[Federal Register Volume 59, Number 84 (Tuesday, May 3, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-10434]
[[Page Unknown]]
[Federal Register: May 3, 1994]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 80
[AMS-FRL-4879-7]
RIN 2060-AF13
Regulation of Fuels and Fuel Additives: Individual Foreign
Refinery Baseline Requirements for Reformulated Gasoline
AGENCY: Environmental Protection Agency.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The EPA is proposing to amend the reformulated gasoline
regulations to define criteria and procedures by which foreign refiners
establish individual refinery baselines that reflect the properties and
volume of the gasoline that was produced at a foreign refinery in 1990
and imported for use within the United States. EPA is seeking comments
on a wide range of matters in this proposal, including the air quality
effects of the proposed approach. Where the requisite showing is made
through a petition process, importers of reformulated gasoline produced
at the foreign refinery would be allowed to use the individual foreign
refinery baseline values to demonstrate compliance with the
reformulated gasoline standards with regard to gasoline produced at
that foreign refinery and imported into the United States only during
the period 1995 through 1997 and only up to a volume of gasoline each
year that equals the foreign refinery's 1990 import volume, and subject
to certain limitations and conditions that are proposed as well. This
amendment would allow imported reformulated gasoline to be evaluated
relative to individual refinery baselines in a manner that is similar
to that applicable to reformulated gasoline produced at domestic
refineries. Individual foreign refinery baselines could be used only
with reformulated gasoline under this proposal, and such baselines
could not be used with conventional gasoline.
EPA specifically states that it seeks comments on the proposed
approach for foreign refinery baselines and on any underlying
assumptions, as well as any other options for regulating imported
reformulated gasoline that would be fair to all regulated parties and
would achieve the environmental benefits intended for reformulated
gasoline by the Clean Air Act.
DATES: The comment period will close on June 23, 1994. EPA will hold a
public hearing on this proposal on May 23, 1994, beginning at 10 a.m.
ADDRESSES: Send comments to Public Docket A-94-25 at the address below.
It is also requested that a duplicate copy of comments be sent to the
person listed in the FOR FURTHER INFORMATION CONTACT section of this
document. Materials relevant to this NPRM are contained in Public
Dockets A-91-02 and A-92-12 located at Room M-1500, Waterside Mall
(ground floor), U.S. Environmental Protection Agency, 401 M Street SW.,
Washington, DC 20460. The docket may be inspected from 8 a.m. until 12
noon and from 1:30 p.m. until 3 p.m. Monday through Friday. A
reasonable fee may be charged by EPA for copying docket materials.
The meeting will be held at the Hyatt Regency Hotel, 2799 Jefferson
Davis Highway, Arlington, Virginia 22202.
FOR FURTHER INFORMATION CONTACT: George Lawrence, Field Operations and
Support Division, U.S. EPA (6406J), 401 M Street, SW., Washington, DC
20460, Telephone: (202) 233-9307.
SUPPLEMENTARY INFORMATION: To Request Copies of This Document Contact:
Helen Sablack, Field Operations and Support Division, U.S. EPA (6406J),
401 M Street, SW., Washington, DC 20460, Telephone: (202) 233-9402.
Copies of this proposed rule are available on the OAQPS Technology
Transfer Network Bulletin Board System (TTNBBS). The TTNBBS can be
accessed with a dial-in phone line and a high-speed modem (PH# 919-541-
5742). The parity of your modem should be set to none, the data bits to
8, and the stop bits to 1. Either a 1200, 2400, 9600, or 14400 baud
modem should be used. When first signing on, the user will be required
to answer some basic informational questions for registration purposes.
After completing the registration process, proceed through the
following series of menus:
(T) GATEWAY TO TTN TECHNICAL AREAS (Bulletin Boards)
(M) OMS
(K) Rulemaking and Reporting
(3) Fuels
(9) Reformulated gasoline
A list of ZIP files will be shown, all of which are related to the
reformulated gasoline rulemaking process. The individual foreign
refinery baseline proposed rule is identified by the title:
``FORBASE.ZIP.'' To download this file, type the instructions below and
transfer according to the appropriate software on your computer:
ownload, rotocol, xamine, ew, ist, or elp
Selection or to exit: D FORBASE.ZIP
You will be given a list of transfer protocols from which you must
choose one that matches with the terminal software on your own
computer. Then go into your own software and tell it to receive the
file using the same protocol. Programs and instructions for de-
archiving compressed files can be found via ystems Utilities from
the top menu, under rchivers/de-archivers.
Background
On December 15, 1993 the EPA Administrator issued the final
regulations implementing the reformulated gasoline and anti-dumping
programs (the Final Rule), as prescribed by section 211(k) of the Clean
Air Act (the Act). See 59 FR 7716 (February 16, 1994).
Under the final rule, compliance by refiners and importers with
certain reformulated gasoline and anti-dumping standards is measured
against baselines that are intended to reflect 1990 gasoline quality.
Domestic refiners are required to establish individual refinery
baselines of the quality and quantity of the gasoline that was produced
by the refiner in 1990. Domestic refinery baselines must be calculated
using, in hierarchical order based on the availability of data, 1990
gasoline test data (Method 1), 1990 blendstock test data (Method 2), or
post-1990 blendstock and/or gasoline test data (Method 3).
Under the rule, domestic importers of foreign-refined gasoline are
treated differently. They are required to establish baselines of the
quality and quantity of 1990 gasoline that they import using 1990
gasoline test data (Method 1) if available. If Method 1 data are not
available, importers are assigned a baseline approximating average
gasoline quality in the United States in 1990--the statutory
baseline.1 EPA anticipates that most importers, like most domestic
refiners, lack the actual 1990 testing data necessary to establish a
baseline using Method 1. As a result, EPA expects most importers will
be assigned the statutory baseline, with the consequence that most
gasoline produced at foreign refineries will be evaluated using the
statutory baseline. The baseline-setting scheme is specified in 40 CFR
80.91 through 80.93 and is discussed in the Preamble to the final rule
at 59 FR 7791 (February 16, 1994).
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\1\The ``statutory'' baseline is calculated pursuant to section
211(k)(10)(B) of the Act which defines the statutory baseline for
summertime gasoline and instructs the Administrator to establish the
properties of the statutory baseline for wintertime gasoline based
on average 1990 qualities of wintertime gasoline. EPA's Final Rule
specifies the properties of the statutory baseline for wintertime
gasoline in Sec. 80.45(b)(2), and annual statutory baseline gasoline
properties in Sec. 80.91(c)(5).
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Before January 1, 1998, refiners and importers have the option of
certifying reformulated gasoline using either the ``simple'' model or
``early use of the complex model.'' Under either of these reformulated
gasoline certification approaches, compliance with certain standards is
determined in relation to the baseline established for each refinery or
importer. Under the simple model, the annual average levels for sulfur,
T-90, and olefins are limited to each refinery's or importer's baseline
levels for these parameters.2 Under early use of the complex model
(in contrast to mandatory use of the complex model beginning in 1998)
refinery- or importer-specific standards for VOC, toxics, and NOX
emissions performance are set in part using refiner or importer
baseline levels for sulfur, T-90, and olefins.3
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\2\The reformulated gasoline ``simple'' model requirements
include standards for oxygen, benzene, RVP, and toxics emissions
which are unrelated to refinery or importer baselines, in addition
to standards for sulfur, T-90, and olefins which are in relation to
refinery or importer baselines. See Secs. 80.41 (a) and (b).
\3\Under early use of the ``complex'' model, a refiner or
importer calculates refinery- or importer-specific standards for
VOC, toxics, and NOX emissions performance by using the complex
model to evaluate a gasoline with ``simple'' model values for
benzene, RVP, oxygen, and aromatics, and the refiner's or importer's
individual baseline values for sulfur, T-90, and olefins. See
Sec. 80.41(j).
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Beginning on January 1, 1998, only the complex model may be used to
certify reformulated gasoline, and the basis for all compliance with
the reformulated gasoline complex model standards is determined in
relation to 1990 statutory baseline gasoline. See Secs. 80.41(i)(2)-
(i)(3). As a result, beginning in 1998 refiner or importer baselines
are no longer relevant to determining compliance with reformulated
gasoline standards.
Compliance with the standards for conventional gasoline (the
``anti-dumping'' standards) is measured against refinery or importer
baselines beginning in January 1995 and thereafter. See Sec. 80.101. As
a result of the baseline-setting requirements of the final rule
discussed above, domestic refiners would determine compliance with the
anti-dumping standards in relation to refinery-specific baselines,
while most or all importers of gasoline produced at foreign refineries
would determine compliance in relation to the statutory baseline.
In developing the final rule, EPA evaluated comments regarding the
proposed approach for establishing baselines for imported gasoline,
including comments submitted on behalf of Petroleos de Venezuela, S.A.
(PDVSA), the Venezuelan national oil company, in response to the April
16, 1992 reformulated gasoline proposal, at 57 FR 13416. In their
comments, PDVSA said that the proposal for imported gasoline baselines
is unfair in that it treats domestic and foreign refiners differently.
PDVSA also stated in its comments that this difference in treatment of
domestic and foreign refiners conflicted with the requirements of the
General Agreement on Tariffs and Trade (GATT). EPA officials held a
series of meetings on the foreign refiner baseline issue during the
Fall of 1992 and during 1993. These included meetings with PDVSA
officials, regarding whether PDVSA has the data necessary to establish
a baseline of the quality of its gasoline that was used in the United
States in 1990, and whether EPA could formulate an adequate enforcement
scheme for a program that included individual foreign refinery
baselines. EPA also met with domestic refiners on this issue, to hear
their concerns, and with representatives of other agencies, primarily
officials from the Office of the U.S. Trade Representative and the
State Department, to better understand the GATT requirements. EPA's
February 26, 1993 reformulated gasoline proposal also invited comment
on these issues. See 58 FR 11758.
As a result of these comments and meetings, EPA considered
provisions allowing foreign refiners to establish individual refinery
baselines in a manner similar to that required for domestic refiners.
See discussion in the Preamble to the final rule at 59 FR 7785-7788
(February 16, 1994). EPA was not prepared to adopt such provisions by
the court ordered deadline for the final rule of December 15, 1993, but
it stated at that time that it would continue to consider this issue
and continue discussions with PDVSA. Since issuance of the final rule,
EPA has continued to consider this question, including the relationship
of the GATT and the reformulated gasoline rule, and is seeking comments
on its proposal in this notice to allow foreign refiners to establish
individual refinery baselines under limited circumstances. While EPA
does not necessarily agree with PDVSA position on GATT requirements,
EPA desires to remove the uncertainty in this regard and we believe the
proposal does that in a manner fully protective of human health and the
environment.
II. The Proposed Limited Use of Individual Foreign Refinery Baselines
Under today's proposal, importers would be allowed limited use of a
baseline established for an individual foreign refinery to demonstrate
compliance with the reformulated gasoline standards for gasoline
produced at that foreign refinery and imported for use in the United
States. The use of individual foreign refinery baselines would be
conditioned and limited in the following ways:
EPA would have to specifically approve the baseline for
the foreign refinery. In order to obtain a baseline, the foreign
refiner would have to submit a petition to EPA, which would include the
same types of gasoline and blendstock testing data and refinery
modelling analyses that domestic refiners must submit. In addition, a
foreign refiner would have to support its baseline petition with a
report prepared by an independent baseline auditor, and like for
domestic refiners EPA would have to approve the auditor. One key aspect
of a foreign refiner's baseline petition is that it would have to
conclusively establish the quality and volume of gasoline that was used
in the United States in 1990, and not just the refinery's overall
gasoline quality in 1990.
Individual foreign refinery baselines could be used by
importers only to demonstrate compliance with reformulated gasoline
standards and only prior to January 1, 1998. They could not be used to
demonstrate compliance with anti-dumping standards.
The total volume of imported reformulated gasoline that
could be subject to the individual baseline for any foreign refinery
would be limited each year to the volume of that refinery's gasoline
used in the United States in 1990.
The importer would be required to establish that any
imported gasoline that would be subject to an individual foreign
refinery baseline actually came from that refinery, through gasoline
inspections and attest engagements conducted by independent inspectors
and auditors at the foreign refinery.
EPA inspectors would have to receive full access to the
foreign refinery to conduct announced and unannounced inspections and
audits related to the individual foreign refinery's baseline or any
gasoline produced at the foreign refinery.
These conditions and limits are discussed more fully below.
Under the final rule, individual baselines are used to certify
reformulated gasoline and demonstrate compliance with the reformulated
gasoline standards only during 1995 through 1997. Beginning January 1,
1998 all reformulated gasoline compliance must be certified using the
statutory baseline. See Secs. 80.41(h)-(j). This constraint also would
apply to importers of reformulated gasoline who under today's proposal
had previously used individual foreign refinery baselines.
Importers would be able to use an individual foreign refinery
baseline for reformulated gasoline for 1995 through 1997 only if all of
these conditions and limits are fully met. If any condition is not met
with regard to a specific foreign refinery, then importers would not be
allowed to use the foreign refinery's individual baseline. If any such
conditions are not met subsequent to the time the importer uses the
individual foreign refinery baseline, then the importer would be
required to recalculate its compliance using the statutory baseline,
even if the failure to meet the conditions occurs during a subsequent
averaging period. This potentially could expose the importer to
substantial penalties if subsequent use of the statutory baseline
causes the importer to be in non-compliance with the reformulated
gasoline requirements.4
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\4\Under section 211(d) of the Clean Air Act, violators of the
reformulated gasoline requirements and standards are subject to a
maximum penalty of $25,000 per violation per day, plus economic
benefit. Violations of multi-day (averaging) standards constitute a
separate day of violation for each day in the averaging period.
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EPA is proposing that importers who use a foreign refinery's
individual baseline would use that baseline, and the volume of the
foreign refinery's reformulated gasoline involved, to calculate a new
importer baseline for use during that year. The total of the
reformulated gasoline imported by the importer during the relevant
averaging period would then be evaluated against this new importer
baseline to determine compliance by the importer with the reformulated
gasoline standards. This proposed method for using foreign refinery
baselines is illustrated by the following example.
A hypothetical importer has been assigned the statutory baseline.
During 1996 he imports reformulated gasoline totalling 900,000 barrels
of gasoline produced at hypothetical foreign refinery A, and 800,000
barrels of gasoline produced at hypothetical foreign refinery B.
Foreign refiner A has an individual refinery baseline, and the sulfur
baseline level is 400 ppm, and a baseline volume of 1,000,000
barrels.5 Foreign refiner B does not have an individual refinery
baseline, and the importer would use the statutory baseline, which for
sulfur is 338 ppm, for the refinery B volume. The average sulfur
content of the imported gasoline that was produced at foreign refinery
A was 375 ppm, and the average sulfur content of the imported gasoline
that was produced at foreign refinery B was 360 ppm.
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\5\Because the 1990 baseline volume assigned to Refinery A is
greater than 900,000 barrels, the importer may use Refinery A's
individual baseline for all 900,000 barrels imported from that
refinery.
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The hypothetical importer would calculate a new sulfur baseline of
370.80 ppm as follows:
TP03MY94.000
The hypothetical importer then would compute the average sulfur
content of all gasoline imported during the year, of 365.00 ppm, as
follows:
TP03MY94.001
Because the 365.00 ppm overall average sulfur content of the gasoline
imported is less than the 370.80 ppm calculated baseline for the
importer, the importer meets the sulfur standard applicable to the
importer. Note that the imported gasoline produced at foreign refinery
A would not be required to separately meet the 400 ppm sulfur baseline
applicable to refinery A, and the imported gasoline produced at foreign
refinery B would not be required to separately meet the 338 ppm sulfur
baseline applicable to refinery B.
A. Establishing Individual Foreign Refinery Baselines
In order to establish an individual baseline for a foreign refinery
under this proposal, a petition would have to be submitted to EPA in a
manner analogous to the baseline submissions required for domestic
refiners. The petition would have to contain the Method 1, Method 2,
and/or Method 3 data, collected and evaluated in the same manner as is
required of domestic refiners under Sec. 80.91. The baseline data would
have to be submitted in the same manner as is required of domestic
refiners under Sec. 80.93, except that EPA is proposing to modify the
requirements in Sec. 80.93 related to the dates by which baseline
submissions are due.
Under Sec. 80.93 domestic refiners are required to submit data
collected before December 15, 1993 by June 1, 1994, or by September 1,
1994 if data is collected subsequent to December 15, 1993. As a result
of the timing of this proposal, these dates are not reasonable for
baseline petitions for foreign refiners. EPA is therefore proposing
that any petition for an individual foreign refinery baseline would be
required to be submitted to the Administrator within six months
following the date the individual foreign refinery baseline final
regulation is signed. This approach is analogous to the lead time
afforded domestic refiners in the final rule for baseline submissions.
Another departure from the baseline submission requirements of
Sec. 80.93 is that baseline data for foreign refineries would have to
be submitted in such a manner that EPA could determine the quality and
quantity of the gasoline produced at the foreign refinery during 1990
that was used in the United States. Baseline submissions by domestic
refiners are not required to focus on the 1990 U.S. market share of
refinery production, because it is assumed that all gasoline produced
at a domestic refinery is used in the United States, unless the refiner
shows certain gasoline was exported. This proposal that foreign
refinery baseline petitions would be required to establish U.S. market
gasoline quality and quantity is critical, because the quality of a
foreign refinery's U.S. market gasoline in many cases would be
different from the quality of the refinery's overall gasoline quality.
Under the proposal, if EPA is unable to determine both the quality and
quantity of the gasoline that was produced by any foreign refinery in
1990 and used in the United States, the individual foreign refinery
baseline petition would be denied.
The accuracy and completeness of the data and conclusions contained
in the individual foreign refinery baseline petition would have to be
verified by an independent EPA-approved auditor, in the same manner as
is required of domestic refiners under Sec. 80.92. Thus, the auditor
would have to be approved by EPA according to the criteria, specified
in Sec. 80.92, which include approval of the auditor's independence and
technical ability.
EPA is proposing that a petition for an individual foreign refinery
baseline must be submitted by the foreign refiner. EPA believes the
foreign refiner is the most appropriate person to submit such a
petition, because it is the foreign refiner who will possess most or
all of the information that would support such a petition.
EPA also is proposing that the petition must contain a declaration
by the owner or president of the foreign refiner business that the
information submitted in the petition is accurate and complete. EPA is
further proposing that the foreign refiner owner or president would be
required to affirmatively declare that EPA auditors and inspectors will
be given full and immediate access to all refinery premises, for
purposes of compliance with the EPA inspection requirements EPA has
proposed in Sec. 80.84(f). The declarations by the foreign refiner
owner or president would be mandatory conditions for EPA approval of
any foreign refinery baseline petition. EPA is proposing this
declaration requirement in order to ensure that in each case of a
foreign refiner seeking an individual baseline, refiner officials at
the highest levels of the business are aware of the refiner commitments
that are necessary for use of a foreign refinery's baseline.
B. Establishing the Refinery-of-Origin
EPA is proposing regulatory requirements that would, for any batch
of imported gasoline claimed to be subject to an individual foreign
refinery baseline, establish the identity of the foreign refinery at
which the gasoline was produced. The proposed requirements would
include the testing of samples of the gasoline in question collected
subsequent to loading into the ship at the port serving the foreign
refinery, but before the ship leaves that port. These test results from
the foreign refinery loading point would then be compared with test
results of samples of the gasoline in question collected when the ship
arrives at the United States port of entry. Sampling and testing of
gasoline at the U.S. port of entry is required by the final rule, at
Secs. 80.65(e)-(f).
The proposed regulations include criteria for evaluating whether
the test results of the gasoline samples from the foreign refinery
loading port match the test results of the gasoline samples from the
U.S. port of entry. The test results would have to agree, for each
parameter included in the evaluation of reformulated gasoline, within
the limits used for comparing domestic refiner and independent
laboratory test results, which are specified in Sec. 80.65(f).
The volume of gasoline contained in each shipment of imported
gasoline claimed to be subject to an individual foreign refinery
baseline also would have to be confirmed. The inspection at the foreign
refinery loading port would have to establish the volume loaded onto
the ship, which would be compared to the volume determination at the
U.S. port of entry. EPA is proposing that these two volume
determinations, corrected for temperature and density, would have to
agree within one percent. EPA believes this level of correlation is
appropriate, because it is well within the level of correlation
normally expected in commercial transactions. EPA understands that
protests normally are initiated if ship volume determinations in
commercial dealings differ by 0.5%. Nevertheless, EPA requests comment
as to the appropriate level of correlation which should be required,
and as to any other approach to confirming volumes that would be
preferable to that proposed.
In the event any single parameter, or the volumes involved, would
not agree in the manner proposed, the individual foreign refinery
baseline could not be used by the importer for the specific batch of
imported gasoline for which there is parameter value or volume
disagreement.
EPA believes that in most cases the gasoline contained in each
compartment of a ship would constitute a separate batch, because the
gasoline would not be homogeneous across more than one compartment, and
would therefore not meet the batch definition of Sec. 80.2(gg). In
consequence, EPA believes that in most cases the sampling, testing, and
volume determinations would have to be performed separately for each of
a ship's compartments. In addition, it is EPA's understanding that the
current practice for inspecting the gasoline transported by ship is to
separately sample each compartment, even when the same grade of
gasoline is being transported in more than one compartment of a ship.
EPA also is proposing that the independent laboratory would be
required to determine the refinery of origin, and thereby establish
whether the gasoline loaded onto the ship was in fact produced at that
refinery. The laboratory also would determine whether the foreign
refinery's gasoline has been combined with gasoline produced at any
other refinery. Only gasoline that is produced at the foreign refinery
or origin would be eligible for use with the foreign refinery's
baseline, yet it is possible that gasoline loaded onto a ship at a port
serving a foreign refinery could have been produced at a different
refinery. For example, two refineries could be linked to a port by a
common pipeline, or gasoline could be produced at a foreign refinery
and then transferred by ship to storage tanks located at a second
foreign refinery.
The proposed requirements related to determining the refinery of
origin would confirm that gasoline loaded into a ship at the port
serving a foreign refinery was in fact produced at the foreign refinery
and therefore that the foreign refinery's individual baseline would be
applicable. This confirmation of the source refinery by the independent
inspector normally would require the review of documents that reflect
all transfers and storage of the gasoline in question from the point of
production at the source refinery to the point of ship loading. The
inspector thus would be required to establish the refinery of origin
and that there was no fungible mixing of the gasoline in question with
any gasoline produced at any other refinery prior to loading onto the
ship.
An additional proposed requirement that relates to establishing the
refinery-of-origin for imported gasoline is the proposal for attest
engagements at the foreign refinery. This attest requirement would
supplement the requirements regarding an independent laboratory
determination of the source refinery of gasoline. The focus of the
attest engagement, however, would be on the refinery operations while
the independent laboratory's primary focus would be on the
transportation and storage of gasoline from the refinery to the point
of ship loading.
Under the proposed procedures, the attester would be required to
confirm the overall production for the refinery in question, and to
confirm that the portion claimed to have been transferred to ships for
shipment to the United States was a part of that overall production.
The attester also would be required to confirm the transfer of gasoline
from the refinery to the ships, and to identify the ships into which
the gasoline was transferred. EPA requests comment on whether these
proposed attest procedures are appropriate and adequate.
EPA is proposing that the sampling, testing, and volume
determinations at the foreign refinery loading port would have to be
performed by an independent laboratory that is U.S.-based. The proposed
criteria for independence are the same criteria that apply for the
independent sampling and testing requirement for domestic refiners and
importers, and that are specified at Sec. 80.65(f)(2)(ii). Similarly,
EPA is proposing that the attest requirements would have to be
fulfilled by certified public accountants (CPA's) that are United
States citizens, or members of a firm that is a U.S. corporation.
The proposed requirements that the independent laboratories and
CPA's be U.S.-based is intended to result in laboratories and CPA's
over which EPA may easily exercise jurisdiction. EPA's ability to
inspect, obtain judicial enforcement, or submit information requests
under section 114 of the Clean Air Act is significantly more effective
in the case of a person that is a United States citizen or a United
States corporation. These enforcement approaches may not be easily
available against non-U.S. corporations or citizens. EPA seeks comment
on the proposed requirement that independent laboratories and CPA's be
U.S. corporations or citizens.
C. The Volume Limitation on Use of Individual Foreign Refinery
Baselines
EPA is proposing that the total volume of imported reformulated
gasoline that could be subject to the individual baseline for any
foreign refinery would be limited each year to the volume of that
refinery's gasoline that was used in the United States in 1990. It has
been argued that this proposed volume constraint would limit any
potential adverse environmental effects of gasoline imported under
individual foreign refinery baselines in comparison to the final rule,
as is discussed more fully below.
The proposed volume constraint would apply separately to each
foreign refinery having an individual baseline, and would apply across
all of the importers who import gasoline produced at each foreign
refinery. Thus, for example, if the gasoline produced at a particular
foreign refinery having an individual baseline is imported by ten
importers during a specific year, the volume constraint applicable to
that foreign refinery would apply to the ten importers collectively.
Any of the hypothetical refinery's gasoline that is imported that year
beyond the proposed volume constraint would be subject to the baseline
otherwise applicable to the importer (normally the statutory baseline),
and the individual foreign refinery's baseline would not apply to this
excess volume.
EPA is proposing that the date gasoline is imported would be the
criterion for determining which gasoline would qualify for use of an
individual foreign refinery baseline. In the event importers claim use
of an individual foreign refinery's baseline for a volume in excess of
the proposed volume constraint, the gasoline that is first imported
that equals the volume constraint would receive use of the individual
baseline. Thus, the proposed volume constraint would apply based on the
date the gasoline is imported into the United States, and not based on
the date the gasoline is produced. Beginning on January 1 of each year
the volume constraint accounting would begin anew.
EPA is not proposing any regulatory mechanisms that would provide
importers a running accounting of the volume of a particular foreign
refinery's gasoline that has been imported subject to an individual
refinery baseline. Moreover, EPA would not know the total volume of
imported gasoline claimed to be subject to any particular foreign
refinery's baseline until quarterly or annual reports are submitted to
EPA. EPA expects that importers would make private arrangements with
their foreign refiner business partners to track the volume of each
foreign refinery's gasoline that is imported under each individual
foreign refinery's baseline. In this way EPA believes that importers
would be able to know whether any particular batch of imported gasoline
would be within the volume constraint that would apply to the foreign
refinery that produced the gasoline.
The proposed consequences for the importer that would result from
claiming use of an individual foreign refinery's baseline beyond the
proposed volume constraint are discussed below.
EPA is proposing that any reformulated gasoline that is imported
during 1994 and for which an individual foreign refinery baseline is
used would be combined with such gasoline imported during 1995 for
purposes of the proposed volume constraint. This proposal for combining
compliance calculations for gasoline imported during 1994 and 1995 is
analogous to the requirement in the final rule that reformulated
gasoline produced or imported in 1994 must be combined with
reformulated gasoline produced or imported in 1995 for determining
compliance with average standards. See Sec. 80.67(i).
EPA is further proposing to expand the 1990 baseline volume to
allow for imports during 1994, but this expanded baseline volume would
apply only for gasoline imported during 1994-1995. The mechanism
proposed for this volume expansion is to multiply the foreign
refinery's 1990 baseline volume times 1.17, which would result in an
additional volume equal to two months of the 1990 baseline volume. EPA
believes this approach for expanding the 1990 baseline volume to cover
imports during 1994 is appropriate, because it would allow imports
subject to an individual baseline to begin in November 1994 and to
continue at the same rate as would be allowed for 1995.
EPA requests comment on this proposal for combining gasoline
imports in 1994 and 1995 for purposes of applying the proposed volume
constraint on use of an individual foreign refinery's baseline, and on
the proposed mechanism for calculating an expanded 1990 individual
foreign refinery baseline volume for use during 1994 and 1995.
D. The Requirement To Allow EPA Inspections and Audits
EPA is proposing that, as a condition of use by an importer of an
individual foreign refinery's baseline, EPA inspectors and auditors
would have to be given full access to conduct inspections and audits
related to the foreign refinery's baseline and to the gasoline produced
at the foreign refinery. The proposed access for inspections and audits
would be at the foreign refinery, at any place gasoline produced at the
foreign refinery for the U.S. market is located, and at any location
where documents are kept that relate to the foreign refinery's baseline
or to gasoline produced at the foreign refinery for the U.S. market.
EPA is proposing that the access would have to be granted in response
to inspections or audits that either are announced or unannounced.
EPA is proposing the inspection and audit access requirement in
order to allow EPA inspectors and auditors to confirm the baseline
submissions that would relate to any foreign refinery. In addition, EPA
inspections and audits would confirm the information related to
refinery-of-origin that is reported to EPA. The proposed access
requirements related to foreign refineries would provide EPA with
access analogous to that exercised over domestic refiners to conduct
inspections and audits. EPA historically has conducted inspections and
audits of domestic refineries in order to ensure compliance with
gasoline quality rules, including the lead phasedown requirements at
Sec. 80.20, and the gasoline volatility requirements at Secs. 80.27-28.
EPA intends to follow this enforcement approach with the reformulated
gasoline program. EPA believes it is important that it have comparable
access to foreign refinery operations under the proposed approach for
foreign refinery baseline in order to meet its enforcement
responsibilities.
The scope of the proposed access requirement is intended to allow
EPA to inspect or audit wherever documents are located that would
relate to an individual foreign refinery's baseline, or to the
production or shipping of gasoline that would be subject to such a
baseline. In addition, the access proposal would ensure EPA access to
collect samples of any gasoline that would be subject to an individual
foreign refinery baseline.
EPA is proposing that the access requirement would terminate on
January 1, 2003. This proposed termination date is five years following
January 1, 1998, the last date individual foreign refinery baselines
could be used. Five years is the statutory limitation that applies to
potential liability for violations of the reformulated gasoline
requirements. EPA also is proposing that its inspection and audit
access would be limited to gasoline produced before 1998 and to
documents that relate to such gasoline. This proposed limitation on the
access requirement also corresponds to the January 1, 1998 date
individual foreign refinery baselines would become unavailable.
EPA would conduct these inspections or audits at facilities
controlled by the foreign refiner. As a result, EPA inspectors and
auditors would have to be given access to conduct inspections or audits
by the foreign refiner and by the country in which the foreign
refiner's facilities are located. Any failure to grant access,
therefore, would be the result of an action or decision by the foreign
refiner or the foreign country. Nevertheless, the consequences of any
failure to give EPA full and immediate access would fall on the U.S.
importers of that foreign refiner's gasoline. In consequence, EPA
believes any importer who would claim use of an individual foreign
refinery's baseline would be expected to protect itself against this
possibility through whatever means it would feel prudent, such as
assurances from the foreign refiner that the access requirement would
be met, or contractual indemnification provisions that would apply in
the event the access requirement is not met.
The proposed consequences for the importer that would result from
any failure to meet the access requirements are discussed below.
E. Failure To Meet Requirements
EPA is proposing that a foreign refinery's individual baseline
could not be used by any importer if EPA were to determine that
information submitted to EPA to establish the foreign refinery's
individual baseline is inaccurate, or if EPA were denied access to the
foreign refinery to conduct an inspection or audit. EPA also is
proposing that a foreign refinery's individual baseline could not be
used by the importer of a specific batch of gasoline in the event any
of the foreign refinery baseline requirements would not be met with
respect to that batch of gasoline.
Thus, for example, if EPA would determine that a foreign refinery's
individual baseline submittal is in error, an individual baseline for
that refinery could not be used by any importer during any year, unless
the Administrator determines a shorter period is appropriate.
Similarly, if EPA were to attempt to conduct an inspection or audit of
a foreign refinery and were to be denied full and immediate access, the
individual baseline for that refinery could not be used by any importer
during any year, unless the Administrator determines a shorter period
is appropriate. In this situation, any importer who had previously
submitted reports to EPA for any averaging period that included use of
the foreign refinery's individual baseline would be required to
recompute its compliance calculations, ab initio, using the baseline
that would apply to the importer in the absence of the foreign
refinery's individual baseline--normally the statutory baseline. This
recalculation by the importer would be required even if the
recalculation would result in violations by the importer of the
reformulated gasoline standards. It would be no defense for the
importer to argue it used the foreign refinery's individual baseline in
a good faith belief the baseline information was accurate, or that the
foreign refiner would allow EPA to conduct inspections and audits.
A similar result would occur if EPA were to discover that a
particular batch of imported gasoline, claimed by the importer to be
subject to a foreign refinery's individual baseline, in fact is not
entitled to use of that baseline. This could occur, for example, if
through the CPA attest engagement or through an EPA audit it were
discovered that the gasoline comprising the batch was not produced at
the foreign refinery claimed by the importer. Another example of
gasoline that would not be entitled to use of a foreign refinery's
baseline would be a batch of gasoline that is imported subsequent to
the date when the total volume of imported gasoline for which use of
the foreign refinery's baseline is claimed equals the baseline volume
for that foreign refinery. In these cases the importer who improperly
claimed use of the foreign refinery's individual baseline, but not
other importers of gasoline produced by that foreign refinery, would be
required to recompute its compliance calculations, ab initio, as
described above.
EPA is proposing that these consequences would be imposed on the
importers, because there are clear barriers to effective enforcement
directly against foreign refiners. This would occur even in a case
where EPA could prove that gasoline was improperly imported using a
foreign refinery's individual baseline, and where the improper use was
the fault of the foreign refiner, for example by submitting false
baseline information or by refusing to allow EPA inspections or audits.
In such a case EPA could not bring effective enforcement against the
foreign refiner. As a result, in order to preserve the integrity of the
reformulated gasoline program, EPA proposes that importers would be
ultimately responsible for the proper establishment and use of
individual foreign refinery baselines.
EPA believes that importers would be able to decide whether and
when to claim use of a foreign refinery's individual baseline. This
approach is predicated on the assumption that importers would be
expected to use great care in making this decision, and would do so
only if the importer has complete confidence the foreign refinery
baseline information was properly submitted to EPA and the foreign
refiner intends to fully and properly comply with all requirements
related to use of individual foreign refinery baselines, including
requirements that apply years into the future. EPA also would expect
importers to require the foreign refiner to carry out a gasoline volume
tracking scheme that would enable importers to know with certainty that
any batch of imported gasoline for which use of the foreign refinery's
individual baseline would be claimed is within the foreign refinery's
baseline volume.
III. Justification for Proposed Amendment to Final Rule
When EPA issued the final rule on December 15, 1993 the Agency was
not fully satisfied that the baseline-setting scheme applicable to
importers, and thereby applicable to foreign refiners, was the optimum
solution. In preparing the final rule, EPA focused on three major
issues regarding the use of individual baselines for foreign refiners
in the reformulated and conventional gasoline programs. EPA's
overriding consideration, and the basis for EPA's focus on these
issues, was the ultimate environmental consequences of the baseline-
setting scheme. The three issues are: (1) The technical problems with
using baseline-setting Methods 2 and 3 to accurately predict the
qualities of gasoline imported in 1990 from a foreign refiner; (2) the
ability of the agency to adequately verify and enforce the use of
foreign refiner individual baselines, including problems identifying
the refinery of origin of imported gasoline and enforcing performance
standards against a foreign refiner; and (3) any risk that would result
from providing refiners or importers with options in establishing
baselines.
The final regulations for reformulated and conventional gasoline,
promulgated on December 15, 1993 pursuant to a court ordered deadline,
attempt to resolve these issues. These issues, however, are complex and
have potentially broad consequences. EPA therefore announced that it
would continue to consider individual baselines for foreign refiners
after promulgation of the Final Rules in mid-December 1993. This
consideration has resulted in today's proposal, with EPA inviting
comments on the proposed resolution described above.
The first issue involved whether and when it would be appropriate
to allow refiners or importers an option in establishing individual
baselines. In general, EPA's Final Rule takes the approach that options
should not be allowed. Given a choice, a refiner or importer would tend
to choose the option requiring the least expense overall, which would
also presumably be the least protective of the environment. Avoiding
options should therefore tend to avoid skewing the program in a way
that would reduce air quality benefits. EPA described this gaming
concern in the preamble to the Final Rule, at 59 FR 7785 (February 16,
1994).
Under EPA's Final Rule, domestic refiners are basically provided no
choice regarding individual baselines--they must develop an individual
baseline, using one or more of three different methods or modelling
approaches. Since gasoline produced by domestic refiners made up an
overwhelming majority of the gasoline sold in the U.S. in 1990, the
average of all domestic refiner baselines should closely approximate
the average 1990 quality of gasoline sold in 1990. Importers are
treated like domestic refiners in that they are not provided an option
on how to develop an individual baseline. A major difference, however,
is that importers may use only the first of the three modeling methods.
If the data are not available for this method, the importer defaults to
the statutory baseline. In general, EPA expects all or almost all
importers to default to the statutory baseline.
For foreign refiners, EPA considered whether it should also require
that all foreign refiners establish individual baselines before they
could import either conventional or simple model reformulated gasoline
into the U.S. However, as discussed later, EPA had considerable doubt
about the ability of baseline-setting Methods 2 and 3 to accurately
predict the quality of that portion of a foreign refiner's production
sent to the U.S. in 1990. EPA believed many foreign refiners would
therefore not be able to use these models, and mandating use of an
individual baseline might therefore lead to a ban on importation of
gasoline from those foreign refiners not able to develop such
baselines.6 In addition, EPA had serious questions whether it
could adequately verify the accuracy of individual baselines for
foreign refiners under such a scenario. The current Final Rule resolves
these concerns by not allowing foreign refiners to establish individual
baselines, and regulating the introduction of gasoline into the U.S.
through the importer. Importers must establish an individual baseline
in the manner described above.
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\6\EPA considered the option of banning foreign supplies of
gasoline that were not produced under a verifiably accurate
individual baseline. This option appeared to redress the issue of
the loss of a ``netting out'' effect due to the presumed loss of
``cleaner'' than statutory baseline foreign gasoline. However, EPA
believes that many foreign refiners do not possess adequate data to
establish an individual baseline. It has been agreed that the
consequence of banning foreign supplies of gasoline, both to the
nation's energy security and to competitive pricing, would be
unfair.
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The air quality impact of allowing foreign refiners a choice in
what baseline to use, such as would result from the petition process
proposed today, depends in large part on which foreign refiners
ultimately would have the ability, and would choose, to produce
reformulated gasoline for importation into the U.S., and on the
individual baselines of those foreign refiners who would make this
choice. If a significant number of foreign refiners sent gasoline to
the U.S. in 1990 that was cleaner than the statutory baseline, those
refiners would not be expected to choose to establish an individual
baseline but would instead default to the statutory baseline. Refiners
who sent gasoline to the U.S. in 1990 that was dirtier than the
statutory baseline might well decide to petition for an individual
baseline, assuming they could satisfy all of the conditions for
establishing an individual baseline. In such a case, this might result
in certain foreign refiners being allowed to degrade the emissions
performance of their gasoline down from its actual 1990 quality to the
statutory baseline. Under this approach other foreign refiners might be
allowed to establish accurate and verifiable individual baselines that
are dirtier than the statutory baseline, and thereby continue to
produce at this quality.
In comparison, the current regulatory provisions provide foreign
refiners with no choice. As described above, foreign refiners whose
1990 gasoline was cleaner than the statutory baseline may degrade the
quality of their gasoline down to the statutory baseline, while foreign
refiners whose 1990 gasoline was dirtier than the statutory baseline
are required to reformulate to meet the stricter statutory baseline.
It is important to note that EPA does not have any clear evidence
as to the actual average quality of gasoline imported into the U.S. in
1990. EPA does not know, for example, whether a significant amount of
such gasoline was cleaner than the statutory baseline. While it would
be reasonable to assume that at least some imported gasoline was
cleaner and some was dirtier than the statutory baseline, EPA is not in
a position to quantify this in any reliable manner. As such, it is not
clear whether or how much providing foreign refiners with an option in
establishing an individual baseline would actually skew the air quality
impacts of these programs in a negative direction. As mentioned above,
a second major issue EPA has considered involves the technical limits
of Methods 1, 2 or 3 in predicting the qualities of that portion of a
foreign refiner's 1990 gasoline production that was sent to the
U.S.7 Foreign refiners likely did not send the majority of their
gasoline to the United States in 1990. Foreign refiners may not have
exported the majority of their gasoline to the United States in 1990.
Domestic refiners, on the other hand, are assumed to have distributed
(and to continue to distribute) the majority of their gasoline within
the U.S. In the absence of actual 1990 data, domestic refiners may
calculate individual baselines using models developed by EPA that
depend, in part, on the fact that the majority of the modelled gasoline
is distributed in the U.S. However, foreign refiners typically did not
distribute the majority of their 1990 gasoline within the U.S.,
rendering the models inappropriate for those refiners.8
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\7\These technical limits have important implications for the
first issue discussed above. For example, if EPA required that
foreign refiners establish individual baselines, without providing
any choice on defaulting to the statutory baseline, then many
foreign refiners might not be able to develop such baselines and EPA
would confront a situation involving whether or not it should ban
the importation of gasoline from such foreign refiners.
\8\EPA believes it is possible that in certain limited
situations a foreign refiner may be able to establish a baseline of
U.S.-market gasoline quality and quantity. For example, a foreign
refiner potentially could establish that in 1990 its refinery
produced only a limited number of gasoline blending components, and
therefore could be capable of producing only a predictable and
limited number of gasoline types from these blending components. In
such a case, it is possible that a baseline could be established
based on the ``cleanest'' of the gasoline types, without actually
showing that this was the gasoline supplied to the U.S. market.
Under this approach, the foreign refiner's baseline would be the
most rigorous baseline possible given the refinery configuration.
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The third major issue of concern involves whether EPA can
accurately verify individual baselines of foreign refiners and
effectively enforce standards for foreign produced gasoline based on
such individual baselines. EPA was concerned that it would not be able
to effectively exercise authority to inspect foreign facilities and
require the production of records or samples, or to require accurate
auditing of the compliance of foreign operations. This includes, for
example, EPA's ability to ensure the accuracy of an individual foreign
refiner baseline, EPA's ability to clearly identify the refinery of
origin for gasoline imported into the U.S. (the ``tracking'' issue),
and EPA's ability to easily access foreign records, samples, and
facilities for inspections and other compliance measures.
With respect to tracking refinery of origin, EPA believes it must
be able to establish with certainty which baseline attaches to each
specific batch of gasoline imported into the U.S. The distribution of
foreign produced gasoline is significantly distinct from domestic
distribution patterns. As described in the preamble to the final rule,
see 59 FR 7785 (February 16, 1994), the association of a refinery-
specific baseline with the gasoline produced at a domestic refinery is
relatively uncomplicated, because compliance is determined at the
refinery level before fungible mixing in the gasoline distribution
system. The source refinery for gasoline is clear before the gasoline
leaves the refinery. In the case of all imported gasoline, on the other
hand, the gasoline will be transported from the refinery to the U.S.
port of entry prior to the point at which the imported gasoline would
have to be associated with a foreign refinery-specific baseline. This
stage of transportation from the foreign refinery to the U.S. port of
entry could be by fungible means for any imported gasoline, with the
consequence that fungible mixing could obscure the identity of the
source refinery for any batch of imported gasoline. For a discussion of
these and other enforcement and compliance related issues, see the
preamble to the final rule at 59 FR 7787 (February 16, 1994).
Finally, it is important to place the role of individual baselines
in their proper context for the reformulated and conventional gasoline
programs. For conventional gasoline, the individual baseline of a
refiner or importer establishes the applicable emissions standard for
the conventional gasoline they produce or import. On average, a
refiner's or importer's conventional gasoline has to meet an emissions
performance standard measured by the performance of their individual
baseline. If the refiner or importer is assigned the statutory baseline
instead of an individual baseline, then performance is measured against
the statutory baseline. This performance standard applies on an annual
basis starting with 1995. The statutory basis for these requirements
are found in section 211(k)(8) of the Act.
The individual baseline plays a much more limited rule in the
reformulated gasoline program. For the first three years of that
program, three specific fuel qualities are capped at the level of a
refiner's or importer's individual baseline.\9\ Starting January 1,
1998, a refiner or importer's individual baseline has no relevance in
the reformulated gasoline program. This short term requirement is part
of the standards adopted by EPA and commonly called the simple model.
The refiner and importer specific caps on the three parameters were
based on EPA's understanding of the directional impacts of these
parameters on emissions, the lack of adequate data to fully model the
emissions impacts of these three gasoline parameters when EPA proposed
the simple model, and the lead time needed before requiring use of a
subsequent, more complex emissions performance model adopted by EPA in
the final rule. Further discussion of this may be found in the preamble
to the final rule at 59 FR 7720 (February 16, 1994).
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\9\The three parameters are sulfur, olefins, and T-90 or E300.
See Sec. 80.41(h)(2).
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The final rule's requirements for individual baselines resolves
these various concerns in a straightforward manner. EPA is seeking
comment on whether this proposal addresses all of the above concern, in
a manner that achieves the environmental goals intended for
reformulated gasoline while at the same time addressing the equity
concerns that previously have been raised, by placing clear limits and
conditions on the use of individual baselines for foreign refiners.
These limits and conditions would be designed to address the issues
described above--concerns about skewing of air quality benefits in a
negative direction by providing options in establishing individual
baselines, concerns about the technical limits of the refinery modeling
used to establish baselines, and finally concerns over the Agency's
ability to adequately verify individual baselines for foreign refiners
and adequately ensure compliance by imported gasoline with standards
based on individual baselines.
A. Accuracy of Individual Foreign Refiner Baselines
As described in detail above, this proposed amendment provides that
parties that desire to establish an individual baseline for a foreign
refinery would submit a petition to EPA's Assistant Administrator for
Air and Radiation to establish a reliable and verifiable individual
baseline. The petitioner would also submit data adequate to establish
the volume of gasoline exported to the United States during 1990.
The Assistant Administrator would only approve petitions when the
individual baseline had been established with sufficient certainty, to
the satisfaction of the Assistant Administrator. The Assistant
Administrator's decision whether to approve a petition would depend, in
part, on the certainty with which the foreign refiner's 1990 fuel
properties and volume data could be verified by a U.S.-based
independent baseline auditor and by EPA, as discussed above. In
requiring that a petitioner bear the burden of demonstrating to the
Assistant Administrator that the individual baseline and the data
submitted in support of an individual baseline is accurate and
verifiable, and in requiring that a U.S.-based attestor corroborate
that demonstration, the amendment provides for appropriate certainty in
establishing accurate individual baselines.
EPA requests comment as to whether the proposal would result in
appropriate certainty as to any foreign refinery baseline that would be
established.
B. Certainty as to Refinery-of-Origin
In the preamble to the final rule, EPA expressed concern about
effectively determining the refinery-of-origin for specific batches of
imported gasoline so as to determine the appropriate baseline to be
applied to the product. However, EPA is proposing and seeking comment
on procedures that are designed to ensure that importers effectively
track gasoline from the point of gasoline production to the port-of-
entry into the U.S.
Strict tracking and segregation of reformulated gasoline that is
produced by foreign refiners and that would be subject to an individual
baseline is necessary to assure compliance with this program. Only by
matching a discrete volume of gasoline with an individual baseline
would an importer be able to accurately calculate its compliance with
this proposed amendment to the reformulated gasoline program. Further,
such tracking and segregation is necessary for EPA to ensure that use
of an individual baseline remains within the foreign refiner's volume
cap.
Today's proposed amendment of the final rule seeks to provide for
certainty with respect to establishing the refinery-of-origin of
imported gasoline through the use of independent sampling and testing
that would be required upon loading on-board ship at the refinery-of-
origin and upon receipt by an importer at a U.S. port-of-entry. The
sampling and testing at both ends of the shipment would help to assure
that the volume and parameters of the product subject to the individual
baseline are identical. Additionally, the independent laboratory would
verify the foreign refinery-of-origin before the shipment leaves the
foreign port.
The amendment proposes that batch specific information pertaining
to the parameters and volume of the batch would be collected by an
independent laboratory upon loading of the product and a report filed
with EPA. This information would be available for comparison with batch
specific information required to be collected by importers upon receipt
of product.
Further, the tracking system would help to ensure that EPA could
determine that the imported reformulated gasoline produced subject to
an individual baseline was not commingled with gasoline produced under
another baseline en route from its source to the U.S. port-of-entry.
Today's proposal also would require that an importer exercising the
option to use a foreign refinery's individual baseline must demonstrate
that an annual attestation engagement is conducted of the foreign
refinery for each year of individual baseline use. The engagement would
be undertaken by a U.S.-based CPA or firm. This requirement would be
equivalent with attest engagement requirements applicable to domestic
refiners and importers under the Final Rule. The engagement would
verify that the gasoline loaded on-board ship was produced by the
refinery for which individual baseline use is claimed.
The practical effect of today's proposal would be to condition the
use of individual foreign refinery baselines upon strict tracking of
reformulated gasoline. An importer's use of a foreign refinery's
individual baseline would depend upon the importer's ability to
establish with certainty that the reformulated gasoline for which the
individual baseline is claimed was, in fact, produced at the foreign
refinery for which the individual baseline is applicable.
EPA requests comment regarding whether there would be appropriate
certainty as to the refinery of origin of any imported gasoline that
would use an individual foreign refinery's baseline under this
proposal.
C. The Limited Potential for Adverse Air Quality Effects From Gaming
It has been argued that the proposed constraints on the use of
individual baselines by importers would limit the potential for gaming
associated with establishing baselines for imported gasoline, and in
consequence the potential for adverse air quality effects from such
gaming.
If all foreign refiners sending gasoline to the U.S. established
accurate and verifiable baselines, and concerns about tracking refinery
of origin and other compliance concerns were resolved, then it has been
agreed, those baselines and the gasoline produced under them clearly
and easily would lead to the air quality benefits expected from
conventional and reformulated gasoline. This might be considered the
``ideal'', or best possible result. As described earlier, however,
there is considerable doubt about whether accurate, verifiable, and
enforceable baselines can be expected for all foreign refiners.
The Final Rule addresses these problems in effect by requiring all
foreign refiners to produce gasoline using the statutory baseline--
those cleaner than the statutory baseline are allowed to degrade down
to that baseline, while those dirtier than the statutory baselines are
required to clean up to that baseline. While the Final Rule would not
allow the average quality of foreign produced gasoline to degrade below
the statutory baseline, it might in fact require that foreign gasoline
be cleaner on average than would be required if all refiners did
establish individual baselines.10
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\1\0This would occur if the average quality of all gasoline
imports in 1990 was dirtier than the statutory baseline.
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One concern regarding the approach used in the Final Rule is that
it treats all foreign refiners as a class (by assigning the statutory
baseline to all imported gasoline), yet the factors that led to
grouping foreign refiners as a class may not apply equally to all
foreign refiners. The result of the class approach to resolving the
foreign refiner baseline issue could be considered unfair to any
particular foreign refiner who would be able to accurately establish
refinery baselines, and who would be able to establish with certainty
the refinery of origin for gasoline imported into the United States. On
the other hand, and as has been discussed above, allowing each foreign
refiner to choose whether to establish individual refinery baselines
creates the potential for gaming with consequent adverse environmental
effects. The challenge for EPA, then, is to create a regulatory
mechanism for imported gasoline baselines that is as fair as possible
to each foreign refiner, but that also achieves the environmental goals
intended for reformulated gasoline.
The proposed revisions would allow certain foreign refiners the
option to petition for the right to establish individual baselines
under carefully controlled circumstances. As discussed above, this
proposed scheme has a potential for adverse air quality effects, in
comparison to the current Final Rule, because some importers would have
an option as to which baseline would apply to imported reformulated
gasoline. Presumably, foreign refiners and their U.S. importer business
partners would elect to seek to establish individual foreign refinery
baselines only if the foreign refinery produced gasoline in 1990 that
was ``dirtier'' than the statutory baseline alternative to an
individual foreign refinery baseline. In the case of foreign refineries
that produced gasoline in 1990 that was ``cleaner'' than the statutory
baseline, on the other hand, the foreign refiners and their U.S.
importer business partners presumably would use the less stringent and
less costly statutory baseline option. EPA's ``gaming'' concern would
result from these likely decisions by ``dirtier'' and ``cleaner''
foreign refiners. The potential adverse air quality consequence would
result from the volume of imported gasoline during 1995 through 1997
that would use a ``dirtier''-than-statutory baseline, and the loss to
the U.S. gasoline pool during 1995 through 1997 of gasoline produced to
meet a ``cleaner''-than-statutory baselines. There may or may not be an
adverse air quality impact in relation to the ``ideal'' scenario
described above, depending on whether the average quality of gasoline
imported from foreign refiners in 1990 was different from the statutory
baseline and how much reformulated gasoline is imported in 1995 through
1997.
EPA has been unable to identify any foreign refiners other than
PDVSA who intend to produce any reformulated gasoline,11 though
there nevertheless could be some because there is no requirement that
refiners must announce their intentions at this time. The absence of
identified foreign reformulated gasoline refiners (other than PDVSA)
does present the possibility that there will be few, if any, foreign
reformulated gasoline refiners who would have a ``cleaner''-than
statutory baseline (but who would opt for the statutory baseline). If
true, this would resolve EPA's gaming concern.
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\1\1EPA does expect some imports of reformulated gasoline under
the Final Rule's provision that applies to a foreign refinery that
is owned by the U.S. importer and where at least 75% of the
refinery's 1990 production was imported into the U.S. These
refineries are relevant to this discussion.
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Moreover, even to the extent there are foreign refiners who would
qualify for ``cleaner''-than-statutory baselines EPA believes there is
a possibility that their gasoline would nevertheless be cleaner than
the statutory baseline, which would limit the likelihood for adverse
air quality effects. This possibility was presented to EPA by a foreign
refiner who argued that such ``clean'' refiners may in fact be
technologically incapable of relaxing production parameters so as to
realize a benefit from the statutory baseline. To the extent this may
be true, such ``clean'' refiners might reduce any adverse air quality
impact associated with providing an option to establish individual
baselines.
The principal reason limiting the potential for adverse air quality
effects from gaming under today's proposal is, however, that use of
``dirtier''-than-statutory individual baselines would be restricted. It
has been argued that this would in turn limit any adverse air quality
effects, in relation to the current final rule.12 At the same
time, any reformulated gasoline imported under an individual baseline
would be required to meet the same standards that apply to any other
refiner, foreign or domestic, with the same baseline. For the three
parameters of interest under the simple model for reformulated
gasoline, sulfur, olefins, and T-90, reformulated gasoline produced by
a foreign or domestic refiner with an individual baseline would have to
meet an annual average limit set at 100% of the individual baseline
level for those parameters. This effectively requires that the gasoline
stay as clean as it was in 1990, for those three specific parameters.
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\1\2It is important to note that the potential for adverse air
quality effects discussed in this preamble is in relation to
gasoline that would be imported under the approach contained in the
Final Rule, i.e., to imported gasoline that meets the statutory
baseline. That comparison may not be fair. Another comparison that
may be more appropriate would be with imported gasoline that is
produced to each foreign refinery's individual baseline, like is
done for domestic refiners. When imported gasoline is compared based
on individual foreign refinery baselines, there may be no potential
for adverse air quality effects from today's proposal.
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EPA has considered the level of emissions that would result from
gasoline imported under the approach contained in the final rule,
versus gasoline imported under the approach described in today's
proposal. While no baselines have been established yet for any refiner
or importer, PDVSA has submitted to the reformulated gasoline docket a
record that describes the baseline it would be able to establish if
given the opportunity. The baseline it describes is dirtier than the
statutory baseline for some parameters, and cleaner for other
parameters. In the case of sulfur and olefins, PDVSA's stated baseline
levels would be significantly higher than the statutory baseline:
PDVSA's claimed sulfur level is 644 parts per million (ppm), and the
statutory baseline level is 339 ppm; PDVSA's claimed olefin level is 22
vol% and the statutory baseline level is 9.2 vol%. The environmental
implication is that NOX emissions are higher with larger sulfur
and olefin levels.
Taking into account the volume of PDVSA's gasoline that is used in
the Northeast U.S.--its primary market, EPA's preliminary analysis
shows that PDVSA's 1995 gasoline would increase overall NOX
emissions there by only 0.08% during the high ozone season,13 in
comparison to the case where PDVSA would produce gasoline to meet the
statutory baseline for sulfur and olefins.
---------------------------------------------------------------------------
\1\3The high ozone season is the appropriate period for
evaluating NOX emissions, because NOX is of primary
concern as an ozone precursor.
---------------------------------------------------------------------------
Also, PDVSA's 1995 gasoline quality will be approximately equal to
the quality of statutory gasoline in terms of VOC emissions, and will
be much cleaner in terms of toxics emissions.14
---------------------------------------------------------------------------
\1\4EPA has placed in the docket an analysis of the
environmental impacts of the use of gasoline having properties equal
to those described by PDVSA.
---------------------------------------------------------------------------
The proposed program elements that would help to limit the impact
of ``dirtier''-than-statutory baselines are the limited volume of a
foreign refinery's reformulated gasoline that could use the individual
baseline, the limited time period during which the individual baseline
could be used, the fact that the individual baseline could be used only
for reformulated gasoline, and EPA's belief that the individual
baseline option would not be attractive to most foreign refiners.
1. The Volume Limitation on Use of Individual Refinery Baselines
An importer's use of a foreign refinery's individual baseline is
proposed to be limited to volumes of reformulated gasoline equivalent
to the foreign refinery's 1990 volume of gasoline imports to the U.S.
This volume constraint is described above.
The volume cap limiting use of an individual baseline for
reformulated gasoline production (until January 1, 1998) to a foreign
refiner's 1990 import volumes ensures that the use of an individual
baseline is constrained by historical import volumes. Volumes imported
above the 1990 constraint would be subject to the importer's statutory
baseline. Foreign-produced reformulated gasoline subject to an
individual baseline, within the 1990 volume cap limitation, would be
measured for compliance against gasoline produced in 1990, and
therefore would be at least as clean as the foreign refiner's 1990
gasoline. However, any reformulated gasoline produced by a foreign
refiner above the 1990 volume would be evaluated relative to the
statutory baseline and therefore would be at least as clean as
reformulated gasoline produced using the statutory baseline.
2. The Time Limitation on the Use of Individual Foreign Refinery
Baselines
A further constraint on potential adverse air quality effects is
the time limit on an importer's use of a foreign refiner's individual
baseline. It would be limited to the period commencing when
reformulated gasoline is first imported into the U.S. and continues
through December 31, 1997. After 1997, individual baselines have no
further relevance to the requirements for reformulated gasoline, and
all importers and domestic refiners are required by the Final Rule to
measure compliance with the reformulated gasoline standards against the
statutory baseline. Therefore, the effect of this regulation would be
limited to this three year period only.
3. The Number of Foreign Refiners Who Would Seek to Use Individual
Foreign Refinery Baselines Would be Limited
This proposal is predicated on the assumption that the costs
inherent in producing reformulated gasoline and meeting the
requirements of the reformulated gasoline program, including those
costs necessary to establish an individual baseline, will deter most
foreign refiners from selecting the individual baseline option, thereby
further limiting any potential adverse air quality impact. These costs
include extensive refinery modifications; costs associated with
petitioning EPA for an individual baseline and providing adequate
information to establish with certainty that the baseline determination
is accurate; a baseline audit; and the record keeping and product
tracking associated with complying with the proposed annual compliance
audits.
EPA believes that few refiners have made the requisite capital
investments necessary to produce reformulated gasoline. Therefore, it
currently appears that the number of foreign refiners who would take
advantage of this proposed amendment would be limited.
In addition, the limited time period during which individual
foreign refinery baselines could be used may limit the number of
foreign refiners that would take advantage of this option, because the
costs associated with exercising this option described above, could
only be recouped within the 1995 through 1997 time frame.
4. Conventional Gasoline Not Affected by This Proposed Amendment
EPA's concern for gaming in the case of conventional gasoline is
substantially greater than its concern with respect to reformulated
gasoline. First, there is likely to be significantly more conventional
gasoline imported into the U.S. than reformulated gasoline. Second, the
Final Rule provides that individual baseline will be the basis for
conventional gasoline compliance into the foreseeable future while an
individual baseline for reformulated gasoline is applicable only until
December 31, 1997. Accordingly, due to these volumetric and long term
distinctions between reformulated gasolines and conventional gasolines,
the potential for adverse air quality impact is significantly larger if
individual foreign refinery baselines could be used with conventional
gasoline, as compared with the potential if individual foreign refinery
baselines could be used with reformulated gasoline.
The Final Rule requires that domestic refiners apply their
individual baselines to conventional gasoline production. EPA
anticipates that nationwide use of individual baselines will result in
gasoline quality that approximately equals the statutory baseline.
However, EPA believes that an option to use individual baselines by
foreign refiners in the production of conventional gasoline would
result in significant skewing, in a negative direction, of the average
quality of imported gasoline based on the gaming scenario described
above.
A skewing in a negative direction of the average of baselines with
respect to foreign conventional gasoline, is of significant concern
because EPA anticipates that most foreign sources of gasoline will
provide conventional gasoline to the U.S. This assumption is based on
EPA's belief that few foreign producers of gasoline have invested in
the capital equipment necessary for complying with the reformulated
gasoline program. Further, the increased costs of capitalization
realized by a refiner entering the reformulated gasoline market would
be exacerbated by the continuing costs of overseas shipping under the
segregated fuels requirement proposed in this amendment. Accordingly,
there appears to be few economic incentives for foreign refiners to
reallocate production from conventional to reformulated gasolines.
Thus, EPA is not proposing to change the approach contained in the
Final Rule pertaining to baselines for imported conventional gasoline,
and EPA expects all or almost all importers to default to the statutory
baseline.
EPA requests comment as to the magnitude of any potential adverse
air quality consequences that would result from gaming under today's
proposal.
D. EPA's Compliance Oversight Authority
The preamble to the Final Rule expresses EPA's concern that it
would lack adequate compliance monitoring and enforcement techniques to
ensure that foreign refineries comply fully with the reformulated
gasoline program. This concern arose out of the perceived need to bring
any enforcement actions against importers that would rely on baseline
audits and inspections of foreign refiners, and that these foreign
refiners may not be subject to the full panoply of enforcement
mechanisms available with domestic corporations.
Today's proposed amendment, however, provides for compliance
monitoring and enforcement pertaining to foreign-produced reformulated
gasoline to focus on domestic importers. Such foreign-produced
reformulated gasoline would be subject to the full array of monitoring
and enforcement devices available to EPA. It has been argued that
importers' potential liability, including but not limited to exposure
to potential relegation to compliance with the statutory baseline, will
be adequate to ensure that importers would import gasoline using an
individual foreign refinery's baseline only where the importer has
sufficient confidence the requirements of this program would be met,
including the compliance monitoring provisions that require the
cooperation of the foreign refiner and the government of the country in
which the foreign refiner is located. These compliance monitoring and
enforcement provisions appears to be equivalent to EPA's compliance
monitoring and enforcement authority over domestic refiners.
The proposal provides that, as a condition for the use of a foreign
refinery's individual baseline, EPA would be guaranteed full and
immediate access to conduct compliance oversight inspections, collect
gasoline samples and perform compliance audits at the foreign refinery.
EPA's compliance audits supplement the baseline certification and
annual audits specified elsewhere in this proposal. EPA's compliance
oversight authority is proposed to last until January 1, 2003,
consistent with the statute of limitations governing violations of the
reformulated gasoline program and associated statutes governing the
submission of information to the U.S. government.
In addition, foreign refiners electing to petition to use an
individual baseline would be required to engage a domestic CPA to
conduct a baseline certification audit and annual attest engagements.
EPA anticipates that and is seeking comment on whether the professional
standards governing the conduct of such audits, as well as the
amenability of a U.S. CPA to EPA compliance monitoring and enforcement,
is adequate assurance that EPA can effectively monitor foreign refiners
for program compliance.
E. EPA Seeks Comment on Today's Proposal, or Any Alternative Approaches
Today's proposal is an attempt to resolve the issue of baselines
for foreign refiners in a more appropriate manner, with the intent of
achieving several important, but different, goals. One goal is that the
environmental benefits intended for reformulated gasoline by the Clean
Air Act be realized. The other goal is that all regulated parties who
are similarly situated be treated alike, with the differences in
treatment between domestic and foreign refiners limited to those
measures necessary to appropriately accommodate differences in their
situations and protect human health and environmental values. EPA
recognizes that there may be other methods for regulating imported
reformulated gasoline that resolve these two goals in ways that are
preferable to the approaches contained both in the Final Rule and in
today's proposal. EPA requests comment as to any alternative approaches
to regulating imported reformulated gasoline that achieves the
environmental benefits required by the Clean Air Act for reformulated
gasoline, and that treats domestic and foreign refiners in a manner
consistent with the provisions of the GATT.
IV. Public Participation
EPA invites comment on all aspects of today's notice. EPA has
specifically requested comments on a number of areas throughout the
previous discussion. A list of these and other areas for comment are
the following:
Any alternative approaches to regulating imported
reformulated gasoline that achieve the environmental benefits required
by the Clean Air Act for reformulated gasoline, and that treat domestic
and foreign refiners in a manner consistent with the provisions of the
GATT.
The accuracy of any foreign refinery baseline that would
be established under the proposal.
The identification of the refinery of origin of any
imported gasoline that would use an individual foreign refinery's
baseline under today's proposal.
Whether today's proposal would result in the environmental
benefits that are intended by the reformulated gasoline provisions of
the Clean Air Act.
The issue of when foreign refinery baseline petitions
would be due.
The appropriate approach for correlating the volume
determination at the foreign refinery and at the U.S. port of entry.
The adequacy of the proposed attest procedures.
The proposed requirement that independent laboratories and
CPA's be U.S. corporations or citizens.
The proposal for combining gasoline imports in 1994 and
1995 for purposes of applying the proposed volume constraint on use of
an individual foreign refinery's baseline.
The proposed mechanism for calculating an expanded 1990
individual foreign refinery baseline volume for use during 1994 and
1995.
V. Administrative Designation and Regulatory Analysis
A. Executive Order 12866
Under Executive Order 12866, (58 FR 51735 (October 4, 1993)) the
Agency must determine whether the regulatory action is ``significant''
and therefore subject to OMB review and the requirements of the
Executive Order. The Order defines ``significant regulatory action'' as
one that is likely to result in a rule that may:
(1) Have an annual effect on the economy of $100 million or more or
adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, or tribal governments or
communities;
(2) Create a serious inconsistency or otherwise interfere with an
action taken or planned by another agency;
(3) Materially alter the budgetary impact of entitlement, grants,
user fees, or loan programs or the rights and obligations of recipients
thereof; or
(4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
the Executive Order.
Pursuant to the terms of Executive Order 12866, it has been
determined that this rule is a ``significant regulatory action''
because of the potential impacts on portions of the domestic refining
and gasoline importing industry. As such, this action was submitted to
OMB for review. Changes made in response to OMB suggestions or
recommendations will be documented in the public record.
B. Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act (RFA),
5 U.S.C. 605(b), the Administrator certifies that this rule will not
have a significant economic impact on a substantial number of small
entities.
The issue of baselines for imported reformulated gasoline is
discussed generally in section VII-C of the Regulatory Impact Analysis
that was prepared to support the Final Rule for reformulated gasoline.
A copy of this document may be found in the reformulated gasoline
docket, number A-92-12, at the location identified in the ADDRESSES
section of this document.
The RFA of 1980 requires federal agencies to examine the effects of
proposed regulations and to identify significant adverse impacts on a
substantial number of small entities. Because the RFA does not provide
concrete definitions of ``small entity,'' ``significant impact,'' or
``substantial number,'' EPA has established guidelines setting the
standards to be used in evaluating impacts on small businesses.15
For purposes of the proposed individual foreign refinery requirements
for reformulated gasoline, a small entity is any business which is
independently owned and operated and not dominant in its field as
defined by SBA regulations under section 3 of the Small Business Act.
---------------------------------------------------------------------------
\1\5U.S. Environmental Protection Agency, Memorandum to
Assistant Administrators, ``Compliance with the Regulatory
Flexibility Act,'' EPA Office of Policy, Planning, and Evaluation,
1984. In addition, U.S. Environmental Protection Agency, Memorandum
to Assistant Administrators, ``Agency's Revised Guidelines for
Implementing the Regulatory Flexibility Act,'' Office of Policy,
Planning, and Evaluation, 1992.
---------------------------------------------------------------------------
The Agency believes that the individual foreign refinery baseline
requirements being proposed today are unlikely to have a significant
economic impact on a substantial number of small entities. The
businesses affected will be either a relatively small number of major
domestic oil companies who would compete with imported gasoline that is
produced at foreign refineries for which individual baselines are
established, or importers who would import gasoline that is produced by
foreign refineries for which individual baselines are established. EPA
expects the number of foreign refineries for which individual baselines
will be established will be small, with the result that the number of
affected domestic refiners and importers also will be small.
However, EPA invites comment on the question of significant impacts
on small entities. EPA also requests all relevant data which justify
any conclusions submitted.
C. The Paperwork Reduction Act
The information collection requirements in this proposal have been
submitted for approval to the Office of Management and Budget (OMB)
under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. An
Information Collection Request document has been prepared by EPA (ICR
No. 1591.04) and a copy may be obtained from Sandy Farmer, Information
Policy Branch, EPA, 401 M St., SW. (Mail Code 2136), Washington, DC
20460 or by calling (202) 260-2740.
This collection of information has an estimated recordkeeping and
reporting burden averaging 4.1 hours per respondent. This estimate
includes time for reviewing instructions, searching existing data
sources, gathering and maintaining the data needed, and completing and
reviewing the collection of information.
Send comments regarding the burden estimate or any other aspect of
this collection of information, including suggestions for reducing this
burden to Chief, Information Policy Branch, EPA, 401 M St., SW. (Mail
Code 2136), Washington, DC 20460, and to the Office of Information
Regulatory Affairs, Office of Management and Budget, Washington, DC
20503, marked ``Attention: Desk Officer for EPA.'' The final rule will
respond to any OMB or public comments on the information collection
requirements contained in this proposal.
VI. Statutory Authority
The statutory authority for the rules proposed today is granted to
EPA by sections 114, 211 (c) and (k), and 301 of the Clean Air Act, as
amended, 42 U.S.C. 7414, 7545 (c) and (k), and 7601.
List of Subjects in 40 CFR Part 80
Environmental protection, Air pollution control, Fuel additives,
Gasoline, Motor vehicle pollution, Penalties, Reporting and
recordkeeping requirements.
Dated: April 21, 1994.
Carol M. Browner,
Administrator.
For the reasons set forth in the preamble, part 80 of title 40 of
the Code of Federal Regulations are proposed to be amended as follows:
PART 80--REGULATIONS OF FUELS AND FUEL ADDITIVES
1. The authority citation for part 80 continues to read as follows:
Authority: Sections 114, 211 and 301(a) of the Clean Air Act as
amended, 42 U.S.C. 7414, 7545 and 7601(a).
2. Section 80.84 is proposed to be added to subpart D to read as
follows:
Sec. 80.84 Individual baselines for foreign refineries.
(a) Definitions. For purposes of this section, ``foreign refinery''
shall mean a specific refinery located outside the United States, the
Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa,
and the Commonwealth of the Northern Mariana Islands.
(b) Conditions for use of individual foreign refinery baselines.
For purposes of compliance with the reformulated gasoline standards of
Sec. 80.41, any importer may use a baseline established for a foreign
refinery as the importer's individual baseline, but only for gasoline
produced at that foreign refinery and provided that:
(1) The Administrator has approved separate 1990 baseline
properties and volume for the foreign refinery, as specified under
paragraph (c) of this section;
(2) The importer is able to establish that the imported gasoline
was produced at the foreign refinery, as specified under paragraph (d)
of this section;
(3) An attest engagement is conducted of the foreign refinery
operation for the calendar year during which the separate foreign
refinery baseline is claimed by the importer, as specified under
paragraph (e) of this section; and
(4) Authorized representatives of the Administrator are given full
and immediate access and are allowed to conduct inspections, review
records and other documents, collect gasoline samples, and perform
audits relating to the foreign refinery, as specified under paragraph
(f) of this section.
(c) Establishing individual foreign refinery baselines. (1) Any
foreign refiner may seek a separate baseline for a foreign refinery by
submitting a petition to the Assistant Administrator of EPA's Office of
Air and Radiation, such petition to include the Method 1-, 2-, and/or
3-type data as specified in Sec. 80.91 for the foreign refinery,
submitted as specified in Sec. 80.93, and verified as specified in
Sec. 80.92 except that the baseline auditor shall be an individual who
is a United States citizen.
(2) The Assistant Administrator of EPA's Office of Air and
Radiation may grant such petition if the properties and volume of the
gasoline produced at the foreign refinery and imported for use in the
United States in 1990 are established to the satisfaction of the
Assistant Administrator.
(3) Any petition under this paragraph (c) of this section shall:
(i) Contain a declaration, signed by the owner or president of the
foreign refiner business, that contains the following language:
The information contained in this individual baseline petition
is complete and accurate.
I agree that any EPA inspector or auditor will be given
immediate and complete access to the premises of [the name of
foreign refinery for which an individual baseline is requested], to
any other location where gasoline produced at [the name of the
foreign refinery] for use in the United States during the period
December 1994 through December 1997 is stored or transported, and to
any other location where documents are kept which relate to this
baseline petition or to the quality and/or quantity of the gasoline
produced at the foreign refinery for use in the United States during
the period December 1, 1994 through December 31, 1997, regardless of
whether these inspections are announced in advance or are
unannounced;
and
(ii) Be submitted by [insert date 6 months after publication of the
Final Rule].
(d) Establishing refinery-of-origin. In order to establish the
refinery-of-origin with regard to any batch of imported gasoline:
(1) The gasoline to which the individual foreign refinery baseline
would apply may not be combined with gasoline produced at any other
refinery prior to arrival at the United States port-of-entry;
(2)(i) A United States-based independent laboratory shall:
(A) Collect a representative sample of the batch subsequent to
loading on the ship that will transport the gasoline to the United
States, and prior to departure of that ship from the port serving the
refinery-of-origin;
(B) Analyze such sample for each property specified in
Sec. 80.65(e)(1) using the methodologies specified in Sec. 80.46;
(C) Independently determine the volume of the batch;
(D) Independently determine the refinery at which the subject
gasoline was produced, and that the subject gasoline was not combined
with gasoline produced at any other refinery before loading on the
ship.
(E) Obtain the EPA-assigned registration number of the refinery at
which the batch was produced;
(F) Determine the name and country of registration of the ship used
to transport the batch to the United States port-of-entry; and
(G) Determine the date the ship departs from the port serving the
refinery-of-origin.
(ii) A laboratory shall be considered independent only if it meets
the criteria specified in Sec. 80.65(f)(2)(iii).
(iii) In order to be considered United States-based, the laboratory
must be a United States corporation engaged in the business of gasoline
sampling and testing, or an individual who is a United States citizen
who is engaged in the business of gasoline sampling and testing in the
United States.
(iv) The independent laboratory shall submit to the Administrator a
report containing the information required under paragraph (d)(2)(i) of
this section, within thirty days following the date of the independent
laboratory's inspection. This report shall include a description of the
method used to determine the identity of the refinery at which the
subject gasoline was produced, that the subject gasoline was not mixed
with gasoline produced at any other refinery, and a description of the
gasoline's movement and storage between production at the source
refinery and ship loading.
(v) The refinery-of-origin sampling and testing required under
paragraph (d)(2) of this section is in addition to the sampling and
testing required at the port-of-entry under Secs. 80.65 (e) and (f).
(3) The importer shall meet the sampling and testing requirement,
under Sec. 80.65(f)(1)(i), whereby an independent laboratory samples
and tests each batch of imported gasoline.
(4)(i) The results of testing of the batch sample collected at the
refinery-of-origin under paragraph (d)(2) of this section, when
compared to the results of testing of the batch sample collected at the
United States port-of-entry under Sec. 80.65(f)(1)(i), must for each
parameter be within the range specified for the parameter under
Sec. 80.65(e)(2)(i);
(ii) The volume determination for the batch at the refinery-of-
origin under paragraph (d)(2) of this section, when compared to the
volume determination for the batch at the United States port-of-entry
under Sec. 80.65(f), must be within 1% where such volume
determinations are corrected for temperature and density;
(iii) The ship identified under paragraph (d)(2) of this section
must be the same ship that is used to transport the gasoline on arrival
at the United States port-of-entry; and
(iv) The refinery-of-origin, volume, shipment date, and ship name
under paragraph (d)(2) of this section must be confirmed by the attest
engagement under paragraph (f) of this section.
(e) Attest requirements. (1) The attest engagement required under
paragraph (b)(3) of this section shall be conducted by a United States-
based CPA in accordance with the procedures specified in Secs. 80.126
and 80.127.
(2) The CPA shall: (i) Obtain a gasoline inventory reconciliation
analysis for the current year from the refinery which includes
reformulated gasoline, RBOB, conventional gasoline, and other non-
finished gasoline petroleum products, whether imported into the United
States or not;
(ii) Test the mathematical accuracy of the calculations contained
in the analysis; and
(iii) Agree the beginning and ending inventories to the refinery's
perpetual inventory records.
(3) The CPA shall: (i) Obtain a separate listing of all tenders
during the current year of reformulated gasoline produced at the
refinery for use in the United States, such listing to include the date
the tender was transported from the refinery, the method of
transportation of the tender from the refinery to the point of ship
loading, the identification of any storage of the gasoline prior to the
point of ship loading, and the name and country of registration of the
ship used for transporting the gasoline from the refinery to the United
States;
(ii) Test the mathematical accuracy of the calculations contained
in the listings;
(iii) Agree the listing's tender volumes to the gasoline inventory
reconciliation in paragraph (e)(2) of this section; and
(iv) Confirm that the gasoline comprising the tender was not mixed
with gasoline produced at any other refinery between its production and
ship loading.
(4)(i) The CPA shall prepare a report on the attest engagement
summarizing the procedures performed and the findings in accordance
with the Sec. 80.125(b), and shall include in the report, for each
tender of reformulated gasoline, the volume, date shipped, and ship
name and country of registration.
(ii) The CPA report for each calendar year shall be submitted to
EPA not later than May 31 of the following year.
(5) In order to be considered a United States-based CPA, a CPA firm
must be a United States corporation, or an individual CPA must be a
United States citizen who is a licensed CPA in the United States.
(f) EPA inspections. The inspections, reviews, collections, and
audits under paragraph (b)(4) of this section may be conducted:
(1)(i) At the foreign refinery;
(ii) At any other location where gasoline produced at the foreign
refinery for use in the United States is stored or transported; and
(iii) At any other location where documents are kept which relate
to the quality and/or quantity of the gasoline produced at the foreign
refinery for use in the United States;
(2) Either announced in advance, or unannounced;
(3) At any time prior to January 1, 2003; and
(4) With relation to any gasoline produced:
(i) During 1990 and any other year for which data are submitted to
EPA in support of an individual baseline; and
(ii) For use in the United States during the period December 1994
through December 1997.
(g) Failure to meet requirements. If any requirement specified in
paragraphs (b) through (f) of this section is not fully met for any
calendar year, or if the Administrator determines that the information
submitted to EPA under paragraphs (b) through (f) of this section is
inaccurate in whole or in part, then compliance with the requirements
of Secs. 80.41 (h) and (i) by an importer shall be measured, ab initio
and for each and every calendar year or for such other period of time
as the Administrator may determine, from the baseline that otherwise
would apply to the importer in the absence of the operation of this
section.
(h) Volume constraints. (1) During any calendar year the total
volume of gasoline imported by one or more importers to which a foreign
refinery's baseline applies shall not be greater than the refinery's
1990 baseline volume.
(2) Where the volume of gasoline for which the foreign refinery's
baseline is claimed by one or more importers during any calendar year
exceeds the refinery's 1990 baseline volume, the refinery's baseline
applies only to the first volume of that refinery's gasoline that is
imported into the United States that equals the 1990 baseline volume.
(3) In the event any importer uses a foreign refinery baseline in
violation of the volume constraint specified in paragraphs (h) (1)
through (2) of this section the importer shall, ab initio, calculate
compliance using the baseline values that properly apply under
paragraphs (h) (1) through (2) of this section.
(4) In the event any gasoline is imported before January 1, 1995
for which a separate foreign refinery baseline is claimed:
(i) Such gasoline shall be combined with gasoline imported during
1995 for which the separate foreign refinery baseline is claimed for
purposes of the volume constraint specified in paragraphs (h) (1)
through (2) of this section; and
(ii) An adjusted 1990 baseline volume for the foreign refinery
shall be calculated, for use during the combined 1994 and 1995 period
only, by multiplying the 1990 baseline volume for the foreign refinery
times 1.17.
[FR Doc. 94-10434 Filed 5-2-94; 8:45 am]
BILLING CODE 6560-50-P
