotments to one 
refinery and 10 allotments to the other; etc.). The current 
regulations, however, do not clearly address how allotments may be used 
to demonstrate compliance with the corporate pool average standard and 
the refinery average standard in 2005. As a result, today's rule adds 
Sec. 80.195(b)(4) to make this clarification.\3\
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    \2\ Note, however, that allotments may be converted to credits 
and used to demonstrate compliance with the refinery or importer 
average standard as provided under Sec. 80.275(e).
    \3\ The preamble to the Tier 2 rule states that, in 2005, a 
refiner first must demonstrate compliance with the corporate pool 
average standard of 90 ppm, and then demonstrate compliance with the 
refinery average standard using a maximum of 90 ppm as the average 
sulfur level for each refinery, and applying credits to bring each 
refinery's average down to 30 ppm. See 65 FR 6760. In a Question and 
Answer document dated May 2000, we indicated that this preamble 
discussion is not consistent with the manner in which compliance is 
demonstrated under the regulations; i.e., compliance with the 
corporate pool average standards and with the refinery average 
standards is demonstrated separately, and refiners are required to 
use actual sulfur levels in computing the refinery average, as 
compared to using the presumed levels of 90 ppm for each refinery 
after demonstrating compliance with the corporate pool average 
standard. As a result, we withdrew the preamble discussion as 
guidance for interpreting the regulations on this particular issue. 
We stated that the regulations do not impose any particular priority 
on compliance with the corporate average and refinery average 
standards in 2005. Contrary to statements in the preamble, refiners 
need not first demonstrate compliance with the corporate pool 
average standard; rather, each standard is independent of the other 
and must be met as such.
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IV. Standards and Compliance for Refiners/Importers That Provide 
Gasoline to the Geographic Phase-in Area

A. Standards for Gasoline Sold in the Geographic Phase-in Area

    In the Tier 2 rule, we established a geographic area in which the 
low sulfur gasoline program will be phased-in differently than the 
national program. This program, referred to as the Geographic Phase-In 
Area (GPA) program, covers seven states in the Rocky Mountains and 
Upper Great Plains,\4\ as well as Alaska.
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    \4\ Colorado, Idaho, Montana, New Mexico, North Dakota, Utah, 
and Wyoming.
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    The GPA program provides refiners additional flexibility in 
complying with the requirements of the low sulfur gasoline program. 
More specifically, the program provides that refiners may temporarily 
meet less stringent standards from 2004 through 2006 for gasoline sold 
in the GPA. Since the low sulfur gasoline standards under the national 
program require compliance with a 30 ppm refinery average standard and 
an 80 ppm cap in 2006, the geographic phase-in provides an additional 
year to reach those standards. This extra year and the somewhat less 
stringent standards during the phase-in provide the refining industry 
the opportunity for a more orderly transition to the 30/80 ppm 
standards in 2007.
    In the First Amendment to the Tier 2 rule (66 FR 19296, April 13, 
2001), we identified 74 counties in six states that adjoin the core GPA 
states which should be included in the GPA. The intention of this 
amendment was to ensure a smooth transition to low sulfur gasoline 
nationwide and to mitigate the potential for gasoline supply shortages. 
The amended GPA is shown in Figure 1 below.\5\
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    \5\ The eight core GPA states contain a number of American 
Indian reservations. These reservations are fully included in the 
GPA under today's action. The adjacent counties discussed above also 
contain 25 American Indian reservations. If a reservation is only 
partly within a GPA state or adjacent county, it is considered fully 
in the area for purposes of the GPA program. This is consistent with 
the inclusion of entire states or counties in the program.
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BILLING CODE 6560-50-P

[[Page 40173]]

[GRAPHIC] [TIFF OMITTED] TR12JN02.027

BILLING CODE 6560-50-C
    The requirements for gasoline sold in the GPA, as prescribed by the 
Tier 2 rule, are summarized in Table 1 below. Gasoline produced by any 
refiner and/

[[Page 40174]]

or importer can be sold in the GPA provided that the refiner and/or 
importer registers with us (See Sec. 80.217) and sells gasoline within 
the GPA that is consistent with the requirements specified in the 
regulations.

  Table 1.--Gasoline Sulfur Standards for the Geographic Phase-In Area
                        [Excludes small refiners]
------------------------------------------------------------------------
       Compliance as of:            2004          2005          2006
------------------------------------------------------------------------
Refinery GPA Gasoline                   150           150           150
 Average,\a\ ppm..............
Corporate Pool Average,\b\ ppm          120            90           Not
                                                             Applicable
Per-Gallon Cap,\c\ ppm........          300           300           300
------------------------------------------------------------------------
NOTES
\a\ The refinery average standard for GPA gasoline is the most stringent
  of: 150 ppm; the refinery 1997-1998 baseline plus 30 ppm; or the
  sulfur level from which early credits were generated plus 30 ppm.
  Refiners can use credits or allotments to meet the average.
\b\ Applies only to refiners/importers which sell more than 50 percent
  of their gasoline outside the GPA.
\c\ In 2004, both GPA and Non-GPA gasoline may have a sulfur content as
  high as 350 in which case the refinery or importer becomes subject to
  a correspondingly more stringent cap standard in 2005.

    The Tier 2 rule (See Sec. 80.216(a)) states that those refiners or 
importers that sell gasoline to the GPA, regardless of whether they are 
located within or outside of the area, have refinery/importer standards 
for gasoline sold within the GPA that are equal to the least of (1) 150 
ppm, (2) the refinery's or importer's 1997-98 average sulfur level plus 
30 ppm or (3) the refinery's or importer's lowest actual annual sulfur 
level plus 30 ppm in any year 2000-2003 if credits are generated. The 
intent of the second and third conditions for determining the refinery/
importer standards, also known as ``anti-backsliding'' conditions, was 
to prevent refineries that have relatively ``clean'' (i.e., low sulfur) 
baselines from becoming dirtier (i.e., backsliding to 150 ppm) and 
producing higher sulfur gasoline during the interim years of the 
program.
    After the Tier 2 rule was promulgated, one refiner submitted 
comments opposing the anti-backsliding concept. This refiner argued 
that the anti-backsliding provision potentially eliminates the intended 
flexibility of the GPA program. Furthermore, this refiner believed that 
the provision creates an unfair, anti-competitive market situation 
among refiners competing in the same area (IVA-01). While some gasoline 
that is sold in the GPA may have an annual average standard of 150 ppm 
sulfur, other gasoline that is produced at refineries with clean 
baselines is subject to a more stringent standard. Refiners that 
currently have access to and rely on sweet (relatively low sulfur) 
crude slates are especially concerned. These refiners may not be able 
to comply with the program's standards if they lose their access to 
these sweet crude slates due to economics (e.g., a given refiner loses 
its sweet crude contract to a higher bidder) or lack of availability 
(there is some evidence that suggests that crude quality, especially in 
PADD IV, is declining and becoming more sour \6\). An unintended 
consequence of the anti-backsliding provision is that if such 
refineries should lose their current sweet crude slate, they would have 
to install desulfurization equipment in order to comply with the GPA 
standards. Thus, the GPA program would have little benefit for such 
refiners.
---------------------------------------------------------------------------

    \6\ Swain, Edward J.; Processed-crude Quality in US Continues 
Downward Trend; Oil & Gas Journal; March 13, 2000.
---------------------------------------------------------------------------

    We have reassessed the concerns raised and find that they have 
merit on both technical and equity grounds. There is no technical 
reason why gasoline sulfur levels would automatically increase at 
refineries with cleaner baselines if we eliminated the anti-backsliding 
provision. As noted by commenters, however, there are situations where 
changed circumstances mean the anti-backsliding provision would have 
the unintended consequence of depriving a GPA refinery of any benefit 
from the GPA provision. Therefore, we believe it is appropriate to 
eliminate the anti-backsliding provisions from the GPA program. As a 
result, all gasoline that is designated as GPA gasoline must meet a 
refinery average standard for GPA gasoline equal to 150 ppm sulfur from 
2004 through 2006 regardless of the refiner's 1997-1998 baseline or 
whether such refiner generates credits during the 2000-2003 time frame 
by producing gasoline with sulfur levels below 150 ppm. Because no 
gasoline designated as GPA gasoline to be sold in 2004 has been 
produced, the GPA standard finalized by today's rule supercedes any 
approvals of GPA standards issued under the prior provisions at 
Sec. 80.216(a). Therefore, for any refiner or importer who has received 
a letter from EPA approving a GPA standard below 150 ppm, that 
refiner's or importer's standard for GPA gasoline is changed to 150 ppm 
by today's rule.
    Even though we have revised the GPA program to set a refinery or 
importer annual average sulfur standard of 150 ppm for gasoline sold in 
the GPA, the overall emission benefits of the early years of the Tier 2 
rule are not reduced over those described in the final rule. The air 
quality analysis of the Tier 2 rule was based on the premise that all 
gasoline produced or used in the GPA would be at a sulfur level of 150 
ppm. We believe that setting a flat standard of 150 ppm for GPA 
gasoline as described above will still allow the objectives of the GPA 
program to be achieved. In addition, we expect little or no increase in 
the gasoline sulfur levels as a result of today's action and thus 
forecast the same air quality benefits.

B. Credit Generation Beginning in 2004

    The Tier 2 rule provides that a refiner for any refineries and 
importers may generate credits in 2004 and beyond if the annual average 
sulfur level of the gasoline that they produce or import during a given 
compliance year is less than their applicable annual average gasoline 
sulfur standard in that year (See Sec. 80.310). For GPA gasoline, 
credits are calculated as follows:

    CRa=Vax(SStd - Sa)

Where:
CRa = Credits generated for the averaging period.
Va = Total annual volume of gasoline produced at a refinery 
or imported during the averaging period.
SStd = The least of 150 ppm, the refinery's or importer's 
1997-98 baseline, or the refinery's lowest actual annual average sulfur 
content for any year from 2000 through 2003 during which the refinery 
generated credits or allotments.\7\
---------------------------------------------------------------------------

    \7\ The definition of SStd for GPA gasoline was 
subsequently changed to read ``the standard for GPA gasoline 
established for a refinery under Sec. 80.216(a).'' 66 FR 19296 
(April 13, 2001).

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

[[Page 40175]]

Sa = Actual annual average sulfur level of gasoline produced 
at a refinery or imported during the averaging period exclusive of any 
---------------------------------------------------------------------------
credits.

    As discussed in section IV.A., above, we are eliminating the anti-
backsliding provisions from the GPA program, therefore all gasoline 
that is designated as GPA gasoline will now have an annual average 
standard equal to 150 ppm sulfur. To prevent refineries that have 
existing low gasoline sulfur baselines from generating windfall credits 
(now that their GPA standard will be 150 ppm), we are also modifying 
the credit generation rules (beginning in 2004) for GPA gasoline. We 
believe that the amended regulations will allow for the generation of 
credits during the 2004-06 period comparable to the number of credits 
that could be generated under the Tier 2 rule, even though the standard 
for all GPA gasoline will be 150 ppm sulfur. For example, through this 
amendment, a refinery with a 50 ppm sulfur baseline will have a revised 
standard of 150 ppm for its GPA gasoline, as opposed to 80 ppm (i.e., 
50 ppm baseline + 30 ppm) under the Tier 2 rule.\8\ If today's rule 
eliminated the anti-backsliding provisions but did not revise the 
credit generation provisions, then the SStd would always be 
150 ppm for purposes of credit generation. Consequently, the same 
refiner producing gasoline (assume 10,000 gallons for simplification) 
at 80 ppm (which is 30 ppm higher than its existing baseline) in 2004 
for sale in the GPA would generate 700,000 ppm-gal credits (10,000 
gallons * (150-80 ppm sulfur)) without taking any steps to produce 
lower sulfur gasoline. Therefore, for purposes of credit generation for 
GPA refineries, we are preserving the calculus used for credit 
generation purposes in 2004 and beyond (even though refineries are now 
subject to a 150 ppm standard) by replacing ``SStd with 
``SCredit'' , as discussed below.
---------------------------------------------------------------------------

    \8\ This assumes that no credits were generated from 2000-2003 
by going 10 percent below 50 ppm which would decrease the standard 
even further.
---------------------------------------------------------------------------

    Under today's final rule, credits for GPA gasoline are calculated 
as follows from 2004 through 2006 \9\:
---------------------------------------------------------------------------

    \9\ Except for gasoline and diesel producing refineries that 
choose the Gasoline/Diesel compliance date option under the low 
sulfur diesel fuel program (See Sec. 80.540). Under this option, 
refineries that fully comply with the low sulfur diesel fuel 
requirements by 2006 may extend their GPA gasoline standards through 
2008.

    CRa = Va x (SCredit - 
Sa)
Where:
CRa = Credits generated for the averaging period.
Va = Total annual volume of gasoline produced at a refinery 
or imported during the averaging period.
SCredit = The least of 150 ppm or the refinery's or 
importer's 1997-98 baseline or the refinery's lowest annual average 
sulfur content for any year from 2000 through 2003 during which the 
refinery generated credits or allotments.
Sa = Actual annual average sulfur level of gasoline produced 
at a refinery or imported during the averaging period exclusive of any 
credits.

    From 2004 through 2006, all GPA gasoline will have a standard of 
150 ppm sulfur. For credit generation purposes, refineries with 
existing baselines cleaner than 150 ppm will generate credits relative 
to their baseline while refineries with existing baselines dirtier than 
150 ppm will generate credits relative to 150 ppm. Similar to how 
credits are generated in 2000 through 2003, credits for GPA gasoline 
produced in 2004 through 2006 may only be generated if the annual 
average sulfur level for the gasoline produced during the averaging 
period is less than 0.9 of the refinery's sulfur level that is used for 
credit generation purposes (i.e., 90 percent of the sulfur baseline for 
refineries with baselines below the 150 ppm standard and 90 percent of 
150 ppm (135 ppm) for refineries with baselines above the standard).
    For example, a refinery with a baseline of 100 ppm sulfur that 
lowers its sulfur level to 75 ppm in 2004 would generate credits equal 
to Va (volume of gasoline produced at the refinery)* 
(Scredit-Sa) where Scredit equals 100 
ppm and Sa equals 75 ppm (100 - 75 ppm equals 25 ppm), thus 
ppm-gallon credits would equal Va * 25 ppm. On the other 
hand, a refinery with a baseline of 200 ppm that lowers its sulfur 
level to 125 ppm in 2004 would also generate ppm-gallon credits equal 
to Va * 25 ppm (150-125 ppm). The refiner in the first 
example generates credits from a 100 ppm starting point (despite the 
150 ppm annual average standard applicable to all GPA gasoline) whereas 
the refiner in the second example generates credits from a 150 ppm 
starting point since its current baseline is not cleaner than the 150 
ppm annual average standard applicable to all GPA gasoline.
    Once a GPA refiner/importer begins complying under the national 
program in 2007, credits are generated relative to the 30 ppm refinery 
average standard.
    In summary, the provisions of this section under today's final rule 
eliminate the anti-backsliding standards provision of the Tier 2 rule 
and set the standard for GPA gasoline uniformly at 150 ppm for the 
duration of the GPA program (in general, from 2004 through 2006). In 
addition, this rule modifies the credit generation requirements of the 
ABT program that begin in 2004 to prevent the potential for windfall 
credits. This modification will allow for the generation of credits 
during the 2004-06 period comparable to the number of credits that 
could be generated under the Tier 2 rule, even though the standard for 
GPA gasoline will be 150 ppm sulfur.

C. Compliance With the Corporate Pool Average Standard by GPA Gasoline 
Producers

    The Tier 2 rule provides that a refiner or importer must meet the 
corporate pool average standards under Sec. 80.195 if GPA-designated 
gasoline comprises less than 50 percent of the refiner's or importer's 
total gasoline production or volume of imported product during the 
annual averaging period. See Sec. 80.216(f). The preamble to the Tier 2 
rule indicates that we intended GPA gasoline refiners and importers 
that are subject to the corporate pool average standards to use the 
same compliance process as other refiners and importers subject to the 
corporate pool average standards in 2004-2005. See 65 FR 6763. Thus, 
refiners and importers of GPA gasoline that are subject to the 
corporate pool average standards must demonstrate compliance with both 
the corporate pool average standard and the applicable refinery or 
importer average standard in the same manner as other refiners and 
importers; i.e., GPA refiners and importers subject to the corporate 
pool average standards must comply with the corporate pool standard and 
their GPA refinery or importer average standard (and non-GPA refinery 
or importer standard) independently. See preamble section III.C. above. 
Under this approach, compliance with the refinery or importer annual 
average and corporate pool standards is based on the refinery's or 
importer's actual sulfur levels, and credits or allotments, as 
appropriate, may be applied to achieve the standard if the actual 
sulfur level does not meet the standard. We believe, however, that the 
current regulations at Sec. 80.205(f), may be read to be inconsistent 
with this approach. This provision provides that, ``For GPA refiners 
subject to the corporate pool average that produce some GPA gasoline, 
the refinery average sulfur value for its GPA gasoline shall be the 
average sulfur value of the gasoline after applying credits.'' Because 
we believe this provision may be misleading and is unnecessary, today's 
rule deletes this paragraph.

[[Page 40176]]

V. Small Refiners

A. Subsidiary Ownership

    Under the Tier 2 rule, a small refiner is defined as any person 
who: (1) Produces gasoline at a refinery by processing crude oil 
through refinery processing units; (2) employed an average of no more 
than 1,500 people, based on the average number of employees for all pay 
periods from January 1, 1998, to January 1, 1999; and (3) had an 
average crude capacity less than or equal to 155,000 barrels per 
calendar day for 1998. See Sec. 80.225(a)(1). Section 80.225(a)(2) 
provides that, for purposes of determining the number of employees and 
crude capacity, the refiner must include the employees and crude 
capacity of any subsidiary companies, any parent company and 
subsidiaries of the parent company, and any joint venture partners. The 
regulations, however, do not specify the level of ownership that is 
required before a subsidiary must be included.
    We believe that a refining company that has assets against which 
capital may be raised, such as subsidiary companies in which it has a 
50 percent or greater ownership interest, or whose parent company has 
such assets, is in a better position to finance and install 
desulfurization equipment to comply with the sulfur standards in 2004. 
As a result, today's rule specifies that a subsidiary must be included 
in the small refiner's employee and crude capacity calculations if the 
refiner or the parent company of the refiner has a 50 percent or 
greater ownership interest in the subsidiary. This action is consistent 
with the intent of the small refiner hardship provisions to provide 
flexibility for small business refiners that lack the resources 
available to larger companies to raise capital for investing in 
desulfurization equipment by allowing them additional time to comply 
with the sulfur standards. This interpretation is also consistent with 
the Small Business Administration's regulations regarding size 
eligibility and standards. See 13 CFR 121.103.

B. Adjustment of the Small Refiner Per-gallon Sulfur Standard

    Since the final Tier 2 rule was issued, EPA has become aware of the 
possibility that some small refiners may face unusual circumstances 
that could impede their access to the special interim sulfur program 
developed for small refiners. We are aware of at least one small 
refiner that appears to face extreme difficulty in meeting the minimum 
requirements to participate in the interim program, specifically the 
per-gallon cap sulfur standard established under Sec. 80.240. We did 
not intend for the partial sulfur reductions that the interim per-
gallon standards require in our small refiner interim program to 
prevent such small refiners from benefitting from the program. To 
address this problem, we are adding a new provision that will, under 
limited circumstances, allow an approved small refiner to seek a 
temporary adjustment to its interim small refiner per-gallon cap 
standard. Such a small refiner will still be required to meet its 
established refinery annual average sulfur standards under Sec. 80.240.
    Under today's new provision, a refiner with approved small refiner 
status may request that EPA adjust its established per-gallon cap 
standard. An application for such a waiver must demonstrate that 
complying with the established small refiner per-gallon standard would 
effectively require the refiner to comply with the general (non-small-
refiner) sulfur standards in 2004, 2005, and 2006 instead of the less 
stringent interim standards in the small refiner program for 2004 
through 2007. Depending on the facts provided by the refiner about the 
difficulty that the established cap causes, EPA may, in its discretion, 
adjust the applicable small refiner per-gallon cap and establish the 
duration of such an adjusted per-gallon cap. Under no circumstances 
will EPA approve an adjusted per-gallon cap above 450 ppm sulfur or an 
adjusted per-gallon cap that applies beyond December 31, 2007.
    Any small refiner for which EPA adjusts its per-gallon cap standard 
must also obtain and use sulfur credits or allotments to offset the 
emission increase from any batch of gasoline that exceeds the 
established per-gallon sulfur standard. The number of credits or 
allotments required to be used for this offset is calculated from the 
difference between the adjusted per-gallon cap and the established cap 
under Sec. 80.240. The purpose of this requirement is to ensure that 
the overall environmental benefit of the gasoline sulfur program is 
maintained. Since excursions of a refinery's gasoline sulfur levels 
increase emissions, we believe that it is warranted to require that any 
such excess emissions be offset by lower emissions at this or another 
refinery. In addition to offsetting the increase in emissions, the 
requirement to use credits/allotments will also provide an incentive 
for refiners using this provision to minimize the frequency and degree 
that their gasoline exceeds their established per-gallon cap standard.
    Today's new provision requires the refiner to use sulfur credits or 
allotments in numbers equal to the degree that any batches of gasoline 
exceed the established per-gallon standard over the course of each year 
in which the adjusted cap standard is in effect. Such credits or 
allotments must be separate from and in addition to any credits or 
allotments used by the refiner to comply with its annual average 
standard. The refiner must obtain and use the required total number of 
credits or allotments for the year by the time it submits its annual 
sulfur batch report. An adjustment to a small refiner's established 
per-gallon cap or the use of credits or allotments to offset the 
adjustment will not affect compliance with the annual average standard, 
which will continue to be based on the actual sulfur levels of each of 
that averaging period's gasoline batches and any credits or allotments 
applied against the annual average standard.
    Under today's new provision, a small refiner that has an adjusted 
per-gallon cap will be liable for violations of the regulation if it 
either produces a batch of gasoline that exceeds the adjusted cap or it 
fails to apply the required number of credits or allotments to offset 
the cap adjustment. In the refiner's annual batch report to EPA, it 
must demonstrate that the required number of credits or allotments has 
been used to offset the per-gallon cap adjustment. A failure to use the 
required number of credits or allotments will constitute a violation, 
and each subsequent day that the required number of credits or 
allotments is not used constitutes a separate day of violation.
    Because small refiners constitute a relatively small fraction of 
national gasoline production, and because the required credits or 
allotments will offset an adjustment of the per-gallon standard, we 
believe any adverse environmental consequences of this provision will 
be very small.

VI. Allotments and Credits

A. Generation of Credits in 2000

    In designing the ABT provisions for the gasoline sulfur program, we 
intended to permit refiners to earn sulfur credits for gasoline 
produced during the year 2000. The regulations governing the creation 
of credits require all gasoline produced during the averaging period, 
defined as January 1 through December 31, to be included in the credit 
calculation. Because the rule was issued at the beginning of 2000, 
refiners that were not in immediate compliance with its sampling, 
testing, and documentation requirements were

[[Page 40177]]

unable to generate year 2000 credits. Today's amendment permits 
refiners to generate year 2000 credits using an averaging period less 
than the full calendar year, beginning with the first full month for 
which all required data is available.

B. Generation of Allotments in 2003

    Section 80.285(a) provides that early credits in 2000-2003 may only 
be generated by refiners that produce gasoline from crude oil. EPA 
intended this limitation also to apply to the generation of early 
allotments, since the same rationale for including this limitation for 
early credits applies to early allotments (i.e., refiners that do not 
produce gasoline from crude oil do not have the same need for the 
allotment program because they will not have to make the same level of 
investment in desulfurization technology as refiners that process crude 
oil). See 65 FR 6762 for further discussion of the rationale for this 
limitation. However, language to implement this limitation for early 
allotment generation was inadvertently omitted in the final rule. As a 
result, today's rule corrects this oversight by including language in 
Sec. 80.275(a)(1) which limits early allotment generation in 2003 to 
those refiners that produce gasoline from crude oil.

C. Oxygenate Blenders

    Under the Tier 2 rule, oxygenate blenders are subject to the 
requirements and prohibitions applicable to downstream parties and the 
prohibition specified in Sec. 80.385(e), but they are not subject to 
the provisions for refiners, including the refinery and corporate pool 
average standards in Sec. 80.195. See Sec. 80.212. Because oxygenate 
blenders are not subject to the refinery average standards, the 
regulations provide that oxygenate blenders may not generate credits 
beginning in 2004, since these credits are generated based on 
reductions from the refinery average standard. See Sec. 80.285(b)(3). 
The same rationale applies to the generation of allotments in 2004-
2005, since allotments are generated based on reductions from the 
corporate pool average standards. See Sec. 80.275(b). However, language 
to implement this limitation regarding allotments was inadvertently 
omitted in the final rule. Today's rule corrects this oversight by 
adding Sec. 80.275(b)(4) which provides that oxygenate blenders may not 
generate allotments in 2004-2005. See 65 FR 6761, 6800, for further 
discussion of the treatment of oxygenate blenders under the sulfur 
rule.

D. Conversion of Allotments to Credits

    Section 80.275(c) of the Tier 2 rule states that allotments 
generated in 2003 or 2004 which are carried over to 2005 and used to 
meet the corporate pool standard in 2005 are discounted by 50 percent. 
Such allotments that have been carried over may also be converted into 
credits for compliance with the refinery average standard in 2005 and 
beyond. As a result, where allotments generated in 2003 or 2004 are 
carried over to 2005 and then converted into credits, such credits 
would retain only 50 percent of the value of the original allotments 
generated in 2003 or 2004. However, the rule also allows allotments to 
be converted into credits before being carried over to 2005. Such 
credits would not be discounted when they are carried over, and, 
therefore, would retain 100 percent of the value of the original 
allotments. Further, an allotment that is converted into a credit 
before being carried over to 2005 may be reconverted into an allotment 
for use in achieving compliance with the corporate pool average in 
2005, but the allotment will be discounted 50 percent (i.e., bringing 
the value of the carried-over allotment back to what it would have been 
if it had never been converted to a credit). See 65 FR at 6765. 
Language to implement these conversion requirements was inadvertently 
omitted in the final rule. As a result, today's final rule adds 
Sec. 80.275(e)(3) to address these requirements.

E. Deletion of the Discount Factor for Type A Allotments

    The preamble to the Tier 2 rule states that early allotments 
generated in 2003 may be discounted depending on the refiner's actual 
sulfur level. If a refiner fully demonstrates compliance by producing 
gasoline with an actual annual average sulfur level of zero to 30 ppm, 
the allotments retain their full value. For actual annual average 
sulfur levels of 31-60 ppm, which are indicative of a partial 
demonstration of compliance with the ultimate low sulfur standard, the 
allotments are discounted 20 percent. See 65 FR 6759. The current 
regulations at Sec. 80.275(a)(2)(i) and (a)(2)(ii), however, include a 
discount factor (0.8) for early allotments generated based on annual 
average sulfur levels of zero to 30 ppm. This was an error in the final 
rule. Today's rule corrects this oversight by eliminating the discount 
factor for such allotments. Allotments generated based on actual annual 
sulfur levels of 31-60 ppm will continue to be discounted by 20 percent 
(thus a discount factor of 0.8).

F. Standard Applicable Under Sec. 80.310

    Section 80.310(a) provides that a refiner, for any refinery, or 
importer may generate credits in 2004 and thereafter if the annual 
average sulfur level for gasoline produced or imported for the 
averaging period is less than the applicable refinery or importer 
annual average sulfur standard for that refinery or importer in that 
year. However, the 30 ppm refinery or importer annual average standard 
does not become effective until 2005. See Sec. 80.195(a). As indicated 
in the equation in Sec. 80.310(b), EPA intended credits beginning in 
2004 to be generated based on reductions from the 30 ppm annual average 
standard (or small refiner or GPA standard, as applicable). See also 65 
FR 6763. As a result, today's rule revises Sec. 80.310(a) to clarify 
that, for refiners and importers that are not subject to the small 
refiner or GPA standards, the refinery or importer annual average 30 
ppm sulfur standard applicable to the refinery or importer beginning in 
2005 applies for purposes of credit generation in 2004 and beyond.

VII. Downstream Standards and Compliance

A. Test Requirements for S-RGAS and Non-S-RGAS Combined to Produce Mid-
Grade Gasoline

    Section 80.210(d)(3) provides that gasoline comprised in whole or 
in part of small refiner gasoline (S-RGAS)\10\ may qualify for the S-
RGAS downstream standards provided that: (1) The gasoline is sampled 
and tested at the location after the most recent receipt of gasoline 
into the tank; and (2) the test result establishes that the sulfur 
content of the gasoline is over the cap standard. It is common in the 
gasoline distribution system for a terminal to supply transport trucks 
with midgrade gasoline by blending regular grade gasoline from one tank 
with premium grade gasoline from another tank. This mixing occurs as 
the truck is receiving gasoline from the different tanks. We believe 
the requirements for sampling and testing S-RGAS under the sulfur rule 
may have the effect of constricting the use of this common blending 
procedure. For example, if premium grade S-RGAS is blended with regular 
grade non-S-RGAS, under the current regulations, sampling and testing 
would

[[Page 40178]]

be required before the resulting midgrade gasoline could be designated 
as S-RGAS on PTDs.
---------------------------------------------------------------------------

    \10\ The sulfur regulations define S-RGAS as ``gasoline that is 
subject to the standards under Sec. 80.240 or Sec. 80.270, including 
Certified Sulfur-FRGAS as defined in Sec. 80.410, except that no 
batch of gasoline may be classified as S-RGAS if the actual sulfur 
content is less than the applicable per-gallon refinery cap standard 
specified in Sec. 80.195.'' Sec. 80.210(a).
---------------------------------------------------------------------------

    It was not the Agency's intention to constrict the use of this 
common blending procedure to create midgrade gasoline by imposing a 
possibly prohibitive new testing requirement on such blending. 
Therefore, the Agency is adding Sec. 80.210(e)(5) to clarify that in 
instances where S-RGAS is combined with non-S-RGAS in truck 
compartments for the sole purpose of producing midgrade gasoline, the 
resulting gasoline may be classified on product transfer documents as 
S-RGAS even though no S-RGAS sampling and testing was conducted after 
the midgrade mixture was created. However, if the combining of the two 
products was not for the purpose of producing midgrade gasoline, this 
testing exemption would not apply.

B. Identifying S-RGAS Prior to Full Receipt of Gasoline

    As indicated in Section A, above, for gasoline to qualify as S-
RGAS, a terminal must sample and test the gasoline subsequent to the 
most recent receipt of gasoline into the terminal's storage tank. See 
Sec. 80.210(d)(3). The terminal is not required to perform the testing 
until the entire load of new gasoline is received into the storage 
tank. However, it is a common industry practice for terminals to 
provide gasoline to a truck at the terminal's truck rack at the same 
time the terminal is receiving gasoline into the same storage tank that 
is supplying the truck. In some cases, the gasoline already in the 
terminal's storage tank is classified as S-RGAS when the new delivery 
of gasoline is received into the tank, while the new delivery of 
gasoline is not classified as S-RGAS. In other cases, the gasoline in 
the storage tank is not classified as S-RGAS, while the new delivery of 
gasoline is classified as S-RGAS. Until all of the new load of gasoline 
has been received into the storage tank, the current rule requires that 
the truck carrier be given a product transfer document (PTD) with the 
designation of the gasoline already in the storage tank, regardless of 
the status of the gasoline from the new delivery.
    There is concern about this classification procedure because in 
many situations gasoline is bottom-loaded into the terminal storage 
tank while the truck rack is also being supplied from the bottom of the 
storage tank. Where S-RGAS is loaded into the bottom of a terminal 
storage tank containing non-S-RGAS, and the truck is also being loaded 
from the tank bottom, the truck may be receiving a load that properly 
meets the standards for S-RGAS, but the PTD for the gasoline would 
indicate that it is non-S-RGAS. Because of the non-S-RGAS designation, 
the higher small refiner standard would not apply to this gasoline, 
and, as a result, the gasoline may be found in violation if tested by 
the Agency. To remedy this situation, today's rule adds 
Sec. 80.210(e)(6) to permit a terminal to issue to the trucker a PTD 
which states that the product is S-RGAS before the storage tank fully 
receives the load of S-RGAS product. This provision applies only in 
situations where S-RGAS is loaded into a terminal storage tank 
simultaneously supplying gasoline to the truck, and only until full 
receipt of the load of S-RGAS into the storage tank. At that point, the 
regular testing requirements would apply.

C. S-RGAS Product Transfer Documentation Requirements for Transfers of 
Custody

    The Tier 2 rule requires that on each occasion when downstream 
parties transfer title or custody of gasoline that is classified as S-
RGAS, the transferor must provide the transferee with PTDs identifying 
the S-RGAS status and standard applicable to such gasoline. See 
Sec. 80.210(e)(2). Whether the gasoline is classified as S-RGAS on the 
PTDs depends upon 1) the gasoline being comprised in whole or in part 
of S-RGAS, 2) the receipt of a PTD stating that the product is S-RGAS, 
and 3) a test result confirming that the sulfur content exceeds the 
regulatory threshold under Sec. 80.210(d)(3). The intent of these PTD 
identification requirements is to provide the transferee with accurate 
S-RGAS information about the gasoline received. Where a downstream 
party transferring custody of gasoline provides accurate information as 
to S-RGAS status and sulfur standard, as applicable, to its transferee 
on its Bill of Lading (BOL), the Agency believes that the goal of 
transferring accurate S-RGAS information is effectively satisfied. 
Therefore, in situations in which both a custody PTD on a BOL and a 
separate title PTD are generated by a downstream party for the same 
gasoline, the requirement of S-RGAS status and standard transmission is 
satisfied if both the custody transfer PTD and the title transfer PTD 
accurately provide the required information, or the custody transfer 
PTD provides the required information and the title transfer PTD 
indicates that the required information is contained in the custody 
PTD. Today's rule adds Sec. 80.210(e)(7) to clarify these PTD 
requirements for S-RGAS.

VIII. Compliance Requirements and Enforcement

A. Liability for Geographic Phase-In Area (GPA) Gasoline

    Sections 80.395(a)(5) and (a)(6) provide for liability for 
violations of the GPA use prohibitions at Sec. 80.219(c). The language 
currently in these provisions imposes presumptive liability on those 
parties who sold or transferred the gasoline found to be in violation, 
as well as on those parties who caused another party to violate the GPA 
requirements. However, these provisions do not include presumptive 
liability for those parties actually operating the facilities where the 
violations occurred--the very parties with the most obvious and logical 
ties to the violations. The language in these provisions was meant to 
replicate the liability language for similar violations in EPA 
regulations, such as the Tier 2 rule's cap standard violations in 
Sec. 80.395(a)(3) and (a)(4), and the reformulated gasoline (RFG) 
program's violations in Sec. 80.79(a)(1) and (a)(3). These other 
liability sections impose presumptive liability not only on the parties 
who sold or transferred the gasoline in violation, but also on those 
parties at whose facilities the violation occurred. Today's rule 
revises Secs. 80.395(a)(5) and (a)(6) to be consistent with the more 
logical liability scheme and violation provisions already incorporated 
into other EPA fuel programs.

B. Recordkeeping for Allotments

    Section 80.365 of the Tier 2 rule contains requirements for 
retaining records which demonstrate compliance with the sulfur 
standards and requirements. This section is intended to cover records 
pertaining to the generation, use, and transfer of credits and 
allotments. See 65 FR 6810. Section 80.365(d)(2) contains requirements 
regarding the length of time records pertaining to early credits must 
be kept. However, this provision incorrectly does not include similar 
requirements for early allotments. This was an oversight in the final 
rule. Today's rule corrects this oversight by revising 
Sec. 80.365(d)(2) to provide that the records required to be kept for 
early credits must also be kept for early allotments.

C. Attest Engagement Requirements

    Under Sec. 80.415(a)(3) of the Tier 2 rule, if a refinery's or 
importer's annual average sulfur content for any year in which early 
credits were generated was less than the refinery's or importer's 
baseline level, the attest engagement for that refinery or importer 
must include

[[Page 40179]]

as a finding the lowest annual sulfur level as the new baseline value. 
For GPA gasoline 30 ppm must be added to this new baseline value to 
obtain the GPA standard, not to exceed 150 ppm.
    The attest provisions of Sec. 80.415(a)(3) were intended to address 
the baseline adjustments required under Secs. 80.216(a)(2) and 
80.240(d) for GPA and small refiners.\11\ However, as currently 
written, Sec. 80.415(a)(3) suggests that any refiner or importer who 
generates early credits in 2000 through 2003 must adjust its baseline 
if the refinery's or importer's annual average sulfur content in any 
year in which early credits were generated was less than the refinery's 
or importer's baseline. This would mean that early credits generated in 
a subsequent year would be based on reductions from an adjusted 
baseline level rather than the refinery's actual baseline level. 
However, the regulations do not require such an adjustment for non-GPA 
or non-small refiners. For any annual averaging period from 2000 
through 2003, early credits and allotments are generated based on 
reductions from the refinery's 1997-1998 sulfur baseline. See 
Sec. 80.305. If, for example, a refinery generates credits in 2002 by 
producing gasoline that is 10 percent lower in sulfur content than its 
1997-1998 baseline, the refinery does not have to produce even cleaner 
gasoline in 2003 to generate credits. Credit generation in 2003 would 
also be based on reductions from the refinery's 1997-1998 sulfur 
baseline.
---------------------------------------------------------------------------

    \11\ Section 80.240(d) provides that, for any small refiner who 
generates early credits or allotments, the applicable small refinery 
baseline for purposes of establishing the small refinery's standard 
is the lowest annual average sulfur level for any year in which the 
refinery generated early credits or allotments. Section 80.216(a)(2) 
provides that any GPA refiner whose actual annual average sulfur 
level decreases to a level lower than the refinery's GPA standard 
during the period 2000 through 2003, the applicable GPA standard 
will be the lowest average sulfur level for any year in which the 
refinery generated early credits or allotments, plus 30 ppm, not to 
exceed 150.00 ppm. As discussed above in Section IV.A., today's rule 
deletes the provisions of Sec. 80.216(a)(2).
---------------------------------------------------------------------------

    As a result, today's rule revises the attest provisions to clarify 
that the requirements of Sec. 80.415(a)(3) only apply to attest reports 
for small refiners that are subject to the baseline adjustment 
requirements under Sec. 80.240(d), and GPA refiners that are subject to 
the adjustment provisions under Sec. 80.285(b)(1)(ii) for purposes of 
credit generation beginning in 2004. Today's rule also clarifies that 
the attest requirements for small refiners in Sec. 80.415(a)(4) apply 
to attest reports in 2004 through 2007. In addition, Sec. 80.415(a) has 
been renumbered to provide better organization of these provisions.
    Today's rule also adds Sec. 80.415(b)(6) to require the attest 
engagement to agree with the information in the refinery's or 
importer's batch reports filed with EPA under the RFG/conventional 
gasoline regulations, and the refinery's or importer's laboratory test 
results, with the information contained in the annual sulfur report 
required under Sec. 80.370. This requirement is necessary to verify the 
information submitted in the annual report required under Sec. 80.370. 
Omission of this requirement was an oversight in the final rule.

IX. Administrative Requirements

A. Administrative Designation and Regulatory Analysis

    Under Executive Order 12866 (58 FR 51735, October 4, 1993), the 
Agency is required to determine whether this regulatory action would be 
``significant'' and therefore subject to review by the Office of 
Management and Budget (OMB) and the requirements of the Executive 
Order. The order defines a ``significant regulatory action'' as any 
regulatory action that is likely to result in a rule that may:
     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;
     Create a serious inconsistency or otherwise interfere with 
an action taken or planned by another agency;
     Materially alter the budgetary impact of entitlements, 
grants, user fees, or loan programs or the rights and obligations of 
recipients thereof; or,
     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, we have determined 
that this final rule is not a ``significant regulatory action.''

B. Regulatory Flexibility Act (RFA), as Amended by the Small Business 
Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5 USC 601 et. 
seq.

    The RFA generally requires an agency to prepare a regulatory 
flexibility analysis of any rule subject to notice and comment 
rulemaking requirements under the Administrative Procedure Act or any 
other statute unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
Small entities include small businesses, small organizations, and small 
governmental jurisdictions.
    For purposes of assessing the impacts of today's direct final rule 
on small entities, small entity is defined as: (1) A small business 
refiner that had no more than 1500 employees corporate-wide, based on 
the average number of employees for all pay periods from January 1, 
1998 to January 1, 1999; and a corporate crude capacity less than or 
equal to 155,000 barrels per calendar day for 1999 \12\; (2) a small 
governmental jurisdiction that is a government of a city, county, town, 
school district or special district with a population of less than 
50,000; and (3) a small organization that is any not-for-profit 
enterprise which is independently owned and operated and is not 
dominant in its field.
---------------------------------------------------------------------------

    \12\ This definition of a small business refiner was established 
under the Tier 2 Rule. See Sec. 80.225.
---------------------------------------------------------------------------

    After considering the economic impacts of today's direct final rule 
on small entities, I certify that this action will not have a 
significant economic impact on a substantial number of small entities. 
This direct final rule will not have any adverse economic impact on 
small entities. Today's rule corrects, amends, and revises certain 
provisions of the Tier 2 rule (65 FR 6698, February 10, 2000), 
regulated entities will find it easier to comply with the requirements 
of the Tier 2 rule. More specifically, today's action corrects 
typographical errors and makes other minor revisions to clarify the 
regulations governing compliance with the Tier 2 rule. Second, it 
modifies the effective date of the regulatory butane test method for 
determining the sulfur content of butane, a gasoline blendstock. Third, 
today's rule modifies the GPA program by replacing the variable 
standard for GPA gasoline with a flat average standard of 150 ppm 
sulfur. Fourth, it allows an approved small refiner, under limited 
circumstances, to seek a temporary adjustment to its interim small 
refiner per-gallon cap standard. Finally, it amends certain provisions 
of the small refiner and ABT programs as well as compliance and 
enforcement provisions to assist regulated entities with program 
implementation and compliance.

C. Paperwork Reduction Act

    The information collection requirements in this rule have been 
submitted for approval to the Office of Management and Budget (OMB) 
under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. An 
Information Collection Request (ICR) document has been

[[Page 40180]]

prepared by EPA (ICR No. 2073.01) and a copy may be obtained from Sandy 
Farmer, Collection Strategies Division; U.S. Environmental Protection 
Agency (2822); 1200 Pennsylvania Ave., NW, Washington, DC 20460 or by 
calling (202) 260-2740. The information requirements are not effective 
until OMB approves them.
    Certain small refiners may provide this requested information in 
order for EPA to consider granting specific relief relating to the 
gasoline sulfur requirements. This relief would be in the form of an 
adjustment to one of the gasoline sulfur standards that apply to small 
refiners, the per-gallon cap sulfur standard. The information will 
allow EPA to assess the need for such relief and to grant the 
appropriate relief based on the small refiner's situation. This 
information will be provided voluntarily by letter and will be treated 
by EPA as Confidential Business Information.
    EPA estimates that between one and 5 small refiners may request an 
adjustment in their per-gallon cap sulfur standards, and that a one-
time effort of about 2 hours will be required to prepare the 
application letter. We estimate the total industry-wide burden to be 
less than $1000. Burden means the total time, effort, or financial 
resources expended by persons to generate, maintain, retain, or 
disclose or provide information to or for a Federal agency. This 
includes the time needed to review instructions; develop, acquire, 
install, and utilize technology and systems for the purposes of 
collecting, validating, and verifying information, processing and 
maintaining information, and disclosing and providing information; 
adjust the existing ways to comply with any previously applicable 
instructions and requirements; train personnel to be able to respond to 
a collection of information; search data sources; complete and review 
the collection of information; and transmit or otherwise disclose the 
information.
    An Agency may not conduct or sponsor, and a person is not required 
to respond to a collection of information unless it displays a 
currently valid OMB control number. The OMB control numbers for EPA's 
regulations are listed in 40 CFR Part 9 and 48 CFR Chapter 15.

D. Intergovernmental Relations

1. Unfunded Mandates Reform Act
    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for federal agencies to assess the 
effects of their regulatory actions on state, local, and tribal 
governments, and the private sector. Under section 202 of the UMRA, we 
generally must prepare a written statement, including a cost-benefit 
analysis, for proposed and final rules with ``federal mandates'' that 
may result in expenditures to state, local, and tribal governments, in 
the aggregate, or to the private sector, of $100 million or more for 
any single year. Before promulgating a rule for which a written 
statement is needed, section 205 of the UMRA generally requires us to 
identify and consider a reasonable number of regulatory alternatives 
and adopt the least costly, most cost-effective, or least burdensome 
alternative that achieves the objectives of the rule. The provisions of 
section 205 do not apply when they are inconsistent with applicable 
law. Moreover, section 205 allows us to adopt an alternative that is 
not the least costly, most cost-effective, or least burdensome 
alternative if we provide an explanation in the final rule of why such 
an alternative was adopted.
    Before we establish any regulatory requirement that may 
significantly or uniquely affect small governments, including tribal 
governments, we must develop a small government plan pursuant to 
section 203 of the UMRA. Such a plan must provide for notifying 
potentially affected small governments, and enabling officials of 
affected small governments to have meaningful and timely input in the 
development of our regulatory proposals with significant federal 
intergovernmental mandates. The plan must also provide for informing, 
educating, and advising small governments on compliance with the 
regulatory requirements.
    This rule contains no federal mandates for state, local, or tribal 
governments as defined by the provisions of Title II of the UMRA. The 
rule imposes no enforceable duties on any of these governmental 
entities. Nothing in the rule will significantly or uniquely affect 
small governments.
    We have determined that this rule does not contain a federal 
mandate that may result in estimated expenditures of more than $100 
million to the private sector in any single year. This action has the 
net effect of correcting, amending, and revising certain provisions of 
the Tier 2 rule. Therefore, the requirements of the UMRA do not apply 
to this action.
2. Executive Order 13175: Consultation and Coordination With Indian 
Tribal Governments
    Executive Order 13175, entitled ``Consultation and Coordination 
with Indian Tribal Governments'' (65 FR 67249, November 6, 2000), 
requires EPA to develop an accountable process to ensure ``meaningful 
and timely input by tribal officials in the development of regulatory 
policies that have tribal implications.'' This final rule does not have 
tribal implications, as specified in Executive Order 13175. Today's 
rule does not uniquely affect the communities of American Indian tribal 
governments since the motor vehicle fuel and other related requirements 
for private businesses in today's rule will have national 
applicability. Furthermore, today's rule does not impose any direct 
compliance costs on these communities and no circumstances specific to 
such communities exist that will cause an impact on these communities 
beyond those discussed in the other sections of today's document. The 
effect of today's rule is no more significant than the Tier 2 rule for 
tribes under the original provisions of the GPA program; under today's 
action, gasoline sold in certain tribal lands will be subject to a flat 
average standard of 150 ppm sulfur. Thus, Executive Order 13175 does 
not apply to this rule.
3. Executive Order 13132 (Federalism)
    Executive Order 13132, entitled ``Federalism'' (64 FR 43255, August 
10, 1999), requires us to develop an accountable process to ensure 
``meaningful and timely input by state and local officials in the 
development of regulatory policies that have federalism implications.'' 
``Policies that have federalism implications'' is defined in the 
Executive Order to include regulations that have ``substantial direct 
effects on the states, on the relationship between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government.
    Under Section 6 of Executive Order 13132, we may not issue a 
regulation that has federalism implications, that imposes substantial 
direct compliance costs, and that is not required by statute, unless 
the federal government provides the funds necessary to pay the direct 
compliance costs incurred by state and local governments, or we 
consults with state and local officials early in the process of 
developing the proposed regulation. We also may not issue a regulation 
that has federalism implications and that preempts state law, unless 
the Agency consults with state and local officials early in the process 
of developing the proposed regulation.
    Section 4 of the Executive Order contains additional requirements 
for rules that preempt state or local law, even if those rules do not 
have

[[Page 40181]]

federalism implications (i.e., the rules will not have substantial 
direct effects on the states, on the relationship between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government). Those 
requirements include providing all affected state and local officials 
notice and an opportunity for appropriate participation in the 
development of the regulation. If the preemption is not based on 
express or implied statutory authority, we also must consult, to the 
extent practicable, with appropriate state and local officials 
regarding the conflict between state law and federally protected 
interests within the Agency's area of regulatory responsibility.
    This rule does not have federalism implications. It will not have 
substantial direct effects on the states, on the relationship between 
the national government and the states, or on the distribution of power 
and responsibilities among the various levels of government, as 
specified in Executive Order 13132. This rule clarifies and corrects 
certain provisions of an earlier rule that adopted national standards 
to control gasoline sulfur. The requirements of the rule will be 
enforced by the federal government at the national level. Thus, the 
requirements of Section 6 of the Executive Order do not apply to this 
rule.

E. Executive Order 13211: Energy Effects

    This rule is not subject to Executive Order 13211, ``Actions 
Concerning Regulations That Significantly Affect Energy Supply, 
Distribution, or Use'' (66 FR 28355, May 22, 2001) because it is not a 
significant regulatory action under Executive Order 12866.

F. National Technology Transfer and Advancement Act

    Section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (NTTAA), Section 12(d) of Public Law 104-113, directs us to 
use voluntary consensus standards in our regulatory activities unless 
it would be inconsistent with applicable law or otherwise impractical. 
Voluntary consensus standards are technical standards (e.g., materials 
specifications, test methods, sampling procedures, and business 
practices) developed or adopted by voluntary consensus standards 
bodies. The NTTAA directs us to provide Congress, through OMB, 
explanations when we decide not to use available and applicable 
voluntary consensus standards.
    This rule references technical standards adopted by us through 
previous rulemakings. No new technical standards are established in 
today's rule. The standards referenced in today's rule involve the 
measurement of gasoline fuel parameters and motor vehicle emissions. 
The measurement standards for gasoline fuel parameters referenced in 
today's rule are all voluntary consensus standards.

G. Executive Order 13045: Children's Health Protection

    Executive Order 13045, ``Protection of Children from Environmental 
Health Risks and Safety Risks'' (62 FR 19885, April 23, 1997) applies 
to any rule that 1) is determined to be ``economically significant'' as 
defined under Executive Order 12866, and 2) concerns an environmental 
health or safety risk that we have reason to believe may have a 
disproportionate effect on children. If the regulatory action meets 
both criteria, section 5-501 of the Executive Order directs us to 
evaluate the environmental health or safety effects of the planned rule 
on children, and explain why the planned regulation is preferable to 
other potentially effective and reasonably feasible alternatives 
considered by us.
    This rule is not subject to the Executive Order because it is not 
an economically significant regulatory action as defined by Executive 
Order 12866. Furthermore, this rule does not concern an environmental 
health or safety risk that we have reason to believe may have a 
disproportionate effect on children.

H. Congressional Review Act

    The Congressional Review Act, 5 U.S.C. 801 et seq., as amended by 
the Small Business Regulatory Enforcement Fairness Act of 1996, 
generally provides that before a rule may take effect, the agency 
promulgating the rule must submit a rule report, which includes a copy 
of the rule, to Congress and the comptroller General of the United 
States. We will submit 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 United States prior to publication of 
the rule in the Federal Register. A Major rule cannot take effect until 
60 days after it is published in the Federal Register. This action is 
not a ``major rule'' as defined by 5 U.S.C. 804(2). This rule will be 
effective September 10, 2002.

X. Statutory Provisions and Legal Authority

    Statutory authority for the fuel controls set in today's final rule 
comes from section 211(c) of the CAA (42 U.S.C. 7545(c)), which allows 
us to regulate fuels that either contribute to air pollution which 
endangers public health or welfare or which impair emission control 
equipment. Additional support for the procedural and enforcement-
related aspects of the fuel controls in today's final rule, including 
the record keeping requirements, comes from sections 114(a) and 301(a) 
of the CAA.

List of Subjects in 40 CFR Part 80

    Environmental protection, Fuel additives, Gasoline, Imports, 
Labeling, Motor vehicle pollution, Penalties, Reporting and 
recordkeeping requirements.

    Dated: May 23, 2002.
Christine Todd Whitman,
Administrator.

    For the reasons set forth in the preamble, 40 CFR part 80 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: 42 U.S.C. 7414, 7545 and 7601(a).


    2. In Sec. 80.46:
    a. Paragraph (a)(2) is revised as set forth below; and
    b. Paragraph (h) is amended by adding after the phrase ``ASTM 
standard methods'' the phrase ``D 3246-96, ``Standard Test Method for 
Sulfur in Petroleum Gas by Oxidative Microcoulometry'.''


Sec. 80.46  Measurement of reformulated gasoline fuel parameters.

    (a) * * *
    (2) Beginning January 1, 2004, the sulfur content of butane must be 
determined by the use of ASTM standard method D 3246-96, entitled 
``Standard Test Method for Sulfur in Petroleum Gas by Oxidative 
Microcoulometry.''
* * * * *

    3. Section 80.195 is amended by revising paragraphs (b)(4) and 
(c)(4), and adding paragraphs (c)(5)(iii) and (c)(6) to read as 
follows:


Sec. 80.195  What are the gasoline sulfur standards for refiners and 
importers?

* * * * *
    (b) * * *
    (4) In 2005 only, the refinery or importer annual average sulfur 
standard may be met using allotments or credits as provided under 
Sec. 80.275, or credits as provided under Sec. 80.315. The same 
allotments used to demonstrate compliance with the corporate pool

[[Page 40182]]

average standard may be used by a refinery in the corporate pool toward 
a demonstration of compliance with the refinery average standard, or by 
an importer for demonstration of compliance with the importer average 
standard. Alternatively, some of the allotments may be used toward a 
demonstration of compliance with the refinery average standard by one 
refinery in the corporate pool and the remainder used by another 
refinery or refineries in the corporate pool.
    (c) * * *
    (4) The corporate pool average standards do not apply to approved 
small refiners subject to the gasoline sulfur standards under 
Sec. 80.240.
    (5) * * *
    (iii) In the case of a refinery that is owned by a two or more 
parties that is not a joint venture under this paragraph (c)(5), the 
business entity consisting of the joint owners is the refiner of that 
refinery. One of the owners of such a refinery may include the refinery 
in its corporate pool for purposes of complying with the corporate pool 
average standards under this section, with the same requirements and 
limitations that apply under paragraph (c)(5)(ii) of this section.
    (6)(i) A parent company is the refiner of any refinery facilities 
owned by the parent company's wholly-owned subsidiaries for purposes of 
compliance with the corporate pool average standards under this 
section.
    (ii) A parent company must include in its corporate pool all of the 
gasoline produced at any refineries owned by the parent company and any 
refineries owned by the parent company's wholly-owned subsidiaries; or
    (iii) A parent company may be deemed in compliance with the 
corporate pool average standards if the parent company includes in its 
corporate pool the gasoline produced by any refineries owned by the 
parent company, and each wholly-owned subsidiary of the parent company 
individually complies with the corporate pool average standards for the 
gasoline produced at the refineries owned by the wholly-owned 
subsidiary.
* * * * *

    4. Section 80.205 is amended by revising the definition of 
Sa following the equation in paragraph (a) and removing 
paragraph (f) to read as follows:


Sec. 80.205  How is the annual refinery or importer average and 
corporate pool average sulfur level determined?

    (a) * * *
    Where:
    Sa = The refinery or importer annual average sulfur 
level, or corporate pool average level, as applicable.
* * * * *

    5. Section 80.210 is amended by adding paragraphs (e)(5), (e)(6) 
and (e)(7) to read as follows:


Sec. 80.210  What sulfur standards apply to gasoline downstream from 
refineries and importers?

* * * * *
    (e) * * *
    (5) Gasoline from a terminal tank containing S-RGAS that is 
combined with gasoline from a terminal tank containing non-S-RGAS for 
the purpose of blending mid-grade gasoline in a transport truck may be 
classified on product transfer documents as S-RGAS, provided that the 
S-RGAS was combined with non-S-RGAS for the sole purpose of producing 
midgrade gasoline.
    (6) Where S-RGAS is being delivered into a terminal storage tank 
containing non-S-RGAS which is simultaneously supplying gasoline to a 
transport truck, the terminal may identify the gasoline as S-RGAS 
before the delivery into the terminal tank is complete without 
performing the tests required in paragraph (d)(3) of this section. Upon 
completion of the delivery of S-RGAS into the terminal tank, the 
terminal may classify the gasoline as S-RGAS only if it meets the 
criteria for S-RGAS following testing in accordance with the 
requirements of paragraph (d)(3) of this section.
    (7) The information relating to S-RGAS required to be included in 
product transfer documentation under this paragraph (e) must be 
included in the product transfer documents which accompany the transfer 
of custody of the gasoline. Product transfer documents that transfer 
title of the gasoline may fulfill the requirements under this paragraph 
(e) by indicating that the required information relating to S-RGAS is 
contained in the product transfer documents which accompany the 
transfer of custody of the gasoline.
* * * * *

    6. Section 80.216 is amended by revising paragraphs (a) and (f) to 
read as follows:


Sec. 80.216  What standards apply to gasoline produced or imported for 
use in the GPA?

    (a) The refinery or importer annual average sulfur standard for 
gasoline produced or imported for use in the geographic phase-in area 
under Sec. 80.215, and designated as GPA gasoline under Sec. 80.219(a), 
shall be 150.00 ppm.
* * * * *
    (f)(1) A refiner or importer whose gasoline production or volume of 
imported gasoline in 2004 or 2005 is comprised of more than 50 percent 
of gasoline designated as GPA gasoline under Sec. 80.219(a) shall not 
be required to meet the corporate pool average standards under 
Sec. 80.195 for its gasoline production or imported gasoline during the 
applicable averaging period.
    (2) A refiner or importer whose gasoline production or volume of 
imported gasoline in 2004 or 2005 is comprised of less than 50 percent 
of gasoline designated as GPA gasoline under Sec. 80.219(a) must meet 
the corporate pool average standards under Sec. 80.195 for all the 
refiner's gasoline production or the importer's volume of imported 
gasoline, including GPA gasoline, during the applicable averaging 
period.
* * * * *

    7. Section 80.225 is amended by revising paragraph (a)(2) to read 
as follows:


Sec. 80.225  What is the definition of a small refiner?

    (a) * * *
    (2) For the purpose of determining the number of employees and 
crude capacity under paragraph (a)(1) of this section, the refiner 
shall include the employees and crude capacity of any subsidiary 
companies, any parent company and subsidiaries of the parent company, 
and any joint venture partners. A subsidiary under this paragraph means 
any subsidiary in which the refiner or parent company has a 50% or 
greater ownership interest.
* * * * *

    8. A new Sec. 80.271 is added to subpart H under the heading 
``Allotment Trading Program'' to read as follows:


Sec. 80.271  How can a small refiner obtain an adjustment of its 2004-
2007 per-gallon cap standard?

    (a) EPA may in its discretion adjust the small refiner per-gallon 
cap sulfur standard established for a refinery under Sec. 80.240(a) 
(the established small refiner per-gallon standard) if the refiner 
demonstrates that the burden of complying with the established small 
refiner per-gallon standard would effectively prevent the refiner from 
participating in the small refiner relief provided in Sec. 80.240. No 
refiner will be eligible for an adjustment of its established per-
gallon standard above 450 ppm. The refinery annual average sulfur 
standards in Sec. 80.240(a) are not affected by this section.
    (b) A refiner wishing to apply for such an adjustment of its 
established small refiner per-gallon sulfur standard under

[[Page 40183]]

Sec. 80.240(a) must send a letter to Gasoline Sulfur Program, U.S. EPA, 
Office of Transportation and Air Quality, 2000 Traverwood Dr., Ann 
Arbor, MI 48105 no later than January 1, 2003. Such application must 
include the following information:
    (1) A detailed description of the nature of the difficulty that the 
per-gallon cap creates;
    (2) The refiner's proposed adjusted per-gallon cap standard and the 
proposed duration for the adjustment, including an explanation of how a 
lower per-gallon cap standard or shorter duration would not address the 
hardship;
    (3) The refiner's expected actual annual average sulfur level 
(i.e., prior to the use of any credits or allotments) for each year 
that the adjustment would be in effect;
    (4) The refiner's estimate of the number of gallons of gasoline it 
produces that will exceed the established small refiner per-gallon 
standard under Sec. 80.240(a) for each year that the adjusted per-
gallon cap would apply; and
    (5) The number of sulfur credits or allotments that the refiner 
estimates will be required under paragraph (d) of this section for each 
year that the adjusted per-gallon cap would apply and a plan for 
obtaining this number of credits or allotments.
    (6) Other relevant information that EPA requests.
    (c) EPA will evaluate each application for an adjusted per-gallon 
cap sulfur standard on a case-by-case basis. EPA may impose any 
reasonable conditions on adjustments granted under this section. EPA 
may in its discretion set forth the duration of the adjusted per-gallon 
cap sulfur standard but in no case shall it extend beyond December 31, 
2007.
    (d)(1) A small refiner with an adjusted per-gallon sulfur cap 
standard under paragraph (a) of this section must obtain and use sulfur 
credits or allotments to offset the amount that the adjusted standard 
exceeds the established small refiner per-gallon standard under 
Sec. 80.240(a). The number of sulfur credits or allotments needed for 
each year that the adjusted per-gallon cap would apply is calculated on 
a per-batch basis according to paragraph (d)(2) of this section and 
summed over the averaging period.
    (2) The formula for determining the number of sulfur credits or 
allotments that such a small refiner is required to use for any batch 
of gasoline exceeding the established small refiner per-gallon standard 
under Sec. 80.240(a) is as follows:

    CRb = Vb x (Sb-Sc)


Where:
CRb = number of sulfur allotments or sulfur credits needed 
for the gasoline batch (ppm-gallons)
Vb = Volume of the gasoline batch (gallons)
Sb = Sulfur level of the gasoline batch (ppm)
Sc = Small refiner per-gallon cap standard established for 
that refinery under Sec. 80.240(a), in ppm.

    (3) Sulfur credits or allotments used when a small refiner exceeds 
an established per-gallon cap sulfur standard under Sec. 80.240(a) must 
be separate from and in addition to credits or allotments used for any 
other purposes provided under Sec. 80.275 or Sec. 80.315.
    (e) The approving official for an adjustment under this section is 
the Director of the Office of Transportation and Air Quality in the EPA 
Office of Air and Radiation.

    9. Section 80.275 is amended by:
    a. Revising paragraph (a)(1);
    b. Revising the first equation and second equation in paragraph 
(a)(2)(i);
    c. Revising the second equation in paragraph (a)(2)(ii);
    d. Revising the equation in paragraph (a)(2)(v);
    e. Adding paragraphs (b)(4), (e)(3), and (h); and
    f. Redesignating paragraph (c)(2) as paragraph (c)(2)(i) and adding 
a new paragraph (c)(2)(ii).
    The revisions and additions read as follows:


Sec. 80.275  How are allotments generated and used?

    (a) * * *
    (1) During 2003 only, any domestic or foreign refiner who produces 
gasoline from crude oil may have the option to generate credits in 
accordance with the provisions of Sec. 80.305 or generate allotments 
and credits under paragraph (a)(2) of this section.
    (2) * * *
    (i) * * *
    SATypeB = (30 - Sa) x V
    SATypeA = V x 90
* * * * *
    (ii) * * *
    SATypeA = (SBase - 30) x V
* * * * *
    (v) * * *
    SATypeA = ((SBase - Sa) x V) x 0.8
* * * * *
    (b) * * *
    (4) Oxygenate blenders may not generate allotments under this 
section.
* * * * *
    (c) * * *
    (2) * * *
    (ii) Small refiners subject to the standards under Sec. 80.240 and 
that have received an adjustment of their per-gallon cap sulfur 
standards pursuant to Sec. 80.271(a) may also use sulfur allotments to 
meet the requirements of Sec. 80.271(d)(1) for any refinery that has 
received such an adjustment.
* * * * *
    (e) * * *
    (3) Allotments generated in 2003 or 2004 which are carried over to 
2005 are discounted by 50 percent. The discounted allotments may be 
used to demonstrate compliance with the corporate pool average standard 
in 2005, or they may be converted into credits for use in demonstrating 
compliance with the refinery average standard in 2005, or in a 
subsequent averaging period, in accordance with the provisions of this 
paragraph (e). Any allotments generated in 2003 or 2004 that are 
converted into credits before being carried over to 2005 are not 
discounted. Any allotments generated in 2003 or 2004 that are converted 
into credits before being carried over to 2005 may be reconverted into 
allotments for use in demonstrating compliance with the corporate pool 
average standard in 2005, but such reconverted allotments are 
discounted by 50 percent.
* * * * *
    (h) Allotments and credits under this program are in units of 
``ppm-gallons''.
* * * * *
    10. Section 80.285 is amended by revising paragraph (b)(1)(ii) to 
read as follows:


Sec. 80.285  Who may generate credits under the ABT program?

* * * * *
    (b) * * *
    (1) * * *
    (ii) Refiners and importers of gasoline designated as GPA gasoline 
under Sec. 80.219, using the least of 150 ppm, or the refinery's or 
importer's 1997-1998 sulfur baseline calculated under Sec. 80.295, or 
the refinery's lowest annual average sulfur content for any year from 
2000 through 2003 during which the refinery generated credits or 
allotments (for any party generating credits under both paragraphs 
(b)(1)(i) of this section and this paragraph (b)(1)(ii), such credits 
must be calculated separately); or
* * * * *

    11. Section 80.305 is amended by adding a new paragraph (f) to read 
as follows:


Sec. 80.305  How are credits generated during the time period 2000 
through 2003?

* * * * *
    (f) For gasoline produced during the year 2000, the averaging 
period for

[[Page 40184]]

credits generated in accordance with paragraph (a) of this section may 
be less than the full calendar year. Such partial-year averaging period 
will begin with the first full month for which all applicable sampling, 
testing, and documentation requirements are met.

    12. Section 80.310 is amended by:
    a. Revising paragraph (a);
    b. Revising the equation in paragraph (b);
    c. Removing the definition of Sstd and adding a 
definition of SCredit in its place following the equation in 
paragraph (b); and
    d. Adding paragraph (d).
    The revisions and additions read as follows:


Sec. 80.310  How are credits generated beginning in 2004?

    (a) A refiner for any refinery, or an importer, may generate 
credits in 2004 and thereafter if the annual average sulfur level for 
gasoline produced or imported for the averaging period is less than 30 
ppm; or, for refiners that are subject to the small refiner standards 
in Sec. 80.240, the small refiner annual average sulfur standard 
applicable to that refinery; or, for refiners and importers subject to 
the GPA standards in Sec. 80.216, the least of 150.00 ppm, or the 
refinery's or importer's 1997-1998 sulfur level calculated under 
Sec. 80.295, or the refinery's lowest annual average sulfur content for 
any year from 2000 through 2003 during which the refinery generated 
credits or allotments.
    (b) * * *
    CRa = Va x (SCredit - 
Sa)
* * * * *
    SCredit = 30 ppm; or the sulfur standard for a small 
refinery established under Sec. 80.240; or, for gasoline designated as 
GPA gasoline under Sec. 80.219, the least of 150.00 ppm, or the 
refinery's or importer's 1997-1998 sulfur level calculated under 
Sec. 80.295, or the refinery's lowest annual average sulfur content for 
any year from 2000 through 2003 during which the refinery generated 
credits or allotments.
* * * * *
    (d) Refiners and importers of GPA gasoline may generate credits 
under this section only if the annual average sulfur level for the 
gasoline produced or imported during the annual averaging period is 
less than 0.90 of the refinery's or importer's sulfur level as 
calculated under Sec. 80.295.

    13. Section 80.315 is amended by revising the introductory text of 
paragraphs (a) and (b)(1) to read as follows:


Sec. 80.315  How are credits used and what are the limitations on 
credit use?

    (a) Credit use. Credits may be used to meet the applicable refinery 
or importer annual average sulfur standards under Sec. 80.195, 
Sec. 80.216, or Sec. 80.240, or may be used to meet the offset 
requirement under Sec. 80.271(d)(1) for any refinery with an adjustment 
of itsper-gallon cap standard pursuant to Sec. 80.271(a), provided 
that:
* * * * *
    (b) Credit transfers. (1) Credits obtained from other persons may 
be used to meet the annual average standards specified in Sec. 80.195, 
Sec. 80.216, or Sec. 80.240, or may be used to meet the offset 
requirement under Sec. 80.271(d)(1) for any refinery with an adjustment 
of itsper-gallon cap standard pursuant to Sec. 80.271(a), if all the 
following conditions are met:
* * * * *

    14. Section 80.365 is amended by revising paragraph (d)(2) to read 
as follows:


Sec. 80.365  What records must be kept?

* * * * *
    (d) * * *
    (2) Early credits and allotments. (i) Where the party generating 
the credits or allotments does not transfer the credits or allotments, 
records must be kept for 5 years from the date of creation, use, or 
termination, whichever is later.
    (ii) Where early credits or allotments are transferred, records 
relating to such credits or allotments shall be kept by both parties 
for 5 years from the date the credits or allotments were transferred, 
used, or terminated, whichever is later.
* * * * *

    15. Section 80.370 is amended by revising paragraph (a)(4) and 
adding new paragraphs (a)(7)(v), (c)(4) and (c)(5) to read as follows:


Sec. 80.370  What are the sulfur reporting requirements?

* * * * *
    (a) * * *
    (4) The annual average sulfur level of the gasoline produced or 
imported;
* * * * *
    (7) * * *
    (v) For any batch of small refiner gasoline produced by any 
refinery with an adjustment of its per-gallon cap standard under 
Sec. 80.271(a), the number of sulfur credits or allotments required 
under paragraph (d)(1) of this section, the number of credits or 
allotments used, and the source(s) of these credits or allotments.
* * * * *
    (c) * * *
    (4) A parent company must identify in the corporate pool average 
reports required under paragraph (c)(1) of this section any refinery 
facilities owned by the parent company, any subsidiaries wholly-owned 
by the parent company, and any refinery facilities of the parent 
company's wholly-owned subsidiaries, except as provided in paragraph 
(c)(5) of this section.
    (5) Where the wholly-owned subsidiaries of a parent company comply 
with the corporate pool average standards individually pursuant to 
Sec. 80.195(c)(6)(ii):
    (i) The corporate pool average reports required under paragraph 
(c)(1) of this section must be submitted by each wholly-owned 
subsidiary of the parent company;
    (ii) Each wholly-owned subsidiary of the parent company must 
identify in the corporate pool average reports required under paragraph 
(c)(1) of this section the subsidiary's parent company and any refinery 
facilities of the subsidiary; and
    (iii) The parent company must submit the corporate pool average 
reports required under paragraph (c)(1) of this section for any 
refinery facilities owned by the parent company which are not the 
refinery facilities of the parent company's wholly-owned subsidiaries.
* * * * *

    16. Section 80.385 is amended by revising paragraph (b) and adding 
a new paragraph (g) to read as follows:


Sec. 80.385  What acts are prohibited under the gasoline sulfur 
program?

* * * * *
    (b) Cap standard violation. Produce, import, sell, offer for sale, 
dispense, supply, offer for supply, store or transport gasoline that 
does not comply with the applicable sulfur cap standard under 
Sec. 80.195, Sec. 80.216, Sec. 80.210, Sec. 80.220, Sec. 80.240, or 
does not comply with an adjusted cap standard approved for a small 
refiner under Sec. 80.271.
* * * * *
    (g) Failure to use sufficient sulfur credits or allotments to 
offset a per-gallon cap adjustment. For a small refiner that has an 
approved adjustment of its per-gallon cap sulfur standard for a 
refinery under Sec. 80.271, to fail to obtain (or generate) and use the 
required number of sulfur credits or allotments to offset the revised 
per-gallon cap sulfur standard under Sec. 80.217(d).

    17. Section 80.395 is amended by revising paragraphs (a)(5), 
(a)(6), and (a)(12), and adding a new paragraph (a)(13) to read as 
follows:

[[Page 40185]]

Sec. 80.395  Who is liable for violations under the gasoline sulfur 
program?

    (a) * * *
    (5) GPA use violation. Any refiner, importer, distributor, 
reseller, carrier, retailer, wholesale purchaser-consumer, or oxygenate 
blender who owned, leased, operated, controlled or supervised a 
facility where a violation of Sec. 80.385(f) occurred, is deemed in 
violation of Sec. 80.385(f).
    (6) Causing a GPA use violation. Any refiner, importer, 
distributor, reseller, carrier, retailer, wholesale purchaser-consumer, 
or oxygenate blender who produced, imported, sold, offered for sale, 
dispensed, supplied, offered for supply, stored, transported, or caused 
the transportation or storage of gasoline that violates Sec. 80.385(f), 
is deemed in violation of Sec. 80.385(c).
* * * * *
    (12) Joint venture and joint owner liability. Each partner to a 
joint venture, or each owner of a facility owned by two or more owners, 
is jointly and severally liable for any violation of this subpart that 
occurs at the joint venture facility or facility owned by the joint 
owners, or is committed by the joint venture operation or any of the 
joint owners of the facility.
    (13) Failure to use credits violation. Any small refiner that has 
an approved adjustment of its per-gallon cap under Sec. 80.271 and that 
does not obtain (or generate) and use the required number of sulfur 
credits or allotments under Sec. 80.271(d) by the time it submits its 
annual report under Sec. 80.370 is deemed in violation of 
Sec. 80.385(g).
* * * * *

    18. Section 80.405 is amended by adding a new paragraph (e) to read 
as follows:


Sec. 80.405  What penalties apply under this subpart?

* * * * *
    (e) Any person liable under Sec. 80.395(a)(13) for failing to 
obtain (or generate) and use the total required number of sulfur 
credits or allotments under Sec. 80.271(d) for a calendar year is 
subject to a separate day of violation for each day until the required 
number of credits or allotments is used.

    19. Section 80.410 is amended by revising paragraph (h)(7)(ii) to 
read as follows:


Sec. 80.410  What are the additional requirements for gasoline produced 
at foreign refineries having an individual small refiner sulfur 
baseline, foreign refineries granted temporary relief under 
Sec. 80.270, or baselines for generating credits during 2000 through 
2003?

* * * * *
    (h) * * *
    (7) * * *
    (ii) Be licensed as a Certified Public Accountant in the United 
States and a citizen of the United States, or be approved in advance by 
EPA based on a demonstration of ability to perform the procedures 
required in Secs. 80.125 through 80.130, Sec. 80.415 and this paragraph 
(h); and
* * * * *

    20. Section 80.415 is amended by;
    a. Adding paragraphs (a)(2)(iii), (a)(2)(iv), and (b)(6);
    b. Removing paragraphs (a)(4) and (a)(5); and
    c. Revising paragraphs (a)(3) and (g)(4).
    The additions and revisions read as follows:


Sec. 80.415  What are the attest engagement requirements for gasoline 
sulfur compliance applicable to refiners and importers?

* * * * *
    (a) * * *
    (2) * * *
    (iii) If the annual average sulfur level for any year in which 
credits were generated for 2000 through 2003 was less than the baseline 
level under paragraph (a)(1) of this section, for small refiners report 
as a finding the lowest annual sulfur level as the new baseline value 
for purposes of establishing the small refiner standards under 
Sec. 80.240, and for GPA gasoline report as a finding the lowest annual 
sulfur level as the new sulfur level for purposes of credit generation 
under Sec. 80.310, if lower than 150.00 ppm.
    (iv) If the refinery being reviewed is a small refinery and the 
annual volume under paragraph (b)(2) of this section is greater than 
the baseline volume, calculate the applicable standard in accordance 
with Sec. 80.240(c).
    (3) Obtain a written representation from the company representative 
stating the sulfur value that the company used as its baseline and 
agree that number to paragraphs (a)(1) and (a)(2) of this section and 
to the reports to EPA.
    (b) * * *
    (6) Agree the information in the refinery's or importer's batch 
reports filed with EPA under Secs. 80.75 and 80.105, and any laboratory 
test results, with the information contained in the annual sulfur 
report required under Sec. 80.370.
* * * * *
    (g) * * *
    (4) Obtain the refiner's or importer's representation as to the 
portion of the deficit under paragraph (g)(3) of this section that was 
resolved with credits, or the portion that was resolved with allotments 
in 2004 or 2005 only (compliance deficits for GPA gasoline cannot be 
carried forward).
* * * * *
[FR Doc. 02-13802 Filed 6-11-02; 8:45 am]
BILLING CODE 6560-50-P