and in gasoline blendstocks, individual refinery unit throughput and
operating conditions, distillation ``cut points,'' and future refinery
expansions). Since there is wide variation in these important
parameters among different refineries that impacts their baseline
benzene levels and their opportunities for control, our model's
assumptions inherently vary from actual refinery circumstances.
Furthermore, by necessity, our model assumes that all refineries will,
in effect, work collectively to make the most economical investment
decisions on a nationwide basis, as though each knew in advance the
investment decisions of the others. In reality, each individual
refinery will be making its decisions independently of each other,
based on very limited information about other refineries' actions. In
addition, our model assumes that refiners will limit their actions to
only treat the principal benzene-containing stream (reformate). There
are individual circumstances where it may be economical to also treat
other refinery streams. If the benzene in these other streams is indeed
treated by some refineries, it is possible that sufficient credits
might be generated to allow more refineries to avoid benzene reductions
altogether by simply purchasing credits. Consequently, although our
refinery-by-refinery modeling predicts significant benzene reductions
in all areas nationwide, individual refineries might continue to have
gasoline with higher benzene levels than the model predicts. This may
also result in higher regional variation in gasoline benzene levels
than the model predicts. Thus, we cannot dismiss this possibility with
a high degree of confidence.
    For these reasons, we believe that the addition of a maximum
average standard to the 0.62 average standard provides far greater
assurance that refineries will control benzene in the future as
projected--and certainly will not increase benzene levels to be greater
than the level of the maximum average standard. Furthermore, through
selection of an appropriate level for the maximum average standard, we
believe that we are achieving this goal with a minimal impact on the
overall costs of the program.
    We did not originally propose a maximum average standard, largely
because of our interpretation of our modeling done for the proposal.
That modeling indicated that adding a maximum average standard would
result in significantly more benzene reduction in some areas, but that
these increases would cause other areas to experience slightly smaller
benzene reductions (see 71 FR 15903). Our updated modeling results are
similar. In the proposal, we considered this potential for smaller
benzene reductions in some areas to be a reason not to propose a
maximum average standard. However, upon further evaluation of these
modeling results, given the level of uncertainty in the model to
predict individual refinery and regional benzene levels (as discussed
above), we do not have confidence in the size of any offsetting
increases in benzene levels in other areas, or even whether they would
occur. In addition, we recognize that some of the refiners that the
model predicts would reduce benzene slightly less (creating the
apparent offsetting regional effects) may in fact decide to overcomply
with the standard in order to maintain a compliance ``safety margin,''
regardless of the presence of a maximum average standard, and
regardless of the strength of the market for the generated credits.

In light of this, we do not think it warrants giving up the benefits
resulting from the inclusion of the maximum average standard.
    Absent concern about any measurable offsetting effects from a
maximum average standard, we believe that the major benefit of such a
standard can and should be pursued. That is, the program can achieve
increased certainty that the significant gasoline benzene reductions
across all parts of the nation that our modeling projects will indeed
occur, and thus that regional variations in gasoline benzene levels
will indeed be minimized as we project.
    We believe that setting the maximum average standard at a level of
1.3 vol% accomplishes the goal of reasonably assuring lower benzene
levels for all refineries while balancing the negative aspects of more-
and less-stringent benzene standards. Virtually all the commenters who
supported a maximum average standard agreed that 1.3 vol% would be a
reasonable level for such a standard. EPA agrees. Implementing a
maximum average standard lower than 1.3 vol% would begin to
significantly increase the number of refineries that would need to
install the more expensive benzene reduction equipment. This would
quickly diminish the value of the flexibility provided by the ABT
program and thus force an increasing number of refineries to make
expenditures in benzene control that could otherwise be smaller or
avoided entirely, significantly increasing the overall cost of the
program. Conversely, a maximum average standard greater than 1.3 vol%
would require progressively fewer refineries to take action to reduce
their benzene levels. This would in turn provide less assurance that
actual benzene levels would be broadly achieved. As shown in detail in
Chapter 9 of the RIA, the addition of the 1.3 vol% standard has minimal
impact on the overall costs of the program. It is for this reason that
we find that the 0.62 vol% annual average standard, in tandem with the
1.3 vol% maximum average standard, represents the greatest benzene
reductions achievable considering cost, energy supply, and other
enumerated statutory factors.
    We believe that it is very important to monitor levels of benzene
as refiners and importers begin to respond to the average and maximum
average standards. EPA currently collects information on benzene and
several other gasoline parameters for every batch of gasoline produced
in or imported into the U.S., and publishes it in aggregate form on the
EPA Web site. By January 1, 2011, we plan to begin publishing a more
detailed annual report on gasoline quality. We will present this data
on a PADD-by-PADD basis (to the extent that protection of confidential
business information allows). We expect that these reports will be a
valuable tool to stakeholders and members of the public who are
interested in following the real-world progress of this rule's gasoline
benzene reductions.
    Among other changes discussed in section VIII below, our updated
refinery-by-refinery model uses year-round 2004 gasoline production
data as a starting point (replacing 2003 summer production data used in
the proposal) and incorporates updated crude oil and benzene prices.
The model thus generates updated predictions of the responses of
refineries to the benzene standards. Our updated analysis shows that
with the 0.62 vol% average standard and the maximum average benzene
standard of 1.3 vol%, benzene levels will be reduced very significantly
in all parts of the country. However, a degree of variation will
continue to exist, due to the wide variety of refinery configurations,
crude oil supplies, and approaches to benzene control, among other
factors. This remaining variation is clearly legally permissible,
notwithstanding the reasonable objective of assuring that reductions
occur both regionally and nationally, because we do not read CAA
section 202(l)(2) as requiring uniform gasoline benzene levels in each
area of the country, since the standard is to be technology-based
considering costs and other factors which vary considerably by region
and by refinery. On the other hand, the maximum average standard will
have the appropriate effect of directionally providing a greater degree
of geographic uniformity of gasoline benzene levels and these levels
remain achievable considering cost and the other enumerated factors.
Reducing gasoline benzene levels on both a national and regional basis
is within the discretion of the Administrator, since section 202(l)(2)
does not specify whether the maximum degree of emission reductions are
to be achieved nationally, regionally, or both.
    The 1.3 vol% maximum average standard will become effective 18
months after the 0.62 vol% average standard, on July 1, 2012, and on
July 1, 2016 for small refiners. While there is ample lead time for
non-small refiners to meet the 0.62 vol% standard by January 1, 2011,
we believe that staggering the implementation dates will ensure that
the implementation of the programs by the refining industry is as
smooth and efficient as possible. An important aspect of the design of
this program as proposed is the recognition that not all of the benzene
reduction would occur at once. As discussed in detail in section
VI.A.2.b below, we expect that individual refiners will use the ABT
program to schedule their benzene control expenditures in the most
efficient way, using the early credit and standard credit provisions.
This will essentially create a gradual phasing-in of the reductions in
gasoline benzene content, beginning well before the initial compliance
date of January 1, 2011 and spreading out industry-wide compliance
activities over several years. Since the 1.3 vol% standard may not be
met using credits, we have set the implementation dates for this
standard such that the credit program can continue to be fully utilized
for an additional 18 months after the effective date of the 0.62 vol%
average standard to allow the intended phasing-in of the program to
occur (i.e., there will be 18 additional months during which the 0.62
vol% average standard may be achieved exclusively by using credits).
    We acknowledge that by incorporating the 1.3 vol% maximum average
standard into the program, we are creating additional compliance
challenges for a small number of refineries that might have relied on
credits but will now need to install capital equipment to meet the 1.3
vol% maximum average standard. Most refiners will need to take these
steps by July 1, 2012. Small refiners will need to take these steps
four years later, by July 1, 2016. Although we believe that most
(possibly all) refiners will be able to install appropriate benzene
control equipment by these future dates, there may be a small number of
refiners that continue to face significant financial hurdles as these
dates approach. We have considered this concern, and we believe that
the leadtime provided, including the longer leadtime for small
refiners, and the hardship relief provisions discussed below, are
sufficient to address any circumstances of severe economic impacts on
individual refineries. We are making clear that serious economic
difficulties in meeting the 1.3 vol% maximum average standard may be a
basis for granting relief under the ``extreme hardship'' provision
discussed in sectionVI.A.3. below.
2. Description of the Averaging, Banking, and Trading (ABT) Program
a. Overview
    We are finalizing a nationwide averaging, banking, and trading
(ABT) program that allows us to set a more

stringent annual average gasoline benzene standard than would otherwise
be justifiable. The ABT program allows refiners and importers to choose
the most economical compliance strategy (investment in technology,
credits, or both) for meeting the 0.62 vol% annual average benzene
standard. The flexibility afforded by the program is especially
significant and needed given the considerable variation in existing
gasoline benzene levels, which reflects important differences in crude
oil composition and individual refinery design.
    From 2007-2010, refiners can generate ``early credits'' by making
qualifying benzene reductions earlier than required. In 2011 and
beyond, refiners and importers can generate ``standard credits'' by
producing/importing gasoline with benzene levels below 0.62 volume
percent (vol%) on an annual average basis. Credits may be used
interchangeably towards compliance with the 0.62 vol% standard,
``banked'' for future use, and/or transferred nationwide to other
refiners/importers subject to the standard. In addition to the 0.62
vol% standard, refiners and importers must also meet a 1.3 vol% maximum
average benzene standard beginning July 1, 2012. To comply with the
maximum average standard, gasoline produced by a refinery or imported
by an importer may not exceed 1.3 vol% on an annual average basis.
While the 1.3 vol% maximum average standard places a limitation on
credit use, we believe that the ABT program still provides the refining
industry with significant compliance flexibility as described below.
b. Credit Generation
i. Eligibility
    Under the ABT program, U.S. refiners (including ``small
refiners''\190\) who produce gasoline by processing crude oil and/or
intermediate feedstocks through refinery processing units (see Sec.
80.1270) are eligible to generate both early and standard benzene
credits. Foreign refiners with individual refinery baselines
established under Sec.  80.910(d) who imported gasoline into the U.S.
in 2004-2005 are also eligible to generate early credits. Importers, on
the other hand, are only eligible to generate standard credits under
the ABT program. As explained in the proposal, importers are precluded
from generating early credits because, unlike refineries, they do not
need additional lead time to comply with the standard since they are
not investing in benzene control technology. Additionally, due to their
variable operations, importers could potentially redistribute the
importation of foreign gasoline to generate ``windfall'' early credits
with no associated benzene emission reduction value (see 71 FR 15874).
---------------------------------------------------------------------------

    \190\ Refiners approved as small refiners under Sec.  80.1340.
---------------------------------------------------------------------------

    Benzene credits may only be generated on gasoline which is subject
to the benzene requirements as described at Sec.  80.1235. This
excludes California gasoline (gasoline produced or imported for use in
California) but includes gasoline produced by California refineries for
use outside of California. Despite the fact that California gasoline is
not covered by this program, EPA sought comment on whether and how
credits could be generated based on California gasoline benzene
reductions and applied towards non-California gasoline compliance (see
71 FR 15873). We did not receive any substantive comments on this
matter but nonetheless considered the feasibility of such a program
(described in more detail in the Summary and Analysis of Comments). We
concluded that such a program could be very problematic to implement
and, based on the apparent lack of interest by California gasoline
refineries, it is likely that there would be very few participants. As
a result, we have decided to maintain the proposed ABT provision which
excludes California gasoline from generating credits.
ii. Early Credit Generation
    To encourage early innovation in gasoline benzene control
technology, refiners are eligible to generate early credits for making
qualifying benzene reductions prior to the start of the program.
Refiners must first establish individual benzene baselines for each
refinery planning on generating early credits (discussed further in
section VI.B.1). Benzene baselines are defined as the annualized
volume-weighted benzene content of gasoline produced at a refinery from
January 1, 2004 through December 31, 2005. To qualify to generate early
credits, refineries must make operational changes and/or improvements
in benzene control technology to reduce gasoline benzene levels in
accordance with Sec.  80.1275. Additionally, a refinery must produce
gasoline with at least ten percent less benzene (on a volume-weighted
annual average basis) than its 2004-2005 baseline. The first early
credit generation period is from June 1, 2007 through December 31,
2007, and subsequent early credit generation periods are the 2008,
2009, and 2010 calendar years (2008 through 2014 calendar years for
small refiners).
    We are setting a ten percent reduction trigger point for early
credits to ensure that changes in gasoline benzene levels result from
real refinery process improvements. Without a substantial trigger
point, refiners could earn credits for the normal year-to-year
fluctuations in benzene level at a given refinery allowed under MSAT1.
These windfall credits could negatively impact the ABT program
because--as reflections of normal variability--they would have no
associated benzene emission reduction value. As described in the
proposal, we believe that a percent reduction trigger point, as opposed
to an absolute level or fixed reduction trigger point, is the most
appropriate early credit validation tool considering the wide range in
starting benzene levels. In addition, we believe that ten percent is an
appropriate value for the trigger point because it prevents most
windfall credit generation, yet is not so restrictive as to discourage
refineries from making early benzene reductions (see 71 FR 15875).
    Once the ten percent reduction trigger point is met, refineries can
generate credits based on the entire gasoline benzene reduction. For
example, if in 2008 a refinery reduced its annual average benzene level
from a baseline of 2.00 vol% to 1.50 vol% (below the trigger point of
0.90 x 2.00 = 1.80 vol%), its early benzene credits would be determined
based on the difference in annual benzene content (2.00 - 1.50 = 0.50
vol%) divided by 100 and multiplied by the gallons of gasoline produced
in 2008 (expressed in gallons of benzene).
    We proposed that refiners be prohibited from moving gasoline or
gasoline blendstock streams from one refinery to another in order to
generate early credits (see 71 FR 15875). We received comments
indicating that many refiners trade blending components between
refineries to maximize gasoline production while minimizing cost, and
that such companies should not be prohibited from generating early
credits. In fact, we are not prohibiting these types of normal refinery
activities, nor are we prohibiting such refineries from participating
in the early credit program. We are simply requiring that all
refineries make real operational changes and/or improvements in benzene
control technology to reduce gasoline benzene levels in order to be
eligible to generate early credits. In most cases, moving gasoline
blendstocks from one refinery to another does not result in a net
benzene reduction (one refinery gets cleaner at the expense of another

getting dirtier). Accordingly, refineries that lower their benzene
levels exclusively through blendstock trading (no additional qualifying
reductions) are not eligible to generate early credits under the ABT
program. An exception exists for refineries that transfer benzene-rich
reformate streams for processing at other refineries with qualifying
post-treatment capabilities, e.g., extraction or benzene saturation
units. Under this scenario, the transferring refinery would be eligible
to generate early credits because a real operational change to reduce
gasoline benzene levels has been made. The regulations at Sec.  80.1275
have been modified to more clearly reflect our intended early credit
eligibility provisions, and specifically address blendstock trading.
iii. Standard Credit Generation
    Refiners and importers may generate standard credits for
overcomplying with the 0.62 vol% gasoline benzene standard on a volume-
weighted annual average basis in 2011 and beyond (2015 and beyond for
small refiners).\191\ For example, if in 2011 a refinery's annual
average benzene level is 0.52, its standard benzene credits would be
determined based on the margin of overcompliance with the standard
(0.62-0.52 = 0.10 vol%) divided by 100 and multiplied by the gallons of
gasoline produced during the 2011 calendar year (expressed in gallons
of benzene). Likewise, if in 2012 the same refinery were to produce the
same amount of gasoline with the same average benzene content, they
would earn the same number of credits. The standard credit generation
opportunities for overcomplying with the standard continue indefinitely
(see 71 FR 15872).
---------------------------------------------------------------------------

    \191\ Standard credit generation begins in 2011, or 2015 for
small refiners, regardless of whether a refinery pursues early
compliance with the 0.62 vol% standard under Sec.  80.1334.
---------------------------------------------------------------------------

c. Credit Use
    As proposed, we are finalizing a program where refiners and
importers can use benzene credits generated or obtained under the ABT
program to meet the 0.62 vol% annual average standard in 2011 and
beyond (2015 and beyond for small refiners). We are also finalizing a
1.3 vol% maximum average standard which takes effect in July 2012 (July
2016 for small refiners). The maximum average standard must be met
based on actual refinery benzene levels, essentially placing a cap on
total credit use. As discussed above in section VI.A.1.d, we believe
this is an appropriate strategy for addressing the current disparity in
gasoline benzene levels throughout the country.
    Overall, the ABT program will allow for a more gradual phase-in of
the 0.62 vol% benzene standard and a more cost-effective program. The
early credit program gives refiners an incentive to make initial
gasoline benzene reductions sooner than required. The early credits
generated can be used to provide refiners with additional lead time to
make their final (more expensive) investments in benzene control
technology. As a result, some benzene reductions will occur prior to
the start of the program while others will lag (within the realms of
the credit life provisions described below). We anticipate that there
will be enough early credits generated to allow refiners to postpone
their final investments by up to three years, which coincides with the
maximum time afforded by the early credit life provisions. In addition,
we predict that standard credits generated during the early credit lag
period will allow for an additional 16 months of lead time. The result
is a gradual phase-in of the 0.62 vol% benzene standard beginning in
June 2007 and ending in July 2016, as shown below in Figure VI.A-1.
Without early credits, refineries would be immediately constrained by
the 0.62 vol% standard and likely forced to make their final
investments sooner (including those necessary to meet the 1.3 vol%
maximum average standard).

[GRAPHIC] [TIFF OMITTED] TR26FE07.010

    In addition to earlier benzene reductions and a more gradual phase-
in of the 0.62/1.3 vol% standards (as shown above), the ABT program
results in a more cost-effective program for the refining industry. Our
modeling shows that allowing refiners to average benzene levels
nationwide to meet the 0.62 vol% standard reduces ongoing compliance
costs by about 50% from 0.51 to 0.27 cents per gallon (refer to RIA
Section 9.6.2). Our modeling further shows that the early credit
program we are finalizing results in the lowest possible compliance
costs during the phase-in period. Without an early credit program, the
total amortized capital and operating costs incurred by the refining
industry during the phase-in period is estimated to be $905 million
(2003 dollars).\192\ With an early credit program, the total cost
incurred during the same phase-in period is reduced to $608 million,
providing about $300 million in savings. In the absence of an ABT
program altogether, the total cost incurred during the phase-in period
would be $1.7 billion. As a result, the ABT program in its entirety
could save the refining industry up to $1.1 billion in compliance costs
from 2007-2015. For a more detailed discussion on compliance costs,
refer to section VIII.A. For more information on how the cost savings
associated with the ABT program were derived, refer to RIA Section
<IP_ADDRESS>.
---------------------------------------------------------------------------

    \192\ ABT program cost calculations consider future gasoline
growth and the time value of money. The gasoline growth rate from
2004-2012 was estimated by the refinery cost model and future growth
rates were obtained from EIA's AEO 2006. The costs and resulting
cost savings estimated for the phase-in period were calculated based
on compliance costs presented in RIA Section 9.6.2 and adjusted back
to 2007 to account for the time-value of money based on a 7% average
rate of return.
---------------------------------------------------------------------------

    Under the ABT program, early and standard benzene credits can be
used interchangeably towards compliance with the 0.62 vol% standard
(within the realms of the credit life provisions described below). Each
credit (expressed in gallons of benzene) can be used on a one-for-one
basis to offset the same volume of benzene produced/imported in
gasoline above the standard. For example, if in 2011 a refinery's
annual average benzene level was 0.72, the number of benzene credits
needed to comply would be determined based on the margin of
undercompliance with the standard (0.72-0.62 = 0.10 vol%) divided by
100 and multiplied by the gallons of gasoline produced during the 2011
calendar year. The credits needed would be expressed in gallons of
benzene.
    To enable enforcement of the program, the ABT program we are
finalizing includes a limit on credit life (for both early and standard
credits), a limit on the number of times credits may be traded, and a
prohibition on outside parties taking ownership of credits. We believe
that these provisions are necessary to ensure that the full benzene
reduction potential of the program is realized and that the credit
trading program is equitably administered among all participants. In
the proposal, we acknowledged concerns that credit use limitations
might in some circumstances unnecessarily hamper the credit market.
Specifically, we requested comment on ways that some of the provisions
might be reduced or eliminated while still maintaining an enforceable
program (see 71 FR 15872). Although we received many comments on the
proposed ABT program, we did not receive any substantive comments
indicating that the proposed credit provisions would be a significant
burden on refiners or importers. Likewise, we did not receive

any substantive comments suggesting that the removal of such
restrictions would greatly improve the efficiency of the ABT program.
For these reasons, we are finalizing such provisions for credit use
(described in more detail below).
i. Early Credit Life
    Early credits must be used towards compliance within three years of
the start of the program; otherwise they will expire and become
invalid. In other words, early credits generated or obtained under the
ABT program must be applied to the 2011, 2012, or 2013 compliance
years. Similarly, early credits generated/obtained and ultimately used
by small refiners must be applied to the 2015, 2016, or 2017 compliance
years. The result is that no early credits may be used toward
compliance with the 2014 year. This break in the early credit
application period may help funnel surplus early credits facing
expiration to small refiners in need.
ii. Standard Credit Life
    Standard credits must be used within five years from the year they
were generated (regardless of when/if they are traded). For example,
standard credits generated in 2011 would have to be applied towards the
2012 through 2016 compliance year(s); otherwise they would expire and
become invalid. To encourage trading to small refiners, there is a
credit life extension for standard credits traded to and ultimately
used by small refiners. These credits may be used towards compliance
for an additional two years, giving standard credits a maximum seven-
year life. For example, the same above-mentioned standard credits
generated in 2011, if traded and used by a small refiner, would have
until 2018 to be applied towards compliance before they would expire.
iii. Consideration of Unlimited Credit Life
    Since compliance with the gasoline benzene standards is determined
at the refinery or importer level, there are no enforceable downstream
standards associated with this rulemaking. Thus, it is critical that
EPA be able to conduct enforcement at the refinery or importer level.
Additionally, since EPA enforcement activities are limited by the five-
year statute of limitations in the Clean Air Act, allowing credit life
beyond five years poses serious enforcement issues. As a result, we are
finalizing three-year early credit life and five-year standard credit
life provisions (as just described above). We believe that these credit
life provisions are limited enough to satisfy enforcement and trading
concerns yet sufficiently long to provide necessary program
flexibility. However, we recognize that extending credit life might
result in increased program flexibility. Accordingly, in the proposal,
EPA sought comment on different ways to structure the program that
would allow for unlimited credit life. Specifically, we asked for
comment on how unlimited credit life could be beneficial to the program
and/or how the associated increase in recordkeeping and enforcement
issues could be mitigated (see 71 FR 15872). Comments received provided
no support for why unlimited credit life would improve program
flexibility or how enforcement issues could be addressed. Furthermore,
we did not receive any comments suggesting that the proposed credit
life provisions would significantly hamper trading. As such, we are
finalizing the credit life provisions as proposed.
iv. Credit Trading Provisions
    It is possible that benzene credits could be generated by one
party, subsequently transferred or used in good faith by another, and
later found to have been calculated or created improperly or otherwise
determined to be invalid. If this occurs, as in past programs, both the
seller and purchaser will have to adjust their benzene calculations to
reflect the proper credits and either party (or both) could be
determined to be in violation of the standards and other requirements
if the adjusted calculations demonstrate noncompliance with the 0.62
vol% standard.
    Credits must be transferred directly from the refiner or importer
generating them to the party using them for compliance purposes. This
ensures that the parties purchasing them are better able to assess the
likelihood that the credits are valid. An exception exists where a
credit generator transfers credits to a refiner or importer who
inadvertently cannot use all the credits. In this case, the credits can
be transferred a second time to another refiner or importer. After the
second trade, the credits must be used or terminated. In the proposal,
we requested comment on whether more than two trades should be
allowed--specifically, whether three or four trades were more
appropriate and/or more beneficial to the program (see 71 FR 15876). We
did not receive any comments providing analytical support for an
additional number of trades. We are finalizing a maximum of two trades,
consistent with other recent rulemakings, in order to provide
flexibility while still maintaining enforceability as discussed in the
proposal.
    There are no prohibitions against brokers facilitating the transfer
of credits from one party to another. Any person can act as a credit
broker, regardless of whether such person is a refiner or importer, as
long as the title to the credits is transferred directly from the
generator to the user. This prohibition on outside parties taking
ownership of credits was promulgated in response to problems
encountered during the unleaded gasoline program and has since appeared
in subsequent fuels rulemakings. To reevaluate potential stakeholder
interest in removing this prohibition, EPA sought comment on this
provision in the proposal--specifically, whether there were potential
benefits to allowing other parties to take ownership of credits and how
such a program would be enforced (see 71 FR 15876). We did not receive
any comments on this issue and continue to believe that our proposal is
appropriate. Therefore, to maintain maximum program enforceability and
consistency with all of our other ABT programs for mobile sources and
their fuels, we are maintaining our existing prohibition on outside
parties taking ownership of credits.
    We are not imposing any geographic restrictions on credit trading.
Credits may be traded nationwide between refiners or importers as well
as within companies to meet the 0.62 vol% national average benzene
standard. We believe that restricting credit trading could reduce
refiners' incentive to generate credits and hinder trading essential to
this program. In addition, since there are no fuel-availability issues
associated with this rule (as opposed to the case of the ultra-low
sulfur diesel program), there is no need to impose a geographic
restriction.
3. Provisions for Small Refiners and Refiners Facing Hardship
Situations
    In developing the MSAT2 program, we evaluated the need for and the
ability of refiners to meet the proposed benzene standards as
expeditiously as possible. We continue to believe that it is feasible
and necessary for the vast majority of the program to be implemented in
the time frame stated above to achieve the air quality benefits as soon
as possible. Further, we believe that refineries owned by small
businesses generally face unique hardship circumstances as compared to
larger refiners. We are also finalizing provisions for other refiners
to allow them to seek limited relief from hardship situations on a
case-by-case

basis. These provisions are discussed in detail below.
a. Provisions for Small Refiners
    We proposed several special provisions for refiners that are
approved as small refiners (see VI.A.3.a.ii below). This is due to the
fact that small refiners generally have greater difficulty than larger
companies (including those large companies that own small-capacity
refineries) in raising capital for investing in benzene control
equipment. Small refiners are also likely to have more difficulty in
competing for engineering resources and in completing construction of
the needed benzene control (and any necessary octane recovery)
equipment in time to meet the required standards (see also the more
detailed discussion at 71 FR 15877).
    As explained in the discussion of our compliance with the
Regulatory Flexibility Act below in section XII.C and in the Final
Regulatory Flexibility Analysis in Chapter 14 of the RIA, we carefully
considered the impacts of the regulations on small businesses. Most of
our analysis of small business impacts was performed as a part of the
work of the Small Business Advocacy Review Panel (``SBAR Panel'', or
``the Panel'') convened prior to the proposed rule, pursuant to the
Regulatory Flexibility Act as amended by the Small Business Regulatory
Enforcement Fairness Act of 1996 (SBREFA). (The final report of the
Panel is available in the docket.)
    For the SBREFA process, EPA conducted outreach, fact-finding, and
analysis of the potential impacts of our regulations on small
businesses. Based on these factors and analyses by all Panel members,
the Panel concluded that small refiners in general would likely
experience a significant and disproportionate financial hardship in
reaching the objectives of the MSAT2 program. We proposed many of the
provisions recommended by the Panel and we are finalizing these
provisions in this action.
i. Definition of Small Refiner for Purposes of the MSAT2 Small Refiner
Provisions
    The criteria to qualify for small refiner status for this program
are in most ways the same as those required in the Gasoline Sulfur and
the Highway and Nonroad Diesel rules. However, there are some
differences; as stated in our more recent fuels programs, we believe
that it is necessary to limit relief to those small entities most
likely to experience adverse economic impacts from fuel regulations. We
are finalizing the following provisions for determining small refiner
status.
    To qualify as a small refiner, a refiner must demonstrate that it
meets all of the following criteria: (1) Produced gasoline from crude
during calendar year 2005; (2) had no more than 1,500 employees, based
on the average number of employees for all pay periods from January 1,
2005 to January 1, 2006; and, (3) had an average crude oil capacity
less than or equal to 155,000 barrels per calendar day (bpcd) for 2005.
We are likewise finalizing the provision requiring refiners to apply
for, and for EPA to approve, a refiner's status as a ``small refiner''.
    Small refiner provisions are limited to refiners of gasoline from
crude because they are the entities that bear the investment burden and
the consequent economic hardship. Therefore, blenders, importers, and
additive component producers are not eligible. For these same reasons,
small refiner status is limited to those refiners that owned and
operated the refinery during the period from January 1, 2005 through
December 31, 2005. This is consistent with the approach taken in the
Nonroad Diesel rule, but we are revising the text to be more clear on
this issue.
    In determining its crude oil capacity and total number of
employees, a refiner must include the crude oil capacity and number of
employees of any subsidiary companies, any parent companies, any
subsidiaries of the parent companies, and any joint venture partners.
As stated in the proposal, there was confusion in past rules regarding
ownership. Thus, we proposed defining a parent company as any company
(or companies) with controlling ownership interest, and a subsidiary of
a company as any company in which the refiner or its parent(s) has a
controlling ownership interest (see 71 FR 15878). We requested comment
on these clarifications in the proposal, but did not receive any
comments on these aspects of the small refiner definition. Therefore,
we are finalizing the definition of parent company and related
clarifying provisions such that the employees and crude capacity of all
parent companies, and all subsidiaries of all parent companies, must be
taken into consideration when evaluating compliance with these
criteria.
    We received comments regarding the small refiner employee count and
crude capacity criteria. These commenters stated that they believed
that EPA's criteria fail to provide relief to a small number of
refiners whom they believe are similar in many respects to those
refiners that will qualify as small under our criteria. The commenters
pointed to recent Congressionally enacted programs, specifically the
Energy Policy Act of 2005 (EPAct) and the American Jobs Creation Act of
2004 (Jobs Act), which use definitions that are different from the SBA
definition, and from the criteria EPA is adopting in this rule. The
EPAct focuses on refinery size rather than company size, and the Jobs
Act focuses on refinery-only employees rather than employees company-
wide. EPA has established the criteria for qualifying for small refiner
relief based on the Small Business Administration's (SBA) small
business definition (per 13 CFR 121.201).
    We do not believe that it would be appropriate to change the
proposed small refiner employee count or crude capacity limit criteria
to fit the definitions used in either of the two recent statutes. While
Congress is able to establish special provisions for subsets of the
industry in programs like those mentioned above, EPA appropriately
focuses, under SBREFA and in this rulemaking, on consideration of
relief on those refining companies that we believe are likely to face
serious economic hardship as a result of compliance with the rule.
Under programs subject to the EPAct and Jobs Act definitions, relief
would be granted to refineries that are owned by larger companies, or
companies that have additional sources of revenue (indicated by more
employees and/or refining capacity), and also refineries owned by
foreign governments. These definitions do not focus as directly on
refiners which, due to their size, could incur serious adverse economic
impact from fuel regulations; and EPA consequently is not adopting
either of them in this rule. Further, SBA established its small
business definition to set apart those companies which are most likely
to be at an inherent economic disadvantage relative to larger
businesses. We agree with the assessment that refiners of this size may
be afforded special consideration under regulatory programs that have a
significant economic impact on them (insofar as is consistent with
Clean Air Act requirements). We continue to believe that it is most
appropriate to remain consistent with our previous fuels programs and
retain the criteria to qualify for small refiner status that have been
used in the past (with some minor clarifications to avoid confusion),
since these criteria best identify the class of small refiner which may
incur disproportionate regulatory impact under the rule. We are
therefore finalizing the small refiner qualification criteria that were
proposed.
    As previously stated, our intent has been, and continues to be,
limiting the small refiner relief provisions to the

small subset of refiners that are likely to be seriously economically
challenged as a result of the new regulations. We assume that new
owners that purchase a refinery after December 31, 2005 do so with full
knowledge of the proposed regulation. Given that they have the
resources available to purchase the refinery assets, they are not in an
economic hardship situation. Therefore, they should include compliance
planning as part of their purchase decision. Similar to earlier fuel
rules, we are finalizing a provision that a refiner that restarts a
refinery in the future is eligible for small refiner status. In such
cases, we will judge eligibility under the employment and crude oil
capacity criteria based on the most recent 12 consecutive months before
the application, unless we conclude from data provided by the refiner
that another period of time is more appropriate. However, unlike past
fuel rules, this will be limited to a company that owned the refinery
at the time that it was shut down. New purchasers will not be eligible
for small refiner status for the reasons described above. Companies
with refineries built after January 1, 2005 will also not be eligible
for the small refiner hardship provisions, again for the reasons given
above.
    Similar to previous fuel sulfur programs, we also proposed that
refiners owned and controlled by an Alaska Regional or Village
Corporation organized under the Alaska Native Claims Settlement Act are
also eligible for small refiner status, based only on the refiner's
employee count and crude oil capacity (see 71 FR 15878). We did not
receive any comments on this provision, and we are finalizing it in
this action.
ii. Small Refiner Status Application Requirements
    A refiner applying for status as a small refiner under this program
is required to apply and provide EPA with several types of information
by December 31, 2007. (The application requirements are summarized in
section VI.B.2, below.) A refiner seeking small refiner status under
this program must apply for small refiner status, regardless of whether
the refiner had been approved or rejected for small refiner status
under another fuel program. As with applications for relief under other
rules, applications for small refiner status under this rule that are
later found to contain false or inaccurate information will be void ab
initio.
iii. Small Refiner Provisions

Delay in the Effective Date of the Standards

    We proposed that small refiners be allowed to postpone compliance
with the 0.62 vol% benzene standard until January 1, 2015, four years
after the general program would begin (see 71 FR 15878). At such time,
approved small refiners would be required to meet the 0.62 vol% benzene
standard. As stated in the proposal, this additional lead time is
justified because small refiners face disproportionate challenges,
which the additional lead time will help to mitigate. We requested
comment on this proposed provision, and we received many comments
supporting it and none opposing it.
    Normally a period of two to three years of lead time is required
for a refiner to secure necessary financing and to carry out capital
improvements for benzene control (see VI.A.1.c.i. above). Commenters
specifically noted that additional lead time would allow small refiners
to more efficiently obtain financing and contracts to carry out
necessary capital projects (or to obtain credits) with less direct
competition with non-small refiners for financing and for contractors
to carry out capital improvements. Some commenters noted that they
generally supported the proposed program of a 0.62 vol% benzene
standard with no upper limit and the proposed small refiner relief.
While we did not propose an upper limit, as discussed above in section
VI.A.1, we have chosen to finalize a 1.3 vol% refinery maximum average.
    The additional lead time also allows EPA to make programmatic
adjustments, if necessary, before small refiners are required to comply
with the benzene standards. As discussed below, we are finalizing a
requirement that EPA review the program in 2012, leaving a number of
years to adjust the program before small refiners are required to meet
the benzene standards. The additional lead time for small refiners will
also provide these refiners with three years of lead time following the
review to take the review results into account in completing capital
projects if necessary or desirable to meet the benzene standards. Based
on these assessments, we are therefore finalizing a four-year period of
additional lead time for small refiners for compliance with the 0.62
vol% benzene standard, until January 1, 2015 (and small refiners would
continue to meet the requirements of MSAT1 until January 1, 2015).
Further, we are finalizing an additional 4 years of lead time for small
refiners to comply with the 1.3 vol% maximum average benzene standard,
until July 1, 2016.

Early ABT Credit Generation Opportunities

    During the development of the proposal, we anticipated that many
small refiners would likely find it more economical to purchase credits
for compliance than to comply by making capital investments to reduce
gasoline benzene. However, some small refiners indicated that they
would make reductions to their gasoline benzene levels to fully or
partially meet the proposed 0.62 vol% benzene standard. Therefore, we
proposed that small refiners that take steps to meet the benzene
requirement before January 1, 2015 would be eligible to generate early
credits (see 71 FR 15879). Current and previous fuels programs allow
for credit generation opportunities to encourage early compliance, and
extending this opportunity to small refiners, based on the small
refiner effective date, is consistent with this objective. Small
refiners generally supported this provision and we did not receive any
adverse comments on it.
    Early credit generation opportunities will provide more credits for
the MSAT2 ABT program and will help to achieve the air quality goals of
the MSAT2 program earlier than otherwise required. We are therefore
finalizing an early credit generation provision for small refiners.
This is similar to the general early credit generation provision that
is provided to all refiners, except that small refiners may generate
early credits until January 1, 2015. As discussed in section
VI.A.2.b.ii above, refineries must reduce their 2004-2005 benzene
levels by at least ten percent to generate early credits. This ten
percent threshold is being set to ensure that changes in gasoline
benzene levels result from real refinery process improvements, not just
normal fluctuations in benzene levels at a given refinery (allowed
under MSAT1). The small refiner early credit generation period will be
from June 1, 2007 to December 31, 2014, after which standard credits
may be generated indefinitely for those that overcomply with the 0.62
vol% annual average standard.

Extended Credit Life

    During the SBREFA process, many small refiners expressed interest
in relying upon credits as an ongoing compliance strategy for meeting
the 0.62 vol% gasoline benzene standard. However, several small
refiners voiced concerns surrounding the idea of relying on the credit
market to avoid large

capital costs for benzene control. One of their primary concerns was
that credits might not be available and/or traded to small refiners in
need. To increase the certainty that credits would be available, we
proposed a two-year credit life extension for credits generated by or
traded to small refiners (see 71 FR 15879). Not only does this
provision encourage trading to small refiners, it creates a viable
outlet for credits facing expiration. Most small refiners supported the
proposed credit life provision. However, one refiner suggested that we
finalize unlimited credit life for credits traded to small refiners.
Although unlimited credit life could have some perceived benefits,
overall it poses serious enforcement problems. Therefore, for the
reasons described above in VI.A.2.c.iii, we are not finalizing
unlimited credit life for credits traded to small refiners. Further, we
are finalizing a slightly modified version of the proposed small
refiner extended credit life provision to better reflect its intended
purpose. First, the two-year credit life extension pertains only to
standard credits. The extension does not apply to early credits because
refiners already have an incentive to trade early credits to small
refiners. Based on the nature of the early credit life program (three-
year life based on the start of the program) and small refiners'
delayed program start date (2015 as opposed to 2011), early credits
traded to small refiners are already valid for an additional four
years. Second, the two-year credit life extension applies only to
standard credits traded to small refiners. There is no need to extend
credit life for credits generated by small refiners, because in this
event, the small refiner would already have the utmost certainty that
the credits would be available for use.

ABT Program Review

    We proposed that we would perform a review of the ABT program (and
thus, the small refiner flexibility options) by 2012, one year after
the general program begins (see 71 FR 15879). Coupled with the small
refiner four-year additional lead time provision, the ABT program
review after the first year of the overall program will provide small
refiners with roughly three years, after learning the results of the
review, to obtain financing and perform engineering and construction.
We are committing to this provision today. The review will take into
account the number of early credits generated industry-wide each year
prior to the start of the MSAT2 program, as well as the number of
credits generated and transferred during the first year of the overall
benzene control program. In part to support this review, we are
requiring that refiners submit pre-compliance reports, similar to those
required under the highway and nonroad diesel programs. In addition,
the first compliance report that refiners submit (for the 2011
compliance period) will provide important information on how many
credits are actually being generated or utilized during the first year
of the program.
    The ABT pre-compliance reports will be due annually on June 1 from
2008 through 2011. The reports must include projections of how many
credits will be generated and how many credits will need to be used at
each refinery. The reports must also contain information on a refiner's
plans (for each refinery) for compliance with the benzene standard,
including whether or not the refiner will utilize credits alone to
comply with the standard. Refiners must also report any early credits
that may have been transferred to another entity prior to January 1,
2011 and the sale price of those credits.
    In addition, ABT compliance reports will be due annually beginning
February 28, 2012. For any refiner expecting to participate in the
credit trading program (under Sec.  80.1275 and/or Sec.  80.1290, the
report must include information on actual credit generation and usage.
Refiners must also provide any updated information regarding plans for
compliance. EPA will publish the results of these refinery compliance
reports and the results of our review as soon as possible to provide
small refiners with information on the ABT program roughly three years
prior to the small refiner compliance date. EPA will maintain the
confidentiality of information from individual refiners submitted in
the reports. We will present generalized summaries of the reports
annually.
    If, following the review, EPA finds that the credit market is not
adequate to support the small refiner provisions, we will revisit the
provisions to determine whether or not they should be altered or
whether EPA can assist the credit market (and small refiners' access to
credits). For example, the Panel suggested that EPA could consider
actions such as: (1) The ``creation'' of credits by EPA that would be
introduced into the credit market to ensure that there are additional
credits available for small refiners; (2) a requirement that a
percentage of all credits to be sold be set aside and only made
available for small refiners; and (3) a requirement that credits sold,
or a certain percentage of credits sold, be made available to small
refiners before they are allowed to be sold to any other refiners.
    Further, we are finalizing an additional hardship provision to
assist small refiners. This hardship provision would be for the case of
a small refiner for which compliance with the 0.62 vol% benzene
standard would be feasible only through the purchase of credits, but
for whom purchase of credits is not economically feasible. This
hardship provision will only be available following the ABT program
review, since EPA wishes to use the most accurate information to assess
credit availability and the working of the credit market. The provision
will only be afforded to a small refiner on a case-by-case basis, and
must be based on a showing by the refiner of the practical or economic
difficulty in acquiring credits for compliance with the 0.62 vol%
benzene standard (or some other type of similar situation that would
render its compliance with the standard not economically feasible). The
relief offered under this hardship provision is a further delay, on an
individual refinery basis, for up to two years. Applications for relief
under this provision must meet the requirements set out in Sec.
80.1343. Following the two years, a small refiner will be allowed to
request one or more extensions of the hardship until the refinery's
material situation has changed. Finally, if a small refiner is unable
to comply with the 1.3 vol% refinery maximum average, it may apply for
relief from this standard under the general hardship provisions
discussed below in section VI.A.3.b. Applications for relief from the
1.3 vol% refinery maximum average must be received by January 1, 2013
and must meet the requirements set out in Sec.  80.1335.
iv. The Effect of Financial and Other Transactions on Small Refiner
Status and Small Refiner Relief Provisions
    We believe that the effects of financial (and other) transactions
are also relevant to this action. We proposed these provisions (see 71
FR 15880) and did not receive any comments on them. We continue to
believe that these provisions are appropriate and are finalizing the
provisions discussed below.

Large Refiner Purchasing a Small Refiner's Refinery

    One situation involves a ``non-small'' refiner that wishes to
purchase a refinery owned by an approved small refiner. The small
refiner may not have completed or even begun any necessary planning to
meet the MSAT2 standards, since it would likely have planned to make
use of the special small refiner

relief provisions. We assume that the refiner would have incorporated
financial planning for compliance into its purchase decision. However,
we recognize that a limited amount of time would be required for the
physical completion of the refinery upgrades for compliance. (This
situation would be similar to that addressed in the Nonroad Diesel
program (96 FR 39051).)
    We therefore believe that an appropriate period of lead time for
compliance with the MSAT2 requirements is warranted where a refiner
purchases any refinery owned by a small refiner, whether by purchase of
a refinery or purchase of the small refiner entity. A refiner that
acquires a refinery from an approved small refiner will be provided
with 30 additional months from the date of the completion of the
purchase transaction (or until the end of the applicable small refiner
relief interim period if it is within 30 months). During this 30-month
period, production at the newly-acquired refinery may remain at the
benzene levels that applied to that refinery for the previous small
refiner owner, and all existing small refiner provisions and
restrictions will also remain in place for that refinery. At the end of
this period, the refiner must comply with the ``non-small refiner''
standards. There will not be an adverse environmental impact of this
provision, since the small refiner would already have been provided
relief prior to the purchase and this provision would be no more
generous.
    We expect that in most (if not all) cases, the 30 months of
additional lead time will be sufficient for the new refiner-owner to
accomplish the necessary planning and any needed refinery upgrades. If
a refiner nonetheless believes that the technical characteristics of
its plans would require additional lead time, the refiner may apply for
additional time and EPA will consider such requests on a case-by-case
basis. Based on information provided in such an application and other
relevant information, EPA will decide whether additional time is
technically necessary and, if so, how much additional time would be
appropriate. As discussed above, in no case will compliance dates be
extended beyond the time frame of the applicable small refiner relief.

Small Refiner Losing Its Small Refiner Status Due To Merger or
Acquisition

    Another type of potential transaction involves a refiner with
approved small refiner status that later loses its small refiner status
because it no longer meets the small refiner criteria. An approved
small refiner that exceeds the small refiner employee or crude capacity
limit due to merger or acquisition will lose its small refiner status.
This includes exceedances of the employee or crude capacity criteria
caused by acquisitions of assets such as plants and equipment, as well
as acquisitions of business entities.
    Our intent has been, and continues to be, to limit the small
refiner relief provisions to a small subset of refiners that are most
likely to be significantly economically challenged, as discussed above.
At the same time, it is also our intent to avoid stifling normal
business growth. Therefore, under this program, a refiner will be
disqualified from small refiner status if it exceeds the small refiner
criteria through its involvement in transactions such as being acquired
by or merging with another entity, through the small refiner itself
purchasing another entity or assets from another entity, or when it
ceases to process crude oil. However, if a small refiner grows through
normal business practices, and exceeds the employee or crude capacity
criteria without merger or acquisition, it will retain its small
refiner status for this program.
    In the sole case of a merger between two approved MSAT2 small
refiners, both small refiners will be allowed to retain their small
refiner status under this program. As in past fuel rulemakings, we
believe the justification for continued small refiner relief for each
of the merged entities remains valid. Small refiner status for the two
entities of the merger will not be affected, and hence the original
compliance plans of the two refiners should not be impacted. Moreover,
no environmental detriment will result from the two small refiners
maintaining their small refiner status within the merged entity as they
would have likely maintained their small refiner status had the merger
not occurred. We did not receive any comments on this provision.
    We recognize that a small refiner that loses its small refiner
status because of a merger with, or acquisition of, a non-small refiner
would face the same type of technical lead time concerns discussed
above for a non-small refiner acquiring a small refiner's refinery.
Therefore, we are also providing the 30 months of additional lead time
described above for non-small refiners purchasing a small refiner's
refinery.
b. Provisions for Refiners Facing Hardship Situations
    The MSAT2 program includes a nationwide credit trading program of
indefinite duration for the 0.62 vol% annual average benzene standard,
and we expect that credits will be available at a reasonable cost
industry-wide. However, as explained in the proposal (71 FR 15880-
15881), there could be circumstances when refiners would need hardship
relief. We reiterate this conclusion here, especially given the 1.3
vol% refinery maximum average benzene standard in the final rule. These
hardship provisions are available to all refiners, small and non-small,
with relief being available on a case-by-case basis following a showing
of certain requirements (as described in the regulations at sections
80.1335 and 80.1336). We believe that the inclusion of hardship
provisions for refiners is a necessary part of adopting the benzene
requirements as the maximum reduction achievable considering costs.
Without a mechanism to consider economic hardship to particular
refineries, the overall level of the standards would need to be higher
to reflect the potential increased costs. Note, however, that we do not
intend for these hardship waiver provisions to encourage refiners to
delay planning and investments they would otherwise make.
    We are finalizing two forms of hardship relief: the first applies
to situations of extreme and unusual hardship, and the second applies
to situations where unforeseen circumstances prevent the refiner from
meeting the benzene standards. These provisions are similar to the
hardship provisions that were proposed, but with some modification
because this final rule includes a 1.3 vol% refinery maximum average
benzene standard, which cannot be satisfied through the use of credits.
While we sought comment in the proposal on such a standard, we did not
propose it, and therefore also did not propose any hardship relief
specific to it.
    As discussed further below, the application requirements and
potential relief available differ somewhat depending upon whether a
refiner applies for hardship relief for the 0.62 vol% benzene standard,
the 1.3 vol% refinery maximum average, or both (a refiner may apply for
relief from both standards, but EPA will address them independently).
This is partly due to the fact that a refiner may use credits to meet
the 0.62 vol% benzene standard, but credits cannot be used for
compliance with the 1.3 vol% refinery maximum average standard. EPA can
impose appropriate conditions on any hardship relief. Note also that
any hardship relief granted under this rule will be separate and apart
from EPA's authority under the Energy Policy Act to issue temporary
waivers for extreme and unusual supply circumstances, under amended
section 211(c)(4). In general,

commenters stated that they supported the inclusion of hardship
provisions, but they did not provide any specific comments regarding
these provisions.
i. Temporary Waivers Based on Extreme Hardship Circumstances
    We are finalizing the proposed hardship relief provisions based on
a showing of extreme hardship circumstances, with some slight
modifications from the proposed extreme hardship relief provision (see
71 FR 15881). We did not receive comment on the proposed hardship
provision.
    Extreme hardship circumstances could exist based on severe economic
or physical lead time limitations of the refinery to comply with the
benzene standards required by the program. Such extreme hardship may be
due to an inability to physically comply in the time available, an
inability to secure sufficient financing to comply in the time
available, or an inability to comply in the time available in a manner
that would not place the refiner at an extreme competitive disadvantage
sufficient to cause extreme economic hardship. A refiner seeking such
hardship relief under this provision will have to demonstrate that
these criteria were met. In addition to showing that unusual
circumstances exist that impose extreme hardship in meeting the benzene
standards, the refiner must show: (1) Circumstances exist that impose
extreme hardship and significantly affect the ability to comply with
the gasoline benzene standards by the applicable date(s); and (2) that
it has made best efforts to comply with the requirements. Refiners
seeking additional time must apply for hardship relief, and the
hardship applications must contain the information required under Sec.
80.1335.
    For relief from the 0.62 vol% benzene standard in extreme hardship
circumstances, an aspect of the demonstration of best efforts to comply
is that severe economic or physical lead time limitations exist and
that the refinery has attempted, but was unable, to procure sufficient
credits. EPA will determine an appropriate extended deficit carry-
forward time period based on the nature and degree of the hardship, as
presented by the refiner in its hardship application, and on our
assessment of the credit market at that time. Moreover, because we
expect the credit program to be operating and robust, we believe that
circumstances under which we would grant relief from the 0.62 vol%
benzene standard will be rare, and should we grant relief, it would
likely be for less than three years. Further, we may impose additional
conditions to ensure that the refiner was making best efforts to comply
with the benzene standards while offsetting any loss of emission
control from the program (due to extended deficit carry-forward).
    For relief from the 1.3 vol% refinery maximum average benzene
standard in extreme hardship circumstances, a refiner must show that it
could not meet the 1.3 vol% standard, despite its best efforts, in the
timeframe required due to extreme economic or technical problems.
Extreme hardship relief from the 1.3 vol% refinery maximum average
standard is available for both non-small and small refiners. This
provision is intended to address unusual circumstances that should be
apparent now, or well before the standard takes effect. Thus, refiners
must apply for such relief by January 1, 2008, or January 1, 2013 for
small refiners. If granted, such hardship relief would consist of
additional time to comply with the 1.3 vol% refinery maximum average.
The length of such relief and any conditions on that relief will be
granted on a case-by-case basis, following an assessment of the
refiner's hardship application, but could be for a longer period than
for relief from the 0.62 vol% standard since credits cannot be used for
compliance with the 1.3 vol% refinery maximum average.
ii. Temporary Waivers Based on Unforeseen Circumstances
    We are also finalizing the proposed temporary hardship provision
based on unforeseen circumstances, which, at our discretion, will
permit any refiner or importer to seek temporary relief from the
benzene standards under certain rare circumstances (see 71 FR 15880).
This waiver provision is similar to provisions in prior fuel
regulations. It is intended to provide refiners and importers relief in
unanticipated circumstances--such as a refinery fire or a natural
disaster--that cannot be reasonably foreseen now or in the near future.
We did not receive comments on this proposed hardship provision.
    To receive hardship relief based on unforeseen circumstances, a
refiner or importer will be required to show that: (1) The waiver is in
the public interest; (2) the refiner/importer was not able to avoid the
noncompliance; (3) the refiner/importer will meet the benzene standard
as expeditiously as possible; (4) the refiner/importer will make up the
air quality detriment associated with the nonconforming gasoline, where
practicable; and (5) the refiner/importer will pay to the U.S. Treasury
an amount equal to the economic benefit of the noncompliance less the
amount expended to make up the air quality detriment. These conditions
are similar to those in the RFG, Tier 2 gasoline sulfur, and the
highway and nonroad diesel regulations, and are necessary and
appropriate to ensure that any waivers that are granted will be limited
in scope. Such a request must be based on the refiner or importer's
inability to produce compliant gasoline at the affected facility due to
extreme and unusual circumstances outside the refiner or importer's
control that could not have been avoided through the exercise of due
diligence.
    For relief from the 0.62 vol% benzene standard based on unforeseen
circumstances, the hardship request must also show that other avenues
for mitigating the problem, such as the purchase of credits toward
compliance under the credit provisions, had been pursued and yet were
insufficient or unavailable. Hardship relief from that standard will
allow a deficit to be carried forward for an extended, but limited,
time period (more than the one year allowed by the rule). The refiner
or importer must demonstrate that the magnitude of the impact was so
severe as to require such an extension. EPA will determine an
appropriate extended deficit carry-forward time period based on the
nature and degree of the hardship, as presented by the refiner or
importer in its hardship application, and on our assessment of the
credit market at that time.
    For relief from the 1.3 vol% refinery maximum average benzene
standard based on unforeseen circumstances, the hardship request must
show that, despite its best efforts, the refiner or importer cannot
meet the standard in the timeframe required. Relief will be granted on
a case-by-case basis, following an assessment of the refiner's hardship
application.
c. Option for Early Compliance in Certain Circumstances
    We are finalizing an option that would allow a refinery to begin
compliance with the MSAT2 benzene standards earlier than 2011 instead
of maintaining compliance with its MSAT1 baseline. See 71 FR 15881 for
the proposal's discussion of this option.\193\ We are providing this
option because refineries that meet the criteria discussed below are
already providing the market with very clean gasoline from a mobile
source air toxics

perspective. In the proposal, we took comment on such an option,
stating that eligibility for this option would be limited to those that
have historically better than average toxics performance, lower than
average benzene and sulfur levels, and a significant volume of gasoline
impacted by the phase-out of MTBE use. However, in order to qualify for
this option, a refinery must produce gasoline by processing crude and
other intermediate feedstocks and not merely be a blender or importer
of gasoline, as discussed later.
---------------------------------------------------------------------------

    \193\ The 1.3 vol% maximum average standard was not discussed in
the proposal vis-a-vis this early compliance option. However, any
refinery approved for this option should easily meet the 1.3 vol%
standard.
---------------------------------------------------------------------------

    A refinery that is approved for this option would comply with the
0.62 vol% annual average and 1.3 vol% maximum average benzene standards
and would not be required to continue to comply with its applicable
toxics performance requirements, i.e., its MSAT1 baseline and its anti-
dumping or RFG toxics performance standards. We believe this option is
appropriate because if qualifying refineries had to continue to comply
with MSAT1 \194\ until 2011, they would likely be forced to reduce
gasoline output in order to comply, while other refineries or
importers, most likely with less clean MSAT1 baselines, would provide
the replacement gasoline. The result would be less supply of these
refineries' cleaner gasoline and more supply of fuel with higher toxics
emissions, leading to a net detrimental effect on overall MSAT
emissions in the surrounding region.
---------------------------------------------------------------------------

    \194\ While refineries are subject to MSAT1 and anti-dumping or
RFG toxics performance requirements depending on the gasoline type
(CG and/or RFG) they produce, in almost all cases, the MSAT1
standard is more stringent than the corresponding anti-dumping or
RFG toxics standard.
---------------------------------------------------------------------------

    We chose 2003 as the period for determining eligibility for this
option because State MTBE bans began taking effect in 2004. Refiners
who had used MTBE generally now use ethanol as the replacement source
for oxygen. Although RFG no longer has an oxygen requirement \195\,
MSAT1 baselines were established when that requirement was still in
place. Even some CG producers used significant amounts of MTBE as
reflected in their MSAT1 baselines. Ethanol provides less toxics
reduction benefits than MTBE, and so the refinery must take other
actions in order to continue to meet its MSAT1 standard. Consequently,
while MSAT1 baseline adjustments in the past were limited to RFG, it
may be possible for a refinery to also qualify to adopt MSAT2 early for
its CG pool. Both qualification and the ability to adopt MSAT2 are
allowed separately for RFG and CG. For example, a refinery that
qualifies to adopt MSAT2 early for RFG will be permitted to do so for
RFG alone while maintaining its MSAT1 baseline for its CG, or vice
versa.
---------------------------------------------------------------------------

    \195\ 71 FR 26691, May 8, 2006.
---------------------------------------------------------------------------

    As mentioned in the proposal, the criteria for eligibility for
early compliance are similar in concept to those EPA has used in
granting refinery-specific adjustments to MSAT1 baselines, that is,
significantly cleaner than the national average for toxics, benzene,
and sulfur, and relatively high MTBE use. We re-evaluated those
criteria to determine the numerical criteria that a refinery would have
to meet in order to qualify for this option. Specifically, a refinery
must at minimum meet the following criteria:

--2003 annual average benzene level less than or equal to 0.62 vol%
--2003 annual average MTBE use greater than 6.0 vol%
--2003 annual average sulfur level less than 140 ppm
--MSAT1 RFG baseline greater than 30.0% reduction or CG less than 80
mg/mile

    Many refineries can reduce benzene and sulfur levels to reduce
toxics emissions. However, those that used a significant amount of MTBE
and already have low benzene and sulfur levels also have fairly
stringent toxics emissions performance standards. As a result, they may
have little ability to further reduce sulfur or benzene or make other
refinery changes to offset the impact of switching from MTBE to
ethanol. Refineries that are not in this situation are not so
constrained. We believe that the criteria above are an appropriate
screening to delineate between these two groups.
    To qualify for this provision we believe it is appropriate for a
refinery to have used at least 6.0 vol% MTBE in their gasoline in their
2003 baseline; when the oxygen provided by this amount of MTBE is
provided instead by ethanol, a substantial loss in toxics performance
results. A benzene average of less than or equal to the 0.62 vol%
standard is appropriate because if a refinery's average benzene is
higher, they would have to further reduce benzene to comply with the
MSAT2 standard early. However, to qualify for this provision to switch
to MSAT2 early, a refinery should have no viable options for reducing
benzene further to continue to meet their MSAT1 baseline. We chose the
140 ppm sulfur level because we found that even for refineries with
significant MTBE use (in the 6-13 vol% range), the sulfur reductions
brought about by the Tier 2 gasoline sulfur standard provided
sufficient benefit to offset much of the increase in toxics emissions
that results from eliminating MTBE and replacing it with ethanol.
Finally, refineries should have had MSAT1 baseline toxics performance
significantly cleaner than the average in order to qualify. The MSAT1
baseline toxics performance thresholds listed above were set based on
past experience with baseline adjustments where we found that only
those with significantly clean baselines (in addition to low benzene,
low sulfur, and high MTBE use) would have to reduce production in order
to comply with their MSAT1 standard in the face of MTBE bans. Thus, we
are limiting this provision to those with relatively clean baselines as
our goal is preventing the perverse outcome that refineries with
cleaner gasoline may be forced to reduce their production volume only
to have it be made up by refineries with dirtier baselines. The
threshold helps ensure that only those refineries in situations where
such an outcome could realistically have otherwise occurred are
permitted to exercise this option. Refineries that do not fulfill all
of the threshold requirements may have to take further refinery
processing-related actions to meet their MSAT1 baseline, but are
unlikely to have to reduce production and/or have that production
replaced by someone with a less clean standard.
    In addition to meeting the screening criteria mentioned, a refinery
would still have to apply to EPA to use this compliance option and
would need to demonstrate that it cannot further reduce its benzene or
sulfur levels, nor make other refinery processing changes in order to
maintain compliance with its MSAT1 baseline due to the impact of
switching from MTBE to ethanol. Details of the application requirements
and approval process are provided in section 80.1334 of the
regulations. We estimate that less than 10 refineries may meet the
screening criteria and thus potentially qualify for this option based
on our analysis of their 2003 data and MSAT1 baselines. Note that this
early compliance option will apply only to the type of gasoline that
qualifies--RFG or CG--not to the refinery's total pool. In 2011, the
MSAT2 benzene standards will apply to the refinery's total applicable
gasoline pool.
    We are limiting this compliance option to refineries that produce
gasoline by processing crude and intermediate feedstocks through
refinery processing equipment. Thus, this option is not available to
gasoline blenders and importers. While gasoline blenders and importers
may have gasoline with significantly cleaner than average toxics

performance, benzene and sulfur levels, and may have used large amounts
of MTBE, they have more options in the marketplace for obtaining
qualifying gasoline and gasoline blending components. Refineries have
comparatively less ability to adjust their refining operations, without
significantly reducing volume, in order to accommodate the change from
MTBE to ethanol.
    Few comments were received regarding this provision. All commenters
supported the provision. Many of those suggested that it be available
to any refinery. We continue to believe that this provision should
apply only to those entities that meet the criteria above. Those that
do not meet the criteria have the ability to further adjust their
benzene and sulfur content values to be able to comply with their MSAT1
baselines. If this provision was available to all refineries, it could
result in an overall nationwide backsliding on MSAT1. The intent of
this provision is to provide appropriate relief to a limited number of
entities that have unique challenges, while at the same time ensuring
that the net result is cleaner gasoline in the marketplace than would
otherwise be there.
    EPA also took comment on when entities that are approved for this
option should be allowed to begin compliance with the MSAT2 benzene
standards. We received comment supporting allowing such compliance for
the entire calendar year 2007, even though the rule will not be final
until partway into that year. Other suggested options include the next
calendar year, and partial year compliance for 2007. This latter option
would likely be unworkable under MSAT1 due to differences between
summer and winter MSAT performance. Thus, we decided that refineries
that are approved for this option will be allowed to comply with the
MSAT2 benzene standard for the entire 2007 period. We have also decided
against requiring approved refineries to wait until the 2008 compliance
period because we want to ensure that gasoline production from these
refineries is maximized, and waiting until 2008 would not achieve that
goal. Because this is an optional program for those that qualify,
approved refiners may choose to comply with MSAT2 beginning in 2007, or
beginning in 2008.
    As a final note on this subject, we also proposed that refineries
that meet the criteria and are approved for early compliance with the
MSAT2 benzene standards would not be allowed to generate early benzene
credits (see 71 FR 15881). A few commenters thought that such
refineries should be allowed to generate early credits. However, the
criteria for generating early credits require that the refinery reduce
benzene by 10% below its 2004-2005 baseline benzene level. The early
compliance provision is predicated on the fact that an approved
refinery has almost no ability to reduce benzene in order to maintain
compliance with its MSAT1 baseline. If such a refinery were able to
further reduce benzene, it would negate its need for early compliance
with the MSAT2 benzene standard. Therefore, we are finalizing this
early compliance option with this limitation as proposed.

B. How Will the Gasoline Benzene Standard Be Implemented?

    This section summarizes the main implementation provisions in the
regulations and provides additional clarification in a few cases.
1. General Provisions
    Compliance with the 0.62 vol% annual average and 1.3 vol% maximum
average benzene standards is determined over a refiner's or importer's
total gasoline pool, RFG and conventional gasoline (CG) combined. For
the 0.62 vol% standard, the first annual compliance period for non-
small refiners and for importers is 2011. For the 1.3 vol% standard,
the first compliance period for these entities is July 1, 2012 through
December 31, 2013. Thereafter, compliance is determined annually. Small
refiners will comply with the 0.62 vol% on an annual basis beginning in
2015. Compliance with the 1.3 vol% maximum average standard commences
for small refiners on July 1, 2016. For small refiners, the first
compliance period for the 1.3 vol% standard is July 1, 2016 through
December 31, 2017. Thereafter, compliance is determined annually.
    Compliance with the benzene standards is achieved separately for
each refinery of a refiner.\196\ For an importer, compliance is
achieved over its total volume of imports, regardless of point of
entry. As discussed in the proposal, gasoline produced by a foreign
refiner is included in the compliance calculation of the importer of
that gasoline, with certain exceptions for early credit generation and
small foreign refiners.
---------------------------------------------------------------------------

    \196\ Aggregation of facilities for compliance is not allowed
under this benzene control program. However, as pointed out in the
proposal, the ABT program's credit generation and transfer
provisions provide compliance flexibility similar to that provided
by aggregation.
---------------------------------------------------------------------------

    Finished gasoline and gasoline blendstock that becomes finished
gasoline solely upon the addition of oxygenate are included in the
compliance determination. Gasoline produced for use in California is
not included. Gasoline produced for use in the American territories--
Guam, Northern Mariana Islands, American Samoa--is not subject to the
benzene standard. Gasoline produced for use in these areas is currently
exempt from the MSAT1 standards, and for the same reasons we discussed
in the MSAT1 final rule \197\, including distance from gasoline
producers, low gasoline use, and distinct environmental conditions, we
are exempting gasoline produced for these areas from this rule.
---------------------------------------------------------------------------

    \197\ 66 FR 17253, March 29, 2001.
---------------------------------------------------------------------------

    Oxygenate and butane blenders are not subject to the benzene
standard unless they add other gasoline blending components beyond
oxygenates and butane. Similarly, transmix processors are not subject
to the benzene standard. We proposed that transmix processors would be
subject to the benzene standard if they add gasoline blending
components to the gasoline produced from transmix (see 71 FR 15891).
One commenter suggested that only the blending component added to the
gasoline produced from transmix should be subject to the standard
because the transmix processor has no control over the benzene level in
the gasoline produced from transmix, and the benzene in the gasoline
produced from transmix would have already been accounted for by another
entity. We agree with this comment, and have modified the final rule
accordingly.
    As discussed earlier, this benzene program has both an early credit
generation period and a standard credit generation period that begins
when the program takes effect. Early credits may be generated from
January 1, 2007 through December 31, 2010 by refineries with approved
benzene baselines. For small refiners, early credit generation extends
through December 31, 2014 for their refineries with approved benzene
baselines. Benzene baselines are based on a refinery's 2004-2005
average benzene content, and refiners can begin applying for benzene
baselines as early as March 1, 2007. Although there is no single cut-
off date for applying for a baseline, refiners planning to generate
early credits must submit individual refinery baseline applications at
least 60 days prior to beginning credit generation at that refinery.
    As explained earlier, in order to generate early credits, a
refinery's annual average benzene level must be at least 10 percent
lower than its baseline benzene level, and the refinery must show that
its low benzene levels result, in part, from operational changes and/

or improvements in benzene control technology since the baseline
period. Foreign refiners who sent gasoline to the U.S. during 2004-2005
under their foreign refiner baseline may generate early credits if they
are able to establish a benzene baseline and agree to comply with other
requirements that help to ensure enforcement of the regulation at the
foreign refinery. Early credits generated or obtained under the ABT
program must be used towards compliance within three years of the start
of the program; otherwise they will expire and become invalid. In other
words, early credits must be applied to the 2011, 2012, or 2013
compliance years. In the case of small refiners, early credits must be
applied to the 2015, 2016, or 2017 compliance years.
    Standard credits may be generated by refiners and importers
beginning with the 2011 compliance period. Standard credits may be
generated by small refiners beginning with the 2015 compliance period.
For refiners, credits are generated on a refinery-by-refinery basis for
each facility. For importers, credits are generated over the total
volume imported, regardless of point of entry. Foreign refiners are not
allowed to generate standard credits because compliance for their
gasoline is the responsibility of the importer. In order to generate
standard credits, a refinery's or importer's annual average benzene
level must be less than 0.62 vol%. Standard credits are valid for five
years from the year they were generated. A credit life extension exists
for standard credits traded to and ultimately used by small refiners.
These credits may be used towards compliance for an additional two
years, giving standard credits a maximum seven-year life.
    Compliance with the 0.62 vol% standard is based on the annual
average benzene content of the refinery's or importer's gasoline
production or importation, any credits used, and any compliance deficit
carried forward from the previous year. Credits may be used in any
quantity and combination (i.e., early or standard credits) to achieve
compliance with the 0.62 vol% benzene standard beginning with the first
compliance period in 2011, or 2015 for approved small refiners. For the
2011 and 2012 compliance periods, credits may be used in any amount,
and from any starting average benzene level. For example, if the
refinery's annual average benzene level at the end of 2011 is 1.89
vol%, it may use credits to meet the 0.62 vol% standard for that
compliance period. If its average benzene level at the end of 2012 is
1.45 vol%, it may likewise use credits to meet the 0.62 vol% standard
for that period.
    The first averaging period for the 1.3 vol% standard for non-small
refiners and importers begins July 1, 2012 and ends December 31, 2013,
an 18-month period. Similarly, the first averaging period for the 1.3
vol% standard for small refiners begins July 1, 2016 and ends December
31, 2017. Credits may not be used to achieve compliance with the 1.3
vol% standard at any time. A refinery must make capital improvements
and/or operational or blending practice changes such that it achieves
an actual average benzene level of no greater than 1.3 vol% for the
initial (18-month) compliance period, and each annual compliance period
thereafter. (An importer must bring in gasoline with benzene levels
that will average to 1.3 vol% or less during these same compliance
periods.) Continuing from our previous example, if at the end of 2012,
the refinery's average benzene level is 1.45 vol%, no further action is
yet needed to meet the 1.3 vol% standard. However, the refinery must
make capital improvements and/or operational or blending practice
changes such that it achieves an actual average benzene level of no
greater than 1.3 vol% for the 18-month period July 1, 2012-December 31,
2013. We will assume for this example that the refinery has a 1.0 vol%
average benzene level at the end of 2013. The refinery can then use
credits to meet the 0.62 vol% standard.
    Lack of compliance with the 0.62 vol% standard creates a deficit
that may be carried over to the next year's compliance determination.
Lack of compliance with the 0.62 vol% standard could occur for a number
of reasons, for example, a refinery or importer may choose not to use
(buy) sufficient offsetting credits. However, in the next year, the
refinery or importer must make up the deficit (through credit use and/
or refining or import improvements) and be in compliance with the 0.62
vol% standard.\198\ There is no deficit carry-forward provision
associated with the 1.3 vol% standard. If a refinery or importer is out
of compliance with the 1.3 vol% standard, it is subject to enforcement
action immediately.
---------------------------------------------------------------------------

    \198\ An extension of the period of deficit carryover may be
allowed in certain hardship situations, as discussed in section A.3.
---------------------------------------------------------------------------

2. Small Refiner Status Application Requirements
    A refiner applying for status as a small refiner under this program
is required to apply to and to provide EPA with several types of
information by December 31, 2007. The application requirements are
summarized below. A refiner seeking small refiner status under this
program would need to apply to EPA for that status, regardless of
whether or not the refiner had been approved for small refiner status
under another fuel program. As with applications for relief under other
rules, applications for small refiner status under this rule that are
later found to contain false or inaccurate information would be void ab
initio. Requirements for small refiner status applications include:

--The total crude oil capacity as reported to the Energy Information
Administration (EIA) of the U.S. Department of Energy (DOE) for the
most recent 12 months of operation. This would include the capacity of
all refineries controlled by a refiner and by all subsidiaries and
parent companies and their subsidiaries. We will presume that the
information submitted to EIA is correct. In cases where a company
disagreed with this information, the company could petition EPA with
appropriate data to correct the record when the company submitted its
application for small refiner status. EPA could accept such alternate
data at its discretion.
--The name and address of each location where employees worked from
January 1, 2005 through December 31, 2005; and the average number of
employees at each location during this time period. This must include
the employees of the refiner and all subsidiaries and parent companies
and their subsidiaries.
--In the case of a refiner who reactivated a refinery that was shutdown
or non-operational between January 1, 2005, and January 1, 2006, the
name and address of each location where employees worked since the
refiner reactivated the refinery and the average number of employees at
each location for each calendar year since the refiner reactivated the
refinery.
--The type of business activities carried out at each location.
--The small refiner option(s) the refiner intends to use for each
refinery.
--Contact information for a corporate contact person, including: name,
mailing address, phone and fax numbers, e-mail address.
--A letter signed by the president, chief operating officer, or chief
executive officer of the company (or a designee) stating that the
information contained in the application was true to the best of his/
her knowledge and that the company owned the refinery as of January 1,
2007.

3. Administrative and Enforcement Provisions
    Most of the administrative and enforcement provisions are similar
to those in effect for other gasoline programs, as discussed in the
proposal. The discussion below highlights those areas that we wish to
clarify and those that received significant comment.
a. Sampling/Testing
    Because compliance with this program and with the gasoline sulfur
program will become the compliance mechanism for certain RFG and anti-
dumping requirements, some reporting simplifications will occur, as
described below. However, sampling, testing, and reporting of all of
the current fuel parameters will continue to be required. It is
important to continue to monitor how refiners continue to achieve the
toxics control required of RFG and CG through fuel composition changes,
and how other toxics emissions may be affected by this MSAT2 benzene
rule. Continued collection of all of the fuel parameters will
facilitate future toxics evaluation activities.
    We proposed to require every-batch sampling for CG under this
program, but indicated that results would not have to be available
before the batch leaves the refinery (see 71 FR 15893). RFG already is
every-batch tested, and the results must be available before the batch
leaves the refinery because of RFG's 1.3 vol% per gallon cap. Several
commenters stated that every-batch testing for CG was unnecessary
because the benzene standard is an average standard, and that it would
be costly, especially for small refiners. These commenters requested
that continued composite sampling be allowed for conventional
gasoline.\199\ Nevertheless, we are concerned about potential
downstream benzene addition. Requiring every-batch testing for CG will
allow for closer monitoring of the movement of high benzene streams. In
this program, we are relying on there being no significant incentive to
dump benzene-rich streams into gasoline downstream of the refinery
where the benzene levels are originally measured. With every-batch
benzene testing of all gasoline, we will be able to better discern if
high benzene batches originated at the refinery, or downstream. With
composite testing, it would be significantly more difficult to
determine the source of the high benzene streams. Thus, we are
finalizing every-batch benzene testing for all gasoline.
---------------------------------------------------------------------------

    \199\ Section 80.101(i).
---------------------------------------------------------------------------

b. Recordkeeping/Reporting
    This program will require some new records to be kept, such as the
benzene baseline, credits generated, and credit transactions, and new
reports to be filed (e.g., benzene pre-compliance reports). However,
because the current regulations for RFG and anti-dumping toxics
controls and MSAT1 controls are being removed, certain recordkeeping
and reporting requirements will be reduced or eliminated, as detailed
in the regulations. Because the program will not be fully implemented
until small refiners are also subject to both the 0.62 vol% and the 1.3
vol% benzene standards, the process of streamlining the reporting forms
will not be complete until that time.
    As mentioned above, in order to provide an early indication of the
credit market for refiners and importers planning on relying upon
benzene credits as a compliance strategy in 2011 and beyond, we are
requiring refiners to submit pre-compliance reports to us in the years
leading up to start of the program. Pre-compliance reporting has proven
to be an indispensable mechanism in implementing the gasoline and
diesel sulfur programs, and we expect this to be the case in this
program as well. Refiners are required to submit annual pre-compliance
reports on June 1st of every year beginning in 2008 and continuing
through 2011 (2015 for small refiners). The pre-compliance reports must
contain engineering and construction plans as well as actual/projected
gasoline production levels, actual/projected gasoline benzene levels,
and actual/projected credit generation and use.
    Several commenters suggested that the RFG NOX retail
survey be discontinued after 2006, and that the RFG toxics retail
survey be discontinued after 2010. The surveys use fuel parameters of
RFG sampled from retail stations to estimate VOC, NOX, and
toxics emissions. There are also fuel benzene and oxygen content
surveys. If a survey is ``failed'', gasoline sent to the area must meet
a more stringent standard. Because we are finalizing, as proposed,
provisions that make the gasoline sulfur program the sole regulatory
mechanism used to implement gasoline NOX requirements, and
the benzene control program the sole regulatory mechanism used to
implement the toxics requirements of RFG \200\ and anti-dumping, we
agree that the NOX and toxics surveys are no longer needed.
A discussion of the origin of the survey program, and how the toxics
and NOX requirements for CG and RFG will be met under the
MSAT2 program is provided in Chapter 6.13 of the RIA for this
rulemaking.
---------------------------------------------------------------------------

    \200\ The 1.3 vol% per gallon cap on RFG benzene remains.
---------------------------------------------------------------------------

C. How Will the Program Relate to Other Fuel-Related Toxics Programs?

    In the proposal we presented an analysis that examined
quantitatively how the fuel performance under the new gasoline content
standard and vehicle emissions standard as proposed would compare to
current toxics performance requirements and to performance as modified
by the Energy Policy Act of 2005. This analysis suggested that the fuel
standard alone would exceed previous performance for RFG, and
significantly exceed it for CG.
    We have updated the results of this analysis, using better
estimates of future ethanol use developed for the RFS final rulemaking,
as well as the updated benzene projections from the refinery-by-
refinery analysis done for this final rulemaking. As shown in Table
VI.C-1, these updated analyses continue to support the conclusion that
the MSAT2 fuel program will provide greater toxics reductions for both
CG and RFG.

 Table VI.C-1.--Estimated Annual Average Total Toxics Performance of Light Duty Vehicles in mg/mi Under Current
                                            and Projected Scenarios.a
----------------------------------------------------------------------------------------------------------------
                                                 RFG by PADD                          CG by PADD
      Regulatory scenario         Fleet  -----------------------------------------------------------------------
                                   year      I        II      III       I        II      III       IV       V
----------------------------------------------------------------------------------------------------------------
MSAT1 Baseline \b\ (1998-2000).     2002      112      129       97      114      145      107      145      156
EPAct Baseline \b\ (RFG: 2001-      2002      104      121       87      114      145      107      145      156
 2002).........................
EPAct Baseline, 2011 \c\.......     2011       67       78       52       62       83       54       82       88
MSAT2 program, 2011 \c\ (Fuel       2011       66       76       52       60       77       52       74       81
 standard only)................

MSAT2 program, 2011 \c\ (Fuel +     2011       64       72       48       56       74       47       70       78
 vehicle standards)............
MSAT2 program, 2025 \c\ (Fuel +     2025       39       45       31       36       45       31       44      48
 vehicle standards)............
----------------------------------------------------------------------------------------------------------------
\a\ Total toxics performance for this analysis includes overall emissions of 1,3-butadiene, acetaldehyde,
  acrolein, benzene and formaldehyde as calculated by MOBILE6.2. Although POM appears in the Complex Model, it
  is not included here. However, it contributes a small and relatively constant mass to the total toxics figure
  (~4%), and therefore doesn't make a significant difference in the comparisons. Toxics performance figures here
  are for representative cities in each PADD, and therefore some geographical variation is not captured here.
\b\ Baseline figures generated in this analysis were calculated differently from the regulatory baselines
  determined as part of the MSAT1 program, and are only intended to be a point of comparison for future year
  cases.
\c\ Future year scenarios include (in addition to the MSAT2 standards, where stated) effects of the Tier 2
  vehicle and gasoline sulfur standards, and vehicle fleet turnover with time, as well as estimated effects of
  the renewable fuels standard and the phase-out of ether blending as developed in the RFS rulemaking.

D. How Does This Program Satisfy the Statutory Requirements of Clean
Air Act Section 202(l)(2)?

    As discussed earlier in this section, we have concluded that the
most effective and appropriate program for MSAT emission reduction from
gasoline is a benzene control program. We are finalizing, as proposed,
an average benzene content standard of 0.62 vol% along with a
specially-designed ABT program, as well as a maximum average annual
standard of 1.3 vol%. In sections VI.A.1.c and d above, we summarize
our evaluation of the feasibility of the program, and in section VIII.A
we summarize our evaluation of the costs of the program. The analyses
supporting our conclusions in these sections are discussed in detail in
Chapters 6 and 9 of the RIA.
    Taking all of this information into account, we believe that a more
stringent program would not be achievable, taking costs into
consideration. As we have discussed, making the 0.62 vol% standard more
stringent would require more refiners to install the more expensive
benzene control equipment, with very little incremental decrease in
benzene emissions. Also, we have shown that refinery costs increase
very rapidly as the level of the average standard is made more
stringent, especially for certain individual technologically-challenged
refineries. We discuss the costs of this program in detail in section
VIII.A of this preamble and in Chapter 9 of the RIA. Moreover, the 0.62
vol% standard achieves significant reductions in benzene levels
nationwide, and achieves significant reductions in each PADD. The 1.3
vol% annual average standard makes it more certain that the predicted
emission reductions will in fact occur.
    Conversely, we believe that a less stringent national average
standard than 0.62 vol% would not satisfy our statutory obligation to
promulgate the most stringent standard achievable considering cost and
other factors along with technological feasibility. Furthermore, as
discussed in section VI.A, less stringent standards would not
accomplish several important programmatic objectives, such as avoiding
the triggering of the provisions in the 2005 EPAct to adjust the MSAT1
baseline for RFG. We have also considered energy implications of the
proposed program, as well as noise and safety, and we believe that the
MSAT2 program will have very little impact on any of these factors
(although, as explained in section VI.A above, some of the alternative
toxic control strategies urged by commenters could have adverse energy
supply implications). Analyses supporting these conclusions are also
found in Chapter 9 of the RIA. We carefully considered lead time in
establishing the stringency and timing of the proposed program (see
section VI.A above).
    We have carefully reviewed the technological feasibility (see
section VI.A.1.c.i above and chapter 6 of the RIA) and costs of this
program. Based on the considerations outlined in this section VI, we
conclude that this program meets the requirements of section 202(l)(2)
of the Clean Air Act, reflecting ``the greatest degree of emission
reduction achievable through the application of technology which is
available, taking into consideration * * * the availability and costs
of the technology, and noise, energy, and safety factors, and lead
time.''

VII. Portable Fuel Containers

    As described in this section, we are adopting new HC emissions
standards for portable gasoline containers (gas cans) essentially as
proposed. We are also finalizing the same requirements for portable
diesel and kerosene containers, containers which could easily be used
for gasoline. Manufacturers must begin meeting the new requirements on
January 1, 2009. These new emissions control requirements will reduce
HC emissions from uncontrolled gasoline containers by about 75%,
including reducing spillage losses. The final rule also includes new
certification and compliance requirements that will help ensure that
the containers achieve emissions control in use over the life of the
container. The standards and program requirements we are finalizing are
very similar to those adopted by California in 2005, so that
manufacturers will be able to sell 50-state products. Overall,
commenters were very supportive of the proposed new emissions control
program for portable fuel containers.
    We are establishing the portable fuel container (PFC) standards and
emissions control requirements under section 183(e) of the Clean Air
Act, which directs EPA to study, list, and regulate consumer and
commercial products that are significant sources of VOC emissions. In
1995, after conducting a study and submitting a Report to Congress on
VOC emissions from consumer and commercial products, EPA published an
initial list of product categories to be regulated under section
183(e). Based on criteria that we established pursuant to section
183(e)(2)(B), we listed for regulation those consumer and commercial
products that we considered at the time to be significant contributors
to the ozone nonattainment problem, but we did not include PFC
emissions.\201\ After analyzing the emissions inventory impacts of
these containers, we published a Federal Register notice that added
PFCs to the list of consumer

products to be regulated.\202\ We requested comment on the data
underlying the listing but did not receive any comments.\203\ We
continue to believe that the standards we proposed and are finalizing
for fuel containers represent ``best available controls'' as required
by section 183(e)(3)(A). Determination of the ``best available
controls'' requires EPA to determine the degree of reduction achievable
through use of the most effective control measures (which includes
chemical reformulation, and other measures) after considering
technological and economic feasibility, as well as health, energy, and
environmental impacts.\204\
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    \201\ 60 FR 15264 ``Consumer and Commercial Products: Schedule
for Regulation,'' March 23, 1995.
    \202\ 71 FR 28320 ``Consumer and Commercial Products: Schedule
for Regulation,'' May 16, 2006.
    \203\ See not only the notice cited in the previous note, but
also 71 FR 15894 (``EPA will afford interested persons the
opportunity to comment on the data underlying the listing before
taking final action on today's proposal'').
    \204\ See section 183(e)(1); see also section 183(e)(4)
providing broad authority to include ``systems of regulation'' in
controlling VOC emissions from consumer products.
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A. What Are the New HC Emissions Standards for PFCs?

1. Description of Emissions Standard
    We are finalizing as proposed a performance-based standard of 0.3
grams per gallon per day (g/gal/day) of HC to control evaporative and
permeation losses. The standard will be measured based on the emissions
from the container over a diurnal test cycle. The cans will be tested
as a system with their spouts attached. Manufacturers will test the
containers by placing them in an environmental chamber which simulates
summertime ambient temperature conditions and cycling the containers
through the 24-hour temperature profile (72-96 [deg]F), as discussed
below. The test procedures, which are described in more detail below,
ensure that containers meet the emissions standard over a range of in-
use conditions such as different temperatures, different fuels, and
taking into consideration factors affecting durability. EPA received
only supportive comments on the proposed emissions standards.
2. Determination of Best Available Control
    We continue to believe that the 0.3 g/gal/day emissions standard
and associated test procedures reflect the performance of the best
available control technologies including durable permeation barriers,
auto-closing spouts, and a can that is well-sealed to reduce
evaporative losses. The standard is both economically and
technologically feasible. To comply with California's program, gas can
manufacturers have developed gas cans with low VOC emissions at a
reasonable cost (see section XIII. for costs). Testing of cans designed
to meet CARB standards has shown the new standards to be
technologically feasible. When tested over cycles very similar to those
we are adopting, emissions from these cans have been in the range of
0.2-0.3 g/gal/day.\205\ These cans have been produced with permeation
barriers representing a high level of control (over 90 percent
reductions) and with auto-closing spouts, which are technologies that
represent best available controls for gas cans. Establishing the
standard at 0.3 g/gal/day will require the use of best available
technologies. As discussed in the proposal, we are finalizing a level
at the upper end of the tested performance range to account for product
performance variability (see 71 FR 15896). In addition, we believe that
current best designs can achieve these levels, so we do not believe
that the standard forecloses use of any of the existing performing
product designs. Our detailed feasibility analysis is provided in the
Regulatory Impact Analysis. We did not receive any comments on our
feasibility analysis.
---------------------------------------------------------------------------

    \205\ ``Quantification of Permeation and Evaporative Emissions
From Portable Fuel Container'', California Air Resources Board, June
2004.
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    In addition to considering technological and economic feasibility,
section 183(e)(1)(A) requires us to consider ``health, environmental,
and energy impacts'' in assessing best available controls.
Environmental and health impacts are discussed in section III.
Moreover, control of spillage from containers may reduce fire hazards
as well because cans would stay tightly closed if tipped over. We
expect the energy impacts of gas can control to be positive, because
the standards will reduce evaporative fuel losses.
3. Diesel, Kerosene and Utility Containers
    Diesel and kerosene containers are manufactured by the same
manufacturers as are gasoline containers and are identical to gasoline
containers except for color (diesel containers are yellow and kerosene
containers are blue). In the proposal, we requested comment on applying
the emissions control requirements being proposed for gasoline
containers to diesel and kerosene containers (see 71 FR 15897).
California included diesel and kerosene cans in their regulations
largely due to the concern that they would be purchased as substitutes
for gasoline containers. We received only supportive comments for
including these containers in the program. Several states and state
organizations urged EPA to include these containers in the EPA program,
viewing their omission as a significant difference between the
California program and EPA's proposed program.
    We recognize that using uncontrolled diesel and kerosene containers
as a substitute for gasoline containers would result in a loss of
emissions reductions. California collected limited survey data which
indicated that about 60 percent of kerosene containers were being used
for gasoline. In addition, keeping gasoline in containers marked for
other fuels could lead to misfueling of equipment and possible safety
issues. Finally, not including these containers would likely be viewed
as a gap in EPA's program, resulting in states adopting or retaining
their own emissions control program for PFCs. This would hamper the
ability of manufacturers to have a 50-state product line. For these
reasons, we are including diesel and kerosene containers in the
program.
    We are also clarifying that utility jugs are considered portable
gasoline containers and therefore are subject to the program. They are
designed and marketed for use with gasoline, often to fuel recreational
equipment such as all-terrain vehicles and personal watercraft. This
interpretation is consistent with the scope of the California program.
California recently issued a clarification that these containers are
covered by their program, after some utility jug manufacturers failed
to meet the existing California requirements.
4. Automatic Shut-Off
    We received a few comments encouraging EPA to consider or evaluate
spillage control requirements. California's original program which
began in 2001 required automatic shut-off as a way to reduce spillage.
However, for reasons discussed in the proposal, we did not propose and
are not finalizing automatic shut-off requirements (see 71 FR 15896).
Automatic shut-off is supposed to stop the flow of fuel when the fuel
reaches the top of the receiving tank in order to prevent over-filling.
However, due to a wide variety of receiving fuel tank designs, the auto
shut-off spouts do not work well with a variety of equipment types. In
California, this problem led to spillage and consumer dissatisfaction,
and California has removed automatic shut-off requirements from their
program.

    We continue to believe that including an automatic shut-off
requirement would be counterproductive at this time. We believe that
the automatic closing cans, even without automatic shut-off
requirements, will lead to reduced spillage. Consumers will be able to
watch the fuel rise in the receiving tank and stop fuel flow using the
automatic close features prior to overfill. As discussed in the
proposal, automatic closure keeps the cans closed when they are not in
use and provides more control to the consumer during use. We believe
consumers will appreciate this feature and see it as an improvement
over existing cans, whereas an automatic shut-off that worked with only
some equipment types would not be acceptable.

B. Timing of Standard

    We are finalizing as proposed a start date for the new PFC
standards of January 1, 2009. We received comments from state
organizations recommending that the program start on January 1, 2008.
In the proposal we recognized that adequate lead time is a key aspect
of the standard's technological feasibility. Manufacturers have
developed the primary technologies to reduce emissions from gas cans
but will need a few years of lead time to certify products and ramp up
production to a national scale. The certification process will take at
least six months due to the required durability demonstrations
described below, and manufacturers will need time to procure and
install the tooling needed to produce gas cans with permeation barriers
for nationwide sales. Commenters did not provide any new information to
counter these points and we continue to believe for these reasons that
the January 1, 2009 start date is appropriate.
    The standards apply to containers manufactured on or after the
start date of the program and do not affect cans produced before the
start date. As proposed, as of July 1, 2009, manufacturers and
importers must not enter into U.S. commerce any products not meeting
the emissions standards. This provides manufacturers with a 6-month
period to clear any stocks of containers manufactured prior to the
January 1, 2009 start of the program, allowing the normal sell-through
of these cans to the retail level. Retailers may sell their stocks of
containers through the course of normal business without restriction.
Containers are required by this rule to be stamped with their
production date (consistent with current industry practices), which
will allow EPA to determine which cans are required to meet the new
standards. We did not receive any comments on these aspects of the
proposal or comments suggesting that the proposed lead times would not
be adequate.

C. What Test Procedures Would Be Used?

    As proposed, we are finalizing a system of regulations for
containers that includes test conditions designed to assure that the
intended emission reductions occur over a range of in-use conditions
such as operating at different temperatures, with different fuels, and
considering factors affecting durability. These test procedures are
authorized under section 183(e)(4) as part of a system of regulations
to achieve the appropriate level of emissions reductions. Emission
testing on all containers that manufacturers produce is not feasible
due to the high annual production volumes and the cost and time
involved with emissions testing. Instead, before the containers are
introduced into commerce, the manufacturer will need to receive a
certificate of conformity from EPA that the containers conform to the
emissions standards, based on manufacturers' applications for
certification. Manufacturers must submit test data on a sample of
containers that are prototypes of the products the manufacturer intends
to produce. The certificate issued by EPA will cover the range of
production containers represented by the prototype container. As part
of the application for certification, manufacturers also need to
declare that their production cans will not deviate in materials or
design from the prototype cans that are tested. If the production
containers do deviate, then they will not be coved by the certificate
and it will be a violation of the regulations to introduce such
uncertified containers into commerce. Manufacturers must obtain their
certification from EPA prior to introducing their products into
commerce. The test procedures and certification requirements are
described in detail below. Unless otherwise noted below, we did not
receive comments on these test procedures.
    We are requiring that manufacturers test cans in their most likely
storage configuration. The key to reducing evaporative losses from
gasoline containers is to ensure that there are no openings on the cans
that could be left open by the consumer. Traditional cans have vent
caps and spout caps that are easily lost or left off cans, which leads
to very high evaporative emissions. We expect manufacturers to meet the
evaporative standards by using automatic closing spouts and by removing
other openings that consumers could leave open. However, if
manufacturers choose to design cans with an opening that does not close
automatically, we are requiring that containers be tested in their open
condition. If the containers have any openings that consumers could
leave open (for example, vents with caps), these openings thus would
need to be left open during testing. This applies to any opening other
than where the spout attaches to the can. We believe it is important to
take this approach because these openings could be a significant source
of in-use emissions and there is a realistic possibility that these
openings would be inadvertently left open in use.
    Except for pressure cycling, discussed below, spouts would be in
place during testing because this would be the most likely storage
configuration for the emissions compliant cans. Spouts would still be
removable so that consumers would be able to refill the cans, but we
would expect the containers to be resealed by consumers after being
refilled in order to prevent spillage during transport. We do not
believe that consumers would routinely leave spouts off cans because
spouts are integral to the cans' use and it is obvious that they need
to be sealed.
1. Diurnal Test
    We are finalizing as proposed a test procedure for diurnal
emissions testing where the containers are placed in an environmental
chamber or a Sealed Housing for Evaporative Determination (SHED), the
temperature is varied over a prescribed temperature and time profile,
and the hydrocarbons escaping from the can are measured. Containers are
to be tested over the same 72-96 [deg]F (22.2-35.6 [deg]C) temperature
profile used for automotive applications. This temperature profile
represents a hot summer day when ground level ozone emissions would be
highest. Three containers must be tested, each over a three-day test.
Testing three cans for certification will help address variability in
products or test measurements. All three cans must individually meet
the standard. As noted above, cans must be tested in their most likely
storage configuration.
    The final results are to be reported in grams per gallon, where the
grams are the mass of hydrocarbons escaping from the container over 24
hours and the gallons are the nominal can capacity. The daily emissions
will then be averaged for each can to demonstrate compliance with the
standard. This test captures hydrocarbons lost through permeation and
any other evaporative

losses from the container as a whole. The grams of hydrocarbons lost
may be determined by either weighing the gas can before and after the
diurnal test cycle or measuring emissions directly using the SHED
instrumentation.
    Consistent with the automotive test procedures, we are requiring
that the testing take place using 9 pounds per square inch (psi) Reid
Vapor Pressure (RVP) certification gasoline, which is the same fuel
required by EPA to be used in its other evaporative test programs. We
are requiring testing be done using E10 fuel (10% ethanol blended with
the gasoline described above) to help ensure in-use emission reductions
on ethanol-gasoline blends, which tend to have increased evaporative
emissions with certain permeation barrier materials. We continue to
believe that including ethanol in the test fuel will lead to the
selection of materials by manufacturers that are consistent with ``best
available control'' requirements for all likely contained gasolines,
and is clearly appropriate given the expected increase over time of the
use of ethanol blends of gasoline under the renewable fuel provisions
of the Energy Policy Act of 2005.
    Diurnal emissions are not only a function of temperature and fuel
volatility, but of the size of the vapor space in the container as
well. We are finalizing as proposed that the fill level at the start of
the test be 50% of the nominal capacity of the can. This would likely
be the average fuel level of the gas can in-use. Nominal capacity of
the cans is defined as the volume of fuel, specified by the
manufacturer, to which the can could be filled when sitting on level
ground. The vapor space that normally occurs in a container, even when
``full,'' would not be considered in the nominal capacity of the can.
All of these test requirements are meant to represent typical in-use
storage conditions for containers, on which EPA can base its emissions
standards. The above provisions for diurnal testing are included as a
way to implement the standards effectively, which, in conjunction with