EPA
420
2006.1
                       Report to the President
                    Task Force on Boutique Fuels

                     Convened by Administrator Johnson,
                     U.S. Environmental Protection Agency
                                June 2006
               United States Environmental Protection Agency
                                                  0 8 2006
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                     Table of Contents
I.    Executive Summary
II.   The Task Force
III.  Current Understanding of Use and Utility of Boutique Fuels
IV.  Highlights of EPA's 2001 Boutique Fuels Study
V.   Relevant Fuel Actions Taken Since 2001
VI.  Boutique Fuel and Related Provisions Required by EPAct
VII.  Stakeholder Reports/Summaries
VIII. EPA Recommendations and Observations
IX.  Summary Comments and Additional Opinions
X.   Appendices

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I.     Executive Summary
       As part of a broad initiative to respond to high fuel prices, on April 25, 2006,
President Bush directed Administrator Johnson to convene a Task Force of States to review
the variety of requirements related to fuels. The Task Force was charged with identifying
opportunities to increase cooperation among federal government and states on gasoline
supply decisions and to reduce the number of boutique fuels. Administrator Johnson invited
all 50 Governors, or their designated representatives, to participate in a Task Force on
Boutique Fuels (Task Force) which was composed exclusively of representatives from the
States, EPA, and the Departments of Energy and Agriculture.

       The Task Force, as part of this effort, discussed the Agency's findings from The
Study on Unique Fuel Blends (Boutique Fuels) conducted  in 2001 by EPA as directed by
the President's National Energy Policy Report. Since that time, a number of activities in the
fuels arena have occurred that directly and indirectly impact the findings of the 2001 study.
Of greatest significance was the enactment of the Energy Policy Act of 2005 (EPAct) which
contains provisions directly and indirectly affecting state boutique fuel programs.

       The Task Force gathered relevant information related to boutique fuels from
numerous stakeholders. To facilitate this exchange of information, a forum was provided for
stakeholders, from refiners to public health groups to automakers, to express their
understanding of the issues related to the use of boutique fuels. Their views and concerns are
provided in summary in this report.

       After carefully evaluating comments from the Task Force participants and
stakeholders, EPA submits to the President this report of findings, actions and
recommendations for consideration in addressing boutique fuels:

      The Task Force participants agreed, in general, that the U.S. gasoline production and
       distribution system is able to provide adequate quantities of boutique fuels, as long as
       there are no disruptions in the supply chain.  If a disruption occurs (such as a
       hurricane or pipeline break) it becomes more difficult to move gasoline supplies
       around the country because of the limitations imposed by the boutique fuel
       requirements. Existing authorities have been used  to  temporarily waive boutique fuel
       requirements during times of supply disruption.

      It is clear that state fuel programs have provided significant, cost-effective air quality
       improvements. Any actions to modify the slate of existing boutique fuels or limit a
       state's ability to adopt fuel specifications should be done in a manner that at least
       maintains these air quality gains and avoids unnecessarily restricting state authority.

      EPA has and wil! continue to expeditiously  implement the requirements of the Energy
       Policy Act of 2005 (EPAct) as they relate to boutique fuels. These actions will limit
       the growth of new boutique fuel requirements.

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      The participants emphasized that any future analysis of potential changes to the
       number and types of fuels must utilize the most up-to-date data and analytical tools.
       The 2008 EPA/DOE Fuel System Requirements Harmonization Study should ensure
       that all aspects, including impacts changes to fuel requirements may have on  air
       quality, as well as the new generation of vehicles, fuel fungibility, supply and cost,
       are appropriately addressed.

    "  As part of the analyses of future fuel options, careful consideration should be given to
       the possibility of new legislative authority which would allow for the adoption of
       regional clean fuel programs. Cleaner burning fuels used in the broader geographic
       areas merit further study as an additional option for addressing fuel supply and
       fungibility concerns.

      Renewable fuels are an important part of the nation's plan to reduce our dependence
       on foreign oil. States are undertaking a number of actions to promote the use of such
       fuels and the federal government is implementing programs, notably the Renewable
       Fuels Program established by EPAct, to do the same. It will be beneficial to
       undertake additional study to ensure these programs are working together and will not
       create undue impacts on air quality, fuel fungibility, supply and cost considerations.

II.    The Task Force

       The Administrator established a process and set forth several key elements the Task
Force should address, culminating with a report to the President. The Task Force meetings
provided the opportunity for all participants to share information,  present their views,
positions and recommendations, and provide input and comment on this report1. Also, the
critical stakeholders, including those in the refining, marketing and fuel distribution sectors,
as well as others, were provided the  opportunity to present their views and opinions before
the  Task Force for evaluation and consideration.
       Specifically, the Task Force was asked to review the current boutique fuels situation
in the United States (US), review any actions taken since EPA  last investigated and reported2
on the boutique fuels situation, review the relevant provisions in EPAct, provide for
stakeholder input, and then assess and report on any options, recommendations or further
informational needs to effectively address the impact boutique fuels have on the US fuels
market.
       There has been some issue raised over the abbreviated timeframe set for the Task
Force to complete its work. While the two month period is an abbreviated time  in which to
address such a complicated issue, the Administrator wanted to complete this report as quickly
as possible for two main reasons. First, as there continues to be ongoing public discussion
and Congressional interest in this issue, it is important that the Task Force's very useful work
be included in this debate in order to help inform policy makers.  Second, the Task Force
1 Materials distributed at Task Force meetings have been posted on the Boutique Fuels Task Force website
(http://www.epa.gov/otaq/boutique-task-force.htm)
2  "Study of Gasoline Fuel Blends ("Boutique Fuels "). Effects on Supply and Distribution and Potential
Improvements" (October 2001).

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report should be construed as the first step in a comprehensive effort to address issues related
to the nation's fuel supply. It is a key part of the broader process in which EPA, working in
conjunction with the Department of Energy, will be analyzing both boutique fuel issues and
the broader issue of the nation's fuel system. The observations and recommendations in this
report will help guide these later efforts.
       This report provides guidance to the President on potential actions and next steps
toward meeting the goal of simplifying and increasing the supply and fungibility of the US
fuel system, and to encourage cooperation among the states on fuel supply decisions.

III.   Current Understanding of Use and Utility of Boutique Fuels

       Boutique fuels are used primarily in urban areas to address specific air quality
problems, most particularly ozone. The control of certain  fuel properties, such as fuel
volatility, helps reduce exhaust and evaporative emissions from motor vehicles that cause or
contribute to air pollution.  Boutique fuels typically account for between 10 to  15 percent of
the nation's summertime gasoline supply. Where implemented, these fuels are an important
and powerful tool for combating local air pollution problems.

Boutique fuels3 as defined  in this report are:
      Any clean fuel program designed and enforced under state authority to reduce motor
       vehicle emissions and improve air quality; and,
    *  Approved by the Agency under the authority of Section 211 (c)(4)(c) of CAA
       Amendments of 1990; and,
      Included in an EPA-approved state [clean air] Implementation Plan  (SIP).

       In the Clean Air Act Amendments of 1990, Congress established a number of clean
fuel programs to reduce harmful emissions from our nation's vehicles. Following
implementation of these new clean fuel programs, it  became more evident that controlling
fuel quality presented another opportunity  to support timely attainment of the air quality
standards. One of the primary programs available was the federal reformulated gasoline
program (RFG)4.  The RFC program was implemented in two phases, beginning in 1995,
followed by the application of more stringent controls in 2000. RFC has been demonstrated
to be highly cost effective and has provided significant reductions in air pollution levels in
cities throughout the nation. Some states had the authority to opt into the federal RFG
program. However, the Clean Air Act did provide certain restrictions, which were based on
the severity of the air quality for these areas. Further, beyond these restrictions, concerns
over RFG production costs, the oxygenate requirement5 and the use of MTBE (methyl
tertiary-butyl ether) pushed states, both with and without authority to opt-in  to the RFG
program, to consider alternative options. Some states, working with local fuel providers,
chose to implement their own unique or "boutique" fuel program. These programs were
specifically designed to address and support timely attainment of the air quality standards.
3 Fuel programs not included under this definition include state or area specific fuels required by law but not
requiring a Clean Air Act Section 21 l(c)(4)(c) waiver.
4 For information on RFG go to: http://www.epa.gov/otaq/rfg.htmSFact
5 The Clean Air Act required federal Reformulated Gasoline to contain a minimum of 2 weight percent oxygen.

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       In order for states to adopt a fuel control different from the federal requirements,
states must satisfy certain criteria.  Specifically, the Clean Air Act (both prior to and
following amendments made by EPAct that impose additional requirements discussed below)
imposes strict limitations on EPA's authority to approve boutique fuels by pre-empting states
from adopting unique specifications for the purposes of controlling air quality unless EPA
authorizes waiver of the pre-emption provisions.  A state is allowed to prescribe and enforce
a fuel quality control if the Administrator finds that the state control or prohibition is
necessary to achieve a national primary or secondary ambient air quality standard and that no
other reasonable measures are available to bring about timely attainment.

       In order for state regulations to be incorporated into the federally-enforceable SIP,
states must formally adopt regulations and control strategies consistent with state and federal
requirements. This state process generally includes a public notice, public hearing, public
comment period, and a formal adoption by an authorized rulemaking body. Once a state rule,
regulation, or control strategy is adopted, the state submits it to the Agency for inclusion into
the SIP.  EPA must also provide public notice and seek additional public comment regarding
the proposed federal action on the state submission. If adverse comments are received, they
must be addressed prior to any final federal action. In determining the approvability  of a SIP
revision,  EPA must evaluate the proposed revision for consistency with the requirements of
the CAA and the applicable regulations, as found in section 110 and part D of Title I of the
CAA amendments and 40 CFR Part 51 (Requirements for Preparation, Adoption, and
Submittal of Implementation Plans).

       In all cases, SIP approved clean fuel programs were designed by states in conjunction
with industry stakeholders.  In the process that has been utilized, state authorities evaluate the
affected industry's ability to produce and distribute these fuels, as well as make a
determination of the cost and effectiveness of the program. Slate submittals must include the
necessary elements described above in order to obtain EPA approval.

       Historically, implementing a localized fuel quality control strategy can generally
occur in a shorter period of time, as compared to other control strategies, and provide
immediate environmental benefits. These programs have proven to be very successful in
providing significant reductions in targeted emissions at a very low cost. State controls on
RVP have been estimated to cost as little as 0.3 cents per gallon to about 3 cents per  gallon.

       Currently, 12 states have established state specific SIP-approved controls on  fuels.
The following table lists the areas with boutique fuels as identified and recently published by
the Agency. A map is also provided to graphically illustrate the location of the state
programs.

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                 BOUTIQUE FUEL PROGRAMS INCLUDED IN
   STATE [CLEAN AIR] IMPLEMENTATION PLANS (SIPs) (As of May 4,2006)
Type of Fuel Control*
RVP***of7.0psi
RVPof7.0psi
RVP of 7.0 psi
RVP of 7.0; extended summer season from
June 1 to September 30
RVP of 7.0 psi; includes a provision
addressing sulfur content
RVP of 7.0 psi
RVP of 7.2 psi
RVP of 7.8 psi
RVP of 7.8 psi
RVP of 7.8 psi
RVP of 7.8 psi; extended summer season
from May 1 to September 15
RVP of 7.8; extended summer season from
May 1 to October 1
Low emission diesel fuel with maximum
10% volume aromatic hydrocarbon content
and minimum cetane of 48 required.
(Allows substitute Plans w/equivalent NOx
reductions)
Cleaner Burning Gasoline; similar to
federal RFG or California RFG in summer;
in winter similar only to California RFG.
Winter gasoline controls on aromatic
hydrocarbons and sulfur.
PADD"
2
2
3
5
1
3
2
1
2
2
1
3
3
5
5
Area/state
Kansas City, MO (3 counties)
Kansas City, KS (2 counties)
El Paso, TX (El Paso county)
Phoenix, AZ (Maricopa County)
Atlanta, GA (45 county area)
Birmingham, AL (2 counties)
E. St. Louis, IL (3 counties near St. Louis,
MO)
Pittsburgh, PA (7 county area)
Clark & Floyd, IN (2 counties near
Louisville, KY)
Detroit, MI (7 counties)
Southern, ME (7 county area)
Central & Eastern, TX (95-county area)
1 10 counties in eastern Texas, including
Houston & Dallas Areas
Phoenix, AZ
(Maricopa County)
Las Vegas, NV
*  Unless otherwise specified, RVP control is in effect June
** PADD: Petroleum Administration for Defense Districts,
***   RVP: Reid Vapor Pressure is a measure of gasoline's
evaporates more easily at summer temperatures.
1 to September 15.

evaporation rate. Higher RVP gasoline

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IV.   Highlights of EPA's 2001 Boutique Fuels Study

       The President's National Energy Policy Report issued on May 17,2001, included
a directive to EPA to study the opportunities to maintain or improve the environmental
benefits of state and local "boutique" clean fuel programs while exploring ways to
increase the flexibility of the fuels distribution infrastructure, improve fungibility, and
provide added gasoline market liquidity. On October 23, 2001,  EPA issued a "Study of
Unique Gasoline Fuel Blends ("Boutique Fuels"), Effects on Fuel Supply and
Distribution and Potential Improvements." In this study, EPA concluded that, in 2001,
the gasoline production and distribution system was able to provide adequate quantities
of boutique fuels, as long as there were no disruptions in the supply chain.  If a disruption
occurs (such as a pipeline break or refinery fire) it becomes more difficult to move
gasoline supplies around the country because of the limitations imposed by the boutique
fuel requirements.

       Within this study, EPA reviewed state and local boutique fuel programs, federal
fuel programs, as well as the motivation and causes for state boutique fuels, and assessed
the impact these  fuels have on fuel production and the distribution system.  EPA then
analyzed potential ways to mitigate the impact of disruptions (i.e. refinery fires, pipeline
shutdowns) by allowing for a more fungible system. In preparing the 2001 study, the
Agency sought input from the U.S. Departments of Energy and Agriculture, and more
than 40 stakeholders.

       EPA developed a preliminary analysis of four fuel program options that could
reduce the total number of fuels. The fuel options that  EPA analyzed were: 1) a three-
fuel option (federal RFG, Low RVP (7.0), and conventional gasoline); 2) a two-fuel
option (federal RFG and conventional gasoline); 3) a 49-state federal nationwide clean
burning gasoline (CBG): and, 4) California fuel (California CBG) nationwide (A
detailed summary is included in Appendix 2).  These options were analyzed under the
following principles:

      Improve the fungibility and movement of gasoline across the country;
      Maintain or improve emission performance for  each area of the country that was
       covered by a fuel program;
      Maintain or improve the ability of fuel producers to produce sufficient gasoline to
       meet demand; and,
      Minimize the net cost when considering both production and distribution.

All of the fuel options were evaluated in four ways: with and without a national benzene
standard, with the RFG oxygen mandate in place and with the RFG oxygen standard
replaced by a national renewable fuels content requirement.
6 The Department of Energy provided comments regarding the analytical approach to the 2001 Study.
Their comments, as well as others, are available for review in EPA docket (EPA-HQ-OAR-202-0003.

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       In assessing the options, certain assumptions were made regarding states' choices
when a menu of fuels is offered, as under the 2-fuel and 3-fuel options.  An underlying
assumption was that states would retain the statutory right to receive a waiver of
preemption under certain conditions, to regulate fuel characteristics. Rather than states
exercising this right, they would limit their choices to the fuels contained in the options.
For example, a state may have designed its own fuel program instead of opting into the
federal RFG program because of the RFG oxygenate mandate. This same state might opt
into either the 2-fuel or 3-fuel option without the RFG oxygen mandate  with resulting
fuel distribution benefits.

       EPA's analysis of the fuel options concluded that there are trade-offs when
attempting to simplify gasoline distribution and reduce market volatility. The fuel
options identified to produce the greatest benefits under these goals would also entail the
greatest production costs and reductions in gasoline production capacity. The fuel option
scenarios analyzed in the report would extend cleaner gasoline throughout the country
and therefore would result in varying levels of benefits. However, all four scenarios
resulted in positive air quality benefits, although with varying levels of results. The
following table summarizes the impact each analyzed option would have on these factors.

Impact of Fuel Options on Gasoline Supply, Distribution, Cost and  Air Quality
[From 2001 EPA Study]
Option
3-Fuel
2-Fuel
Federal CBG
California
CBG
RFG/
Renewable
Fuel Mandate
Yes/No
No/Yes
Yes/No
No/Yes
No/Yes
No/Yes
Ease of
Distribution
T
TT
t
TT
m
TTT
Gasoline
Production
Capacity
~
T
T
T
U
Ui
Long Term
Cost
-
--
[ (higher cost)
,
11
ill
Air Quality
Impact
T
T
Tt
TT
Tt
TTT
        Key:  T Indicates Positive Impact  | Indicates Negative Impact

       Seasonal Fuel Transition Issues

       In a separate study,7 EPA also investigated seasonal transition concerns that arise
when higher RVP gasoline must be replaced with lower RVP summer grade gasoline.
Winter grade conventional gasoline and winter grade reformulated gasoline have a higher
Reid Vapor Pressure, or RVP, than corresponding summer grades. Gasoline RVP is
permitted to be relatively high during colder months because the colder temperatures
reduce the tendency of gasoline to evaporate and to produce emissions of volatile vapors.
Also, higher volatility gasoline is generally necessary to support proper cold weather
operation of vehicles.  Conversely, lower RVP in gasoline is beneficial because warmer
7 Study of Boutique Fuels and Issues Relating to Transition from Winter to Summer Gasoline (October
2001) http://www.epa.gov/otaq/regs/fiiels/r01051.pdf
                                                                                10

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weather has the tendency to cause gasoline to evaporate more easily, releasing volatile
organic compounds into the atmosphere. It is important to note that industry will make
this seasonal transition to support vehicle performance and operational issues, regardless
of whether any environmental regulations are in place.

       In this study, EPA identified a set of administrative and regulatory options as near
term actions that could better facilitate seasonal gasoline transition and reduce the
incentives for low inventories.

V.    Relevant Fuel Actions Taken Since 2001

       Since  the publication of the 2001 EPA studies, several significant changes have
occurred in the US gasoline market. Seasonal transitional concerns over the switch from
winter to summer gasoline, as well as other actions taken to lessen stresses on the
gasoline supply system,  have had a direct  impact on the positions, options and
recommendations set forth by the Task Force in this report.  A summary of the actions
and related impacts are provided in Appendix 1.  A brief listing of these actions is noted
below.

       In addition, several significant changes to fuel quality, such as the federal
requirements  to control gasoline and diesel fuel sulfur levels, as well as changes in the
make up of the refining, marketing and distributions sectors,  must be considered in future
evaluations of fuel options. With demand increases outpacing investments in production
capacity, stresses on production and distribution systems have resulted in a significantly
different fuels market landscape than that  at the time the  2001 Boutique Fuels study was
conducted. Evaluation of these conditions, along with several regulatory and policy
actions made  to ease some of the market constraints identified in the study, will require
further investigation.

To provide for a more orderly transition from winter-to-summer grade RFC every
spring, EPA  took the following actions:

      Allowed fuel producers more flexibility in meeting fuel specifications than they
       previously had for their initial transition to summer fuel.
      Allowed certain gasoline types to  be reclassified as RFC, thus making it easier to
       address localized issues that arise  when there is an unexpected disruption in the
       distribution system

To provide greater flexibility to fuel producers and suppliers, EPA took additional
actions that:

      Simplify certain RFG accounting and reporting requirements
      Allow parties to change the service of a tank where residual amounts of gasoline
       (tank heel) remain in the tank
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VI.
       Allow butane blenders to blend butane into conventional or RFG under alternative
       sampling and testing options., which has the potential for increasing gasoline
       supplies
       Allow importers to conduct remedial blending of off-spec imported gasoline by
       treating it as blendstock, ultimately providing additional flexibility to respond to
       market demands
       Provide a more flexible approach for transmix processors and blenders to comply
       with RFG requirements and Tier 2 gasoline sulfur standards,  resulting in potential
       for increases in gasoline supplies
       Provide renewable blendstock for oxygenate blending (RBOB) refiners an
       alternative method of fulfilling quality assurance requirements, enabling refiners
       to produce RBOB for ethanol blending that results in greater  ability to respond to
       market needs
       Provide alternative sampling and testing approaches allowing truck importers to
       comply based on test results from the loading terminal instead of from the truck,
       making importation of gasoline by truck easier and less costly.

       Boutique Fuels and Related Provisions  Required by the
       EPAct
                                                   Petroleum Administration
                                                     for Defense Districts
       Due to heightened concern over supply and price issues and the potential for
boutique fuel programs to exacerbate these issues, Congress directly addressed the
subject of boutique fuels in several sections of the EPAct.  Specifically, section 1541(b)
requires EPA to publish a boutique fuels list based on fuels in the market as of September
1, 2004.  Following careful review and
consideration of the direction Congress
provided in this section, on June 6, 2006,
EPA published a draft listing of boutique
fuels for public comment (71 FR 32532).
This list identified  12 states that have
implemented an EPA-approved boutique
fuel program to support attainment of the
air quality standards.  This list explicitly
limits the type, and to some extent
geographical application (by Petroleum
Administration for Defense Districts -                 '
PADDs) of these fuels in the US market.

       Currently, there are 15 different state SIP fuel provisions (in 12 states) in the
various PADDs. These state regulations cover seven different fuel types, most typically
based on controlling gasoline volatility.
   Under EPAct, EPA may approve a state fuel program for a SIP only if:
      That fuel is already approved in a SIP for a state in that PADD, and
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      The approval does not increase the total number of state fuels on EPA's list of
       fuels.
      If a new fuel is added to the list, EPA with Department of Energy consultation
       must find no adverse impact on supply and distribution.

       The PADD restrictions are a powerful constraint on the expansion of state fuel
programs. It is important to note that these restrictions apply in addition to the Clean Air
Act restrictions discussed in the previous sections of this report.
       In addition to the program and regulatory modifications described above, several
significant changes to the federal gasoline requirements have been, or will be made as a
result of passage of EPAct 2005. The most significant action is the removal of the
federal oxygen content requirement for the RFG program. This change allows refiners
and importers to produce or import RFG with or without oxygen as long as the gasoline
meets all other RFG requirements. This additional flexibility enables refiners and
importers to produce and distribute RFG in the most cost-effective manner.  Another
change implemented a provision of the EPAct which allows retail gasoline stations the
opportunity to commingle ethanol-blended RFG with non-ethanol-blended RFG during
two ten-day periods of the VOC-control  season. The ability to commingle these products
will provide retailers with additional flexibility to change their tanks from one product to
the other, which will help to ensure the continued availability of gasoline to retail
customers in the event that one type of gasoline is in limited supply.

       Studies and Reports
       EPAct also established requirements for further evaluation of the impact boutique
fuels have in the US. Specifically, Section 1541(c) requires EPA and DOE to join in
developing a study on the effects of boutique fuels on air quality, fuel blends, fuel
availability, fungibility and costs. The Agency and DOE are currently in consultation
and are planning to issue a joint report for submission to Congress in August of 2006.
EPA plans to use the findings in this Task Force Report to inform the development of the
plan for the study.

       Further, Section 1509 of EPAct requires the Agency and DOE to prepare a report
by June 1, 2008, referred to as the Fuel System Requirements Harmonization Study,
concerning variations in regional, state and local motor vehicle fuel requirements. This
report must account for recent and anticipated changes in the US gasoline and fuels
supply and distribution market.

       EPAct Relief for Fuel Supply Interruptions

       To address unusual fuel supply situations, Congress granted EPA new authority to
grant waivers for federally-enforceable fuel regulations, which includes SIP-approved
fuel requirements. The source of this authority is found in section 1541 of EPAct. This
provision authorizes the Administrator of EPA to waive a control or prohibition of the
use of a fuel or additive if, after consultation with and concurrence by the Secretary of
Energy, the Administrator determines extreme or unusual fuel or  fuel additive "supply"
'O
  .1
                                                                               13

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circumstances exist which prevent the distribution of an adequate "supply" of a fiiel or
fuel additive to consumers.  The authority specifically states that the circumstances are to
be the result of a natural disaster, an Act of God, a pipeline or refinery equipment failure
or another event that could not reasonably have been foreseen or prevented and not the
lack of prudent planning. Additionally, any waiver must apply to the smallest geographic
area necessary to address the unusual circumstances, be effective for 20 days (or less),
allow for a transitional period, and apply  to all parties in the distribution system.

       Recent use of this authority occurred as a result of hurricanes Katrina and Rita, in
the late summer and early fall of 2005 when EPA, in consultation with DOE, successfully
issued a series of limited fuel waivers for specific gasoline and diesel quality standards.
These waivers were authorized and approved based on supply concerns. EPA's waiver
authority and decisions were universally supported by the affected stakeholders.
Additionally, states use their individual authorities to waive their state boutique fuel
requirements.

VII. Stakeholder  Reports/Summaries

       In an effort to obtain current and fully representative views and  perspectives from
affected industry and public sector stakeholders, EPA invited representatives of
associations and public interests groups to provide input into this process.
Representatives from 20 organizations  were invited to respond to targeted questions and
to participate in a meeting convened by EPA in Washington, DC on May 18th. Nineteen
organizations, representing the refining, distribution, marketing and user groups, as well
as state and public interest sector and the automotive industry provided responses and/or
delivered presentations at this meeting.

       A range of opinions and perspectives were provided by the stakeholders. The
following characterizes the more critical messages presented by the stakeholder
representatives:

       PRODUCERS
       (Petroleum Refiners and Renewable Fuel Producers)

There were several consistent recommendations offered by both the petroleum refiners
and renewable fuel providers:
   Market conditions have changed significantly since the release of EPA's 2001
    Boutique Fuels Study and the assertions, assumptions and scenarios are dated and
    therefore recommend updating the report.
   Federal fuels are moving in the right direction and implementing and understanding
    the impact EPAct provisions will have on the fuels market should occur prior to
    taking further action. Congress specifically set forth a plan for how  to address and
    further evaluate boutique fuels, and included specific provisions to relieve fuel market
    supply and fungibility pressures.
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   Petroleum Refiners
  No change in boutique fuel requirements will affect the supply situation this summer.
   Failure to consider and balance supply implications, air quality and fuel choices could
   have unintended consequences.
  There have been several significant changes made under EPAct that would limit the
   need for additional unique fuel blends.
  Believe the scope of the how boutique fuels are defined in this process is too narrow
   and should be expanded to include other state (non-21 l(c) (4) (c)) programs - such as
   state biofuel mandates. They expressed significant concern with the potential for
   market segmentation resulting from the escalation of state renewable fuel programs,
   and the potential complexity these will add to the entire production and distribution
   system and indicated support for legislation granting the Agency authority to pre-
   empt or limit the proliferation of these state mandates.

   Renewable Fuel Producers
*  Supportive of the national renewable fuel provisions.
  Do not favor limiting state authority to implement individual renewable fuel incentive
   requirements or standards.

       DISTRIBUTION AND MARKETING
       (Pipelines,  Terminals, Marketers)

Stakeholders  from  the distribution and marketing sector expressed several unified
messages:
  The distribution and marketing sector strongly contends that any decision for change
   must fully consider the entire system, including pipelines, terminals and the
   wholesale and retail sectors.
  Boutique  fuels  impact supply and price even in normal market situations.
  Encourage restrictions that will mitigate the proliferation of boutique fuels and
   support a  gradual reduction in boutique fuels through a measured approach.
  Strongly caution against any regulatory changes that might result in a loss of supply.
  Support implementation of the provisions of EPAct that serve to address fuel
   fungibility and  supply issues.
  The definition of boutique fuels  should be expanded to include state renewable fuel
   programs. State biofuel mandates are of great concern and must be considered in
   evaluating boutique fuels impact on the US market.

       STATE AND PUBLIC INTEREST GROUPS
       (Associations Representing State Agencies and Environmental
       Organizations)

State and public interest stakeholders were aligned in a number of areas:
  Boutique  fuel programs have provided positive results, and they oppose consideration
   of any changes  that have the potential for negative effects on air quality.
  States should retain the ability and flexibility to choose fuel programs, regional or
   otherwise, to support their air quality needs.
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    EPAct provisions related to boutique fuels should be implemented prior to making
    any changes. The market has experienced a lot of change since EPA released the
    2001  Boutique Fuels Study and further evaluation is necessary.

       Environmental and Public Health Interests
    Prior to making any changes, a comprehensive, balanced examination of fuel issues,
    including effects on environment, health, supply and costs, should be conducted.
    A more comprehensive understanding of the impact renewable fuel standards have on
    public health and the environment is necessary.
       State Associations
  General support for exploring the ability for states to adopt a regional approach to
   fuel quality controls.
  Opposed to any limitations on adopting state bio or renewable fuel standards.
  Indicated EPA and state authority is adequate to address supply disruptions.
  Oppose further restrictions on state authority to adopt fuels necessary to protect air
   quality and public health.
  No evidence that boutique fuels have caused any problems and waiver authority
   exists to address short term supply issues.

       AUTOMAKERS AND ENGINE MANUFACTURERS
       (Associations Representing National and International Light-duty Vehicle
       and Heavy-duty Engine Manufacturers)

There were several general messages presented by the automotive and engine
manufacturing sector:
  Support a more harmonized approach to controlling fuel quality.8 Specifically, they
   support single national clean gasoline and clean diesel fuel standards. Unification of
   fuel quality standards supports more stringent calibration of engines and vehicles,
   ultimately resulting in optimization of emissions control and vehicle performance.
   Optimization can have positive effects on both air quality and vehicle efficiency.
  The 2001 Boutique Fuels Study should be updated.
  Expressed concerns over the lack of fuel specifications that would ensure that biofuel
   and renewable fuel standards would meet manufacturer recommended quality
   specifications, and thereby avoid the potential to negatively impact both emissions
   and performance.

   Light-duty Vehicle Manufacturers
  Support further controls on sulfur and establishing a distillation index cap on
   gasoline.
  Support the national ultra low sulfur diesel program and diesel fuel quality controls.
1 Refer to the World Wide Fuel Charter - August 2005
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   Engine Manufacturers
  Supported ultra low sulfur diesel program and emphasized their support for one
   national diese) fuel standard.

       USER GROUPS
       (Associations Representing the Trucking Industry and the Driving Public)

Representatives from user and consumer groups were primarily concerned over product
availability and price:
  Interests focused on ensuring an uninterrupted availability of reasonably priced fuel.
  Contend that the existing patchwork of specialty fuel blends seems to have
   exacerbated fuel price volatility and contributed to regional disruptions in fuel supply.
  Concerns were expressed over state renewable fuel mandates and their potential
   impact on supply, price and product quality.
  The trucking industry supports  uniform national diesel fuel requirements, and
   believes boutique fuels should be defined more broadly as a state fuel specification
   that limits fuel fungibility.

       Stakeholder Materials

       A complete set of materials submitted by the stakeholder participants is available
on the EPA Boutique Fuels Task Force website. Interested parties may access this
information at http://www.epa.gov/otaq/boutique-task-force.htm. This material, as well as
that provided directly by the Task Force representatives has been accounted for in
developing the statements, positions and recommendations and in making a
determination on suggestions for additional informational needs.

VIII.EPA Recommendations and Observations

       Boutique fuel programs are cost effective strategies that provide important
environmental and public health benefits. However, EPA recognizes that a number of
actions in the fuels area since 2001  have changed the boutique fuel landscape. These
changes include the implementation of ultra-low sulfur fuel requirements across the
country, EPAct provisions requiring removal of the oxygenate mandate and
implementation of the federal renewable fuels standards, and other administrative actions
EPA has taken to provide additional flexibility to the fuels system. At the  same time,
states are developing plans to demonstrate compliance with new air quality requirements.

       Following careful review and consideration of available information and input
from both the Task Force participants and stakeholders, EPA is submitting the following
items for consideration by the President:

  Complete a comprehensive analytical assessment as required by EPAct to better
   define how boutique fuels impact air quality, cost, fungibility, and fuel supply.
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   Implement, on a timely basis, the provisions in EPAct which address boutique fuels
    specifically, or could impact conditions concerning their use, including the state
    boutique fuel list, the renewable fuels program.
*   Ensure that changes to the nation's suite of boutique fuels maintain or improve the air
    quality benefits the current programs provide to states.
   Analyze the potential for and possible impact of regional fuel programs including any
    need for new authority necessary' to establish or approve such programs.
   Any changes in the boutique fuel requirements must maintain current air quality
    benefits and effectuate a positive net result, balancing consideration of product
    fungibility, overall supply, distribution, and cost. Supportable modifications should
    look to enhance product fungibility, overall supply (volume of available product),
    ease of distribution (access to and delivery of compliant product), and cost
    (maintaining or reducing the cost to produce and supply the product to market).

       It should also be noted with reference to these items that Task Force participants
commented that the boutique fuel in their market areas not only provided valuable air
quality benefits, but generally had positive economic effects compared to products
outside the boutique area. Thus there are varying views on the impact, if any, that
reducing the number of boutique fuels may have on the nation's fuel situation. Any
action taken has to be done in a thoughtful manner.

    Additionally it should be reiterated that Task Force participants expressed concern
over the statements made by industry stakeholders and strongly oppose any review and
limitations on state renewable fuel requirements. State renewable fuel programs are not
required to be approved under Clean Air Act Section 21 l(c)(4)(c) and therefore do not
fall within EPA's definition of boutique fuels. Because of the varying stakeholder and
participant views on the potential impact these programs may have on the national fuel
supply and distribution system, EPA recommends that further evaluation be conducted as
part of the EPA/DOE broader analysis.

       The Task Force participants also recognize that market conditions have changed
since EPA released the Study of Unique Gasoline Fuel Blends "Boutique Fuels" in
October of 2001. A general recommendation from the Task Force participants, as
supported by stakeholder participant comments, is to update the 2001 study or to prepare
a new report, fully reflecting today's market situation and in consideration of planned and
expected future changes. The Task Force encouraged the Agency to complete these
evaluations as part of the studies required by EPAct.

       The Agency and the Department of Energy will be jointly preparing and
submitting to Congress a more comprehensive needs assessment.  This assessment will
be included in an August 2006 report to Congress. The report will include details
assessing future analytical work required to accurately determine how best to address the
requirements set forth in Section 1509 of EPAct 2005, whereby the Agency and DOE
must prepare and submit a report by June 1, 2008, referred to as the Fuel System
Requirements Harmonization Study. The importance of this work should not be
underestimated, so completion of this work before 2008 is highly desirable.  As part of
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this effort, EPA and DOE shall actively engage Task Force participants and other
interested stakeholders.

       Changes and modifications to existing federal program requirements, as well as
application of restrictions on allowable state fuel programs that have not been fully
implemented will change the fuel market dynamics in the United States. Many Task
Force participants and stakeholders urged that recently enacted changes, such as removal
of the reformulated gasoline oxygenate mandate, implementation of the national
renewable fuel standard, as well as future requirements, including new mobile source air
toxic standards should be implemented as provided for in the Energy Policy Act of 2005.
Many Task Force participants also advocated that a careful assessment be completed
concerning such changes and their projected impact on the US fuel market. In addition,
many Task Force participants argued for flexibility in fuel choices in different states and
areas of the country.

       A critical issue for the states is that any change in the boutique fuel slate or
applicable authorities must be done in a manner that air quality benefits resulting from
boutique fuel programs will, at a minimum, at least be maintained. Benefits from these
programs have served an important role in the states' efforts at meeting national air
quality standards, and these benefits are expected to be as important to future attainment
strategies. Further, while the task force received some general input from industry
stakeholders with some suggesting a potential connection between boutique fuels and
supply and price concerns, this input was not supported by any documentation in this
process. EPA's assessments focus  on the cost to produce fuels. These assessments
indicate that boutique fuels have a very  small impact on production costs. EPA does not
conduct market price analysis of boutique fuels. There are many factors and variables
that affect the price of fuel with the production cost being one of those.

       It is also noted that further opportunities to reduce the actual number of boutique
fuel programs may exist. Specifically, the EPA heard from a number of participants and
other stakeholders that one area for additional study is the ability of states to adopt
regional fuel  programs.  Currently, the Clean Air Act and EPAct limit options related to
the creation of regional fuels. States within the Ozone Transport Region have the ability,
under the Energy Policy Act of 2005, to adopt Reformulated Gasoline as a regional  fuel
and are deliberating this action now. We understand other states are also reviewing the
costs and benefits of such action.  Providing one fuel across a broader region could help
address fungibility issues, though there could be other concerns that would need to be
addressed.  Task Force participants encouraged the Agency to evaluate  in the
forthcoming studies how the application of regional strategies could address existing and
future air quality concerns, as well as provide an avenue to alleviate concerns over
product fungibility, supply, distribution and costs. Task Force participants expressed
opposition to limitations on their authority to adopt provisions that are vital to meeting
their air quality standards.
       Some industry stakeholders raised the question about how state requirements for
renewable fuel provisions should be addressed in the future.  After conducting analyses,
on the potential impacts and benefits, many states are actively engaged in promoting
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 greater use of renewable fuels through minimum volume requirements, tax incentives,
 and other mechanisms.  There was concern that some of these programs could have an
 impact on fuel fungibility in light of the development of the national renewable fuels
 program currently being developed. While this particular issue is outside the scope of
 this Task Force, we believe it is an important question and recommend the EPA/DOE
 Fuel System Requirements Harmonization Study as the most appropriate mechanism to
 take such action to evaluate such issues.  Additional stakeholder involvement,
 particularly from the states, on this issue will also be critical. In the course of the study,
 EPA and DOE will actively engage and seek input from interested state participants from
 the Task Force as well as other interested stakeholders.

 IX.   Summary of Comments and Additional Opinions

        Upon completion of the Task Force meetings, a draft Report to the President was
 prepared by EPA staff and presented to Task Force participants for review.  Responses
 included general observations, recommendations, and editorial suggestions to improve
 the Report, and suggestions regarding further actions, additional information needs, and
 further points for analysis.

        A complete set of materials submitted by state participants is available on the
 EPA Boutique Fuel Task Force website at http:/Avww.epa.(zov/otaq/boutique-task-
 force.htm.  The table below provides a brief summary of the comments. These comments
 were considered by EPA in preparation of the final version of this Report to the
 President.
	Summary of State Comments on Draft Boutique Fuels Task  Force Report
     State
                     Comments
 Arizona
Supports a far more deliberative and rigorous review process with
detailed evaluations, such as the EPAct reports call for.
Supports consideration of regional fuels.
Opposes limits on state authority to adopt fuel programs to meet air
quality needs.
Opposes interference in state renewable fuel requirements.
Report does not mention factors that impact gas prices more than
boutique fuels, such as erosion of vertical integration due to mergers
or delivery infrastructure problems.	
 Connecticut
As a strategy to achieve cleaner air, supports RFC as a regional fuel
for OTC states.
While the RFG oxygen mandate is gone, energy providers have
invested in the infrastructure to supply ethanol in the state.
Oxygenates would be required by state regulations if the carbon
monoxide standard was violated.
State fuel programs are critical to reducing air pollution
Regional strategies are important because local control measures
don't adequately address transport.
Clean fuel programs are not a major cause of increased prices, and
may be equate to less than a fraction of 1% of the cost of production.
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State
Georgia
Kansas
Louisiana
Maine
Michigan
Missouri
New
Hampshire
Comments - Continued
 Protect state authority to implement fuel programs to address air
quality needs.
 Convene a state/EPA workgroup to update the 2001 boutique fuels
report.
 Convene a state/EPA workgroup to develop fuel options, including
regional fuel options, which states could implement.
 Fuel options should maintain or improve air quality, increase
fungibility, and reduce costs.
 The boutique fuel used in Kansas City is a critical part of the effort to
maintain ozone compliance. Any action that eliminates this emission
reduction strategy would be harmful to the air quality and public
health of the Kansas City area.
 Any review of renewable fuels should be performed in a deliberate,
thoughtful manner, because these programs are an important
economic and environmental issue in a number of states.
 States should have flexibility with fuel choices to attain air quality
benefits.
 Regional fuels seem supportable, and may offer broader
environmental benefits with less disruption to fuel suppliers and the
distribution network.
 Supports clean renewable fuels.
 Believes EPAct studies will support the need for flexibility in the fuel
system and greater use of renewables.
 Supports long-term strategy to adopt regional Northeastern fuel.
 Concerned that measures to limit boutique fuels could jeopardize
Maine's ozone strategy, disrupt fuel supplies and cause price
instability.
 Does not agree their fuel is a boutique.
 No evidence low RVP gas has contributed to high gas prices in
southeast Michigan.
 States should retain authority to use boutique fuels as needed to meet
and maintain NAAQSs.
 Any decisions regarding changes to EPA boutique fuel requirements
should only be made following an updated comprehensive fuels
study.
 Renewable fuels are outside the scope of this report.
 Does not agree that renewable fuels are a growing concern, except to
certain members of the petroleum industry.
 Data and analysis, not just observations, should support assertions
that differ from the 2001 report.
 Supports statutory/regulatory changes necessary to establish regional
fuel programs.
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     State
                     Comments - Continued
New Jersey
    Expand list of state clean fuels available under EPAct to include
    California Cleaner Burning Gasoline and authorize all states to
    adopt fuel.
    Allow all areas - attainment and nonattainment to opt-in-to federal
    RFG
    Facilitate ability of states and localities to adopt cleaner regional
    fuels allowing attainment areas to participate.	
Oklahoma
   Supports state authority to choose fuel programs to support air
    quality needs.
   Supports in-depth analysis of boutique fuels with more current
    data.
Oregon
    Opposes restricting state authority to adopt biofuel standards.
    Opposes attempts to limit state fuel options.
    More national and regional options for clean fuels are acceptable
    for consideration., however this should not limit state authority to
    consider other fuels
Pennsylvania
   Report should result only in actions that maintain or improve air
    quality.
   Do not interfere with state development of renewable fuel
    standards.
   Do not restrict state authority to implement fuel programs.	
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X.    Appendices


Appendix 1


Relevant Fuel Actions Taken Since 2001

       Since the publication of the 2001 EPA Boutique Fuels Report, several significant
changes have occurred in the US gasoline market. These changes have and will continue
to change the landscape of the  fuel production and distribution system  in the US. These
actions, along with actions to ease the seasonal switch from winter to summer gasoline
and to lessen stresses on the gasoline supply system, will impact the positions, options
and recommendations set forth by the Task Force in this report.  A summary of these
actions are listed below.

       Seasonal Transition Actions

       The Agency's 2001 study specifically outlined actions that EPA would take in the
near-term to provide for a more orderly transition from winter-to-summer grade RFC
every spring.  In summary, EPA:
       Allowed fuel producers more flexibility in meeting fuel specifications than they
       previously had for their initial transition to summer fuel.
       Allowed certain gasoline  types to be reclassified as RFC, thus making it easier to
       address localized issues that arise when there is an unexpected disruption in the
       distribution system
       Simplified certain RFG accounting and reporting requirements.

       Tank Turnovers

       On December 28, 2001, the Agency published provisions to allow parties to
change the service of a tank where residual amounts (gasoline heel) of gasoline remain  in
the tank, subject to certain conditions and constraints. The Agency also published
provisions to provide an additional option for oxygenate blenders who change the service
of a tank before or after the VOC season, where the oxygenate blender is unable to meet
the conditions and constraints of the new tank turnover provisions without taking the tank
out of service.  Loosening the constraints on tank turnovers has provided parties with
greater flexibility to change from one type of gasoline to another in response to available
gasoline supplies.

       Procedures for Blending Butane into RFG and Conventional Gasoline

       On December 15, 2005, EPA published a rule to allow  butane blenders to blend
butane into conventional or RFG under an alternative sampling and testing option subject
to certain specified conditions. This alternative approach provides an easier way for
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parties to blend butane into gasoline, which has the potential for increasing gasoline
supplies.

       Procedures for Using Imported Gasoline as a Blendstock

       On December 15,2005, EPA published a rule to allow importers to conduct
remedial blending of off-spec imported gasoline by treating the imported gasoline as a
blendstock, subject to certain requirements and limitations. These provisions will
provide importers with additional flexibility to respond to market demands upon
finalization later this year.

       Provisions for Transmix Processors and Blenders

       In a rule published in June 2006, the Agency provides a more flexible approach
for transmix processors and blenders to comply with requirements under the RFG rule as
well as the Tier 2 gasoline sulfur standards. This will enable parties to more readily use
transmix to produce gasoline which has the potential to increase gasoline supplies.

       Alternative Quality Assurance Procedures for Refiners of RBOB

       Reformulated gasoline blendstock for oxygenate blending, or RBOB, is a product
that becomes RFG upon the addition of an oxygenate which is added downstream from
the refiner of the RBOB. Under the current regulations, RBOB refiners are required to
conduct quality assurance sampling and testing at the downstream oxygenate facility to
ensure that the proper amount of oxygenate is added by the oxygenate blender. This
requirement is difficult, if not impossible, for many refiners to fulfill, especially where
the gasoline is shipped through a pipeline and the oxygenate blender who ultimately
blends the oxygenate into the RBOB is unknown to the refiner. To address this situation,
EPA published a rule in June 2006 which provides RBOB refiners with an alternative
method of fulfilling the quality assurance requirement. Providing this alternative means
of complying with quality assurance requirement enables more refiners to produce RBOB
for ethanol blending, which should have a positive effect on refiners' ability to respond to
market needs.

       Requirements for Importing Conventional Gasoline by Truck

       On December 15,2005, the Agency published a rule which provides an
alternative sampling and testing approach which allows truck importers to demonstrate
compliance with the conventional gasoline standards based on test results from the truck
loading terminal instead of the truck or truck compartments, subject to certain
requirements and limitations. This flexibility makes importation of conventional gasoline
into the United States by truck easier and  less costly, resulting in increased access to
imported conventional gasoline.
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Appendix 2

Summary of Fuel Options from 2001 EPA Study of Unique Gasoline Fuel Blends
(Boutique Fuels)

       3-Fuel Option
       The first option identified consisted of a menu for States and localities to choose
from of 9.0 psi RVP conventional gasoline, 7.8 psi RVP conventional gasoline, and either
RFC or Federal CBG. Because this would be a 49 State program, California CBG would
remain an option for California.9  It did not preclude fuel programs that are put in place
for reasons other than air quality, and as a result programs like the oxygenated
fuel/ethanol requirement in Minnesota and other states would remain options as well.
Under this option, in order to ensure no emission backsliding, it was assumed that States
and localities would choose a fuel type from the menu with the same or better emission
performance compared to the fuel they receive today. Consequently, the 7.2 and 7.0 RVP
areas would be consolidated into RFC or CBG as applicable. It is important to note,
however, that while this option was referred to as the 3-fuel option due to its 3 basic fuel
requirements for the 49 states, due to variations in oxygenate requirements and use there
were at that time still as many as 8 different fuel program requirements and  12 different
fuel grades distributed nationwide under this option. Not all regions would see all of the
fuels, and it still represented a large reduction in the number of fuel grades nationwide
compared to the 2006 reference case.

       2-Fuel Option
       The second option identified would reduce the menu for States and localities to
just conventional gasoline and either RFG or CBG. As  with the 3-fuel option, this would
be a 49 State program and California CBG would remain an option for California and
programs like state oxygenated fuel/ethanol requirement would remain options for States
as well. Consistent with the environmental goals, all current RVP control areas were
assumed to be consolidated into RFG or CBG as applicable. Setting aside a possible
benzene standard for conventional gasoline, less than 13 percent of the gasoline pool
would be impacted by these changes. While this option was referred to as the 2-fuel
option, due to differences in oxygenate requirements and use nationwide at that time,
there would still be as many as 6 different fuel program requirements with 9 different fuel
grades distributed nationwide.

       Federal Cleaner Burning Gasoline
       The third option required Federal cleaner burning gasoline (CBG) across 49
States. AH conventional gasoline as well as State RVP control programs would be
replaced with Federal CBG. California CBG would remain in place in California. This
option would impact in excess of 70 percent of the gasoline pool.  This option was not
  California has its own waiver of preemption for fuel controls under the CAA, and further has its own refining system
  which is mostly separate from the rest of the U.S.
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evaluated with RFG retaining the oxygen requirement. Such a large increase in the
amount of oxygenate required across the country would have been difficult to analyze.

       California Cleaner Burning Gasoline
       The fourth option required California CBG Nationwide. As there is no oxygen
requirement as part of the California CBG program, this option assumed that a renewable
fuel requirement was put in place as part of a national program. This option would
impact approximately 89 percent of the gasoline pool.
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