June 29, 2004); Nonroad Large Spark-Ignition Engines and
Recreational Engines standards (67 FR 68241, November 8, 2002);
Final Industrial Boilers and Process Heaters NESHAP (69 FR 55217,
September 13, 2004); Final Reciprocating Internal Combustion Engines
NESHAP (69 FR 33473, June 15, 2004); Final Clean Air Visibility Rule
(EPA-452/R-05-004, June 15, 2005); Ozone Implementation Rule
(documentation forthcoming).
---------------------------------------------------------------------------

    Table IX.E-2 presents the primary estimates of reduced incidence of
PM-related health effects for the years 2020 and 2030 for the proposed
cold temperature vehicle control strategies.\295\ In 2030, we estimate
that PM-related annual benefits would result in approximately 910 fewer
premature fatalities, 590 fewer cases of chronic bronchitis, 1,600
fewer non-fatal heart attacks, and 940 fewer hospitalizations (for
respiratory and cardiovascular disease combined). In addition, we
estimate that the emission controls would reduce days of restricted
activity due to respiratory illness by about 620,000 days and reduce
work-loss days by about 110,000 days. We also estimate substantial
health improvements for children from reduced upper and lower
respiratory illness, acute bronchitis, and asthma attacks.
---------------------------------------------------------------------------

    \295\ The ``primary estimate'' refers to the estimate of
benefits that reflects the suite of endpoints and assumptions that
EPA believes yields the expected value of air quality improvements
related to the proposed standards. The impact that alternative
endpoints and assumptions have on the benefit estimates are explored
in appendixes to the RIA.

    TABLE IX.E-2.--Estimated Annual Reductions in Incidence of Health
   Effects Related to the Proposed Cold Temperature Vehicle Standard a
------------------------------------------------------------------------
                                            2020 Annual     2030 Annual
              Health effect                  incidence       incidence
                                             reduction       reduction
------------------------------------------------------------------------
PM-Related Endpoints:
    Premature Mortality b
    Adult, age 30+ and Infant, age < 1                480             910
     year...............................
    Chronic bronchitis (adult, age 26                330             590
     and over)..........................
    Non-fatal myocardial infarction                  820           1,600
     (adult, age 18 and over)...........
    Hospital admissions--respiratory                 260             540
     (all ages) c.......................
    Hospital admissions--cardiovascular              220             400
     (adults, age >18) d................
    Emergency room visits for asthma                 360             630
     (age 18 years and younger).........
    Acute bronchitis, (children, age 8-              790           1,400
     12)................................
    Lower respiratory symptoms                     9,400          17,000
     (children, age 7-14)...............
    Upper respiratory symptoms                     7,100          13,000
     (asthmatic children, age 9-18).....
    Asthma exacerbation (asthmatic                12,000          21,000
     children, age 6-18)................
    Work Loss Days......................          63,000         110,000
    Minor restricted activity days               370,000        620,000
     (adults age 18-65).................
------------------------------------------------------------------------
a Incidence is rounded to two significant digits. Estimates represent
  benefits from the proposed rule nationwide, excluding Alaska and
  Hawaii.
b PM-related adult mortality based upon studies by Pope, et al 2002.296
  PM-related infant mortality based upon studies by Woodruff, Grillo,
  and Schoendorf,1997.297
c Respiratory hospital admissions for PM include admissions for chronic
  obstructive pulmonary disease (COPD), pneumonia and asthma.
d Cardiovascular hospital admissions for PM include total cardiovascular
  and subcategories for ischemic heart disease, dysrhythmias, and heart
  failure.

    PM also has numerous documented effects on environmental quality
that affect human welfare. These welfare effects include direct damages
to property, either through impacts on material structures or by
soiling of surfaces, and indirect economic damages through the loss in
value of recreational visibility or the existence value of important
resources. Additional information about these welfare effects can be
found in Chapter 12 of the Regulatory Impact Analysis prepared for this
proposal.
---------------------------------------------------------------------------

    \296\ Pope, C.A., III, R.T. Burnett, M.J. Thun, E.E. Calle, D.
Krewski, K. Ito, and G.D. Thurston. 2002. ``Lung Cancer,
Cardiopulmonary Mortality, and Long-term Exposure to Fine
Particulate Air Pollution.'' Journal of American Medical Association
287:1132-1141.
    \297\ Woodruff, T.J., J. Grillo, and K.C. Schoendorf. 1997.
``The Relationship Between Selected Causes of Postneonatal Infant
Mortality and Particulate Infant Mortality and Particulate Air
Pollution in the United States.'' Environmental Health Perspectives
105(6):608-612.
---------------------------------------------------------------------------

3. Monetized Benefits
    Table IX.E-3 presents the estimated monetary value of reductions in
the incidence of those health effects we are able to monetize for the
proposed cold temperature vehicle standard. Total annual PM-related
health benefits are estimated to be approximately $6.5 or $5.9 billion
in 2030 (3 percent and 7 percent discount rate, respectively). These
estimates account for growth in real gross domestic product (GDP) per
capita between the present and 2030.
    Table IX.E-3 indicates with a ``B'' those additional health and
environmental benefits of the rule that we are unable to quantify or
monetize. These effects are additive to the estimate of total benefits,
and are related to the following sources:
     There are many human health and welfare effects associated
with PM, ozone, and toxic air pollutant reductions that remain
unquantified because of current limitations in the methods or available
data. A listing of the benefit categories that could not be quantified
or monetized in our benefit estimates are provided in Table IX.E-1.

     The PM benefits scaled transfer approach, derived from the
Clean Air Nonroad Diesel rule, does not account for VOCs as precursors
to ambient PM2.5 formation. To the extent that VOC emission
reductions associated with the proposed regulations contribute to
reductions in ambient PM2.5, this analysis does not capture
the related health and environmental benefits of those changes.
     The PM air quality model only captures the benefits of air
quality improvements in the 48 states and DC; PM benefits for Alaska
and Hawaii are not reflected in the estimate of benefits.

 TABLE IX.E-3.--Estimated Annual Monetary Value of Reductions in Incidence of Health and Welfare Effects Related
                                to the Proposed Cold Temperature Vehicle Standard
                                             [Millions of 2003$] a b
----------------------------------------------------------------------------------------------------------------
                                                                            2030  Estimated    Estimated   Estimated
         Health effect                Pollutant        2020  Estimated         value of        value of    value of
                                                     value of reductions      reductions      reductions  reductions
-------------------------------------------------------------------------------------------- ------------------------
PM-Related Premature mortality
 c, d:
    Adult, 30+ years and
     Infant, < 1 year.
        3 percent discount rate  PM2.5.............  $3,100               $6,000
        7 percent discount rate  ..................  2,800                5,400
Chronic bronchitis (adults, 26   PM2.5.............  150                  270
 and over).
Non-fatal acute myocardial
 infarctions:
        3 percent discount rate  ..................  80                   150
        7 percent discount rate  PM2.5.............  77                   150
Hospital admissions for          PM2.5.............  4.8                  10
 respiratory causes.
Hospital admissions for          PM2.5.............  5.1                  9.4
 cardiovascular causes.
Emergency room visits for        PM2.5.............  0.12                 0.21
 asthma.
Acute bronchitis (children, age  PM2.5.............  0.32                 0.58
 8-12).
Lower respiratory symptoms       PM2.5.............  0.17                 0.30
 (children, age 7-14).
Upper respiratory symptoms       PM2.5.............  0.20                 0.37
 (asthma, age 9-11).
Asthma exacerbations...........  PM2.5.............  0.57                 1.0
Work loss days.................  PM2.5.............  9.2                  14
Minor restricted activity days   PM2.5.............  21                   36
 (MRADs).
Monetized Total e:
    Base estimate..............
        3 percent discount rate  PM2.5.............  3,400+ B             6,500+ B
        7 percent discount rate  ..................  3,100+ B             5,900+ B
----------------------------------------------------------------------------------------------------------------
\a\ Dollars are rounded to two significant digits. The PM estimates represent benefits from the proposed rule
  across the contiguous United States.
\b\ Monetary benefits adjusted to account for growth in real GDP per capita between 1990 and the analysis year
  (2020 or 2030).
\c\ Valuation of premature mortality based on long-term PM exposure assumes discounting over the SAB recommended
  20 year segmented lag structure described in the Regulatory Impact Analysis for the Final Clean Air Interstate
  Rule (March 2005). Results show 3 percent and 7 percent discount rates consistent with EPA and OMB guidelines
  for preparing economic analyses (US EPA, 2000 and OMB, 2003).\298\
\d\ Adult mortality based upon studies by Pope et al. 2002. Infant mortality based upon studies by Woodruff,
  Grillo, and Schoendorf, 1997.
\e\ B represents the monetary value of health and welfare benefits not monetized. A detailed listing is provided
  in Table IX.E-1.

4. What Are the Significant Limitations of the Benefit Analysis?
---------------------------------------------------------------------------

    \298\ U.S. Environmental Protection Agency, 2000. Guidelines for
Preparing Economic Analyses. http://www.yosemite1.epa.gov/ee/epa/eed/hsf/pages/Guideline.html
.

    Office of Management and Budget, The Executive Office of the
President, 2003. Circular A-4. http://www.whitehouse.gov/omb/circulars
.

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

    Perhaps the most significant limitation of this analysis is our
inability to quantify a number of potentially significant benefit
categories associated with improvements in air quality that would
result from the proposed standards. Most notably, we are unable to
estimate the benefits from reduced air toxics exposures because the
available tools and methods to assess mobile source air toxics risk at
the national scale are not adequate for extrapolation to incidence
estimations or benefits assessment. We also do not quantify ozone
benefits due to the magnitude of, and uncertainty associated with, the
modeled changes in ambient ozone associated with the proposed gas can
standards, despite net benefits, when population weighted, in the ozone
design value metric observed across the modeled domain (see Section
IV.C).
    More generally, every benefit-cost analysis examining the potential
effects of a change in environmental protection requirements is limited
to some extent by data gaps, limitations in model capabilities (such as
geographic coverage), and uncertainties in the underlying scientific
and economic studies used to configure the benefit and cost models.
Deficiencies in the scientific literature often result in the inability
to estimate quantitative changes in health and environmental effects,
such as potential increases in premature mortality associated with
increased exposure to carbon monoxide. Deficiencies in the economics
literature often result in the inability to assign economic values even
to those health and environmental outcomes which can be quantified.
These general uncertainties in the underlying scientific and economics
literature, which can cause the valuations to be higher or lower, are
discussed in detail in the RIA and its supporting references. Key
uncertainties that have a bearing on the results of the benefit-cost
analysis of the proposed standards include the following:
     The exclusion of potentially significant and unquantified
benefit categories (such as health, odor, and ecological benefits of
reduction in air toxics, ozone, and PM);
     Errors in measurement and projection for variables such as
population growth;
     Uncertainties in the estimation of future year emissions
inventories and air quality;
     Uncertainties associated with the scaling of the PM
results of the modeled

benefits analysis to the proposed standards, especially regarding the
assumption of similarity in geographic distribution between emissions
and human populations and years of analysis;
     Uncertainty in the estimated relationships of health and
welfare effects to changes in pollutant concentrations including the
shape of the C-R function, the size of the effect estimates, and the
relative toxicity of the many components of the PM mixture;
     Uncertainties in exposure estimation; and
     Uncertainties associated with the effect of potential
future actions to limit emissions.
    Despite these uncertainties, we believe this benefit-cost analysis
provides a conservative estimate of the expected economic benefits of
the proposed standards for cold temperature vehicle control in future
years because of the exclusion of potentially significant benefit
categories. Acknowledging benefits omissions and uncertainties, we
present a best estimate of the total benefits based on our
interpretation of the best available scientific literature and methods
supported by EPA's technical peer review panel, the Science Advisory
Board's Health Effects Subcommittee (SAB-HES). EPA has also worked to
address many of the comments made by the National Academy of Sciences
(NAS) in a September 26, 2002 report on its review of the Agency's
methodology for analyzing the health benefits of measures taken to
reduce air pollution. EPA addressed many of these comments in the
analysis of the final CAIR rule.\299\ The analysis of the proposed rule
incorporates this most recent work.
---------------------------------------------------------------------------

    \299\ See Chapter 4 of the Final Clean Air Interstate Rule RIA
(http://www.epa.gov/cair) for a discussion of EPA's ongoing efforts to

address the NAS recommendations in its regulatory analyses.
---------------------------------------------------------------------------

    There is one category where new studies suggest the possibility of
significant additional economic benefits. Over the past several years,
EPA's SAB has expressed the view that there were not sufficient data to
show a separate ozone mortality effect, in essence saying that any
ozone benefits are captured in the PM-related mortality benefit
estimates. However, in their most recent advice, the SAB recommended
that EPA reconsider the evidence on ozone-related mortality based on
the publication of several recent analyses that found statistically
significant associations between ozone and mortality. Based on these
studies and the recommendations from the SAB, EPA sponsored three
independent meta-analyses of the ozone-mortality epidemiology
literature to inform a determination on including this important health
endpoint. The studies were peer-reviewed and printed in the journal
Epidemiology in July 2005.300 301 302
---------------------------------------------------------------------------

    \300\ Levy, J.I, Chemerynski, S.M., Sarnat, J.A. 2005. Ozone
Exposure and Mortality: An Empirical Bayes Meta-Regression Analysis.
Epidemiology. 16:458-468.
    \301\ Bell, M.L., Dominici, F., Samet, J.M. 2005. A Meta-
Analysis of Time-Series Studies of Ozone and Mortality with
Comparison to the National Morbidity, Mortality, and Air Pollution
Study. Epidemiology. 16:436-445.
    \302\ Ito, K., DeLeon, S.F., Lippmann, M. 2005. Associations
Between Ozone and Daily Mortality: Analysis and Meta-Analysis.
Epidemiology. 16:446-457.
---------------------------------------------------------------------------

    EPA is reviewing the body of literature available on the
association of ozone exposure and premature mortality. EPA's second
external review draft of the Criteria Document for ozone has concluded
that there is strong evidence that exposure to ozone has been
associated with premature mortality.\303\ We are exploring ways of
appropriately characterizing the premature mortality benefits of
reducing ozone and included an estimate in recent analyses of the Clear
Skies legislation.\304\ We plan to include a quantification of ozone
mortality benefits in future air pollution rulemakings.
---------------------------------------------------------------------------

    \303\ EPA, 2005. Air Quality Criteria for Ozone and Related
Photochemical Oxidants (Second External Review Draft). August.
http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=137307
    \304\ For technical details about Clear Skies multi-pollutant

analysis, see http://www.epa.gov/airmarkets/mp/bmresults/health_benefits_method.pdf_____________________________________-

    In contrast to the additional benefits of the proposed standards
discussed above, it is also possible that this rule will result in
disbenefits in some areas of the United States. The effects of ozone
and PM on radiative transfer in the atmosphere can lead to effects of
uncertain magnitude and direction on the penetration of ultraviolet
light and climate. Ground level ozone makes up a small percentage of
total atmospheric ozone (including the stratospheric layer) that
attenuates penetration of ultraviolet-b (UVb) radiation to the ground.
EPA's past evaluation of the information indicates that potential
disbenefits would be small, variable, and with too many uncertainties
to attempt quantification of relatively small changes in average ozone
levels over the course of a year.\305\ EPA's most recent provisional
assessment of the currently available information indicates that
potential but unquantifiable benefits may also arise from ozone-related
attenuation of UVb radiation.\306\ EPA believes that we are unable to
quantify any net climate-related disbenefit or benefit associated with
the combined ozone and PM reductions in this rule.
---------------------------------------------------------------------------

    \305\ EPA, 2005. Air Quality Criteria for Ozone and Related
Photochemical Oxidants (First External Review Draft). January.
http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=114523
    \306\ EPA, 2005. Air Quality Criteria for Ozone and Related

Photochemical Oxidants (Second External Review Draft). August.
http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=137307_____________________________________-

5. How Do the Benefits Compare to the Costs of the Proposed Standards?
    This proposed rule provides three separate provisions that reduce
air toxics emissions from mobile sources: cold temperature vehicle
controls, an emissions control program for gas cans, and a control
program limiting benzene in gasoline. A full appreciation of the
overall economic consequences of these provisions requires
consideration of the benefits and costs expected to result from each
standard, not just those that could be expressed here in dollar terms.
As noted above, due to limitations in data availability and analytical
methods, our benefits analysis only monetizes the PM2.5-
related benefits from direct PM emission reductions associated with the
cold temperature standards. There are a number of health and
environmental effects associated with the proposed standards that we
were unable to quantify or monetize (see Table IX.E-1).
    Table IX.E-4 contains the estimates of monetized benefits of the
proposed cold temperature vehicle standards and estimated social
welfare costs for each of the proposed control programs.\307\ The
annual social welfare costs of all provisions of this proposed rule are
described more fully in Section IX.F. It should be noted that the
estimated social welfare costs for the vehicle program contained in
this table are for 2019. The 2019 vehicle program costs are included
for comparison purposes only and are therefore not included in the
total 2020 social costs. There are no compliance costs associated with
the vehicle program after 2019; as explained elsewhere in this
preamble, the vehicle compliance costs are primarily R&D and facilities
costs that are expected to be recovered by manufacturers over the first
ten years of the program.
---------------------------------------------------------------------------

    \307\ Social costs represent the welfare costs of the rule to
society. These social costs do not consider transfer payments (such
as taxes) that are simply redistributions of wealth.
---------------------------------------------------------------------------

    The results in Table IX.E-4 suggest that the 2020 monetized
benefits of the cold temperature vehicle standards are greater than the
expected social welfare costs of that program in 2019. Specifically,
the annual benefits of the

program would be approximately $3,400 + B million or $3,100 + B million
annually in 2020 (using a 3 percent and 7 percent discount rate in the
benefits analysis, respectively), compared to estimated social welfare
costs of approximately $11 million in the last year of the program
(2019). These benefits are expected to increase to $6,500 + B million
or $5,900 + B million annually in 2030 (using a 3 percent and 7 percent
discount rate in the benefits analysis, respectively), even as the
social welfare costs of that program fall to zero. Table IX.E-4 also
presents the costs of the other proposed rule provisions: an emissions
control program for gas cans and a control program limiting benzene in
gasoline. Though we are unable to present the benefits associated with
these two programs, we note for informational purposes that the
benefits associated with the proposed cold temperature vehicle
standards alone exceed the costs of all three proposed rule provisions
combined.

     Table IX.E-4.--Summary of Annual Benefits of the Proposed Cold
    Temperature Vehicle Standards and Costs of All Provisions of the
                          Proposed Standards a
                       [Millions of 2003 dollars]
------------------------------------------------------------------------
          Description                    2020                2030
------------------------------------------------------------------------
Estimated Social Welfare Costs
 \b\:
    Proposed Cold Temperature    $11 \c\............  $0
     Vehicle Standards.
    Proposed Gasoline Container  32.................  39
     Standards.
    Proposed Fuel Standards \d\  210................  250
                                ----------------------------------------
        Total..................  240................  290
    Fuel Savings...............  -73................  -82
                                ----------------------------------------
        Total Social Welfare     170................  205
         Costs.
Total PM2.5-Related Health
 Benefits of the Proposed Cold
 Temperature Vehicle Standards
 \e\:
    3 percent discount rate....  3,400 + B \f\......  6,500 + B \f\
    7 percent discount rate....  3,100 + B \f\......  5,900 + B \f\
------------------------------------------------------------------------
\a\ All estimates are rounded to two significant digits and represent
  annualized benefits and costs anticipated for the years 2020 and 2030,
  except where noted. Totals may not sum due to rounding.
\b\ Note that costs are the annual total costs of reducing all
  pollutants associated with each provision of the proposed MSAT control
  package. Also note that while the cost analysis only utilizes a 7
  percent discount rate to calculate annual costs, the benefits analysis
  uses both a 3 percent and 7 percent discount rate to calculate annual
  benefits. Benefits reflect only direct PM reductions associated with
  the cold temperature vehicle standards.
\c\ These costs are for 2019; the vehicle program compliance costs
  terminate after 2019 and are included for illustrative purposes. They
  are not included in the total social welfare cost sum for 2020.
\d\ Our modeling for the total costs of the proposed gasoline benzene
  program included California gasoline, since it was completed before we
  decided to propose that California gasoline not be covered by the
  program. California refineries comprise approximately 1 percent of
  these 2projected costs. For the final rule, we expect to exclude
  California refineries from the analysis.
\e\ Valuation of premature mortality based on long-term PM exposure
  assumes discounting over the SAB recommended 20 year segmented lag
  structure described in the Regulatory Impact Analysis for the Final
  Clean Air Interstate Rule (March 2005). Annual benefits analysis
  results reflect the use of a 3 percent and 7 percent discount rate in
  the valuation of premature mortality and nonfatal myocardial
  infarctions, consistent with EPA and OMB guidelines for preparing
  economic analyses (US EPA, 2000 and OMB, 2003).\308\
\f\ Not all possible benefits or disbenefits are quantified and
  monetized in this analysis. B is the sum of all unquantified benefits
  and disbenefits. Potential benefit categories that have not been
  quantified and monetized are listed in Table IX.E-1.

F. Economic Impact Analysis

    We prepared a draft Economic Impact Analysis (EIA) to estimate the
economic impacts of the proposed emission control program on the gas
can, gasoline fuel, and light-duty vehicle markets. In this section we
briefly describe the Economic Impact Model (EIM) we developed to
estimate both the market-level changes in price and outputs for
affected markets and the social costs of the program and their
distribution across affected economic sectors. We also present the
results of our analysis.
---------------------------------------------------------------------------

    \308\ U.S. Environmental Protection Agency, 2000. Guidelines for
Preparing Economic Analyses. http://www.yosemite1.epa.gov/ee/epa/eed/hsf/pages/Guideline.html
.

    Office of Management and Budget, The Executive Office of the
President, 2003. Circular A-4. http://www.whitehouse.gov/omb/circulars
.

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

    We estimate the net social costs of the proposed program to be
about $171.5 million in 2020. This estimate reflects the estimated
costs associated with the gasoline, gas can, and vehicle controls and
the expected fuel savings from better evaporative controls on gas cans.
The results of the economic impact modeling performed for the gasoline
fuel and gas can control programs suggest that the social costs of
those two programs are expected to be about $244.3 million in 2020 with
consumers of these products expected to bear about 60 percent of these
costs. We estimate fuel savings of about $72.8 million in 2020 that
will accrue to consumers. There are no social costs associated with the
vehicle program in 2020. These estimates, and all costs presented in
this section, are in year 2003 dollars.
    With regard to market level impacts in 2020, the maximum price
increase for gasoline fuel is expected to be about 0.1 percent (0.2
cents per gallon) for PADD 5. The price of gas cans is expected to
increase by about 1.8 percent ($0.20 per can) in areas that already
have gas can requirements and about 32.5 percent ($1.52 per can) in
areas that do not.
    Detailed descriptions of the EIM, the model inputs, modeling
results, and several sensitivity analyses can be found in Chapter 13 of
the Regulatory Impact Analysis prepared for this proposal.
1. What Is an Economic Impact Analysis?
    An Economic Impact Analysis (EIA) is prepared to inform decision
makers about the potential economic consequences of a regulatory
action. The analysis consists of estimating the social costs of a
regulatory program and the distribution of these costs across
stakeholders. These estimated social costs can then be compared with
estimated social benefits (as presented in Section IX.E). As defined in
EPA's Guidelines for Preparing Economic Analyses, social costs are the
value of the goods and services lost by society resulting from (a) the
use of resources to comply with and implement a regulation and (b)
reductions in

output.\309\ In this analysis, social costs are explored in two steps.
In the market analysis, we estimate how prices and quantities of goods
affected by the proposed emission control program can be expected to
change once the program goes into effect. In the economic welfare
analysis, we look at the total social costs associated with the program
and their distribution across stakeholders.
---------------------------------------------------------------------------

    \309\ EPA Guidelines for Preparing Economic Analyses, EPA 240-R-
00-003, September 2000, p 113. A copy of this document can be found
at http://yosemite.epa.gov/ee/epa/ eed.nsf/webpages/

Guidelines.html#download
---------------------------------------------------------------------------

2. What Is the Economic Impact Model?
    The Economic Impact Model (EIM) is a behavioral model developed for
this proposal to estimate price and quantity changes and total social
costs associated with the emission controls under consideration. The
EIM simulates how producers and consumers of affected products can be
expected to respond to an increase in production costs as a result of
the proposed emission control program. In this EIM, compliance costs
are directly borne by producers of affected goods. Depending on the
producers' and consumers' sensitivity to price changes, producers may
be able to pass some or all of these compliance costs on to the
consumers of these goods in the form of higher prices. Consumers adjust
their consumption of affected goods in response to these price changes.
This information is passed back to the producers in the form of
purchasing decisions. The EIM takes these behavioral responses into
account to estimate new market equilibrium quantities and prices for
all modeled sectors and the resulting distribution of social costs
across these stakeholders (producers and consumers).
3. What Economic Sectors Are Included in This Economic Impact Analysis?
    There are three economic sectors affected by the control programs
described in this proposal: gas cans, gasoline fuel, and light-duty
vehicles. In this Economic Impact Analysis we model only the impacts on
the gas can and gasoline fuel markets. We did not model the impacts on
the light-duty vehicle market. This is because the compliance costs for
the proposed vehicle program are expected to be very small, less than
$1 per vehicle and, even if passed on entirely, are unlikely to affect
producer or consumer behavior. Therefore, we do not expect these
proposed controls to affect the quantity of vehicles produced or their
prices. At the same time, however, the light-duty vehicle compliance
costs are a cost to society and should be included in the economic
welfare analysis. We do this by adding the vehicle program engineering
compliance cost estimates to the estimated social costs of the gasoline
and gas can programs.
    With regard to the gasoline fuel and gas can markets, we consider
only the impacts on residential users of these products. This means
that we focus the analysis on the use of these products for personal
transportation (gasoline fuel) or residential lawns and garden care or
recreational uses (gas cans) and do not consider how the costs of
complying with the proposed programs may affect the production of goods
and services that use gasoline fuel or gas cans as production inputs.
We believe this approach is reasonable because the commercial share of
the end-user markets for both gasoline fuel and gas cans is relatively
small.310 311 In addition, for most commercial users the
share of the cost of these products to total production costs is also
small (e.g., the cost of a gas can is only a very small part of the
total production costs for an agricultural or construction firm).
Therefore, a price increase of the magnitude anticipated for this
control program is not expected to have a noticeable impact on prices
or quantities of goods produced using these inputs (e.g., agricultural
product or buildings).
---------------------------------------------------------------------------

    \310\ The U.S Department of Energy estimates that about 92
percent of gasoline used in the United States for transportation is
used in light-duty vehicles. About 6 percent is used for commercial
or industrial transportation, and the remaining 2 percent is used in
recreational marine vessels. See U.S Department of Energy, Energy
Information Administration, 2004. ``Annual Energy Outlook 2004 with
projections to 2025.'' Last updated June 2, 2004. Table A-2 and
Supplemental Table 34. http://www.eia.doe.gov/oiaf/aeoref_tab.html.

    \311\ A recent study by CARB (1999) found that 94 percent of
portable fuel containers in California were used by residential
households California Environmental Protection Agency, Air Resources
Board (CARB) 1999. See ``Hearing Notice and Staff Report, Initial
Statement of Reasons for Proposed Rule Making Public Hearing to
Consider the Adoption of Portable Fuel Container Spillage Control
Regulation.'' Sacrament, CA: California Environmental Protection
Agency, Air Resources Board (CARB). A copy of this document is
available at http://www.arb.ca.gov/regact/spillcon/isor.pdf_____________________________________-

    With regard to the gasoline fuel analysis, it should be noted that
this Economic Impact Analysis does not include California fuels in the
market analysis. California fuels are only included, as a separate line
item, in the economic welfare analysis. California currently has state-
level controls that address air toxics from gasoline. Any actions that
refiners may take to comply with the federal program are expected to be
small and not affect market prices or quantities in that state.
However, because the estimated fuel program compliance costs include a
small compliance cost for California, and this cost would be a cost to
society, it is necessary to include those costs in the total economic
welfare costs of the proposal. This is done by including the estimated
engineering compliance costs as a separate line item. Also, consistent
with the cost analysis, the economic impact analysis does not
distinguish between reformulated and conventional gasoline fuels.
    The EIM models the economic impacts on two gas can markets (states
that currently have requirements for gas cans and those that do not),
and four gasoline fuel markets (PADDs 1+3, PADD 2, PADD 4, PADD 5). The
markets included in this EIA are described in more detail in Chapter 13
of the RIA for this proposal.
    In the EIM, the gasoline fuel and gas can markets are not linked
(there is no feedback mechanism between the gas can and gasoline fuel
model segments). This is because these two sectors represent different
aspects of fuel consumption (fuel storage and fuel production) and
production and consumption of one product is not affected by the other.
In other words, an increase in the price of gas cans is not expected to
have an impact on the production and supply of gasoline, and vice
versa. Production and consumption of each of these products are the
result of other factors that have little cross-over impacts (the need
for fuel storage; the need for personal transportation).
4. What Are the Key Features of the Economic Impact Model?
    A detailed description of the features of the EIM and the data used
in the analysis is provided in Chapter 13 of the RIA prepared for this
rule. The model methodology is firmly rooted in applied microeconomic
theory and was developed following the methodology set out in the
OAQPS's Economic Analysis Resource Document.\312\
---------------------------------------------------------------------------

    \312\ U.S. Environmental Protection Agency, Office of Air
Quality Planning and Standards, Innovative Strategies and Economics
Group, OAQPS Economic Analysis Resource Document, April 1999. A copy
of this document can be found at http://www. epa.gov/ttn/ ecas/

econdata/ Rmanual2/
---------------------------------------------------------------------------

    The EIM is a computer model comprised of a series of spreadsheet
modules that simulate the supply and demand characteristics of the
markets under consideration. The initial market equilibrium conditions
are shocked by applying the compliance costs for the control program to
the supply side of the markets (this is done by shifting the relevant
supply curves by the amount of the compliance costs). The model
equations can be analytically solved for

equilibrium prices and quantities for the markets with the regulatory
program and these new prices and quantities are used to estimate the
social costs of the model and how those costs are shared among affected
markets.
    The EIM is a partial equilibrium, intermediate-run model that
assumes perfect competition in the relevant markets. As explained in
EPA's Guidelines for Preparing Economic Analyses, ``partial
equilibrium'' means that the model considers markets in isolation and
that conditions in other markets are assumed either to be unaffected by
a policy or unimportant for social cost estimation.\313\ The use of the
intermediate run means that some factors of production are fixed and
some are variable. In very short analyses, all factors of production
would be assumed to be fixed, leaving the producers with no means to
respond to the increased production costs associated with the
regulation (e.g., they cannot adjust labor or capital inputs). Under
this time horizon, the costs of the regulation fall entirely on the
producer. In the long run, all factors of production are variable and
producers can adjust production in response to cost changes imposed by
the regulation (e.g., using a different labor/capital mix). In the
intermediate run there is some resource immobility which may cause
producers to suffer producer surplus losses, but they can also pass
some of the compliance costs to consumers.
---------------------------------------------------------------------------

    \313\ EPA Guidelines for Preparing Economic Analyses, EPA 240-R-
00-003, September 2000, p. 125-6.
---------------------------------------------------------------------------

    The perfect competition assumption is widely accepted economic
practice for this type of analysis, and only in rare cases are other
approaches used.\314\ It should be noted that the perfect competition
assumption is not primarily about the number of firms in a market. It
is about how the market operates: the nature of the competition among
firms. Indicators that allow us to assume perfect competition include
absence of barriers to entry, absence of strategic behavior among firms
in the market, and product differentiation.
---------------------------------------------------------------------------

    \314\ See, for example, EPA Guidelines for Preparing Economic
Analyses, EPA 240-R-00-003, September 2000, p 126.
---------------------------------------------------------------------------

    With regard to the gasoline fuel market, the Federal Trade
Commission (FTC) has developed an approach to ensure competitiveness in
gasoline fuel markets. It reviews oil company mergers and frequently
requires divestiture of refineries, terminals, and gas stations to
maintain a minimum level of competition. This is discussed in more
detail in the industry profile prepared for this proposal.\315\
---------------------------------------------------------------------------

    \315\ Section 3 Industry Organization, ``Characterizing Gasoline
Markets: a Profile,'' Final Report, prepared for EPA by RTI, August
2005.
---------------------------------------------------------------------------

    With regard to the gas can market, the small number of firms in the
market is offset by several features of this market. Because gas cans
are compact and lightweight, they are easy to transport far from their
place of manufacture. This means that production is not limited to
local producers. Although they vary by size and material, consumers are
likely to view all gas cans as good substitutes for one another.
Because the products are similar enough to be considered homogeneous
(e.g., perfectly substitutable), consumers can shift their purchases
from one manufacturer to another. There are only minimal technical
barriers to entry that would prevent new firms from freely entering the
market, since manufacturing is based on well-known plastic processing
methods. In addition, there is significant excess capacity, enabling
competitors to respond quickly to changes in price. Excess production
capacity in the general container manufacturing market also means that
manufacturers could potentially switch their product lines to compete
in this segment of the market, often without a significant investment.
In addition, there is no evidence of high levels of strategic behavior
in the price and quantity decisions of the firms. Finally, it should be
noted that contestable market theory asserts that oligopolies and even
monopolies will behave very much like firms in a competitive market if
manufacturers have extra production capacity and this capacity could
allow them to enter the market costlessly (i.e., there are no sunk
costs associated with this kind of market entry or exit).\316\ As a
result of these conditions, producers and consumers in the gas can
market take the market price as given when making their production and
consumption choices. For all these reasons, the market can be modeled
as a competitive market even though the number of producers is small.
---------------------------------------------------------------------------

    \316\ A monopoly or firms in oligopoly may not behave as
neoclassical economic theories of the firm predict because they may
be concerned about new entrants to the market. If super-normal
profits are earned, potential competitors may enter the market. To
respond to this treat, existing firm(s) in the market will keep
prices and output at a level where only normal profits are made,
setting price and output levels at or close to the competitive price
and output. See Chapter 13 of the RIA for more information, Section
13.2.3.
---------------------------------------------------------------------------

5. What Are the Key Model Inputs?
    Key model inputs for the EIM are the behavioral parameters,
compliance costs estimates, and market equilibrium quantities and
prices.
    The EIM is a behavioral model. The estimated social costs of this
emission control program are a function of the ways in which producers
and consumers of the gas cans and gasoline fuel affected by the
standards change their behavior in response to the costs incurred in
complying with the standards. These behavioral responses are
incorporated in the EIM through the price elasticity of supply and
demand (reflected in the slope of the supply and demand curves), which
measure the price sensitivity of consumers and producers. The price
elasticites used in this analysis are described in Chapter 13 of the
RIA. The gasoline elasticites were obtained from the literature and are
-0.2 for demand and 0.2 for supply. This means that both the quantity
supplied and demanded are expected to be fairly insensitive to price
changes and that increases in prices are not expected to cause sales to
fall or production to increase by very much. Because we were unable to
find published supply and demand elasticities for the gas can market,
we estimated these parameters using the procedures described in Chapter
13 of the RIA. This approach yielded a demand elasticity of -0.01 and a
supply elasticity of 1.5. The estimated demand elasticity is nearly
perfectly inelastic (equal to zero), which means that changes in price
are expected to have very little effect on the quantity of gas cans
demanded. However, supply is fairly elastic, meaning producers are
expected to respond to a change in price. Therefore, consumers are
expected to bear more of the burden of gas can regulatory control costs
than producers.
    Initial market equilibrium conditions are simulated using the same
current year sales quantities and growth rates used in the engineering
cost analysis. The initial equilibrium prices for gas can and gasoline
fuel were obtained from industry sources and published government data.
The initial equilibrium market conditions are shocked by applying the
engineering compliance cost estimates described in earlier in this
section. Although both the gas can and gasoline fuel markets are
competitive markets, the model is shocked by applying the sum of
variable and fixed costs. Two sets of compliance costs are used in the
gas can market analysis, reflecting states with existing controls and
states without existing controls. The compliance costs used to shock
the gasoline fuel market are based on an average total cost (variable +
fixed) analysis. An explanation for this

approach can be found in Section <IP_ADDRESS> of the RIA prepared for this
proposal. These gasoline fuel compliance costs differ across PADDs but
are the same across years. Because California already has existing
gasoline fuel controls, fuel volumes for that state are not included in
the market analysis. However, because it may be necessary for refiners
to adjust their production to comply with the new federal standards,
California fuel controls are included in the economic welfare analysis.
    Additional costs that need to be considered in the EIM are the
savings associated with the gas can controls and the costs of the
light-duty vehicle controls. The proposed gas can controls are expected
to reduce evaporative emissions from fuel storage, leading to fuel
savings for users of these containers. These fuel savings are not
included in the market analysis for this economic impact analysis
because these savings are not expected to affect consumer decisions
with respect to the purchase of new containers. Fuel savings are
included in the social cost analysis, however, because they are a
savings that accrues to society. The estimated fuel savings are added
to the estimated social costs as a separate line item. As noted above,
the economic impacts of the light-duty vehicle controls are not modeled
in the EIM. Instead, the estimated engineering compliance costs are
used as a proxy, and are also added into the estimated social costs as
a separate line item.
    The EIM relies on the estimated compliance costs for the gas can
and gasoline fuel programs described elsewhere in this preamble. Thus,
the EIM reflects cost savings associated with ABT or other flexibility
programs to the extent they are included in the estimated compliance
costs.
6. What Are the Results of the Economic Impact Modeling?
    Using the model and data described above, we estimated the economic
impacts of the proposed emission control program. The results of our
analysis are summarized in this section. Detailed results for all years
are included in the appendices to Chapter 13 of the RIA. Also included
as an appendix to that chapter are sensitivity analyses for several key
inputs.
    Market Impact Analysis. Market impacts are the estimated changes in
the quantity of affected goods produced and their prices. As explained
above, we estimated market impacts for only gasoline fuel and gas cans,
and California fuel is not included in the market analysis for PADD 5.
The estimated market impacts are presented in Table IX.F-1. In this
table the market results for gasoline are presented for only 2015
because the compliance costs for the gasoline fuel program are constant
for all years and therefore the results of the market analysis are the
same for all years.\317\ The market results for gas cans are presented
for 2009 and 2015, reflecting the changes in estimated compliance costs
due to amortization of fixed costs over the first five years of the
program. After 2013 the compliance costs remain constant for all future
years.\318\
---------------------------------------------------------------------------

    \317\ The number of gallons of gasoline fuel produced is
expected to decrease in future years, but the percent decrease is
expected to remain the same; this is due to the growth in fuel
consumption generally.
    \318\ The number of gas cans produced is expected to decrease in
future years, but the percent decrease is expected to remain the
same; this is due to the growth in gas can production generally.
---------------------------------------------------------------------------

    With regard to the gasoline fuel program, the market impacts are
expected to be small, on average. The price of gasoline fuel is
expected to increase by about 0.15 percent or less, depending on PADD.
The expected reduction in quantity of fuel produced is expected to be
less than 0.03 percent. The market impacts for the gas can program are
expected to be more significant. In 2009, the first year of the gas can
program, the model predicts a price increase of about 7 percent for gas
cans in states that are currently have regulations for gas cans and
about 57 percent for those that do not. Even with these larger price
increases, however, the quantity produced is not expected to decrease
by very much, less than 0.6 percent. These percent price increases and
quantity decreases much smaller after the first five years. In 2015,
the estimated gas can price increase is expected to be less than 2
percent for states that currently regulate gas cans and about 32.5
percent for states without such regulations. The quantity produced is
expected to decrease by less than 0.4 percent. These changes are
expected to remain constant for future years, even though the absolute
quantities produced are expected to increase somewhat.

                                                        Table IX.F-1.--Summary of Market Impacts
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            Change in price                              Change in quantity
              Market                 Engineering cost per  ---------------------------------------------------------------------------------------------
                                             unit                  Absolute                 Percent                Absolute               Percent
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          2009
--------------------------------------------------------------------------------------------------------------------------------------------------------
Gasoline Fuel:
    PADD 1 & 3....................
    PADD 2........................                                   N/A (gasoline fuel control program begins in 2011)
    PADD 4........................
    PADD 5 (w/out CA).............
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     $/can
                                                     Thousand Cans
--------------------------------------------------------------------------------------------------------------------------------------------------------
Gas Cans:
    States with existing programs.  $0.77.................  $0.76.................  6.9%..................  -6.8.................  -0.07%
    States without existing         $2.70.................  $2.68.................  57.4%.................  -88.5................  -0.57%
     programs.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 [cent]/gallon
                                                    Million Gallons
--------------------------------------------------------------------------------------------------------------------------------------------------------
Gasoline Fuel:
    PADD 1 & 3....................  0.049[cent]...........  0.03[cent]............  0.02%.................  -3.1.................  -0.004%
    PADD 2........................  0.202[cent]...........  0.11[cent]............  0.07%.................  -6.9.................  -0.015%

    PADD 4........................  0.358[cent]...........  0.19[cent]............  0.12%.................  -1.4.................  -0.025%
    PADD 5 (w/out CA).............  0.391[cent]...........  0.21[cent]............  0.13%.................  -2.5.................  -0.026%
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     $/can
                                                     Thousand Cans
--------------------------------------------------------------------------------------------------------------------------------------------------------
Gas Cans:
    States with existing programs.  $0.21.................  $0.20.................  1.9%..................  -2.1.................  -0.02%
    States without existing         $1.53.................  $1.52.................  32.5%.................  -56.4................  -0.32%
     programs.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Economic Welfare Analysis. In the economic welfare analysis we look
at the costs to society of the proposed program in terms of losses to
consumer and producer surplus. These surplus losses are combined with
the estimated vehicle compliance costs, fuel savings, and government
revenue losses to estimate the net economic welfare impacts of the
proposed program. Estimated annual net social costs for selected years
are presented in Table IX-F-2. Initially, the estimated social costs of
the program are relatively small and are attributable to the gas can
program, which begins in 2009, and the vehicle program, which begins in
2010. For 2009 and 2010 the estimated social costs are less than $40
million. In 2011 the estimated social costs increase to $215 million,
reflecting the beginning of the gasoline fuel program. In subsequent
years, estimated social costs increase due to growth. However, they
decrease in 2014, to $169 million, when the gas can fixed costs are
fully recovered and in 2020, to $171.5 million, when the vehicle
program compliance costs are terminated.

   Table IX.F-2.--Net Social Costs Estimates for the Proposed Program
                     [2009 to 2035--2003$, $million]
------------------------------------------------------------------------
                                                           Total social
                                                               costs
                          Year                            (includes fuel
                                                             savings)
------------------------------------------------------------------------
2009....................................................           $38.4
2010....................................................            39.2
2011....................................................           215.0
2012....................................................           208.6
2013....................................................           202.2
2014....................................................           169.3
2015....................................................           171.6
2016....................................................           173.6
2017....................................................           175.5
2018....................................................           177.3
2019....................................................           179.7
2020....................................................           171.5
2021....................................................           174.2
2022....................................................           176.9
2023....................................................           179.9
2024....................................................           183.3
2025....................................................           186.8
2026....................................................           190.3
2027....................................................           193.9
2028....................................................           197.6
2029....................................................           201.3
2030....................................................           205.2
2031....................................................           209.1
2032....................................................           213.1
2033....................................................           217.2
2034....................................................           221.4
2035....................................................           225.7
NPV at 3%...............................................         2,937.3
NPV at 7%...............................................         1,633.0
------------------------------------------------------------------------

    Table IX.F-3 contains more detailed estimated social costs for
2009, when the gas can program begins, 2011, when the gasoline fuel
program begins, and 2015, when the gas can fixed costs are fully
recovered. The vehicle program applies from 2010 through 2019.
According to these results, consumers are expected to bear
approximately 99 percent of the cost of the gas can program. This
reflects the inelastic price elasticity on the demand side of the
market and the elastic price elasticity on the supply side. The burden
of the gasoline fuel program is expected to be shared more evenly, with
54.5 percent expected to be borne by consumers and 45.5 percent
expected to be borne by producers. In all years, the estimated loss to
consumer welfare will be offset somewhat by the fuel savings associated
with gas cans. Beginning at about $11 million per year, these savings
increase to about $70 million by 2015 as compliant gas cans are phased
in. These savings accrue for the life of the gas cans.

              Table IX.F-3.--Summary of Net Social Costs Estimates Associated With Primary Program
                                     [2009, 2011, and 2015--2003$, $million]
----------------------------------------------------------------------------------------------------------------
                                         Change in consumer        Change in producer
               Market                          surplus                  surplus                   Total
----------------------------------------------------------------------------------------------------------------
                                                      2009
----------------------------------------------------------------------------------------------------------------
Gasoline U.S.:
    PADD 1 & 3
    PADD 2                                         N/A (gasoline fuel control program begins in 2011)
    PADD 4..........................
    PADD 5 (w/out CA)...............
Gas Cans U.S........................  -$48.7..................  -$0.3..................  -$49.0
                                      (99.3%).................  (0.7%)
States with existing programs.......  -$7.5...................  -$0.1..................

States without existing programs....  -$41.2..................  -$0.3..................
                                     ---------------------------------------------------------------------------
        Subtotal....................  -48.7...................  -0.3...................  -$49.0
                                      (99.3%).................  (1%)...................
----------------------------------------------------------------------------------------------------------------
Fuel Savings........................  ........................  .......................  $10.6
Vehicle Program.....................  ........................  .......................  $0
California fuel \a\.................  ........................  .......................  $0
                                     ---------------------------------------------------------------------------
            Total...................  ........................  .......................  -$38.4
----------------------------------------------------------------------------------------------------------------
                                                      2011
----------------------------------------------------------------------------------------------------------------
Gasoline U.S........................  -$100.3.................  -$83.6.................  -$183.9
PADD 1 & 3..........................  -$21.6..................  -$18.0                   .......................
PADD 2..............................  -$49.1..................  -$40.9                   .......................
PADD 4..............................  -$10.2..................  -$8.5                    .......................
PADD 5 9w/out CA)...................  -$19.4..................  -$16.2                   .......................
Gas Cans U.S........................  -$50.7..................  -$0.3..................  -$51.0
                                      (99.4%).................  (0.7%)
States with existing programs.......  -$7.8...................  -$0.1                    .......................
States without existing programs....  -$42.9..................  -$0.3..................
                                     ---------------------------------------------------------------------------
        Subtotal....................  -$150.9.................  -$83.9.................  -$234.8
                                      (64.3%).................  (35.7%)................
----------------------------------------------------------------------------------------------------------------
Fuel Savings........................  ........................  .......................  $33.3
Vehicle Program.....................  ........................  .......................  -$11.8
California fuel \a\.................  ........................  .......................  -$1.7
            Total...................  ........................  .......................  $215.0
----------------------------------------------------------------------------------------------------------------
                                                      2015
----------------------------------------------------------------------------------------------------------------
Gasoline U.S........................  -$107.1.................  -$89.4.................  -$196.5
                                      (54.5%).................  (45.5%)
PADD 1 & 3..........................  -$23.1..................  -$19.3                   .......................
PADD 2..............................  -$52.4..................  -$43.7                   .......................
PADD 4..............................  -$10.9..................  -$9.1                    .......................
PADD 5 (w/out CA)...................  -$20.7..................  -$17.3                   .......................
Gas Cans U.S........................  -$28.5..................  -$0.2..................  -$28.7
                                      (99.3%).................  (0.7%)
States with existing programs.......  -$2.3...................  $0.0                     .......................
States without existing programs....  -$26.3..................  -$0.2                    .......................
        Subtotal....................  -$135.7.................  -$89.5.................  -$225.2
                                      (60.3%).................  (39.7%)
Fuel Savings........................  ........................  .......................  $68.3
Vehicle Program.....................  ........................  .......................  $12.9
California fuel \a\.................  ........................  .......................  -$1.8
            Total...................  ........................  .......................  $171.6
----------------------------------------------------------------------------------------------------------------
\a\ California fuel costs are considered separately. See Section 13.1.3 of the RIA.

    The present value of net social costs (discounted back to 2005) of
the proposed standards through 2035, contained in Table IX-F-2, is
estimated to be $2.9 billion (2003$). This present value is calculated
using a social discount rate of 3 percent and the stream of economic
welfare costs from 2009 through 2035. We also performed an analysis
using a 7 percent social discount rate.\319\ Using that discount rate,
the present value of the net social costs through 2035 is estimated to
be $1.6 billion (2003$).
---------------------------------------------------------------------------

    \319\ EPA has historically presented the present value of cost
and benefits estimates using both a 3 percent and a 7 percent social
discount. The 3 percent rate represents a demand-side approach and
reflects the time preference of consumption (the rate at which
society is willing to trade current consumption for future
consumption). The 7 percent rate is a cost-side approach and
reflects the shadow price of capital.
---------------------------------------------------------------------------

X. Alternative Program Options

    We considered several options for fuels, vehicles, and gas cans in
developing this proposal.

A. Fuels

    We considered a wide range of control strategies for gasoline to
reduce toxic emissions. Among the options considered are a toxics
performance standard, varying levels of benzene control, approaches for
controlling other MSATs in addition to benzene, and lower sulfur and
RVP for VOC control. The discussion of these options is provided in
section VII.
    In addition, we request comment on the following specific concepts
relating

to the proposed ABT and compliance assurance provisions.
1. Alternative Compliance Assurance Provisions
    The design of the proposed ABT program is based on other recent
fuel programs (primarily gasoline and diesel sulfur), but with fewer
restrictions. The proposed program includes nationwide trading, does
not include an upper limit on benzene, and combines all fuel into a
single pool for credit accounting purposes. The compliance assurance
mechanisms for the proposed ABT program are also based on previous
recent fuel programs (including reformulated gasoline and gasoline and
diesel sulfur) which in turn were developed based on the experiences in
enforcing past fuel programs. At the same time there are other programs
with different ABT and corresponding compliance assurance provisions
that could serve as models for this benzene proposal, such as the Acid
Rain Program.
    An overarching concern that today's proposal attempts to address,
and that any alternative program also would have to address, is that
EPA does not have the resources to audit a substantial number of
refineries each year, and certainly not every refinery. Thus, we must
devise a credit program whose enforcement integrity does not depend on
EPA conducting annual audits of many or most refiners to determine the
validity of credits generated, transferred, banked and used.
    The program as proposed would provide a great deal of flexibility
to refiners in complying with the standards, but balances this
flexibility with provisions to ensure the standard's enforceability.
This program would also provide incentives for refiners and importers
to ensure the validity of any credits they obtain, through the
provisions that hold the buyer of invalid credits liable for any
resulting violation of the standard. We summarize the most important of
these provisions here:
     Credit life would be limited to 5 years. This is intended
to provide reasonable assurance that EPA will have the opportunity to
review the appropriate records to verify compliance, regardless of
personnel changes, whether existing refiners and importers are bought,
sold, merged, or go out of business, and whether new refiners and
importers are created;
     Records would be required to be retained for the life of
the credits to allow for EPA to enforce the benzene content standard
through random audits;
     We propose that credits be limited in the number of trades
that would be allowed and are requesting comment on the range from 2 to
4 trades. (We will establish an appropriate number of permissible
trades in the final rule.) Such a limitation would be intended to allow
EPA to have a reasonable chance of verifying the validity of credits
that are traded;
     Both the buyer and seller of the credits would be
potentially liable should credits be found to be invalid, in order to
allow EPA to maintain the environmental benefits of the program should
the credit seller no longer be in business; and
     Purchasers of credits would need to be potential credit
users, and so would be refiners or importers. Our experiences during
the gasoline lead phase-down program in the 1980s, where brokers and
others were allowed to take title to lead credits, raised enforcement
problems severe enough to call the program's validity into question.
These problems have not arisen for more recent programs, where credit
purchasers must be credit users.
    We request comment on these provisions as a whole and individually.
In addition, we note that the proposed benzene program is different
from the other recent fuel programs in several key respects that may
provide opportunities to design the ABT program and corresponding
compliance assurance mechanisms differently. For example, the proposed
program would not have an upper limit on the per-gallon benzene
concentration that would otherwise force all refiners to ultimately
comply with the standard through actual physical refinery changes.
Since this proposed program would allow some degree of variation in
benzene levels to continue indefinitely, additional flexibility in how
credits are handled may be desirable. Thus, we specifically request
comment on the following alternate ABT program elements.
    As mentioned above, EPA could not, with its limited resources,
conduct annual audits of all refiners (and possibly other parties, as
discussed below). With regard to any potential alternative ABT program
elements, including those discussed below, we request detailed ideas
about a potential auditing process that would be sufficiently robust to
assure the validity of credits generated, used, banked or traded,
including how such audits might be self-funded.
Credit Life
    EPA notes that a system that limits credit life may, under certain
circumstances, depress the market price of credits and create less
incentive for benzene reductions early in the program. EPA therefore
requests comment on whether the credit life should be limited or
whether unlimited banking should be encouraged through having credits
with unlimited life or longer life. We also seek comment on how a
program with unlimited credit life could be successfully enforced. For
example, EPA audits for refinery compliance with fuel standard and
credit requirements normally include review of refinery production,
testing and business records. EPA seeks comment on whether these audits
could be effectively conducted to review the validity of credits that
were generated more than five years previously and whether audits could
be effectively concluded during the first five years of a credit's
life.
    EPA also seeks comment on the appropriate consequences if EPA was
unable to verify credit validity, the criteria for identifying credits
as being invalid, and whether EPA should have the burden of proving
credits were invalid or whether the credit generator (or the credit
user) should have the burden of proving that credits were valid. See
Hazardous Waste Treatment Council v. EPA, 886 F. 2d 355, 367-68 (D.C.
Cir. 1990) ( relating to circumstances when the burden of proof may
permissibly shift to a regulated entity). EPA also seeks comment on
mechanisms that would allow companies to verify the validity of credits
they generate without the need for EPA audits. Thus, EPA seeks comment
on whether audits conducted by independent auditors could be a reliable
indicator of credit validity, and if so, the necessary qualifications
of the auditor, the criteria for auditor independence, how these
qualifications and independence should be established, whether the
audit should review records of all company fuels activities related to
credit creation or only a random portion of these records, the
appropriate timing requirements for these audits, and the nature and
timing of reports. EPA seeks comment on the enforcement implications of
the Clean Air Act's five-year statute of limitations if credits with a
life longer than five years were allowed.
Record Retention
    We also seek comment on whether a program with unlimited credit
life would need to require that the associated records be retained
indefinitely until a credit was used. (The use of credits for which no
records exist could result in their being declared

null and void since credit validity could not be established.) We seek
comment as to whether record-keeping and EPA audits involving
activities occurring more than five years in the past could create any
issues regarding statutes of limitations. Also, in general, we request
comment on provisions that could address the fact that the farther back
in time an event occurred, the more difficult it becomes for EPA to
conduct an effective audit (due to factors such as mergers,
acquisitions, and turnover of personnel). EPA seeks comment on whether
the Clean Air Act's five-year statute of limitations would adversely
impact EPA's ability to enforce a requirement to keep records longer
than five years.
Number of Times Credits May Be Traded
    As described earlier in this preamble, EPA is requesting comment on
allowing credits to be traded between 2 and 4 times. In particular, EPA
seeks comment on any specific benefits to regulated parties or to the
credit market generally if a number of trades in this range were
allowed; on requirements that should be included to ensure the validity
of credits that have been transferred multiple times; on procedures for
identifying which credits have been transferred if the credit
transferor is found to have had in its possession both valid and
invalid credits; and on appropriate consequences to the generator and/
or transferor of invalid credits. In addition, EPA seeks comment on
mechanisms that would allow companies to establish the validity of
credits they have purchased without the need for EPA audits. Thus, EPA
requests comment on whether companies that obtain credits that have
previously been purchased should be required to establish their
validity through reports of independent audits of the credit-creation
activities of the company that created the credits and of the credit
activities of any intermediary entities to which the credits had been
transferred.
Case-By-Case Relaxation of Compliance Restrictions
    In addition to seeking comment on general modifications discussed
above to the proposed provisions, we also request comment on allowing
regulated entities to petition for case-by-case relaxation of specific
provisions in special cases. For example, such a provision might allow
a refiner to petition EPA to allow a specific group of credits to be
traded one or more additional times than the final rule ultimately
allows. Petitioners might also be allowed to request an extension of
the five year limit on credit life. EPA seeks comment on whether and
how such an extension might affect the ability to enforce the benzene
content standard, including impacts from the statute of limitations.
Such an exception might have important implications for enforcement,
record-keeping, and emissions, which would have to be adequately
addressed. EPA seeks comment on the nature of documentation that would
be required in such a petition and criteria that might be used to make
a determination regarding approval of such a petition. EPA also seeks
comment on the extent to which any such ABT flexibility provisions
would be used, and what the benzene content, enforcement, liquidity,
and other implications might be.
Ownership of Benzene Credits
    The potential modifications of the proposed program on which we
request comment may be able to be accomplished relatively easily within
the bounds of the proposed program. Another concept, allowing traders
and other entities to take title to credits, might best be accomplished
by moving to an entirely different type of credit program, since it
might require a set of other related changes in order to function
effectively. For example, it may be possible to design the benzene
trading program and related compliance assurance provisions in a manner
that would allow benzene credits to be traded on the open market like
many other commodities and not unlike the way SO2 credits
are traded under the Acid Rain Program, or how carbon credits are
traded through the voluntary trading program established by the Chicago
Climate Exchange. We next discuss such an alternate credit program.
    The proposed restriction of benzene credit use to refiners and
importers does not provide an opportunity for other entities to
participate in this credit market by taking title to credits.\320\ The
inability of traders to take actual title to credits may reduce the
ability of the market to function in certain ways including, for
example, to hedge against risk effectively or to aggregate small
holdings into larger blocks for sale. This might be avoided if the
program provided for benzene credits to be owned, and for entities
other than refiners and importers to obtain, hold, and transfer them.
---------------------------------------------------------------------------

    \320\ In the proposed program non-refiners would be allowed to
facilitate, or broker, credit transactions between refiners or
importers. Thus, a refiner (or importer) that needed to purchase
credits could contract with a broker to identify refiners or
importers that have credits to sell.
---------------------------------------------------------------------------

    EPA requests comment on any specific benefits to regulated parties
or to the credit market generally if non-refiners were allowed to take
title to credits. EPA also requests comments on any situations that
occurred under other motor vehicle fuels credit programs where the
absence of non-refiner credit owners created difficulties or problems
in regulated parties being able to transfer or obtain credits. EPA
seeks comment on how the benzene credit program could be reliably
enforced if non-refiners were allowed to own credits. Thus, EPA seeks
comment on the qualifications that should be required for a company to
be a non-refiner credit owner, and how these qualifications should be
established; on any registration, record keeping, reporting,
independent audit and independent attestation requirements that should
be imposed on non-refiner owners of credits; and on the nature of
liability that should attach to non-refiner owners of credits that were
found to have transferred invalid credits.
    We expect that such a program would require that all refiners and
importers have their credits (and therefore compliance) verified each
year. Given the resource needs for EPA to undertake such verifications,
we would expect to require refiners to utilize independent auditors,
sufficient for the auditor to make a verified audit finding that the
company's assertions regarding credit creation are correct. We believe
that verification of credits in this manner would require a complete
audit of the gasoline production and testing records related to the
benzene content and volume of gasoline produced or imported, including
reviews and reconciliation of all batch information. The audit also
would also have to include sufficient review of records of product
sales to verify the completeness of the gasoline production records.
The independent auditor performing such an audit would have to be
qualified to understand and review the records of gasoline production
and testing generated at a refinery, or the importation and testing
records associated with imported gasoline. To the extent that gasoline
testing was conducted by independent laboratories, the credit audit
would have to include the activities of the independent laboratory to
make an audit finding of the validity of the laboratory test results.
EPA would then continue to have the ability to perform spot audits.
    EPA seeks comment on whether the regulations should require that
these

independent audits must be conducted by an independent audit
organization that is funded by an industry consortium, rather than by
audit firms individually retained by refiners/importers. The industry
consortium would submit to EPA for approval: the consortium
organization; the qualifications of the individual auditors; the
general audit plans, and any audit plans that are specific to an
individual company. The audit organization would submit audit reports
to EPA and to the companies that were the subject of their audits.
    The refiners and importers would then assign a unique serial number
to each credit containing key information including the entity's
registration number, the year, and the credit number. These entities
would then report this information to EPA as a part of their annual
compliance report. Credits properly generated under such a program
could then be traded freely until they were used. If an audit
determined that some credits were improperly generated, a mechanism
would be required to decide which credits were considered to be valid
and which invalid.
    Given EPA's resource constraints, EPA seeks comment on a mechanism
that would allow refiners and importers, and non-refiner owners of
credits (if allowed) to conduct this detailed tracking of individual
credits, with reconciliation of the reports of all parties
transferring, obtaining, or holding credits. Thus, EPA seeks comment on
whether the regulations should include an option whereby companies that
wish to sell, purchase or hold verified credits would fund an
independent organization that would function as the clearinghouse of
benzene credits. EPA also seeks comment on how such an independent
organization option should be structured: What would be the
qualifications of the organization and how would they be established;
how would the method of operations of the organization be established
and approved by EPA; what reporting by companies to the organization
would be required, and what reporting to EPA by the organization would
be required; and how would the organization establish the validity of
credits that are the subject of reports from companies.
    In addition, as in past programs, if credits were later found to be
improperly created, the party that generated the invalid credits and
the party that used the invalid credits would be subject to EPA
enforcement. The party using the invalid credits would be required to
remove the invalid credits from its compliance calculations. If this
recalculation resulted in a violation of the benzene standard, the
party would be subject to an enforcement action for this violation,
regardless of whether the invalid credits were purchased in good faith
(although the party may be permitted to remedy such violations through
the subsequent purchase of valid credits). This is intended to maintain
the environmental benefits of the program and to encourage self-
policing by the industry of the validity of the credits they use for
compliance. However, in this situation EPA would look first to the
generator of the invalid credits to remedy the shortfall. If this
generator could make up any credit deficit, EPA normally would defer
enforcement against the user or intermediary transferor of invalid
credits.
2. Alternative ABT Options
    EPA seeks comment on whether the regulations should create two
options for benzene credits: one that is based on the credit
enforcement provisions contained in the proposed fuels program,
resulting in credits with more limited credit life that must be
transferred from the credit generator to the credit user; and
``verified'' benzene credits that have a longer credit life and that
can be owned by companies other than refiners/importers. Under this
approach, benzene credits could be ``verified'' if certain conditions
are met. First, the credit generator would need to participate in an
audit consortium (as described above) and the credits would need to be
verified through an audit conducted by this organization. Second, the
credit generator and any other company that took title to or used these
credits would need to participate in a benzene credit clearing house
(as described above). In this way, companies that wished to generate
benzene credits with longer life and broader ownership options could do
so, but also would bear at least part of the expense associated with
establishing the validity and tracking the movements of this class of
credits. At the same time, companies that wished to generate and
transfer credits in the traditional manner, would not bear these extra
expenses.
    EPA also seeks comment on an approach that would allow refiners and
importers, and non-refiner owners of credits (if allowed), to establish
a private clearing house to conduct the detailed tracking of individual
credits, with reconciliation of the reports of all parties
transferring, obtaining, or holding credits. The Chicago Climate
Exchange provides an example of a privately established trading
program. The Chicago Climate Exchange provides a trading platform with
a registry for credits and clearing facility. The NASD provides market
surveillance and verification of emission credits. EPA seeks comment on
how such an independent organization could be established; what
requirements should EPA establish for the organization; what reporting
would be required by companies to the organization; and what reporting
would be required by the organization to EPA.
    We request comment on the appropriateness of such an alternative
ABT program for the proposed benzene control program and how it might
work and be enforced.

B. Vehicles

    For vehicles, we considered normal temperature standards more
stringent than Tier 2 standards, which would likely entail hardware
changes to Tier 2 vehicles. This option is discussed in section VI. We
did not consider a less stringent standard for cold temperature NMHC
control because CAA sections 202(a) and 202(l) require us to establish
the most stringent standards achievable considering cost and other
factors. We believe that the proposed cold NMHC standards and phase-in
for Tier 2 vehicles satisfy these CAA requirements, and a less
stringent standard would not.

C. Gas Cans

    For gas cans, as discussed in section VIII, we are proposing an
emissions performance standard we believe reflects the performance of
the best available control technologies. We considered but are not
proposing options for design-based requirements, including requirements
for automatic shut-off spouts. We also considered but are not proposing
retrofit requirements for gas cans. These options are discussed in
sections VIII.B.3-VIII.B.5.

XI. Public Participation

    We request comment on all aspects of this proposal. This section
describes how you can participate in this process.

A. How Do I Submit Comments?

    We are opening a formal comment period by publishing this document.
We will accept comments during the period indicated under DATES above.
If you have an interest in the proposed emission control program
described in this document, we encourage you to comment on any aspect
of this rulemaking. We also request comment on specific topics
identified throughout this proposal.

    Your comments will be most useful if you include appropriate and
detailed supporting rationale, data, and analysis. Commenters are
especially encouraged to provide specific suggestions for any changes
to any aspect of the regulations that they believe need to be modified
or improved. You should send all comments, except those containing
proprietary information, to our Air Docket (see ADDRESSES) before the
end of the comment period.
    You may submit comments electronically, by mail, or through hand
delivery/courier. To ensure proper receipt by EPA, identify the
appropriate docket identification number in the subject line on the
first page of your comment. Please ensure that your comments are
submitted within the specified comment period. Comments received after
the close of the comment period will be marked ``late.'' EPA is not
required to consider these late comments. If you wish to submit CBI or
information that is otherwise protected by statute, please follow the
instructions in section XI.B.

B. How Should I Submit CBI to the Agency?

    Do not submit information that you consider to be CBI
electronically through the electronic public docket,
http://www.regulations.gov, or by e-mail. Send or deliver information

identified as CBI only to the following address: U.S. Environmental
Protection Agency, Assessment and Standards Division, 2000 Traverwood
Drive, Ann Arbor, MI 48105, Attention Docket ID EPA-HQ-OAR-2005-0036.
You may claim information that you submit to EPA as CBI by marking any
part or all of that information as CBI (if you submit CBI on disk or CD
ROM, mark the outside of the disk or CD ROM as CBI and then identify
electronically within the disk or CD ROM the specific information that
is CBI). Information so marked will not be disclosed except in
accordance with procedures set forth in 40 CFR part 2.
    In addition to one complete version of the comment that includes
any information claimed as CBI, a copy of the comment that does not
contain the information claimed as CBI must be submitted for inclusion
in the public docket. If you submit the copy that does not contain CBI
on disk or CD ROM, mark the outside of the disk or CD ROM clearly that
it does not contain CBI. Information not marked as CBI will be included
in the public docket without prior notice. If you have any questions
about CBI or the procedures for claiming CBI, please consult the person
identified in the FOR FURTHER INFORMATION CONTACT section.

C. Will There Be a Public Hearing?

    We will hold a public hearing on April 12, 2006 at the Sheraton
Crystal City Hotel, 1800 Jefferson Davis Highway, Arlington, Virginia
22202, Telephone:<PHONE_NUMBER>. The hearing will start at 10 a.m.
local time and continue until everyone has had a chance to speak.
    If you would like to present testimony at the public hearing, we
ask that you notify the contact person listed under FOR FURTHER
INFORMATION CONTACT at least ten days before the hearing. You should
estimate the time you will need for your presentation and identify any
needed audio/visual equipment. We suggest that you bring copies of your
statement or other material for the EPA panel and the audience. It
would also be helpful if you send us a copy of your statement or other
materials before the hearing.
    We will make a tentative schedule for the order of testimony based
on the notifications we receive. This schedule will be available on the
morning of the hearing. In addition, we will reserve a block of time
for anyone else in the audience who wants to give testimony.
    We will conduct the hearing informally, and technical rules of
evidence won't apply. We will arrange for a written transcript of the
hearing and keep the official record of the hearing open for 30 days to
allow you to submit supplementary information. You may make
arrangements for copies of the transcript directly with the court
reporter.

D. Comment Period

    The comment period for this rule will end on May 30, 2006.

E. What Should I Consider as I Prepare My Comments for EPA?

    You may find the following suggestions helpful for preparing your
comments:
     Explain your views as clearly as possible.
     Describe any assumptions that you used.
     Provide any technical information and/or data you used
that support your views.
     If you estimate potential burden or costs, explain how you
arrived at your estimate.
     Provide specific examples to illustrate your concerns.
     Offer alternatives.
     Make sure to submit your comments by the comment period
deadline identified.
     To ensure proper receipt by EPA, identify the appropriate
docket identification number in the subject line on the first page of
your response. It would also be helpful if you provided the name, date,
and Federal Register citation related to your comments.

XII. Statutory and Executive Order Reviews

A. Executive Order 12866: Regulatory Planning and Review

    Under Executive Order 12866 (58 FR 51735, October 4, 1993), the
Agency must determine whether the regulatory action is ``significant''
and therefore subject to Office of Management and Budget (OMB) review
and the requirements of the Executive Order. The Executive Order
defines a ``significant regulatory action'' as one that is likely to
result in a rule that may:
     Have an annual effect on the economy of $100 million or
more or adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, Local, or Tribal governments or
communities;
     Create a serious inconsistency or otherwise interfere with
an action taken or planned by another agency;
     Materially alter the budgetary impact of entitlements,
grants, user fees, or loan programs, or the rights and obligations of
recipients thereof; or
     Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
the Executive Order.
    Pursuant to the terms of Executive Order 12866, it has been
determined that this rule is a ``significant regulatory action''
because estimated annual costs of this rulemaking are estimated to be
over $100 million per year and it raises novel legal or policy issues.
A draft Regulatory Impact Analysis has been prepared and is available
in the docket for this rulemaking and at the docket internet address
listed under ADDRESSES above. This action was submitted to the Office
of Management and Budget for review under Executive Order 12866.
Written comments from OMB and responses from EPA to OMB comments are in
the public docket for this rulemaking.

B. Paperwork Reduction Act

    The information collection requirements in this proposed rule have
been submitted for approval to the Office of Management and Budget
(OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. The
Agency proposes to collect information to ensure compliance with the
provisions in this rule. This includes a variety of

requirements, both for vehicle manufacturers, fuel producers, and
portable gasoline container manufacturers. Information-collection
requirements related to vehicle manufacturers are in EPA ICR
0783.50 (OMB Control Number 2060-0104); requirements related
to fuel producers are in EPA ICR 1591.20 (OMB Control Number
2060-0277); requirements related to portable gasoline container
manufacturers are in EPA ICR 2213.01. For vehicle and fuel
standards, section 208(a) of the Clean Air Act requires that
manufacturers provide information the Administrator may reasonably
require to determine compliance with the regulations; submission of the
information is therefore mandatory. We will consider confidential all
information meeting the requirements of section 208(c) of the Clean Air
Act. For portable gasoline container standards, recordkeeping and
reporting requirements for manufacturers would be pursuant to the
authority of sections 183(e) and 111 of the Clean Air Act.
    As shown in Table XII.B-1, the total annual burden associated with
this proposal is about 24,696 hours and $2,771,309, based on a
projection of 225 respondents. The estimated burden for vehicle
manufacturers and fuel producers is a total estimate for both new and
existing reporting requirements. The portable gasoline container
requirements represent our first regulation of gas cans, so those
burden estimates reflect only new reporting requirements. Burden means
the total time, effort, or financial resources expended by persons to
generate, maintain, retain, or disclose or provide information to or
for a Federal agency. This includes the time needed to review
instructions; develop, acquire, install, and utilize technology and
systems for the purposes of collecting, validating, and verifying
information, processing and maintaining information, and disclosing and
providing information; adjust the existing ways to comply with any
previously applicable instructions and requirements; train personnel to
be able to respond to a collection of information; search data sources;
complete and review the collection of information; and transmit or
otherwise disclose the information.

                  Table XII.B-1.--Estimated Burden for Reporting and Recordkeeping Requirements
----------------------------------------------------------------------------------------------------------------
                                                                     Number of     Annual burden
                         Industry sector                            respondents        hours       Annual costs
----------------------------------------------------------------------------------------------------------------
Vehicles........................................................              35             770         $80,900
Fuels...........................................................             185          23,710       2,677,410
Gas Cans........................................................               5             216          12,999
                                                                 -----------------------------------------------
    Total.......................................................             225          24,696       2,771,309
----------------------------------------------------------------------------------------------------------------

    An agency may not conduct or sponsor, and a person is not required
to respond to a collection of information unless it displays a
currently valid OMB control number. The OMB control numbers for EPA's
regulations are listed in 40 CFR part 9 and 48 CFR chapter 15.
    To comment on the Agency's need for this information, the accuracy
of the provided burden estimates, and any suggested methods for
minimizing respondent burden, including the use of automated collection
techniques, EPA has established a public docket for this rule, which
includes this ICR, under Docket ID number EPA-HQ-OAR-2005-0036. Submit
any comments related to the ICR for this proposed rule to EPA and OMB.
See ADDRESSES section at the beginning of this notice for where to
submit comments to EPA. Send comments to OMB at the Office of
Information and Regulatory Affairs, Office of Management and Budget,
725 17th Street, NW., Washington, DC 20503, ``Attention: Desk Office
for EPA.'' Include the ICR number in any correspondence. Since OMB is
required to make a decision concerning the ICR between 30 and 60 days
after March 29, 2006, a comment to OMB is best assured of having its
full effect if OMB receives it by April 28, 2006. The final rule will
respond to any OMB or public comments on the information collection
requirements contained in this proposal.

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

1. Overview
    The Regulatory Flexibility Act (RFA) generally requires an agency
to prepare a regulatory flexibility analysis of any rule subject to
notice and comment rulemaking requirements under the Administrative
Procedure Act or any other statute unless the agency certifies that the
rule will not have a significant economic impact on a substantial
number of small entities. Small entities include small businesses,
small organizations, and small governmental jurisdictions.
    For purposes of assessing the impacts of today's rule on small
entities, small entity is defined as: (1) A small business as defined
by the Small Business Administration's (SBA) regulations at 13 CFR
121.201 (see table below); (2) a small governmental jurisdiction that
is a government of a city, county, town, school district or special
district with a population of less than 50,000; and (3) a small
organization that is any not-for-profit enterprise which is
independently owned and operated and is not dominant in its field. The
following table provides an overview of the primary SBA small business
categories potentially affected by this regulation:

------------------------------------------------------------------------
                                 Defined as small entity
            Industry              by SBA if less than or    NAICS codes
                                         equal to               \a\
------------------------------------------------------------------------
Light-duty vehicles:
    --Vehicle manufacturers      1,000 employees........          336111
     (including small volume
     manufacturers).
    --Independent commercial     $6 million annual sales         811111,
     importers.                                           811112, 811198
     --Alternative fuel vehicle  100 employees..........          424720
     converters.
                                 1,000 employees........          335312
                                 $6 million annual sales          811198
Gasoline fuel refiners.........  1500 employees \b\.....          324110

Portable fuel container
 manufacturers:
    --Plastic container          500 employees..........          326199
     manufacturers.
    --Metal gas can              1,000 employees........         332431
     manufacturers.
------------------------------------------------------------------------
Notes:
\a\ North American Industrial Classification System.
\b\ EPA has included in past fuels rulemakings a provision that, in
  order to qualify for EPA's small refiner flexibilities, a refiner must
  also produce no greater than 155,000 bpcd crude capacity.

2. Background
    Mobile sources emit air toxics that can cause cancer and other
serious health effects (Section III of this preamble and Chapter 1 of
the Regulatory Impact Analysis (RIA) for this rule describe these
compounds and their health effects). Mobile sources contribute
significantly to the nationwide risk from breathing outdoor sources of
air toxics. In today's action we are proposing: standards to limit the
exhaust hydrocarbons from passenger vehicles during cold temperature
operation; evaporative hydrocarbon emissions standards for passenger
vehicles; limiting the average annual benzene content of gasoline; and
hydrocarbon emissions standards for gas cans that would reduce
evaporation, permeation, and spillage from these containers. (Detailed
discussion of each of these programs is in sections VI, VII, and VIII
of the preamble and Chapters 5, 6, and 7 of the RIA). We are proposing
the standards for vehicles and gasoline under section 202(l)(2) of the
Clean Air Act (CAA), which directs EPA to establish requirements to
control emissions of mobile source air toxics (MSATs) from new motor
vehicles and fuels. Controls for gas cans are being pursued under CAA
section 183(e), the provisions applying to consumer and commercial
products.
    Pursuant to section 603 of the RFA, EPA prepared an initial
regulatory flexibility analysis (IRFA) that examines the impact of the
proposed rule on small entities along with regulatory alternatives that
could reduce that impact. The IRFA, as summarized below, is available
for review in the docket and Chapter 14 of the RIA.
    As required by section 609(b) of the RFA, as amended by SBREFA, EPA
also conducted outreach to small entities and convened a Small Business
Advocacy Review Panel to obtain advice and recommendations of
representatives of the small entities that potentially would be subject
to the rule's requirements.
    Consistent with the RFA/SBREFA requirements, the Panel evaluated
the assembled materials and small-entity comments on issues related to
elements of the IRFA. A copy of the Panel report is included in the
docket for this proposed rule, and a summary of the Panel process, and
subsequent Panel recommendations, is summarized below.
3. Summary of Regulated Small Entities
    The following section discusses the small entities directly
regulated by this proposed rule.
a. Highway Light-Duty Vehicles
    In addition to the major vehicle manufacturers, three distinct
categories of businesses relating to highway light-duty vehicles would
be covered by the new vehicle standards: small volume manufacturers
(SVMs), independent commercial importers (ICIs), and alternative fuel
vehicle converters. SVMs are companies that sell less than 15,000
vehicles per year, as defined in past EPA regulations, and this status
allows vehicle models to be certified under a slightly simpler
certification process. Independent commercial importers are companies
that hold a Certificate (or certificates) of Conformity permitting them
to alter imported vehicles to meet U.S emission standards. Alternative
fuel vehicle converters are businesses that convert gasoline or diesel
vehicles to operate on alternative fuel, and converters must seek a
certificate for all of their vehicle models. Based on a preliminary
assessment, EPA identified about 14 SVMs, 10 alternative fuel vehicle
converters, and 10 ICIs. Of these, EPA believes 5 SVMs, 6 converters,
and all 10 ICIs would meet the small-entity criteria as defined by SBA
(no major vehicle manufacturers meet the small-entity criteria). EPA
estimates that these small entities comprise about 0.02 percent of the
total light-duty vehicle sales in the U.S. for the year 2004.
b. Gasoline Refiners
    EPA's current assessment is that 15 refiners meet SBA's criterion
of having 1,500 employees or less. It should be noted that because of
the dynamics in the refining industry (i.e., mergers and acquisitions)
and decisions by some refiners to enter or leave the gasoline market,
the actual number of refiners that ultimately qualify for small refiner
status under an MSAT program could be much different than these initial
estimates. Current data further indicates that these refiners produce
about 2.5 percent of the total gasoline pool.
c. Portable Gasoline Container Manufacturers
    EPA conducted a preliminary industry profile to identify the
manufacturers of portable gasoline containers (gas cans)--98 percent
are plastic containers and 2 percent are metal gas cans. Using this
industry profile, EPA identified 4 domestic manufacturers and 1 foreign
manufacturer. Of these 4 U.S. manufacturers, 3 meet the SBA definition
of a small entity. One small business accounted for over 50 percent of
the U.S. sales in 2002, and the other small entities comprised about 10
percent of U.S. sales.
4. Potential Reporting, Record Keeping, and Compliance
    For highway light-duty vehicles, EPA is proposing to continue the
reporting, recordkeeping, and compliance requirements prescribed for
this category in 40 CFR 86. Key among these requirements are
certification requirements and provisions related to reporting of
production, emissions information, flexibility use, etc.
    For any fuel control program, EPA must have assurance that fuel
produced by refiners meets the applicable standard, and that the fuel
continues to meet the standard as it passes downstream through the
distribution system to the ultimate end user. EPA expects that
recordkeeping, reporting and compliance provisions of the proposed rule
will be fairly consistent with those in place today for other fuel
programs. For example, reporting would likely involve requiring that
refiners submit pre-compliance reports updating EPA on their plans to
meet the MSAT standards.
    For gas cans, there currently are not federal emission control
requirements, and thus, EPA is proposing new reporting and record
keeping requirements for gas can manufacturers that would be subject to
the proposed standards. EPA is proposing

requirements that would be similar to those in the California program,
such as submitting emissions testing information, reporting of
certification families, and use of transition provisions.
5. Relevant Federal Rules
    We are aware of a few other current or proposed Federal rules that
are related to the upcoming proposed rule. The primary federal rules
that are related to the proposed MSAT rule under consideration are the
first MSAT rule (Federal Register Vol. 66, p. 17230, March 29, 2001),
the Tier 2 Vehicle/Gasoline Sulfur rulemaking (Federal Register Vol.
65, p. 6698, February 10, 2000), the fuel sulfur rules for highway
diesel (Federal Register Vol. 66, p. 5002, January 18, 2001) and
nonroad diesel (Federal Register Vol. 69, p. 38958, June 29, 2004), and
the Cold Temperature Carbon Monoxide Rulemaking (Federal Register Vol.
57, p. 31888, July 17, 1992).
    In addition, the Evaporative Emissions Streamlining Direct Final
Rulemaking was issued on December 8, 2005 (Federal Register Vol. 70, p.
72917). For gas cans, OSHA has safety regulations for gasoline
containers used in workplace settings. Cans meeting OSHA requirements,
commonly called safety cans, are exempt from the California program,
and we are planning to exempt them from the EPA program.
    Section 1501 of the Energy Policy Act of 2005 requires the Agency
to implement a Renewable Fuels Standard (RFS) program. Beginning in
2006, this program will require increasing volumes of renewable fuel to
be used in gasoline, until a total of 7.5 billion gallons is required
in 2012. The most prevalent renewable fuel is expected to be ethanol.
There are a wide variety of potential impacts of ethanol blending on
MSAT emissions that will be evaluated as part of the RFS rulemaking
process. In general, as ethanol use increases, other sources of octane
in gasoline can decrease. Depending on these changes, the impact on
benzene emissions will vary. The specific effects of ethanol on benzene
will be addressed in the Regulatory Impact Analysis (RIA) to this rule
and in future rulemakings, such as the RFS rule.
6. Summary of SBREFA Panel Process and Panel Outreach
a. Significant Panel Findings
    The Small Business Advocacy Review Panel (SBAR Panel, or the Panel)
considered many regulatory options and flexibilities that would help
mitigate potential adverse effects on small businesses as a result of
this rule. During the SBREFA Panel process, the Panel sought out and
received comments on the regulatory options and flexibilities that were
presented to SERs and Panel members. The major flexibilities and
hardship relief provisions that were recommended by the Panel are
described below and are also located in Section 9 of the SBREFA Final
Panel Report which is available in the public docket.
b. Panel Process
    As required by section 609(b) of the RFA, as amended by SBREFA, we
also conducted outreach to small entities and convened an SBAR Panel to
obtain advice and recommendations of representatives of the small
entities that potentially would be subject to the rule's requirements.
    On September 7, 2005, EPA's Small Business Advocacy Chairperson
convened a Panel under Section 609(b) of the RFA. In addition to the
Chair, the Panel consisted of the Division Director of the Assessment
and Standards Division of EPA's Office of Transportation and Air
Quality, the Chief Counsel for Advocacy of the Small Business
Administration, and the Administrator of the Office of Information and
Regulatory Affairs within the Office of Management and Budget. As part
of the SBAR Panel process, we conducted outreach with representatives
from the various small entities that would be affected by the proposed
rulemaking. We met with these Small Entity Representatives (SERs) to
discuss the potential rulemaking approaches and potential options to
decrease the impact of the rulemaking on their industries. We
distributed outreach materials to the SERs; these materials included
background on the rulemaking, possible regulatory approaches, and
possible rulemaking alternatives. The Panel met with SERs from the
industries that will be directly affected by the MSAT rule on September
27, 2005 (gasoline refiners) and September 29, 2005 (light-duty
vehicles and portable gasoline containers) to discuss the outreach
materials and receive feedback on the approaches and alternatives
detailed in the outreach packet (the Panel also met with SERs on July
19, 2005 for an initial outreach meeting). The Panel received written
comments from the SERs following the meeting in response to discussions
had at the meeting and the questions posed to the SERs by the Agency.
The SERs were specifically asked to provide comment on regulatory
alternatives that could help to minimize the rule's impact on small
businesses.
    In general, SERs representing the gas can manufacturers industry
raised concerns on how the MSAT rule's requirements would be
coordinated with the California program and other requirements, and
that there should be adequate opportunity for sell through at the start
of the program. The small volume manufacturer, ICI, and vehicle
converter SERs that participated had questions about the form of the
new standards for light-duty vehicles, specifically testing and
certification requirements. The gasoline refiner SERs generally stated
that they believed that small refiners would face challenges in meeting
a new standard. More specifically, they raised the concern that the
rule could be very costly and dependence on credits may not be a
comfortable situation; they were also concerned about the timing of the
standards for this rule, given other upcoming fuel standards.
    The Panel's findings and discussions were based on the information
that was available during the term of the Panel and issues that were
raised by the SERs during the outreach meetings and in their comments.
It was agreed that EPA should consider the issues raised by the SERs
(and discussions had by the Panel itself) and that EPA should consider
comments on flexibility alternatives that would help to mitigate any
negative impacts on small businesses. Alternatives discussed throughout
the Panel process included those offered in previous or current EPA
rulemakings, as well as alternatives suggested by SERs and Panel
members, and the Panel recommended that all be considered in the
development of the rule. Though some of the flexibilities suggested may
be appropriate to apply to all entities affected by the rulemaking, the
Panel's discussions and recommendations were focused mainly on the
impacts, and ways to mitigate adverse impacts, on small businesses. A
summary of these recommendations is detailed below, and a full
discussion of the regulatory alternatives and hardship provisions
discussed and recommended by the Panel can be found in the SBREFA Final
Panel Report. A complete discussion of the transition and hardship
provisions that we are proposing in today's action can be found in
Sections VI.E, VII.E, and VIII (vehicle, fuels, and gas can sections)
of this preamble. Also, the Panel Report includes all comments received
from SERs (Appendices D and E of the Report) and summaries of the two
outreach meetings that were held with the SERs (Appendices B and C). In
accordance with the RFA/SBREFA requirements, the Panel evaluated the

aforementioned materials and SER comments on issues related to the
Initial Regulatory Flexibility Analysis (IRFA). The following sections
describe the Panel recommendations from the SBAR Panel Report.
c. Small Business Flexibilities
    The Panel recommended that EPA consider and seek comment on a wide
range of regulatory alternatives to mitigate the impacts of the
rulemaking on small businesses, including those flexibility options
described below. As previously stated, the following discussion is a
summary of the SBAR Panel recommendations; our proposals regarding
these recommendations are located in earlier sections of this rule
preamble.
i. Highway Light-Duty Vehicles
(a) Highway Light-Duty Vehicle Flexibilities
    For certification purposes (and for the sake of simplicity for
Panel discussions regarding flexibility options), SVMs include ICIs and
alternative fuel vehicle converters since they sell less than 15,000
vehicles per year. Similar to the flexibility provisions implemented in
the Tier 2 rule, the Panel recommended that we allow SVMs (includes all
vehicle small entities that would be affected by this rule, which are
the majority of SVMs) the following flexibility options for meeting
cold temperature VOC standards and evaporative emission standards:
    For cold VOC standards, the Panel recommended that SVMs simply
comply with the standards with 100 percent of their vehicles during the
last year of the 4 year phase-in period. For example, if the standard
for light-duty vehicles and light light-duty trucks (0 to 6,000 pounds
GVWR) were to begin in 2010 and end in 2013 (25%, 50%, 75%, 100% phase-
in over 4 years), the SVM provision would be 100 percent in 2013. If
the standard for heavy light-duty trucks and medium-duty passenger
vehicles (greater than 6,000 pounds GVWR) were to start in 2012 (25%,
50%, 75%, 100% phase-in over 4 years), the SVM provision would be 100
percent in 2015.
    In regard to evaporative emission standards, the Panel recommended
that since the evaporative emissions standards will not have phase-in
years, we allow SVMs to simply comply with standards during the third
year of the program (we have implemented similar provisions in past
rulemakings). For a 2009 start date for light-duty vehicles and light
light-duty trucks, SVMs would need to meet the evaporative emission
standards in 2011. For a 2010 implementation date for heavy light-duty
trucks and medium-duty passenger vehicles, SVMs would need to comply in
2012.
(b) Highway Light-Duty Vehicle Hardships
    In addition, the Panel recommended that hardship flexibility
provisions be extended to SVMs for the cold temperature VOC and
evaporative emission standards. The provisions that the Panel
recommended are:
    SVMs would be allowed to apply (EPA would need to review and
approve application) for up to an additional 2 years to meet the 100
percent phase-in requirements for cold VOC and the delayed requirement
for evaporative emissions. Appeals for such hardship relief must be
made in writing, must be submitted before the earliest date of
noncompliance, must include evidence that the noncompliance will occur
despite the manufacturer's best efforts to comply, and must include
evidence that severe economic hardship will be faced by the company if
the relief is not granted.
ii. Gasoline Refiners
(a) Gasoline Refiner Flexibilities
    The Panel recommended that EPA propose certain provisions to
encourage early compliance with lower benzene standards. The Panel
recommended that EPA propose that small refiners be afforded the
following flexibility options to help mitigate the impacts on small
refiners:
    Delay in Standards--The Panel recommended that a four-year delay
period be proposed for small refiners. A four-year delay would be
needed in order to allow for a review of the ABT program, as discussed
below, to occur one year after implementation but still three years
prior to the small refiner compliance deadline. It was noted by the
small refiners that three years are generally needed for small refiners
to obtain financing and perform engineering and construction. The Panel
was also in support of allowing for refinery expansion within the delay
option, and recommended that refinery expansion be provided for in the
rule.
    Early ABT Credits--The Panel recommended that early credit
generation be afforded to small refiners that take some steps to meet
the benzene requirement prior to the effective date of the standard.
Depending on the start date of the program, and coupled with the four-
year delay option, a small refiner could have a total credit generation
period of five to seven years. The Panel was also in support of
allowing refiners (small, as well as non-small, refiners) to generate
credits for reductions to their benzene emissions levels, rather than
credits only for meeting the benzene standard that is set by the rule.
    The Panel recommended a review of the credit trading program and
small refiner flexibility options one year after the general program
starts. Such a review could take into account the number of early
credits generated, as well as the number of credits generated and sold
during the first year of the program. Further, a review after the first
year of the program would still provide small refiners with the three
years that it was suggested would be needed for these refiners to
obtain financing and perform engineering and construction for benzene
reduction equipment. Should the review conclude that changes to either
the program or the small refiner provisions are necessary, the Panel
recommended that EPA also consider some of the suggestions provided by
the small refiners (their comments are located in Appendix E of the
Final Panel Report), such as:
     The general MSAT program should require pre-compliance
reporting (similar to EPA's highway and nonroad diesel rules);
     Following the review, EPA should revisit the small refiner
provisions if it is found that the credit trading market does not
exist, or if credits are only available at a cost that would not allow
small refiners to purchase credits for compliance;
     The review should offer ways either to help the credit
market, or help small refiners gain access to credits (e.g., EPA could
``create'' credits to introduce to the market, EPA could impose
additional requirements to encourage trading with small refiners,
etc.).
    In addition, the Panel recommended that EPA consider in this
rulemaking establishing an additional hardship provision to assist
those small refiners that cannot comply with the MSAT with a viable
credit market. (This suggested hardship provision was also suggested by
the small refiners in their comments, located in Appendix E of the
Final Panel Report). This hardship provision could address concerns
that, for some small refineries, compliance may be technically feasible
only through the purchase of credits and it may not be economically
feasible to purchase those credits. This flexibility could be provided
to a small refiner on a case-by-case basis following the review and
based on a summary, by the refiner, of technical or financial
infeasibility (or some other type of similar situation that

would render its compliance with the standard difficult). This hardship
provision might include further delays and/or a slightly relaxed
standard on an individual refinery basis for a duration of two years;
in addition, provision might allow the refinery to request, and EPA
grant, multiple extensions of the flexibility until the refinery's
material situation changes. The Panel also stated that it understood
that EPA may need to modify or rescind this provision, should it be
implemented, based on the results of the program review.
(b) Gasoline Refiner Hardships
    During the Panel process, we stated that we intended to propose the
extreme unforeseen circumstances hardship and extreme hardship
provisions (for all gasoline refiners and importers), similar to those
in prior fuels programs. A hardship based on extreme unforeseen
circumstances is intended to provide short term relief due to
unanticipated circumstances beyond the control of the refiner, such as
a natural disaster or a refinery fire; an extreme hardship is intended
to provide short-term relief based on extreme circumstances (e.g.,
extreme financial problems, extreme operational or technical problems,
etc.) that impose extreme hardship and thus significantly affect a
refiner's ability to comply with the program requirements by the