As discussed in more detail in section XII.C 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),\220\ and alternative fuel vehicle
converters.\221\ We define small volume manufacturers as those with
total U.S. sales less than 15,000 vehicles per year, and this status
allows vehicle models to be certified under a slightly simpler
certification process. For certification purposes, SVMs include ICIs
and alternative fuel vehicle converters since they sell less than
15,000 vehicles per year.
---------------------------------------------------------------------------

    \220\ ICIs are companies that hold a Certificate (or
certificates) of Conformity permitting them to import nonconforming
vehicles and to modify these vehicles to meet U.S. emission
standards.
    \221\ Alternative fuel vehicle converters are businesses that
convert gasoline or diesel vehicles to operate on alternative fuel
(e.g., compressed natural gas), and converters must seek a
certificate for all of their vehicle models.
---------------------------------------------------------------------------

    About 34 out of 50 entities that certify vehicles are SVMs, and the
Panel identified 21 of these 34 SVMs that are small businesses as
defined by the Small Business Administration criteria (5 manufacturers,
10 ICIs, and 6 converters). Since a majority of the SVMs are small
businesses and all SVMs have similar characteristics as described below
in section VI.E.1, the Panel recommended that we apply the lead time
transition and hardship provisions to all SVMs. These manufacturers
represent just a fraction of one percent of the light-duty vehicle and
light-duty truck sales. Our proposal today is consistent with the
Panel's recommendation.
1. Lead Time Transition Provisions
    In these types of vehicle businesses, predicting sales is difficult
and it is often necessary to rely on other entities for technology (see
earlier discussions in section VI on technology needed to meet the
proposed standards).222 223 Moreover, percentage phase-in
requirements pose a dilemma for an entity such as a SVM that has a
limited product line. For example, it is challenging for a SVM to
address percentage phase-in requirements if the manufacturer makes
vehicles in only one or two test groups. Because of its very limited
product lines, a SVM could be required to certify all their vehicles to
the new standards in the first year of the phase-in period, whereas a
full-line manufacturer (or major manufacturer) could utilize all four
years of the phase-in. Thus, similar to the flexibility provisions
implemented in the Tier 2 rule, the Panel recommended that we allow
SVMs, manufacturers with sales less than 15,000 vehicles per year
(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 NMHC standards and evaporative emission
standards as an element of determining appropriate lead time for these
entities to comply with the standards.
---------------------------------------------------------------------------

    \222\ For example, as described later in section VI.E.3, ICIs
may not be able to predict their sales because they are dependent
upon vehicles brought to them by individuals attempting to import
uncertified vehicles.
    \223\ SMVs (those with sales less than 15,000 vehicles per year)
include ICIs, alternative fuel vehicle converters, companies that
produce specialty vehicles by modifying vehicles produced by others,
and companies that produce small quantities of their own vehicles,
but rely on major manufacturers for engines and other vital emission
related components.
---------------------------------------------------------------------------

    For cold NMHC 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. Since these entities could
need additional lead time flexibility and proposed standards for light-
duty vehicles and light light-duty trucks would begin in model year
2010 and would end in model year 2013 (25%, 50%, 75%, 100% phase-in
over 4

years), we propose that the SVM provision would be 100 percent in model
year 2013. Also, since the proposed standard for heavy light-duty
trucks and medium-duty passenger vehicles would start in 2012 (25%,
50%, 75%, 100% phase-in over 4 years), we propose that the SVM
provision would be 100 percent in model year 2015.
    In regard to evaporative emission standards, the Panel recommended
that since the proposed evaporative emissions standards would 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). Given the additional challenges that SVMs face,
as noted above, we believe that this recommendation is reasonable.
Therefore, for a 2009 model year start date for light-duty vehicles and
light light-duty trucks, we propose that SVMs meet the evaporative
emission standards in model year 2011. For a model year 2010
implementation date for heavy light-duty trucks and medium-duty
passenger vehicles, we propose that SVMs comply in model year 2012.
2. Hardship Provisions
    In addition, the Panel recommended that hardship provisions be
extended to SVMs for the cold temperature NMHC and evaporative emission
standards as an aspect of determining the greatest emission reductions
feasible. These entities could, on a case-by-case basis, face hardship
more than major manufacturers (manufacturers with sales of 15,000
vehicles or more per year), and we are proposing this provision to
provide what could prove to be a needed safety valve for these
entities. SVMs would be allowed to apply for up to an additional 2
years to meet the 100 percent phase-in requirements for cold NMHC and
the delayed requirement for evaporative emissions. As with hardship
provisions for the Tier 2 rule, we propose that 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.
    We would work with the applicant to ensure that all other remedies
available under this rule are exhausted before granting additional
relief. To avoid the very existence of the hardship provision prompting
SVMs to delay development, acquisition and application of new
technology, we want to make clear that we would expect this provision
to be rarely used. Our proposed rule contains numerous flexibilities
for all manufacturers and it delays implementation dates for SVMs,
which effectively provides them more time. We would expect small volume
manufacturers to prepare for the applicable implementation dates in
today's proposed rule.
3. Special Provisions for Independent Commercial Importers (ICIs)
    Although the SBAR panel did not specifically recommend it, we are
proposing to allow ICIs to participate in the averaging, banking, and
trading program for cold temperature NMHC fleet average standards (as
described in Table IV.B.-1), but with appropriate constraints to ensure
that fleet averages will be met. The existing regulations for ICIs
specifically bar ICIs from participating in emission related averaging,
banking, and trading programs unless specific exceptions are provided
(see 40 CFR 85.1515(d)). The concern is that they may not be able to
predict their sales and control their fleet average emissions because
they are dependent upon vehicles brought to them by individuals
attempting to import uncertified vehicles. However, an exception for
ICIs to participate in an averaging, banking, and trading program was
made for the Tier 2 NOX fleet average standards, and today
we propose to apply a similar exception for the cold temperature NMHC
fleet average standards.
    If an ICI is able to purchase credits or to certify a test group to
a family emission level (FEL) below the applicable cold temperature
NMHC fleet average standard, we would permit the ICI to bank credits
for future use. Where an ICI desires to certify a test group to a FEL
above the applicable fleet average standard, we would permit them to do
so if they have adequate and appropriate credits. Where an ICI desires
to certify to an FEL above the fleet average standard and does not have
adequate or appropriate credits to offset the vehicles, we would permit
the manufacturer to obtain a certificate for vehicles using such a FEL,
but would condition the certificate such that the manufacturer can only
produce vehicles if it first obtains credits from other manufacturers
or from other vehicles certified to a FEL lower than the fleet average
standard during that model year.
    Our experience over the years through certification indicates that
the nature of the ICI business is such that these companies cannot
predict or estimate their sales of various vehicles well. Therefore, we
do not have confidence in their ability to certify compliance under a
program that would allow them leeway to produce some vehicles to a
higher FEL now but sell vehicles with lower FELs later, such that they
were able to comply with the fleet average standard. We also cannot
reasonably assume that an ICI that certifies and produces vehicles one
year, would certify or even be in business the next. Consequently, we
propose that ICIs not be allowed to utilize the deficit carryforward
provisions of the proposed ABT program.

VII. Proposed Gasoline Benzene Control Program

A. Overview of Today's Proposed Fuel Control Program

    As discussed in sections I, IV, and V above, people experience
elevated risk of cancer and other health effects as a result of
inhalation of air toxics. Mobile sources are responsible for a
significant portion of this risk. As required by section 202(l) of the
Clean Air Act, EPA has evaluated options to reduce MSAT emissions by
setting standards for motor vehicle fuel. We have determined that there
are fuel-related technologies available to feasibly reduce MSAT
emissions and that these reductions are achievable, considering cost,
energy, and other factors. These feasible reductions would be in
addition to those resulting from actions taken by the industry in
response to the earlier fuel-related MSAT programs described in section
V above. Accordingly, we believe a fuel control program is necessary
and appropriate to reduce air toxics emissions from motor vehicles to
the greatest extent achievable (in addition to the programs proposed
elsewhere in this notice to reduce MSAT emissions by changes to
gasoline-powered motor vehicles and gas cans). This section of the
preamble describes our proposed fuel control program.
    The section begins with a detailed description of today's proposed
program. In summary, we propose that beginning January 1, 2011,
refiners would meet an average gasoline benzene content standard of
0.62% by volume on all their gasoline (reformulated and conventional)
nationwide.\224\ We also propose that refiners could generate benzene
credits and use or sell them as a part of a nationwide averaging,
banking, and trading (ABT) program.

We believe that the proposed benzene standard, combined with the
proposed ABT program, would result in the largest feasible overall
reductions in benzene emissions of any potential fuel-based MSAT
control program. Finally, as an aspect of achieving the greatest
emission reductions, we also propose special compliance flexibility for
approved small refiners.
---------------------------------------------------------------------------

    \224\ The State of California has a similar benzene standard and
gasoline sold there is not covered by this proposal. For more
information, see California Code of Regulations, Title 13 Section
2262.
---------------------------------------------------------------------------

    This section then describes in detail how we arrived at the
proposed program. We discuss a range of potential approaches to
reducing MSATs through changes in fuel, concluding that benzene
emissions would be significantly more responsive to fuel changes than
emissions of any other fuel-related MSAT. This is followed by
discussion of alternate methods of reducing benzene emissions,
resulting in the proposed approach of directly controlling benzene
content. We also discuss how we arrived at the proposed level of 0.62
volume percent (vol%) for the benzene standard. We discuss why we
believe that incorporating the proposed ABT program would be crucial
for the effectiveness of the overall benzene control program and
describe how the system would work. Finally, we review the
recommendations of the special panel that was convened to assess the
potential for disproportionate impacts of the proposed program on small
refiners, and present our reasoning for the special small refiner
provisions we are proposing today.
    Today's proposed action would fulfill several statutory and
regulatory goals for gasoline-related MSAT emissions, which are
discussed in more detail in this section. The program would meet our
commitment in the MSAT1 program to consider further MSAT control. The
program would also allow EPA to streamline the regulatory provisions
for the air toxics performance requirements of the reformulated
gasoline (RFG) and Anti-dumping programs. The expected levels of
benzene control by individual refiners under this proposal, combined
with other gasoline controls such as sulfur, RVP, and VOC controls,
mean that compliance with these provisions is expected to lead to
compliance with the annual average requirements for benzene and toxics
performance for RFG and the annual average Anti-dumping toxics
performance for conventional gasoline. EPA is therefore proposing that
upon full implementation in 2011, the regulatory provisions for the
benzene control program would become the single regulatory mechanism
used to implement these RFG and Anti-dumping annual average toxics
requirements, replacing the current RFG and Anti-dumping annual average
provisions (although the 1.3 vol% benzene cap would still apply for
RFG). The proposed benzene control program would also replace the MSAT1
requirements. In addition, the program would satisfy certain fuel MSAT
conditions of the Energy Policy Act of 2005. By consciously designing
this proposed program to address these separate but related goals, we
would significantly consolidate and simplify the existing national
fuel-related MSAT regulatory program.
    Finally, this section concludes with a detailed summary of our
assessment of the technological feasibility for different types of
refineries, and the refining industry as a whole, to meet the program
as proposed. We request general and specific comment on all aspects of
the proposed program, and we request that comments include supporting
data whenever possible.

B. Description of the Proposed Fuel Control Program

    Today's proposed program has three main components, the development
of each of which is further described later in this section:

--A gasoline benzene content standard. We propose that an annual
average gasoline benzene standard of 0.62 vol% be implemented beginning
January 1, 2011. This single standard would apply to all gasoline, both
reformulated (RFG) and conventional (CG) nationwide (except for
gasoline sold in California, which is already covered by a similar
state program).
--An averaging, banking, and trading (ABT) program. From 2007-2010
refiners could generate benzene credits by taking early steps to reduce
gasoline benzene levels. Beginning in 2011 and continuing indefinitely,
refiners could generate credits by producing gasoline with benzene
levels below the 0.62% average standard. Refiners could apply the
credits towards company compliance, ``bank'' the credits for later use,
or transfer (``trade'') them to other refiners nationwide (outside of
California) under the proposed program. Under this program, refiners
could use credits to achieve compliance with the benzene content
standard, regardless of their actual gasoline benzene levels.\225\
---------------------------------------------------------------------------

    \225\ However, the per-gallon benzene cap (1.3 vol%) in the RFG
program would continue to apply separately.
---------------------------------------------------------------------------

--Hardship provisions. Refiners approved as ``small refiners'' would
have access to special temporary relief provisions. In addition, any
refiner facing extreme unforeseen circumstances or extreme hardship
circumstances could apply for similar temporary relief.

C. Development of the Proposed Gasoline Benzene Standard

    EPA believes that benzene control is by far the most effective
fuel-based means of achieving MSAT emissions control, as described in
this section. There are other options that can target individual MSATs
or reduce overall VOCs and thereby reduce MSATs as well. We have
evaluated these other options, as discussed below, and our analysis
indicates that the potential MSAT reductions would be considerably
smaller and more expensive.
1. Why Are We Focusing on Controlling Benzene Emissions?
    We considered controlling emissions of several MSATs through
changes to fuel parameters. There are only a limited number of MSATs
that are affected through fuel changes, each of which we discuss below.
For several reasons, we have concluded that the most effective and
appropriate means of reducing fuel-related MSATs is to reduce the
benzene emissions attributable to gasoline.
    Benzene emissions can be reduced much more significantly through
fuel changes than can emissions of other MSATs. Relatively small
changes in gasoline can result in very significant reductions in
benzene emissions. This relative responsiveness of benzene emissions to
fuel controls (specifically to control of gasoline benzene content, as
discussed in the next section) is coupled with little negative impact
on other important characteristics of gasoline or refining processes. A
related and critical advantage of fuel control of benzene emissions, as
compared to fuel control of emissions of other MSATs as discussed
below, is that controlling benzene emissions does not significantly
increase emissions of other MSATs.\226\
---------------------------------------------------------------------------

    \226\ A key tool in evaluating the potential for fuel changes to
affect MSAT emissions is EPA's Complex Model. This model relates
changes in gasoline parameters with emissions of specific MSATs and
was developed for refiners and EPA to assess compliance with the
RFG, Anti-dumping, and MSAT1 programs. (See section V.D.1 above.)
Given a set of gasoline parameters, it estimates the emissions of an
average vehicle based on a large set of fuel effects data. We
further discuss the Complex Model, as well as other sources of
information the relationships between fuel changes and MSAT
emissions, in chapter 6 of the RIA.
---------------------------------------------------------------------------

    In determining an appropriate approach to fuel-related MSAT
control, a key consideration was octane value.

Among potential approaches to fuel-related MSAT emission reduction,
only benzene emission reduction can avoid major losses in octane value
and the negative cost and environmental consequences discussed below of
replacing that lost octane value. Finished gasoline must meet minimum
specifications for octane value; these specifications are tied to the
operational needs of motor vehicles. Thus, refiners must be keenly
aware of how any changes in gasoline production might reduce the octane
value of their fuel, what approaches to restore the octane value might
be available, and the costs in material and operational changes of any
selected approach.
    There are a limited number of approaches refiners have at their
disposal to restore gasoline octane value lost through control of MSAT
emissions. These approaches vary in their economics and effectiveness,
and their availability may be limited by the specific configuration of
a given refinery. However, all methods of replacing octane value have
cost implications, and as shown in the next paragraph, air toxics
implications as well.
    In the case of changes in gasoline production that are intended to
reduce MSAT emissions, it is also important to consider whether
restoring any lost octane might itself significantly increase other
MSAT emissions. Some methods of replacing octane value can increase
other MSATs. For example, increasing aromatics would increase benzene
emissions; adding MTBE would increase formaldehyde emissions; and
adding ethanol would increase acetaldehyde emissions. Given the very
large MSAT emission reduction associated with benzene control, these
impacts on other MSATs are relatively insignificant. However, in the
case of changes in other fuel qualities (e.g., aromatics control), the
relative impacts on other MSATs would be greater.
    We encourage comment on our decision to propose a program that
directly controls gasoline benzene content, including comments on each
of the alternate approaches to MSAT control discussed in the following
paragraphs.
a. Other MSAT Emissions
    As alternatives to the proposed program focusing on benzene
emission reductions, we considered other MSATs that are responsive to
fuel-based emission control. Each of these is discussed next.
    Polycyclic Organic Matter, or POM, is composed of a number of
combustion products of gasoline. According to the Complex Model, POM
emissions are a function of exhaust VOC. Several fuel parameters
including volatility and sulfur content affect VOC emissions. As
discussed below, little data exists about the potential impacts of
changes in gasoline volatility and sulfur content on VOC, and thus POM,
emissions from new Tier 2-compliant vehicles. In any event, because POM
is only a tiny fraction of vehicle VOC emissions, we expect that
further changes in these fuel parameters would have only small effects
on POM. As a result, we are not proposing fuel controls to address POM
emissions in today's action.
    Emissions of the compound 1,3-butadiene can be reduced by reducing
the olefin content of gasoline. However, olefin reduction yields
relatively small reductions in 1,3-butadiene and can increase VOC
emissions. In addition, olefin reduction significantly affects octane,
with the negative cost and MSAT emissions consequences of octane
replacement. We are thus not proposing to address 1,3-butadiene
emissions through fuel changes.
    Emissions of the compound formaldehyde can only be effectively
reduced by reducing use of the octane enhancer methyl tertiary butyl
ether (MTBE). This is because formaldehyde increases significantly as a
combustion product when MTBE is added to gasoline. Formaldehyde also
increases to a lesser extent when ethanol is added to gasoline, as
described below. For a number of years, MTBE has been used as a cost-
effective way to meet mandated fuel oxygenate requirements and to boost
octane. In recent years, many states have banned the use of MTBE
because it has leaked from storage tanks and caused significant
groundwater contamination. More recently, in the wake of the removal of
the oxygenate requirement in the Energy Policy Act of 2005, many
refiners are taking action to remove MTBE from their gasoline as soon
as possible. As a result, MTBE use and the resulting formaldehyde
emissions are expected to continue to decline, and no additional
federal action appears warranted at this time.
    The compound acetaldehyde is a combustion product of gasoline when
ethanol is added. Controlling acetaldehyde would require reductions in
the use of ethanol as a gasoline additive. However, the Energy Policy
Act of 2005 (section 1501) includes a renewable fuels program that will
increase use of ethanol in gasoline nationwide. That Act requires a
study of the Act's impacts on public health, air quality, and water
resources. We accordingly intend to defer further evaluation of
acetaldehyde emissions to the analyses associated with the Energy
Policy Act.
b. MSAT Emission Reductions Through Lowering Gasoline Volatility or
Sulfur Content
    We also considered two approaches to fuel-related MSAT control that
would involve increasing the stringency of two existing emission
control programs. Both were originally promulgated primarily to address
ozone but also have the effect of reducing some MSAT emissions by
virtue of their control of VOC emissions. As explained in section V,
the Tier 2 program included the pairing of lower vehicle emissions
standards with large reductions in gasoline sulfur levels. The low
sulfur fuel helped enable development of more advanced catalytic
aftertreatment systems needed to meet the stringent tailpipe standards.
These actions will result in large reductions of VOC, NOX,
and air toxics emissions. In development of today's proposal, we
considered whether further reductions in fuel sulfur would bring
significant additional reductions in MSAT emissions.
    The second program considered for additional stringency was the
gasoline volatility program, which was implemented in 1989 to address
evaporative VOC emissions from gasoline vehicles. Reducing the
volatility of gasoline can reduce evaporative VOC emissions as well as
exhaust emissions. Evaporative VOC emissions include benzene. As a
result, in developing this proposal we have considered whether further
reductions in gasoline volatility may be effective in further reducing
MSAT emissions.
    In the cases of both further reductions in RVP and sulfur
reductions below the current 30 ppm standard, the available data is not
sufficient to conclude that additional control of either would be a
valuable MSAT emission reduction strategy. Historic data suggest that
reducing both RVP and sulfur content would reduce overall VOC emissions
from vehicles, in turn reducing both MSATs and ozone formation.
However, vehicles complying with the stringent new Tier 2 emission
standards have dramatically lower VOC emissions than earlier vehicles.
Furthermore, it is likely that VOC emissions for these vehicles would
react differently to RVP and sulfur control than older vehicles, as new
catalysts and control systems may have more or less sensitivity to
these variables. Since the dominant effect on MSAT emissions of
changing these fuel parameters is through their impact on total VOC
mass, it is not possible to

properly assess the impact of changes in these fuel parameters on MSAT
emissions without additional data. We have begun collecting data on
some of these new vehicles, but more work will be required before we
can draw conclusions about the effectiveness of these fuel controls in
reducing MSAT emissions. Therefore, we are not proposing additional
control of gasoline volatility or sulfur at this time, but will
continue to evaluate them for possible future action. We request
comments on these potential fuel controls as emission reduction
strategies, in particular for MSAT emissions, including any data that
does or does not support the effectiveness of such controls.
i. Gasoline Sulfur Content
    In general, reducing gasoline sulfur levels increases the
effectiveness of the catalytic converter at destroying unburned fuel
and other VOCs in vehicle exhaust. Catalytic converters contain a
variety of physical and chemical structures that act as reaction sites
for conversion of raw exhaust gases into less harmful ones before they
are emitted into the atmosphere. Over time, sulfur compounds in the
exhaust gases interfere with these processes, making the catalyst less
effective under normal driving conditions.\227\ Since many air toxics
are part of the exhaust VOCs, reduction of fuel sulfur would be
expected to reduce air toxics emissions. As with the Tier 2 program,
however, desulfurizing gasoline further would reduce gasoline octane.
Most options for recovering this lost octane (e.g., increasing
aromatics) would result in some offsetting MSAT emissions increases.
---------------------------------------------------------------------------

    \227\ For further discussion on sulfur effects on emissions, see
the Tier 2 Regulatory Impact Analysis, EPA 420-R-99-023.
---------------------------------------------------------------------------

    EPA primarily uses two computer models for examining emissions
impacts when considering changes in fuel properties: the Complex Model
and the MOBILE model. The Complex Model (CM) was developed as a
compliance tool that refiners use to ensure their gasoline meets its
baseline requirements under the RFG, Anti-dumping, and MSAT1 programs.
Given a set of fuel parameters, it estimates the emissions of an
average vehicle using regression relationships drawn from a large set
of fuel effects data. The CM contains data on test fuels with sulfur
levels as low as 5 ppm, but is based on the Auto/Oil research programs
of the early 1990s, and reflects performance of vehicles on the road
during that time period. With a sulfur reduction from 30 ppm to 10 ppm
applied to average 2003 conventional gasoline, the CM projects a
decrease of approximately 1% for exhaust benzene, NOX and
CO.
    MOBILE was developed to estimate aggregate emissions on a county,
state, or national scale. It uses a fuel effects dataset that includes
the CM dataset with some updates, along with driving data, to predict
emissions inventories of pollutants for a specified time period and
area of the country. MOBILE6.2 contains updates from a small number of
LEV and ULEV vehicles in addition to the CM dataset, but applies a
lower limit of 30 ppm to fuel sulfur content being modeled to avoid
extrapolation beyond the range of available emissions data.
    Based primarily on the above models, the analyses done for the Tier
2 rulemaking suggested benzene emission reductions on the order of 9%
could be expected in 2020 as a result of the fuel sulfur reduction
expected from that program alone (the final Tier 2 program included low
sulfur gasoline as well as tightened vehicle standards).\228\ A recent
study done on vehicles meeting LEV, TLEV, and ULEV standards indicates
that sulfur reductions from 30 to 5 ppm may reduce NMHC by more than
10%, bringing similar reductions in air toxics.\229\ Additional
analyses done by EPA on sulfur reductions in this range suggest VOC
emission reductions on the order of 5% may be expected, with refining
costs estimated at about a half cent per gallon. Given these analyses
using available data, using sulfur reductions as air toxics control
alone would not be as cost-effective as other options in this proposal.
Further discussion of the feasibility and costs are available in
Chapters 6 and 9, respectively, of the RIA.
---------------------------------------------------------------------------

    \228\ Tier 2 Regulatory Impact Analysis, EPA 420-R-99-023
    \229\ AAM-Honda fuel effects study, 2000
---------------------------------------------------------------------------

    Since our models do not reflect the significant improvements in
emissions control technology over the past decade, more fuel effects
studies are necessary on newest-technology vehicles before going
forward with sulfur control. A small cooperative test program is
currently underway between EPA and the Alliance of Automobile
Manufacturers to evaluate the effects of reducing sulfur below 10 ppm
on Tier 2 Bin 5 compliant vehicles.
    In addition to potential air toxics reductions from adjustment of
gasoline sulfur to 10 ppm, reducing sulfur may also provide significant
VOC and NOX emission reductions. These emission reductions
may be important for states in complying with the National Ambient Air
Quality Standards (NAAQS) for ozone. Since the implementation of the
RFG program, several states and localities have made their own unique
fuel property requirements in an effort to further improve air
quality.\230\ As a result, by summer 2004 the gasoline distribution and
marketing system in the U.S. had to differentiate between more than 12
different fuel specifications, when storing and shipping fuels between
refineries, pipelines, terminals, and retail locations. These unique
fuels decrease nationwide fungibility of gasoline, which can lead to
local supply problems and amplify price
fluctuations.231, 232 In addition to the existing state fuel
programs, we are aware of a number of other states considering new
programs (although in the context of the recently enacted Energy Policy
Act it is unclear what will occur). While the timeline for state action
on new fuel formulations could be prior to any nationwide ultra-low
sulfur standard, implementation of such a standard could help diminish
issues related to small-market fuel programs in the long term.
---------------------------------------------------------------------------

    \230\ These changes have focused almost exclusively on
additional RVP control, with just one program also controlling
sulfur to 30 ppm earlier than required by EPA.
    \231\ EPA, Study of Unique Gasoline Fuel Blends (``Boutique
Fuels''), Effects on Fuel Supply and Distribution and Potential
Improvements, EPA420-P-01-004
    \232\ GAO, Special Gasoline Blends Reduce Emissions and Improve
Air Quality, but Complicate Supply and Contribute to Higher Prices,
GAO-05-421
---------------------------------------------------------------------------

    From the perspective of gasoline production, reducing sulfur to
ultra-low levels does not happen completely independently of other fuel
parameters. The emissions benefits of further sulfur reduction gained
in vehicle aftertreatment may be offset by unintended changes in other
gasoline properties. The refining process modifications required to
bring sulfur to ultra-low levels begin to have a stronger effect on
other components of gasoline, such as olefins (the effect of which is
discussed in the previous section). These impacts must be further
evaluated before moving forward with a proposal of additional sulfur
reductions for the purpose of air toxics reduction. These issues are
also discussed in more detail in Chapter 6 of the RIA.
    Refiners with whom we have met have generally expressed disapproval
of further sulfur control. The Tier 2 gasoline sulfur program requires
refiners to meet an average standard of 30 ppm. In response many have
invested in and brought online desulfurization units, which would not
have the capacity to

reach a new, lower standard of 10 ppm in many cases. Modifications
would have to be made to units that have recently been installed to
comply with the current gasoline sulfur requirements. In some cases
these units might have to be replaced with new units. EPA requests
comments on the magnitude of the impact of a new, lower sulfur
standard, including the potential effect on refiners that have recently
installed desulfurization units.
    On the automotive side, sulfur reduction may encourage further
development of lean-burn or direct-injection gasoline technology.
Leaner combustion of gasoline results in greater fuel economy and less
VOC and carbon dioxide emissions, but generally produces more engine-
out nitrogen oxides. Reducing fuel sulfur to 10 ppm would improve
feasibility and reduce cost of next-generation aftertreatment designed
to control these higher levels of nitrogen oxides. EPA will continue to
evaluate further gasoline sulfur reductions, and seeks comment on it,
especially with data supporting or opposing such action.
ii. Gasoline Vapor Pressure
    According to the Complex Model and the MOBILE model, reducing fuel
vapor pressure reduces evaporative as well as exhaust VOC emissions.
Reducing VOC emissions in turn reduces MSAT emissions. A portion of
this MSAT emission decrease through VOC control would likely be offset
through an increase in the relative concentration of MSAT emissions. As
volatility is decreased, non-aromatic compounds are removed from the
gasoline, increasing the concentration of aromatics. Furthermore, these
non-aromatic compounds are higher in octane, which would have to be
offset--perhaps with still further increases in aromatics. Such
increases in aromatics would lead to an increase in the relative
concentration of benzene in VOC emissions. However, since changing
vapor pressure has an effect on evaporative emissions, reducing vapor
pressure can also reduce evaporative benzene from stationary sources
related to gasoline distribution and marketing. Moreover, reducing
overall VOC emissions reduces ground level ozone in urban areas, which
itself has a significant impact on health and welfare.
    Currently, in reformulated gasoline (RFG) areas, fuel is limited to
roughly 7.0 psi Reid vapor pressure (RVP) in the summer season in order
to meet the VOC performance standard. Additional vapor pressure
controls considered for this proposal would regulate RVP levels to 7.0
or 7.8 in some conventional gasoline (CG) ozone nonattainment areas,
resulting in an impacted volume of gasoline equal to about 50% of that
of current federal RFG. Further details of these analyses are covered
in Chapter 6 of the RIA.
    As with the sulfur analyses above, EPA also uses the Complex Model
and MOBILE to estimate emissions impacts of changes in gasoline vapor
pressure. In terms of the fuel parameter itself, this process is
somewhat simpler than modeling sulfur effects since the range of vapor
pressures useful in conventional vehicles has been well-defined for a
number of years and is not expected to change. However, parallel to the
arguments made above for sulfur, data on the effects of RVP changes on
air toxics in these models is dated and does not represent newest
technology. Since our models do not reflect improvements in emissions
control technology for the Tier 2 program, more fuel effects studies
must be carried out before making decisions on further gasoline vapor
pressure controls. The cooperative test program between EPA and the
Alliance of Automobile Manufacturers described above is also examining
some of the effects of changes in RVP.
    Looking beyond emissions benefits, more stringent national vapor
pressure standards could also help avoid additional small market
(``boutique'') fuels. Several states and localities have adopted their
own seasonal requirements for vapor pressure in an effort to improve
air quality, contributing to constraints on gasoline supply and
potential for price volatility.233 234
---------------------------------------------------------------------------

    \233\ EPA, Study of Unique Gasoline Fuel Blends (``Boutique
Fuels''), Effects on Fuel Supply and Distribution and Potential
Improvement, EPA420-P-01-004.
    \234\ GAO, Special Gasoline Blends Reduce Emissions and Improve
Air Quality, but Complicate Supply and Contribute to Higher Prices,
GAO-05-421.
---------------------------------------------------------------------------

    Feedback from refiners on further volatility control has
highlighted concerns with the summer-winter butane balance and
resulting potentially adverse supply implications. Currently, refiners
who produce large quantities of RFG must remove a significant amount of
the light-end components from their fuel in the summer to meet the
vapor pressure specifications. These light components, primarily
butanes, are often stored and then blended back into gasoline in the
winter when higher fuel vapor pressures are needed for drivability
reasons. Several refiners have indicated that a new rule adding a
number of reduced RVP areas would cause the amount of butanes removed
in summer to exceed what is useable in winter, resulting in a net loss
of volume from the annual pool and a need to make up supply at
additional expense. EPA will continue to evaluate further gasoline
volatility reductions, and seeks comment on it, especially with data
supporting or opposing such action.
c. Toxics Performance Standard
    While we are not proposing it, we considered and are seeking
comment on the merits of expressing the standard as an air toxics
performance standard rather than as a benzene content standard. Such a
standard would be analogous to the current MSAT1 standard, but more
stringent and with an ABT component. In theory, a toxics performance
standard could provide broader environmental benefits by addressing
other toxics in addition to benzene. However, because controlling
benzene is more cost-effective than controlling emissions of other
MSATs, refiners are unlikely to reduce emissions of other MSATs whether
or not the standard is in the form of a toxics performance standard or
a benzene content standard. Setting a toxics performance standard at an
appropriate level also requires us to predict future changes in fuel
properties in addition to benzene, and to be able to establish as
precisely as possible the effects of those fuel properties on emissions
of several MSATs. In addition, a toxics emission performance standard
is more complex to implement and enforce than a benzene content
standard. For all of these reasons, as discussed more fully below, we
believe a benzene content standard offers more certain environmental
results and less complexity. However, we seek comment on the overall
merits of an air toxics performance standard, including comments
specifically on the tradeoff between the complexity of complying with a
performance standard and the additional environmental benefits it could
provide.
    Based on our analysis for this proposal, fuel benzene control is by
far the most effective and cost-effective means of achieving MSAT
emission reductions. This is consistent with our experience with the
MSAT1 and other air toxics control programs, which have shown that even
when refiners have the flexibility to choose among different fuel
changes to achieve MSAT control, reduction in benzene content is the
predominant choice. Only when other fuel changes that impact MSAT
emission performance are mandated (e.g., sulfur control, oxygenate use)
have refiners made fuel changes other than benzene content to control
MSAT

emissions. As a result, even if we were to express the proposed
standard as an air toxics performance standard rather than a benzene
content standard, we would expect the outcome to be the same--benzene
content control with corresponding benzene emission reductions and no
changes in other MSAT emissions. Our analysis of the feasibility and
cost of the program would be identical as well. If future fuel
parameters are significantly different than we have projected in this
analysis such that emissions of other MSATs decrease, then a toxic
performance standard would result in less benzene control than would be
achieved by the benzene content standard we propose today, with a
corresponding overall reduction in cost. If future fuel parameters are
significantly different such that emissions of other MSATs increase,
then refiners would need to reduce benzene content to levels that are
not feasible considering cost, but overall toxics performance would be
maintained.
    If we were to set an air toxics performance standard, the accuracy
of the model used in estimating the real world effects of the many
different fuel parameters on MSAT emissions also becomes of critical
importance. To the extent fuel changes are projected to result in air
toxics emission reductions that are not in fact borne out in-use, then
the standard will have less benefit. There was a great deal of work
done in the early 1990's to develop the Complex Model for the
reformulated gasoline program. It estimates VOC, NOX, and
certain MSAT emissions (benzene, 1,3-butadiene, formaldehyde,
acetaldehyde, and POM) as a function of eight fuel properties (RVP,
oxygen, aromatics, benzene, olefins, sulfur, E200, and E300) for 1990
technology vehicles. However, a similar set of comprehensive data does
not yet exist for new Tier 2 vehicles. Some of the fuel effects that
were found to be statistically significant in the Complex Model may not
be significant for Tier 2 vehicles (e.g., distillation properties).
Others that impacted MSAT emissions primarily through their impact on
VOC emissions may be of much less importance, due to the much lower VOC
emissions of Tier 2 vehicles.\235\ To the extent that the Complex Model
gives air toxics credit for fuel changes that are later found to be
much smaller or not valid at all, a toxics performance standard could
result in less fuel benzene control and less in-use MSAT control. Of
all the fuel changes from past modeling, we would have the greatest
confidence that the benzene relationships are unlikely to change
significantly. This is due to the direct relationship between benzene
fuel content and benzene evaporative and exhaust emissions, and due to
the magnitude of these impacts. Thus, we would have the greatest
confidence that the MSAT emission reductions projected from a fuel
benzene content standard will be realized in-use.
---------------------------------------------------------------------------

    \235\ This is one reason why the Energy Policy Act of 2005
requires EPA to create an updated gasoline emissions model by 2009.
---------------------------------------------------------------------------

    In addition, if we were to set an air toxics performance standard,
it would be important to have a clear understanding of the changes in
fuel properties anticipated in the future independent of today's
proposal. Significant changes in the composition of gasoline are
anticipated over the next several years as a result of the Energy
Policy Act of 2005 (EPAct). MTBE is being removed from gasoline,
ethanol use is increasing dramatically, and the oxygenate mandate for
RFG is being eliminated. To the extent that these changes would result
in reductions in modeled MSAT emission performance automatically, then
refiners could comply with an air toxics performance standard with less
benzene control than would be achieved under today's proposed benzene
standard, and with lower overall costs. Conversely, to the extent that
these changes would result in increases in modeled MSAT emission
performance, an air toxics performance standard would require refiners
to take additional measures to maintain overall MSAT performance, but
these measures may not be cost-effective.
    Although a toxics performance standard could theoretically give
refiners more flexibility than a program focusing only on benzene
emissions, we do not believe that such flexibility would be meaningful
in actual practice. As discussed above, in order to comply with a new
total MSAT standard, we expect that refiners would rely almost
exclusively on benzene control. However, if their emission performance
for other MSATs changed in the future (due to such factors as changes
in oxygenate use, octane needs, or crude oil quality), refiners could
find themselves unable to maintain overall MSAT performance using cost-
effective controls.
    For all these reasons, we are not proposing to address fuel-related
MSAT emissions with a toxics performance standard, but we seek comment
on this option.\236\ We also seek comment on the merits of applying an
air toxics performance standard in addition to a fuel benzene content
standard, and how such a dual standard could be implemented. From a
theoretical standpoint, this dual standard might serve as a backstop to
ensure overall toxics performance is maintained. However, it is not
clear how such an approach could be realistically implemented,
especially in the context of ABT programs that apply to both.
---------------------------------------------------------------------------

    \236\ As explained further in section VII.C.5 below, based on
the use of the currently available models, the proposed rule would
result in greater overall reduction of air toxics from all gasoline
than the current MSAT 1 program, and (consistent with section
1504(b)(2) of the EPact) greater overall reductions of air toxics
from reformulated gasoline than would be obtained under amended
section 211(k)(1)(B) as well.
---------------------------------------------------------------------------

d. Diesel Fuel Changes
    We are also not proposing today to reduce MSATs by changing diesel
fuel. The existing major diesel fuel sulfur programs being implemented
in the next few years for highway and nonroad diesel fuel will have a
very large impact on reducing MSAT emissions `` specifically diesel
particulate matter and exhaust organic gases. We have found in the on-
highway diesel engine rulemaking that these are the greatest reductions
achievable and reiterate that finding here. (See also section V.D.1.f
above.) We are not aware of other changes to diesel fuel that could
have a significant effect on emissions of any other MSATs. We welcome
comment on our decision to focus this proposed program exclusively on
changes to gasoline.
2. Why Are We Proposing To Control Benzene Emissions By Controlling
Gasoline Benzene Content?
    In the previous section, we describe how we decided to focus
today's proposed fuel program on gasoline benzene emissions. This
section describes our decision to propose to reduce benzene emissions
through a gasoline benzene content standard. We also describe our
consideration of two other potential approaches to reducing benzene
emissions, both of which would indirectly reduce gasoline benzene
content: a standard to control the gasoline content of all aromatic
compounds; and a standard to control benzene emissions.
a. Benzene Content Standard
    For several reasons we have decided that a benzene content standard
would be the most cost-effective and most certain way to reduce
gasoline benzene emissions (and thereby MSAT emissions in general).
First, a small change in gasoline benzene content results in large
reductions in benzene emissions `` benzene typically

represents around 1 percent of gasoline, but this contributes about 25
percent of benzene exhaust and evaporative emissions.\237\ Second, we
have high confidence in the benzene emission reductions that would
result from fuel benzene control. Historical data across a range of
vehicles and engine types continues to support the relationship between
fuel benzene content and benzene emissions. Even if Tier 2 vehicles
react differently, the relationship is unlikely to change
significantly. Third, because a relatively small change in gasoline
properties is needed to achieve the desired result, reducing benzene
content does not have a large impact on octane value. Benzene itself
does contribute to the octane value of gasoline, but the small loss of
octane from reducing benzene content is much less than the octane loss
from reducing other aromatics for the same benzene emission effect, as
discussed below, and the consequences of refiners having to replace
that octane value are also much less. (This is why, as noted earlier,
we anticipate that refiners would seek to comply with any toxics
standard by reducing benzene levels in any case.) Fourth, we believe
that a direct benzene content standard would best ensure real benzene
emission reductions, including both exhaust and evaporative benzene
emissions. We discuss this conclusion below, in the context of the
potential alternative of a benzene emission standard.
---------------------------------------------------------------------------

    \237\ Based on the Complex Model.
---------------------------------------------------------------------------

b. Gasoline Aromatics Content Standard
    Because benzene emissions are formed from benzene and other
aromatics that are present in gasoline, we considered a standard that
would limit the aromatics content of gasoline. However, we believe that
reducing benzene emissions through a more general reduction in gasoline
aromatics content would be much less cost-effective than direct benzene
reduction. Non-benzene aromatics account for on average about 30
percent of gasoline (typically ranging between about 20 percent and 40
percent), and this fraction contributes about 30 percent of benzene
emissions. In contrast, benzene only makes up about 1 percent of
gasoline but is responsible for about 25 percent of benzene emissions.
The remaining benzene emissions are formed from other compounds. Based
on the Complex Model, it would require about a 20 percent reduction in
non-benzene aromatics to achieve the same benzene emission reductions
as the proposed benzene content standard. As we discussed earlier, a
major consequence of removing a significant amount of the aromatics in
gasoline is the need to replace the large loss in octane value. As a
result, it is much more costly for refiners to reduce benzene emissions
through aromatics control than through benzene control. We have not
evaluated the cost of aromatics control recently, but when we did so
for the RFG rule in the early 1990s, the cost was about 5 times more to
achieve the same benzene reduction through aromatics control than
through benzene control.\238\ In recent years a variety of factors have
reduced the use of MTBE as an octane booster; we expect that this trend
will raise the relative cost of aromatics control even further.
---------------------------------------------------------------------------

    \238\ Final Regulatory Impact Analysis for Reformulated
Gasoline, AEPA420-R-93-017, December 1993.
---------------------------------------------------------------------------

    In addition, aromatics reductions would have to be offset with
other high-octane compounds, such as ethanol and ethers (e.g., ETBE and
MTBE). Increasing other high-octane compounds tends to significantly
increase other air toxics emissions (like acetaldehyde or
formaldehyde). Consequently, the benzene emission reductions would be
substantially offset by increases in other toxics. For these reasons,
aromatics control has historically only been cost-effective for
refiners when other requirements are placed on them, such as state or
federal oxygenate mandates that also serve to boost octane value. For
this same reason, we anticipate that further aromatics reductions will
occur as a result of the near doubling of the use of ethanol in
gasoline due to the renewable fuels standard contained in the EPAct.
Given a mandate for ethanol use and the cost associated with it,
refiners can reduce their refining costs by further reducing aromatics.
    Aromatics control would also affect other recent fuel control
programs. For example, many refineries depend on the reforming process
that produces aromatics to also supply much or all of the hydrogen
needed for gasoline and diesel desulfurization processes. Reducing
aromatics thus would indirectly reduce hydrogen supply, which would
then likely require refiners to either purchase hydrogen or build
hydrogen production facilities.
    At the same time, although it would not be constrained, we do not
believe that in the absence of aromatics control, refiners would be
likely to increase gasoline aromatics content in the future. Aromatics
are a relatively valuable gasoline component, and refiners are
generally careful not to make changes that would increase aromatics
content more than is needed for octane purposes. In addition, as
mentioned previously, the Renewable Fuel Standard that will be
promulgated under the new Energy Policy Act will, by boosting ethanol
use, increase the octane of the gasoline pool. We expect that this, in
turn, will prompt refiners to reduce their use of aromatics for octane
enhancement. Also, higher gasoline prices recently have reduced the
demand for premium grade gasoline, which generally has higher aromatics
levels. To the extent that this trend continues, we expect that it will
tend to further reduce the levels of aromatics in the overall gasoline
pool.
    For all of these reasons, we believe that reducing benzene
emissions through a benzene content standard would be much superior to
doing so through an aromatics content standard. However, there may be
other benefits associated with aromatics control in addition to benzene
emissions. EPA is working to improve its understanding of the effect of
mobile source emissions on ambient PM, especially secondary PM. For
example, there is limited data that suggest that aromatic compounds
(toluene, xylene, and benzene) react photochemically in the atmosphere
to form secondary particulate matter (in the form of secondary organic
aerosol (SOA)), although our current modeling tools do not fully
reflect this. One caveat regarding this work is that a large number of
gaseous hydrocarbons emitted into the atmosphere having the potential
to form SOA have not yet been studied in this way. It is possible that
hydrocarbons which have not yet been studied produce some of the SOA
species which are being used as tracers for other gaseous hydrocarbons.
This means that the current interpretation of the available studies may
over-estimate the amount of SOA formation in the atmosphere. We seek
comment on the potential benefits, costs, and other implications of
aromatics control for consideration in the future.
c. Benzene Emission Standard
    In addition to the benzene or aromatics fuel content standards
discussed above, we have considered reducing benzene emissions through
a benzene emission standard. The primary argument for such an approach
is that it would focus on the environmental outcome we are interested
in `` reduced benzene emissions `` while providing refiners some
flexibility in how that goal was met.
    In order to fully discuss this option, it is useful to clarify how
such a

benzene emission standard would be implemented. Instead of directly
measuring gasoline content to determine compliance, as would be the
case with a benzene (or aromatics) content standard, compliance would
be determined using EPA's Complex Model or an updated version of it.
Several parameters of a refiner's gasoline (including benzene and
aromatics content) would be used as inputs into the model. Based on
these and other assumed properties of the gasoline, the model would
estimate the expected level of benzene emissions from that gasoline
formulation.
    As compared to a program based on the direct measurement of benzene
content in gasoline, we believe that one relying on modeled estimates
of benzene emissions would be difficult to set today. As with the
toxics performance standard we considered above, gasoline parameters
and their effects on MSAT emissions will be changing in the future due
to the Energy Policy Act, changes in crude oil supplies, and perhaps
other unknown factors. In addition, the effects of fuel changes on MSAT
emissions from the new Tier 2 vehicles now entering the light-duty
fleet are poorly represented in our modeling. Thus, it would be
difficult to accurately predict future gasoline parameters and set an
appropriate benzene emission standard that ensured the greatest
emission reduction achievable, especially a standard that could remain
stable for a number of years. As benzene content has been and is sure
to remain by far the most important fuel parameter in estimating
benzene emissions, a benzene content standard provides greater
assurance of actual benzene emission reduction in-use.
    Even if it were practical to set a long-term benzene emission
standard, such an approach would be problematic for other reasons. As
we have stated, the only significant option for reducing benzene
emissions other than reducing benzene content is reducing aromatics
content. Since we do not believe that requiring control of gasoline
aromatics is appropriate at this time, a benzene emission standard
would not result in appreciably different emission reductions than
would result from a benzene content standard. However, given that
aromatics control is a less effective means of reducing benzene
emissions and has a more disruptive effect on octane values (as just
discussed), requiring more aromatics control could dramatically
increase the cost of compliance. Finally, although a benzene emission
standard might be assumed to offer additional flexibility to refiners,
we do not believe that such flexibility would actually exist. Faced
with a dependence on aromatics to meet octane requirements, and in some
cases to provide hydrogen supply for desulfurization of gasoline and
diesel fuel, we believe that refiners would choose benzene content
reduction over aromatics reductions even when they theoretically had
the choice to do otherwise. Experience with the MSAT1 emissions
performance standard has confirmed this. However, as mentioned
previously, gasoline parameters do change, octane requirements can
decrease, ethanol will supply additional octane, and therefore aromatic
reductions may occur in the future regardless. Were this to occur, a
benzene emission standard set today could allow benzene content to
increase in the future. Given the additional complexity and uncertainty
associated with a benzene emission standard, we have therefore elected
to propose a benzene content standard exclusively. We request comment
on this approach and on a benzene emission standard.
3. How Did We Select the Level of the Proposed Gasoline Benzene Content
Standard?
a. Current Gasoline Benzene Levels
    In selecting an appropriate level for the proposed benzene content
standard, we began by evaluating the current status of the industry
regarding gasoline benzene. Benzene content varies widely among
refineries, depending on such factors as refinery configuration and
proximity to benzene markets. The national average benzene level was
1.6 vol% in 1990. Due to the 0.95 vol% requirement of the 1995 RFG
program, the introduction of gasoline oxygenate requirements, and other
factors, benzene levels have since declined. By 2003, RFG averaged 0.62
vol% benzene. (See section V.D.1 above.)
    Benzene levels have also declined for CG over the same period, to
an average of 1.14 vol%. This is in part because when faced with
investing in new processes to comply with the RFG benzene standard,
some refiners found it economical to install more benzene extraction
capacity than was needed to meet the standard. As a result, in many
cases, these refiners have also controlled benzene from CG.
b. The Need for an Average Benzene Standard
    Even before considering the level of the benzene content standard,
we first needed to consider the standard's potential form. A standard
for this purpose could be expressed as a per-gallon benzene limit,
which would ensure that no gasoline exceeded a specified benzene level.
In contrast, a benzene content standard could be expressed as a
flexible average level, allowing some of the existing variability in
current benzene levels to remain while reducing overall benzene levels.
For several reasons, it became clear that an average standard was the
most appropriate for this program.
    As mentioned above, there is a great diversity in the benzene
content of gasoline currently produced at refineries across the
country. In 2003, the annual average benzene content of refineries
ranged nationally from under 0.5 vol% to above 3.5 vol%. This variation
among refineries is also reflected in large regional differences in
average gasoline benzene content, as illustrated below (Tables VII.C-2
and VII.F-1).
    In addition to average benzene levels varying widely across
refineries and regions, per-gallon benzene levels for individual
batches produced by a refinery also vary dramatically depending on the
crude oil supply and the refinery streams used to produce a particular
batch. This variation occurs as a result of a wide range of day-to-day
decisions necessary in producing marketable gasoline within a refinery
on a continuous basis. We reviewed actual batch data for a typical
refinery producing both RFG and CG with an average benzene content of
1.6 vol% for all its gasoline, and batch benzene levels ranged from
under 0.1 to 3.0 vol% for CG. The range for RFG is typically narrower
due to the existing 1.3 vol% per gallon cap, but still shows
significant batch to batch fluctuations. Batches that refiners produce
with benzene higher than 1.3 vol% are marketed as CG.
    We considered controlling benzene emissions with a fixed, per-
gallon benzene content standard to be met at all refineries. By capping
gasoline benzene content in this way, the program would ensure that all
gasoline nationwide would have benzene levels below the selected upper
limit. However, as we developed the rule, it became clear that with the
large variation in benzene levels among refineries and regions
(reflecting the variation in the economics of reducing benzene), a per-
gallon standard would have to be so high (to account for maximum,
legitimate potential variability) as to leave most refineries with
little or no need to reduce benzene. Moreover, the burden of the
national control program would fall almost entirely on the refineries
where the challenges of control would be greatest, and where the most
lead time would be

required for compliance. With many refineries able to comply without
making any changes, we do not believe such a program would represent
the greatest reduction feasible, as the Clean Air Act requires.
    The typical fluctuations in benzene content among batches at
individual refineries, as discussed above, also indicate the need for
refiners to have a degree of flexibility in producing gasoline, as
would be provided by an average benzene standard. Restrictions on day-
to-day fluctuations would not significantly affect average benzene
levels, but would certainly increase costs as refiners invested in
avoiding occasionally higher benzene batches. We believe that allowing
refiners to average batches with fluctuating benzene over a year's
time, as we propose, would result in a more cost-effective program.
    Most importantly, it is clear that with the incorporation of a
carefully-designed benzene credit averaging, banking, and trading (ABT)
program, a more stringent benzene standard would be feasible, and
implementation could occur earlier. Thus, we are proposing a 0.62 vol%
annual average standard to begin in 2011. Under the proposed ABT
program, refiners could generate early credits by making early
reduction efforts prior to 2011. Refiners would have an incentive to do
so, because the credits generated could be used to postpone more
expensive final investments in benzene control technology. In this way,
the ABT program would allow the economic burden of the benzene standard
to be more efficiently distributed among refiners and over time. The
proposed ABT program would result in lower benzene levels in all areas
of the country compared to today's levels, as described in more detail
below in section VII.D.
c. Potential Levels for the Average Benzene Standard
    We evaluated a range of potential standards on a national refinery
annual average basis from 0.52 to 0.95 vol% benzene.\239\ Our refinery-
by-refinery model incorporates data on individual refineries whenever
possible and estimates the likely technological approaches that
refiners would choose for each refinery to comply with each potential
standard at the least cost. The model chooses among several
technological options that are the most common and effective methods
available to refiners to reduce gasoline benzene content. (Section
VII.F below and Chapter 6 of the RIA have more detailed discussions of
benzene reduction technologies).
---------------------------------------------------------------------------

    \239\ For this evaluation we used both refinery linear
programming (LP) models and a refinery-by-refinery model developed
specifically for this rule.
---------------------------------------------------------------------------

    All of the methods that we considered focus on reducing benzene
content in the reformate stream, which is the product of the reformer
unit. The role of the reformer unit is to increase gasoline octane,
which it does by generating aromatic compounds from simpler
hydrocarbons. Benzene is one of the aromatic compounds produced by the
reformer. Reformate accounts for 30-40% of gasoline volume and can
contain as much as 12% benzene. As a result, reformate contributes the
majority of the total benzene content of gasoline. For these reasons,
treatment of reformate is usually the most effective and economical
means of reducing benzene content. Several proven and commercially
available technologies exist for reducing benzene creation in the
reformer and removing it from the reformate product.
    The least stringent standard we evaluated, a national average of
0.95 vol% benzene, would not require any changes at most refineries.
For the refineries where action would be needed, we project that most
could be brought into compliance by reducing creation of benzene in the
reformer using the simplest and least costly of the technology options
evaluated. We do not believe that a standard at this level would meet
the statutory requirements of section 202(l) of the Clean Air Act to
achieve the greatest reductions achievable considering cost and other
factors since, as discussed below, greater reductions are feasible at
reasonable cost, and without adverse energy or safety implications.
    As the most stringent case, we evaluated a national average benzene
content standard of 0.52 vol%. Our analysis indicates that a standard
at this level would require all refiners to invest in the most
effective technologies used today that remove the benzene from their
reformate product streams (benzene saturation and benzene extraction,
as discussed below). If the ABT program were fully utilized (all
credits generated were used), we believe all refiners might comply with
this average standard. Because of the almost universal need for
refineries to use the most expensive reformate-based benzene control
technologies, we believe a standard of 0.52 vol% would be very
challenging economically for many refineries, and we believe that such
a standard would not be achievable taking costs into consideration, as
we are required to do under section 202(l). In addition, if, as appears
likely, ``perfect'' credit trading did not occur, some refiners would
have to use additional, more extreme approaches that would be even more
costly and would require more difficult compromises in the operation of
the refineries. (We discuss these technological and operational
approaches to benzene reduction in more detail in section VII.F below
and in Chapter 6 of the RIA.)
    In 2003, the average benzene level in RFG was 0.62 vol%.\240\ We
believe an annual average benzene standard of 0.62 vol% applied to all
gasoline (both CG and RFG) would be feasible considering cost and other
factors. Furthermore, implementing an average benzene standard of 0.62
vol% would achieve several other important program goals. At this
level, the same benzene standard could be applied to both RFG and CG
nationwide, and our analysis shows that the RFG benzene reductions
already achieved by the industry to date would not be lost. We expect
that refiners currently producing RFG with benzene levels below 0.62
vol% would continue to be committed to producing low-benzene gasoline
based on prior investment in benzene extraction equipment or ABT credit
incentives. Additionally, as discussed below in VII.C.5, a gasoline
benzene standard of 0.62 vol% would achieve sufficient mobile source
air toxic reductions allowing this program to supersede the additional
MSAT requirements under EPAct. Finally, an average benzene standard
applied to both CG and RFG, would allow for a uniform nationwide ABT
program providing additional flexibility and reduced compliance costs
to refiners, resulting in the greatest achievable reductions within the
meaning of section 202(l).
---------------------------------------------------------------------------

    \240\ Volume-weighted average benzene level based on January 1,
2003 to December 31, 2004 RFG batch reports.
---------------------------------------------------------------------------

    At a national average standard of 0.62 vol%, we estimate that a
number of refiners would produce gasoline with significantly lower fuel
benzene levels, creating enough benzene credits to allow refiners in
less economically favorable positions to purchase these credits on an
on-going basis and use them for compliance purposes. We project that
further reductions would occur not only in CG, but also in RFG, despite
the fact that RFG is already averaging 0.62 vol%. As discussed in
section IX below and in Chapter 9 of the RIA, as the stringency is
pushed below 0.62 vol%, the overall program costs would begin to rise
more steeply. This is because in meeting a lower average standard,
there would be fewer

refineries able to comply at low cost, resulting in fewer credits being
generated. This in turn would require more investment among refiners
with higher costs of compliance.
    We also considered a program that would apply separate benzene
content standards to RFG and CG. In the context of any nationwide ABT
program that allowed trading across both RFG and CG, separate standards
for these two gasoline pools would not be fundamentally different from
the proposed unified standard. The only impact would be to somewhat
change which refiners generated credits and which used credits, and to
what degree. For separate RFG and CG standards to have a meaningful
impact in comparison to today's proposed program, separate trading
programs for each of the two gasoline pools would be required. Our
modeling shows that without the credits generated by RFG producers in a
nationwide trading program, it would not be possible to set as
stringent a standard for CG. The higher-benzene refineries that would
most need credits to meet a stringent average standard are a subset of
refineries that produce CG. As a result, in a program with separate RFG
and CG pools, we would expect to set a slightly more stringent standard
for RFG alone, but we would need to set a substantially relaxed
standard for CG. The net result would be, at best, the same nationwide
average benzene reductions in the RFG and CG pools that would be
expected under a unified standard. However, there would be a clear risk
that the reduced generation of credits by lower-cost refineries would
lead to either a significant increase in the cost of the program
(because higher-cost refineries would need to make refinery changes
earlier) or the potential for fewer reductions through the process of
setting the levels for the separate CG and RFG standards. Conversely,
with a unified standard and nationwide ABT, we believe that the program
would achieve the maximum economical reduction in all areas and greater
overall benzene reduction over the CG and RFG pools.
    In addition, we considered a somewhat less stringent national
average standard than the proposed 0.62 vol% (e.g., 0.65 or 0.70 vol%).
Such standards would still achieve significant benzene emission
reductions. However, we are concerned that a less stringent standard
would not satisfy our statutory obligation for the most stringent
standard feasible considering cost and other factors. Furthermore, such
standards would not allow us to accomplish several important
programmatic objectives. Given that the average benzene content of RFG
in 2003 was already 0.62 vol%, such higher standards would not provide
the certainty that the air toxics performance of RFG would decline in
the future. This would then trigger the provisions in the 2005 EPAct to
adjust the MSAT1 baseline for RFG. The only way of avoiding this
situation would be to maintain separate standards for RFG and CG where
the RFG standard was still more stringent than 0.62 vol% and credits
could not be used from CG to comply. As discussed above, having
separate standards with separate ABT programs raises additional cost
and feasibility issues.
    For all of the above reasons, we believe that a refinery annual
average benzene content standard of 0.62 vol% applying to all gasoline
nationwide (excluding California), in conjunction with an
appropriately-designed ABT system, would maximize benzene emission
reductions considering cost and other factors.
    Section 202(l)(2) also requires that we consider lead time in
determining the greatest reductions achievable. We are proposing that
the standard of 0.62 vol% become effective on January 1, 2011. Because
the final rule will be completed in early 2007, this would allow about
4 years for refiners to plan and execute the necessary capital projects
and operational changes needed to meet the program requirements. We
discuss our assessment of necessary lead time in section VII.F below.
We believe that this proposed level for the standard, the proposed ABT
program, and the proposed implementation date together meet the
statutory requirement that the program results in the greatest emission
reduction achievable considering costs and other factors.
    We encourage comment on our selection of this level for the
standard, especially with data and analysis that support the comments.
d. Comparison of Other Benzene Regulatory Programs
    In addition to the benzene content standard of the RFG program,
California and several countries have regulatory limits on the benzene
content of gasoline. Table VII.C-1 shows the basic provisions of each
of these programs.
    Canada has limits similar to those covering U.S. RFG. In Canada,
producers may either comply with a 1.0 vol% flat limit or an averaging
standard of 0.95 vol%, with a per-gallon cap of 1.5 vol%. The European
Union regulates fuel to the same level in all its member countries,
currently a per-gallon cap of 1.0 vol%. Japan has the same limit as the
E.U., while South Korea will be moving from a cap of 1.5 to 1.0 vol% in
2006.
    California is the only state that has implemented a benzene
standard, and it is similar to the standard we are proposing today.
California's average standard is 0.7 vol%, with a per-gallon cap of 1.1
vol%. Together, these standards result in an average 0.62 vol% in-use
gasoline benzene level.

                                                 Table VII.C-1.--Other Gasoline Benzene Control Programs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            California
                                                            Federal RFG     phase 3 RFG       Canada        South Korea        Japan      European Union
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average Std (vol%)......................................          0.95 a             0.7            0.95  ..............  ..............  ..............
Per-gallon Cap (vol%)...................................             1.3             1.1             1.5           1.5 b             1.0            1.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
a Producers may also comply with a per-gallon cap of 1.0.
b Limit to be lowered to 1.0 in 2006.

4. How Do We Address Variations in Refinery Benzene Levels?
a. Overall Reduction in Benzene Level and Variation
    As explained above, there is currently a wide variation in gasoline
benzene levels across the country. According to summer 2003 batch data
(proposed baseline \241\), average benzene content ranged from 0.41 to
3.81 vol%, including both RFG and CG. The current

variation in benzene levels is primarily attributable to differences in
crude oil quality, different refinery configurations, and differences
in refinery operations. Our analysis of the proposed program,
summarized below, concludes that average benzene levels would be
reduced in all areas of the country (PADDs \242\) and variation among
refineries would also be reduced. We believe that under the proposed
rule, virtually all refineries would reduce their benzene levels and
that no refineries would increase their benzene levels.
---------------------------------------------------------------------------

    \241\ For the purpose of our analyses, we selected 2003 to
represent current (baseline) conditions because it reflected the
most recent batch data available. The refinery-by-refinery model
used to predict refinery behavior (discussed later in section IX) is
based on inputs from the linear programming (LP) model, which is set
up to only model the summer season. As a result, we have used summer
2003 as our baseline period.
    \242\ The Department of Energy divides the United States into
five Petroleum Administration for Defense Districts, or PADDs. The
states included in each PADD are defined at 40 CFR 80.41.
---------------------------------------------------------------------------

    Upon implementation of the proposed 0.62 vol% benzene standard in
2011, we believe that some refiners would reduce benzene levels to
below the standard while others would reduce benzene levels but would
need to rely partially or largely on credits generated and traded under
the proposed ABT program, as described below. Refiners' compliance
strategies would ultimately be driven by economics. For many it would
be economical to reduce gasoline benzene levels to 0.62 vol% or below.
For others it would be economical to make some reduction in gasoline
benzene levels and rely partially upon credits. For some refineries
already below the standard, no benzene reduction efforts would be
necessary. For the limited number of remaining technologically-
challenged refineries it would be most economical to rely wholly upon
credits. Regardless of the compliance strategies selected, under the
proposed program, benzene levels and variation would be reduced
nationwide.

                              Table VII.C-2.--Benzene Levels in Gasoline Produced Currently and Under the Proposed Program
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Number of refineries by gasoline benzene level (vol%)                 Benezene level (vol%) *
                                           -------------------------------------------------------------------------------------------------------------
                                               <0.5     0.5-<1.0   1.0-<1.5   1.5-<2.0   2.0-<2.5    >=2.5       Min        Max      Range **   Avg ***
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Starting Gasoline Benzene Levels***
--------------------------------------------------------------------------------------------------------------------------------------------------------
PADD 1....................................          4          3          3          0          2          0       0.41       2.19       1.77       0.62
PADD 2....................................          0          5          8         11          1          1       0.60       2.85       2.25       1.32
PADD 3....................................          4         18         10          7          0          2       0.41       3.10       2.69       0.86
PADD 4....................................          0          1          4          6          3          2       0.60       3.56       2.96       1.60
PADD 5 ****...............................          0          0          1          3          2          2       1.36       3.81       2.44       2.06
                                           -------------------------------------------------------------------------------------------------------------
    Total.................................          8         27         26         27          8          7       0.41       3.81       3.39       0.97
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       Benzene Levels After Program Implementation
--------------------------------------------------------------------------------------------------------------------------------------------------------
PADD 1....................................          4          5          1          2          0          0       0.41       1.96       1.54       0.51
PADD 2....................................          1         22          1          2          0          0       0.49       1.95       1.46       0.73
PADD 3....................................         10         27          3          0          1          0       0.36       2.07       1.71       0.55
PADD 4....................................          0          8          7          1          0          0       0.53       1.94       1.40       0.95
PADD 5 ***................................          0          4          2          2          0          0       0.54       1.84       1.30       1.04
                                           -------------------------------------------------------------------------------------------------------------
    Total.................................         15         66         14          7          1          0       0.36       2.07       1.71      0.62
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Starting benzene levels based on summer 2003 batch data.
** Range in benzene level (MIN-MAX).
*** Average volume-weighted benzene level.
**** PADD 5 excluding California.

    As shown in Table VII.C-2, average benzene levels would be reduced
by 36%, from 0.97 vol% (baseline) to 0.62 vol% once the program is
fully implemented. Variation in benzene level, measured in terms of
range, would be reduced by 50% (from 3.39 vol% to 1.71 vol%). In
addition the areas with the highest starting benzene levels and
variation (PADDs 2, 3, 4 and 5) would experience the greatest
reductions.
    In conclusion, we project that under the proposed program all areas
of the country would see reductions in average benzene level and
variation among refineries would also be reduced. Refiners would have
several motivations for making the benzene reductions projected by our
analysis. First, reducing actual benzene levels could be the most
economically-favorable compliance strategy. Secondly, reducing benzene
levels would help reduce or eliminate the uncertainty associated with
relying on credits. Finally, reducing benzene levels could generate
credits that would be valuable to the refining industry.
b. Consideration of an Upper Limit Standard
    We believe that the proposed program would provide significant
benefits in all areas of the nation. Nevertheless, we recognize that
some commenters are likely to be concerned that under a flexible ABT
program it is possible that some refiners could maintain their current
benzene levels or even increase them and comply through the use of
credits. If such a refinery dominated a particular market, then even
though nationally there would be significant benzene reductions, they
might not occur in that market. While our analysis does not lead us to
believe that such an outcome would happen, we have nevertheless
considered whether an upper limit on benzene (in addition to the
average standard) would be valuable to prevent that outcome from
happening.\243\ We considered two different forms of an upper benzene
limit to complement the average standard: a per-gallon cap standard and
a maximum average standard.
---------------------------------------------------------------------------

    \243\ Upper limits on benzene are a part of comparable programs
in California and in other countries.
---------------------------------------------------------------------------

i. Per-Gallon Cap Standard
    A cap would require that each gallon (or batch) of gasoline
produced or imported not contain more than a specified concentration of
benzene. Such a standard would force those refineries with the highest
benzene levels to make physical changes to their gasoline instead of
having the option of relying exclusively on credits. In addition to
formally limiting the maximum benzene content sold anywhere in the
country, such a cap would also be straightforward to enforce

at any point in the distribution system. Note that we are proposing
that the existing per-gallon cap of 1.3 vol% benzene would remain in
effect for RFG under this rule. EPA invites comment on whether the RFG
benzene cap should be retained.
    The primary disadvantage of adding a rigid cap is that it would not
allow for occasional, short-term fluctuations in benzene content.
Refiners are faced with a range of unexpected or planned circumstances
that could cause temporary spikes in benzene content, including
equipment malfunctions and periodic maintenance. Although the 1.3 vol%
cap would remain for RFG, to apply a cap in this range to CG would
eliminate a necessary market for higher benzene batches.\244\ With no
ability to market the gasoline, the refiner would be forced to suspend
gasoline production. This could in turn force the shutdown of the
entire refinery, sacrificing supply of all products. To attempt to
avoid this situation, refiners would need to invest more heavily in
benzene control than needed to meet the average standard, simply to
provide back-up control to protect against short-term fluctuations. For
some higher-benzene refineries, a cap could make complying with the
program prohibitively expensive.
---------------------------------------------------------------------------

    \244\ As explained in section VII.C.5 below, CG provides a
limited safety valve for occasional batches of high-benzene RFG due
to the Anti-dumping provisions.
---------------------------------------------------------------------------

    Consequently, we concluded that if we were to impose a per-gallon
cap, it would have to be high enough to allow most refineries to
continue to operate even in such upset situations (in order to account
for legitimate maximum potential daily variability), thereby providing
little overall benefit.\245\ Alternatively, we would have to allow
exceptions to the per-gallon cap for such upset situations, which would
be burdensome to implement and also result in little overall benefit.
---------------------------------------------------------------------------

    \245\ In California and other countries with benzene control
programs, the refining industry tends to be more homogeneous than in
the U.S. as a whole and face different market situations, resulting
in different considerations regarding upper limits.
---------------------------------------------------------------------------

    If refiners with higher-benzene refineries need to invest in
greater benzene control in order to protect against unpredictable
upsets, their costs would be even higher relative to those of lower-
benzene refineries. As in the case of a program with no ABT at all, the
statutory requirement to balance the degree of feasible emission
reduction with cost (and other factors) would have the
counterproductive effect of requiring a less stringent overall program.
    At the same time, the per-gallon cap would appear to provide no
overall additional reduction in benzene levels. Despite the increased
costs, particularly for higher-benzene refiners, our analysis indicates
that little additional emission reduction would result (primarily
because the higher-benzene refineries represent a relatively small
fraction of nationwide gasoline production). Instead, as discussed
below, emission reductions are expected to simply shift from one region
of the country to another, with no change in the overall emission
reductions. Because of this, and due to the potential deleterious cost
impacts, we are not proposing a per-gallon cap benzene standard.
ii. Maximum Average Standard
    Another means of ensuring some reduction by those refiners with the
highest benzene concentrations would be to impose a maximum average
standard. An annual maximum average standard for each refinery would
limit the average benzene content of its actual production over the
course of the year, regardless of the extent to which credits may have
been used for compliance. While slightly less restrictive than a per-
gallon cap standard in that some shorter-term fluctuations in benzene
levels could occur, a maximum average standard would still limit the
flexibility otherwise available through the ABT program. Our modeling
shows that a number of refiners would need to invest substantially more
to ensure compliance with both the average and maximum average
standards. With the addition of a maximum average standard, we expect
emission reductions to simply shift from one region of the country to
another with no net change in overall emission reductions. For example,
when analyzing a 1.3 vol% maximum average standard, benzene levels were
lowered in two PADDs and raised in three PADDs compared to our proposed
program yet the overall emission reductions remained the same.\246\
Since we believe that a maximum average standard would increase costs
but not achieve any greater emission reduction, we are not proposing
such a standard.
---------------------------------------------------------------------------

    \246\ This program comparison is discussed further in Chapter 9
of the RIA (Table 9.6-7).
---------------------------------------------------------------------------

    We believe that the proposed ABT program, in combination with the
proposed 0.62 vol% benzene standard without a cap or maximum average
limit, would result in the maximum feasible reduction in benzene
emissions, considering costs, energy, and safety issues. The proposed
ABT program would provide refiners with compliance flexibility while
ensuring that the national program achieves significant overall benzene
emission reductions.
    We invite comment on our conclusions about having an upper limit in
addition to an average standard.
5. How Would the Proposed Program Meet or Exceed Related Statutory and
Regulatory Requirements?
    Three fuels programs (RFG, Anti-dumping and MSAT1) currently
contain direct controls on the toxics performance of gasoline.\247\
Based on our analyses of the proposed program, including the proposed
ABT program, we expect that meeting the proposed fuel benzene content
standard combined with other fuel controls would also lead to
compliance with the toxics requirements of all these programs.
---------------------------------------------------------------------------

    \247\ Other gasoline fuel controls, such as sulfur, RVP or VOC
performance standards, indirectly control toxics performance by
reducing overall emissions of VOCs.
---------------------------------------------------------------------------

    The RFG program, implemented in 1995, contains a fuel benzene
standard that requires a refinery's or importer's RFG to average no
greater than 0.95 vol% benzene annually.\248\ In addition, RFG has a
per-gallon benzene cap of 1.3 vol%. Each refinery's or importer's RFG
must also achieve at least a 21.5% annual average reduction in total
toxics emissions compared to 1990 baseline gasoline.\249\ The Anti-
dumping regulations require that a refinery's or importer's CG produce
no more exhaust toxics emissions on an annual average basis than its
1990 gasoline.\250\ This program keeps refiners from shifting fuel
components responsible for elevated toxic emissions into CG as a way to
comply with the RFG standards. Section V.D.1 above describes these
programs in more detail.
---------------------------------------------------------------------------

    \248\ 40 CFR 80 Subpart D. Refiners also have the option of
meeting a per gallon limit of 1.0 vol%.
    \249\ Emissions determined using the Complex Model, as defined
in 40 CFR 80.45.
    \250\ CFR 80 Subpart E, emissions determined using the Complex
Model.
---------------------------------------------------------------------------

    The MSAT1 program, implemented in 2002, was overlaid on the RFG and
Anti-dumping programs.\251\ As explained in section V.D above, it was
not designed to further reduce MSAT emissions, but to lock in
overcompliance on toxics performance that was being achieved in RFG and
CG under the RFG and Anti-dumping programs. The MSAT1 rule requires the
annual average toxics performance of a refinery's or importer's
gasoline to be at least as clean as the average performance of its
gasoline during the three-year baseline period 1998-

2000.\252\ Compliance with MSAT1 is determined separately for each
refinery's or importer's RFG and CG.
---------------------------------------------------------------------------

    \251\ 40 CFR 80 Subpart J.
    \252\ Emissions determined using the Complex Model, as defined
in 40 CFR 80.45.
---------------------------------------------------------------------------

    Today's proposed 0.62 vol% benzene content standard would apply to
all of a refinery's or importer's gasoline `` that is, the total of its
RFG and CG production or imports. This level of benzene control would
far surpass the RFG standard of 0.95 vol%, and would put in place a
benzene content standard for CG for the first time.\253\ As described
further in Chapter 6 of the RIA, we analyzed the expected overall
toxics performance under today's proposed program of benzene and
vehicle standards using currently-available models and compared it to
toxics performance under the pre-existing standards.\254\ When RFG and
CG toxics emissions are evaluated at this new level of benzene control,
it is clear that the benzene standard proposed today would result in
the MSAT1 toxics emissions performance requirements being surpassed
(i.e., bettered) not only on average nationwide, but for every
PADD.\255\
---------------------------------------------------------------------------

    \253\ Proposed program retains the 1.3 vol% maximum benzene cap
for RFG required by 40 CFR 80.41.
    \254\ As discussed previously, the existing models contain
limited data on the impacts of fuel changes on 2004 and later
technology vehicles, making such projections difficult. However, we
do not believe the conclusions would change for these reasons: (1)
The fuel effect changes modeled here related to benzene, for which
we expect data for new technology vehicles to show similar trends as
those for older vehicles; (2) much of the projected change in future
emissions are due to changes in vehicles technology, not fuel
changes; and (3) for this analysis we need only look at the relative
changes, and given the magnitude of the projected effects we do not
expect that the direction of the result would change even if
significantly different values for absolute emissions were
submitted.
    \255\ The analysis shows an even greater benefit in overall
toxics reductions when the combined effect of the benzene standard
and the vehicle standards are considered.
---------------------------------------------------------------------------

    To address compliance with statutory requirements currently in
effect through the RFG and Anti-dumping programs, we carried out a
refinery-by-refinery analysis of toxics emissions performance using the
Complex Model (the same model used for determining compliance with
these programs). We used 2003 exhaust toxics performance for CG and
2003 total toxics performance for RFG as benchmarks, which are at least
as stringent as the relevant toxics performance baselines. We applied
changes to each refiner's fuel parameters for today's proposed
standards and the gasoline sulfur standard phased in this year (30 ppm
average, 80 ppm max). The results indicate that all refineries
maintained or reduced their emissions of toxics over 2003. We expect
large reductions in sulfur for almost all refineries under the gasoline
sulfur program, and large reductions in CG benzene levels along with
modest reductions in RFG benzene levels. We do not expect backsliding
in sulfur levels by the few refiners previously below 30 ppm because
they had been producing ultra-low sulfur gasoline for reasons related
to refinery configuration. Furthermore, because of its petrochemical
value and the credit market, we do not expect any refiners to increase
benzene content in their gasoline.
    In addition, we expect significant changes in oxygenate blending
over the next several years, but these are very difficult predict on a
refinery-by-refinery basis. Regardless of how individual refineries
choose to blend oxygenates in the future, we believe their gasoline
will continue to comply with baseline requirements. This is because all
RFG is currently overcomplying with the statutory requirement of 21.5%
annual average toxics reductions by a significant margin. Similarly,
most CG is overcomplying with its 1990 baselines by a significant
margin. Furthermore, we believe most refiners currently blending
oxygenates will continue to do so at the same or greater level into the
future.
    EPA is thus proposing that upon full implementation in 2011 the
regulatory provisions for the benzene control program would become the
single regulatory mechanism used to implement these RFG and Anti-
dumping annual average toxics requirements, replacing the current RFG
and Anti-dumping annual average provisions. However, the 1.3 vol%
maximum benzene cap would remain in place for RFG under 40 CFR 80.41;
we are requesting comment on the need to retain this requirement for
RFG. The proposed benzene control program would also replace the MSAT1
requirements.
    Section 1504(b) of the Energy Policy Act of 2005 (EPAct) requires
that the MSAT1 toxics emissions baselines for RFG be adjusted to
reflect 2001-2002 fuel qualities, which would make them slightly more
stringent than the 1998-2000 baselines originally used in the MSAT1
program. However, as provided for in the Act, this action becomes
unnecessary and can be avoided if today's proposed program achieves
greater overall reductions of toxics emissions from RFG (i.e., PADDs 1
and 3) than would be achieved by this baseline year adjustment.
Therefore, in addition to comparing the proposed standard to the
current MSAT1 program, we also compared it to the program as the
standards would be modified by the EPAct.
    We performed an analysis of aggregate toxics emissions for the
relevant baseline periods as well as for future years with and without
the proposed program. This analysis was carried out using MOBILE6.2
because that model accounts for changes in the vehicle fleet, which is
important when modeling future years. Results are shown in Table VII.C-
3. Since this modeling approach was intended to compare emissions from
different fuels and fleet year mixes, the emissions figures generated
here are different from those used for gasoline compliance
determination.
    The first row shows mg/mi air toxics emissions in 2002 under the
MSAT1 refinery-specific baseline requirements. The second row shows how
these would change by updating the RFG baselines to 2001-02 as
specified in EPAct. Since significant changes are expected in the
gasoline pool between 2002 and the proposed implementation time of the
fuel standard, such as gasoline sulfur reductions and oxygenate
changes, we decided to model a ``future baseline'' to allow comparison
with the proposed standard at the time it would become effective in
2011. As a result, the third row shows the projected mg/mi emissions in
2011 under the EPAct baseline adjustments, but without today's proposed
program. The large reductions in air toxics emissions between the EPAct
baseline and this 2011 baseline are primarily due to nationwide
reduction in gasoline sulfur content to 30 ppm average and significant
phase-in of Tier 2 vehicles into the national fleet.
    An important comparison is made between rows three and four, where
the estimated toxics emissions under the proposed fuel standard only
are compared to the projected emissions without the proposed standard.
The fourth row shows small reductions for RFG and more significant
reductions for CG with the introduction of the proposed benzene
standard in 2011. We also evaluated the effects of the vehicle standard
also proposed today on toxics emissions at two points in time, shown in
the last two rows of the table.

         Table VII.C-3.--Estimated Annual Average Total Toxics Performance of Light Duty Vehicles in mg/mi Under Current and Proposed Programs a
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         Fleet              RFG by PADD                                  CG by PADD
                 Regulatory scenario                  --------------------------------------------------------------------------------------------------
                                                          Year        I          II        III         I          II        III         IV         V
--------------------------------------------------------------------------------------------------------------------------------------------------------
MSAT1 Baseline b (1998-2000).........................       2002        108        124         89        104        135         96        137        152
EPAct Baseline b (RFG: 2001-2002)....................       2002        103        121         85        104        135         96        137        152
EPAct Baseline, 2011 c...............................       2011         67         79         51         62         79         54         77         96
Proposed program, 2011 c (Fuel standard only)........       2011         66         78         50         59         74         51         71         85
Proposed program, 2011 c (Fuel + vehicle standards)..       2011         63         76         47         55         72         47         67         81
Proposed program, 2025 c (Fuel + vehicle standards)..       2025         39         46         30         35         44         31         42        50
--------------------------------------------------------------------------------------------------------------------------------------------------------
a Total toxics performance for this analysis includes overall emissions of 1,3-butadiene, acetaldehyde, acrolein, benzene and formaldehyde as calculated
  by MOBILE6.2. Although POM appears in the Complex Model, it is not included here. However, it contributes a small and relatively constant mass to the
  total toxics figure (4%), and therefore doesn't make a significant difference in the comparisons.
b Baseline figures generated in this analysis were calculated differently from the regulatory baselines determined as part of the MSAT1 program, and are
  only intended to be a point of comparison for future year cases.
c Future year scenarios include (in addition to the controls proposed today, where stated) effects of the Tier 2 vehicle and gasoline sulfur standards
  and vehicle fleet turnover with time, as well as rough estimates of the renewable fuels standard and the phase-out of ether blending.

    Based on these analyses, we believe the fuel program proposed in
this notice, as well as the combined fuel and vehicle program, would
also achieve greater overall toxics reductions than would be achieved
under the EPAct were the RFG baseline period updated to 2001-2002.
    In summary, today's proposed action for fuels would fulfill several
statutory and regulatory goals related to control of gasoline mobile
source air toxics emissions. The proposed program (in conjunction with
the proposed vehicle standards) would meet our commitment in the MSAT1
rulemaking to consider further MSAT control. It would also result in
air toxics emission reductions greater than required under all pre-
existing gasoline toxics programs, as well as under the baseline
adjustments specified by the Energy Policy Act. By designing this
program to address these separate but related goals, we would be able
to achieve a benefit in addition to the emissions reductions: A
significant consolidation and simplification of regulation of gasoline
MSATs.
    As part of today's action, in addition to the streamlining of
toxics requirements, we propose that the gasoline sulfur program become
the sole regulatory mechanism used to implement gasoline NOX
requirements. Gasoline producers are required to show reductions from
their RFG relative to the 1990 Clean Air Act baseline gasoline
NOX emissions, as determined using the Complex Model.
Conventional gasoline must comply with Anti-dumping individual
NOX baselines for each refinery, similar to the Anti-dumping
toxics standards. A refinery-by-refinery NOX analysis
parallel to that described above indicated that with the final
implementation of the gasoline sulfur program (January 1, 2006), all
gasoline will continue to meet or exceed the NOX
requirements of the RFG and Anti-dumping programs.
    As discussed elsewhere in this preamble, we believe that today's
proposed nationwide program would achieve significant reductions in
gasoline-related benzene emissions. The program would also have the
effect of preempting states from regulating gasoline benzene content.
The program is proposed under Clean Air Act section 211(c), which
includes preemption of state fuel programs in section 211(c)(4).\256\
The existing RFG benzene program, also authorized under section
211(c)(1), preempts states in RFG areas from regulating benzene.
Today's nationwide program expands this preemption to all states except
California, which is exempt from this preemption.
---------------------------------------------------------------------------

    \256\ See discussion of statutory authority in section I.C. of
this preamble.
---------------------------------------------------------------------------

D. Description of the Proposed Averaging, Banking, and Trading (ABT)
Program

1. Overview
    As mentioned earlier, we are proposing a specially-designed ABT
program to allow EPA to set a more stringent nationwide gasoline
benzene standard than otherwise possible. The proposed ABT program
would allow refiners and importers to use benzene credits generated or
obtained under the provisions of the ABT program to comply with the
0.62 vol% refinery average standard in 2011 and indefinitely
thereafter. Benzene credits could be generated by refineries that make
qualifying early baseline reductions prior to 2011 and by refineries
and importers that overcomply with the 0.62 vol% standard in 2011 and
beyond. All credits generated could be used internally towards company
compliance (``averaged''), ``banked'' for future use, and/or
transferred (``traded'') to another refiner or importer.
    The majority of the ABT credit provisions we are proposing are
similar to those offered in the gasoline sulfur program, with a few
exceptions. The major difference is that in the proposed program,
credit use would not be restricted by an upper limit (discussed in
VII.C.4.b above) and in fact would be encouraged by extended credit
life and nationwide credit trading provisions. We are able to propose a
flexible ABT program and a gradual phase-in of the 0.62 vol% benzene
because there is no corresponding vehicle standard being proposed that
is dependent on gasoline benzene content. A program with fewer
restrictions would help ensure that the overall proposed benzene
control program would result in the greatest achievable benzene
reductions, considering cost and other factors.
    Because of the wide variation in current benzene levels among
refineries, we recognize that some refiners would be better situated
than others, technologically and financially, to respond to the
proposed benzene standard. As we discuss below, we believe that the
credit trading provisions of the ABT program would be well suited to
moderate the financial impacts that could otherwise occur with the
proposed benzene control program.
    However, in other air quality programs, we have used other trading

mechanisms to address the varying impacts of such programs on different
regulated entities. For example, in EPA's Acid Rain program a limited
number of ``emissions allowances'' are allocated among entities, which
can then be banked and traded. We invite comment on this and other
alternative credit approaches that might be appropriate to gasoline
benzene control.
    The following paragraphs provide more details on our proposed
benzene ABT program. We encourage comments on the design elements we
have proposed for the program. If you believe that alternative
approaches would make the program more effective, please share your
specific comments and recommendations with us.
2. Standard Credit Generation (2011 and Beyond)
    We are proposing that standard benzene credits could be generated
by any refinery or importer that overcomplies with the 0.62 vol%
gasoline benzene standard on an annual volume-weighted basis in 2011
and beyond. For example, if in 2011 a refinery's annual average benzene
level was 0.52, its standard benzene credits would be determined based
on the margin of overcompliance with the standard (0.62-0.52 = 0.10
vol%) divided by 100 and multiplied by the gallons of gasoline produced
during the 2011 calendar year. The credits would be expressed as
gallons of benzene. Likewise, if in 2012 the same refinery produced the
same amount of gasoline with the same benzene content they would earn
the same amount of credits. The standard credit generation
opportunities for overcomplying with the standard would continue
indefinitely.
    The refinery cost model discussed further in section IX.A, predicts
which refineries would reduce benzene levels in an order of precedence
based on cost until the 0.62 vol% refinery average standard is
achieved. The model also predicts which refineries would overcomply
with the standard in 2011 and beyond and in turn generate standard
credits.\257\ Credits would be generated by two main sources.
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    \257\ The refinery cost model assumes that all credits generated
are used each year. To the extent that this does not occur, more
refiners would have to invest in technology to comply, increasing
the cost of the program.
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    First, standard credits would be generated by refineries whose
current gasoline benzene levels are already below the 0.62 vol%
standard. According to the model, 19 refineries are predicted to
maintain current gasoline benzene levels and overcomply with the
standard without making any additional process improvements. These
refineries would generate approximately 42 million gallons of benzene
credits per year without making any investment in technology.
Additionally, the model predicts that 5 other refineries would reduce
gasoline benzene levels even further below 0.62 vol% resulting in
deeper overcompliance and an additional 6 million gallons of benzene
credits per year.
    Second, standard credits would be generated by refineries whose
current gasoline benzene levels are above 0.62 vol% but are predicted
by the model to overcomply with the standard based on existing refinery
technology, access to capital markets, and/or proximity to the benzene
chemical market. The model predicts that 34 refineries with gasoline
benzene levels above 0.62 vol% would make process improvements to
reduce benzene levels below the standard and in turn generate
approximately 40 million gallons of benzene credits per year.
    For the refineries which the model predicts to make process changes
to overcomply with the standard, the incremental cost to overcomply is
relatively small or even profitable in some cases of benzene
extraction.\258\ As expected, refineries with the lowest compliance
costs would have the greatest incentive to overcomply based on the
value of the credits to the refining industry.
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    \258\ Despite the low costs of benzene extraction, without a
benzene control standard refiners are reluctant to invest in
capital-intensive processes such as extraction. This is because many
other projects involving capital investments that they may be
considering typically have a better or more certain payout (past
price volatility in the benzene chemical market can discourage
future investment). Thus, refiners tend to postpone capital projects
such as extraction even if they may appear to be profitable today.
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3. Credit Use
    We are proposing that refiners and importers could use benzene
credits generated or obtained under the provisions of the ABT program
to comply with the 0.62 vol% gasoline benzene standard in 2011 and
indefinitely thereafter. Refineries and importers could use credits to
comply on a one-for-one basis, applying each benzene gallon credit to
offset the same volume of benzene produced in gasoline above the
standard. For example, if in 2011 a refinery's annual average benzene
level was 0.72, the number of benzene credits needed to comply would be
determined based on the margin of under-compliance with the standard
(0.72-0.62 = 0.10 vol%) divided by 100 and multiplied by the gallons of
gasoline produced during the 2011 calendar year. The credits needed
would be expressed in gallons of benzene.
    We believe that individual refineries would rely differently upon
credits, depending on their unique refinery situations. As mentioned
earlier, the current range in gasoline refinery technologies and
starting benzene levels would make it significantly more expensive for
some refineries to comply with the standard based on actual reduced
benzene levels than others. As such, some technologically-challenged
refiners may choose to rely largely or entirely upon credits because it
would be much more economical than making process improvements to
reduce benzene levels. Other refiners may choose to make incremental
process improvements to reduce refinery benzene levels and then rely
partially on credits to fully comply. Still others may choose to reduce
benzene levels to at or around 0.62 vol% and maintain an ``emergency
supply'' of credits to address short-term spikes in benzene levels due
to refinery malfunctions. Overall, the proposed credit trading program
would encourage low-cost refineries to comply or overcomply with the
standard while allowing high-cost refineries to rely upon credits to
comply. This would reduce the total economic burden to the refining
industry.
a. Credit Trading Area
    We are proposing a nationwide credit trading program with no
geographic restrictions on trading. In other words, a refiner or
importer could obtain benzene credits and use them towards compliance
regardless of where the credits were generated. We believe that
restricting credit trading could reduce refiners' incentive to generate
credits and hinder trading essential to this program. As explained in
Chapter 6 of the RIA, if PADD restrictions were placed on credit
trading, there would be an imbalance between the supply and demand of
credits.
    In other fuel standard ABT programs (e.g., the highway diesel
sulfur program), credit trading restrictions were necessary to ensure
there was adequate low-sulfur fuel available in each geographic area to
meet the corresponding vehicle standard. Since there is no vehicle
emission standard being proposed that is dependent on gasoline benzene
content, we do not believe there is a need for geographic trading
restrictions. As mentioned above, we project that under the proposed
ABT program, all areas of the country (i.e., all PADDs) would

experience a large reduction in gasoline benzene levels as a result of
the standard.
    As discussed earlier, California gasoline would not be subject to
the proposed benzene standards. However, California refiners that
produce gasoline that is used outside of California would be able to
generate credits on that gasoline (and use credits to achieve
compliance on their non-California gasoline if necessary). Likewise, as
proposed, refiners outside of California that produce gasoline that is
used in California would not be allowed to use that gasoline as the
basis for any credit generation, or compliance with the proposed
benzene standard. However, we request comment on whether and how
credits could be allowed to be generated on California gasoline benzene
reductions and applied to the benzene compliance for non-California
gasoline.
    EPA seeks comment on the proposed nationwide trading provision, its
effect on incentives for refiners to generate credits, and
environmental impacts.
b. Credit Life
    We are proposing limited credit life to enable proper enforcement
of the program and to encourage trading of credits. Since the proposed
standard is a refinery gate standard (i.e., enforced as the fuel leaves
the refinery) with no enforceable downstream standard, it is critical
that EPA be able to conduct enforcement at the refinery. A reasonable
limitation on credit life would allow EPA to verify the validity of
credits through record retention. Credit information must be
independently verifiable such that, in the event of violations
involving credits, the liable party is identifiable and accountable.
EPA enforcement activities are limited by the five-year statute of
limitations in the Clean Air Act. As a consequence, credit life greater
than five years creates potentially serious enforcement difficulties.
This is particularly important given the ongoing changes in business
relationships, ownership, and merger practices that are characteristic
of the refining industry. In addition, since credit trading plays an
essential role in moderating program costs, it is important that
refiners have an incentive to trade credits rather than hoard them.
Instituting a credit expiration date would promote trading because
refiners would be forced to ``use it or lose it.'' In summary, we
believe the proposed credit life provisions, described in more detail
below, are limited enough to satisfy enforcement and trading concerns
yet sufficiently long to provide program flexibility.
    We are proposing that standard credits generated in 2011 and beyond
would have to be used within five years of the year in which they were
generated. For example, credits generated based on 2011 gasoline
production would have to be used towards compliance with the 2016
calendar year or earlier, otherwise they would expire. Standard credits
traded to another party would still have to be used during the same
five-year period because credit life is tied to the date of generation,
not the date of transfer.
    We are proposing that early credits generated prior to 2011
(discussed in the paragraphs to follow) would have a three-year credit
life from the start of the program. In other words, early credits would
have to be applied to the 2011, 2012, and/or 2013 compliance years or
they would expire.
    These proposed credit life provisions are similar to those
finalized in the gasoline sulfur program, except the early credit life
is three years instead of two. We are proposing a three-year early
credit life because it corresponds with the number of early credits
projected to be generated according to our refinery cost model.\259\
Additionally, we predict that three years would be more than sufficient
time for all early credits generated to be utilized. We believe that
this certainty that all credits could be utilized would strengthen
refiners' incentive to generate early credits and subsequently
establish a more reliable credit market for trading.
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    \259\ Derivation of three-year early credit lag is found in
Chapter 6 of the RIA (section <IP_ADDRESS>).
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    In addition to the above-mentioned provisions, we are proposing
that credit life may be extended by two years for early credits and/or
standard credits generated by or traded to approved small refiners. We
are offering this provision as a mechanism to encourage more credit
trading to small refiners. Small refiners often face special
technological challenges, so they would tend to have more of a need to
rely on credits. At the same time, they often have fewer business
affiliations than other refiners, so they could have difficulty
obtaining credits. We believe this provision would be equally
beneficial to refiners generating credits. This additional credit life
for credits traded to small refiners would give refiners generating
credits a greater opportunity to fully utilize the credits before they
expire. For example, a refiner who was holding on to credits for
emergency purposes or other reasons later found to be unnecessary,
could trade these credits at the end of their life to small refiners
who could utilize them for two more years. However, EPA is concerned
that extending credit life beyond the five-year statute of limitations
in the Clean Air Act (net 7-year credit life for standard credits
generated by or traded to small refiners) could create significant
enforceability problems. Consequently, EPA seeks comment on provisions