Final Rulemaking on Transitional
and General Opt-Out Procedures for
Phase II Reformulated Gasoline
The Environmental Protection Agency (EPA) is issuing a final rule
today to provide revised time periods for states with voluntary
reformulated gasoline (REG) programs to withdraw or opt-out areas
from the program. The purpose of today's rule is to help ensure a
smooth transition from Phase I (ending 1999) to Phase II REG
(beginning in the year 2000).
Under the rule, states that do not choose to opt-out by December 31, 1997 will be
required to participate in Phase II RFG until December 31, 2003.
Today's action achieves a balance between the interests of the states and industry. It
maintains the states' flexibility of choosing other control measures to reduce ozone
levels while providing refiners with a degree of market certainty (i.e., a stable RFG
market to make necessary investment decisions) and the opportunity to recover a
substantial portion of their capital investment.
This final rule applies to ozone nonattainment areas (i.e., areas with ozone or "smog"
problems) where the state voluntarily opted into the program and subsequently
decides to withdraw from the RFG program to use other air quality control measures,
if needed. Today's action does not affect the policies for opting into the RFG program.
Background
The RFG program is designed to reduce ozone levels in U.S. metropolitan areas with
the worst ground-level ozone or "smog" problems by reducing vehicle emissions of
compounds that form ozone, specifically volatile organic compounds (VOC).
The 1990 amendments of the Clean Air Act require RFG in the ten areas of the
country with the highest levels of ozone (i.e., Los Angeles, San Diego, Sacramento,
Hartford, New York, Philadelphia, Baltimore, Chicago, Milwaukee, and Houston
&EPA
United States
Environmental Protection
Agency
Office of Transportation and Air Quality
EPA-420-F-97-100
October 1997
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areas). Congress also provided states the opportunity to voluntarily include (i.e., opt-in) other
ozone nonattainment areas in the federal RFG program.
EPA issued final rules establishing requirements for RFG on December 15, 1993. On July 8,
1996, EPA published a final rulemaking on the procedures and criteria for states to opt areas out
of the RFG program. [61 FR 35673], The EPA published the proposal to today's rule on March
28, 1997.
Phase I RFG requirements were implemented in January 1995 and will continue until December
31, 1999. All areas that choose or are required to use RFG after year 2000 must implement the
more stringent Phase II standards.
Those refiners choosing to supply Phase II RFG need to make substantial industry investments
in equipment (e.g., to remove sulfur) to meet the more stringent standards for NOx, VOC, and
toxic reductions beginning in the year 2000. Industry will be more inclined to make investments
to produce the cleaner burning gasoline with a commitment from the states to use RFG for
several years.
During the public comment period for the previous opt-out procedures, the U.S. Department of
Energy (DOE) estimated that Phase II capital investments would be approximately $1 billion for
East Coast refiners and $2 billion for Gulf Coast refiners. West Coast refiners are already produc-
ing California Phase II RFG which, in general, will meet Federal RFG specifications.
What is the Previous Opt-Out Process?
Previous rules require the Governor to submit a request (i.e., a petition) to opt out of the RFG
program. The petition must include specific information, on how, if at all, RFG has been relied
upon by the state in its pending or approved air quality plans to reduce ozone levels and what
they will use to replace RFG.
EPA will review the opt-out petition to ensure it contains all the required elements or informa-
tion, and will notify the state in writing and through notification in the Federal Register that
the request has been approved and the date the opt-out becomes effective.
The effective date of the opt-out is dependent on how the RFG program is used by a state in its
air quality plan(s) for attaining the national ambient air quality standards (NAAQS). The opt-
out will be effective either 90 days after the Agency approves a revision to the state plan remov-
ing reformulated gasoline as a control or 90 days from the date EPA provides written notification
to the state that the petition has been approved, whichever is applicable.
How Does Today's Rulemaking Differ From the Previous Process?
Today's rule does not change the previous process a state must follow to petition for removal
from the program or the criteria used by EPA to evaluate a request. This rule only changes the
time period before the opt-out becomes effective (i.e., from 90 days to several years in some
cases).
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Opt-out petitions received prior to December 31, 1997 will become effective 90 days after ap-
proval (i.e., previous procedures apply). A state will have the option of requesting an effective
opt-out date greater than 90 days from approval, but the date must be before 2000. Thus, a state
may choose to remain in Phase I until it ends on December 31, 1999.
Opt-out petitions received after 1997 will not become effective until 2004. This change to the
previous regulation is to provide refiners the certainty of a stable demand for Phase II RFG for
at least four years. This will help industry to make decisions on capital investments needed to
comply with Phase II RFG requirements.
There is one exception to the states' deadline to submit an opt-out petition. The Agency may
grant an extension up to May 31, 1998 if a state has pending legislation to either opt-out of or
remain in the RFG program and if the Governor submits a request prior to December 31, 1997
demonstrating that such legislation cannot be acted upon until after the deadline.
After 2003, today's rulemaking reverts back to the previous 90-day opt-out procedures.
Why is a Commitment to Phase II RFG Necessary?
A state's commitment to the Phase II program is necessary to ensure a cost-effective and flexible
program by minimizing negative impacts on key players, including consumers, states, and fuel
suppliers (e.g, minimize impacts on gasoline prices) .
Refiners need to begin investing in Phase II RFG by late 1997. By a state committing to Phase
II RFG for several years, the industry will be more inclined to make investments to produce the
cleaner burning gasoline. If EPA were to allow opt-outs to occur after refiners invest in Phase
II, refiners would respond by limiting capital investments because of market uncertainty which
could thereby cause higher gasoline prices (due to a constricted supply), and reduce the cost-
effectiveness of Phase II NOx standards.
Why a Four (4) Year Commitment to Phase II?
The rule provides a balance between the interest of states and industry:
States desire maximum flexibility to choose air quality control measures. The previously
published procedures have a 90-day transition period to withdraw from RFG.
Industry desires market certainty and the maximum opportunity to recover investment costs.
The Agency believes that refiners on average require 6 years to recover their investment
costs. DOE has commented that an 8-year period is adequate to fully recover costs.
Thus, four years will provide market certainty and allow most refiners to recover a substan-
tial portion of investments while providing states as much flexibility that is reasonable and
practicable.
Consumers benefit from this final rule since a stable market helps reduce possible price fluctua-
tions and it ensures adequate supply of the cleaner burning gasoline.
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What are the Health and Environmental Consequences?
This rule assures that the program maintains the existing health and environmental benefits
because:
Although areas that choose to opt out of the RFG program will not receive the reductions
in volatile organic compounds (VOC.), oxides of nitrogen (NOx), and air toxics that are
expected from the program, these areas will not be relieved from their responsibility of meet'
ing the federal air quality standards.
States will continue to be encouraged to assess the air quality ramifications of withdrawing
from the program. EPA recognizes that states have the primary responsibility to meet the
N AAQS and should have the flexibility in determining the mix of control measures needed
to attain their goals.
For States that choose to remain in the program into Phase II, a reduction (from the refiners'
1990 baseline levels) of NOx (5%-7%), VOCs (25%-29%), and toxics (20%-22%) will be
realized with the more stringent standards.
How Will the Regulation Affect Industry?
This rule will benefit industry by providing a more stable market for Phase II RFG. This will
help them to plan their investments for the production of Phase II beginning in the year 2000.
Also, the rule provides refiners the opportunity to recover a substantial portion of their invest-
ments.
How Does the Final Rule Assist States?
EPA is committed to ensuring that areas around the country attain the NAAQS, including the
ozone standard. EPA recognizes, however, that under the Act the states play a primary role in
attaining the NAAQS, including choosing those control measures they prefer to include in
their plans to attain and maintain the NAAQS.
Today's action maintains flexibility (as much as practicable) that states have in air quality plan-
ning by honoring their right to opt out (except in the ten mandatory RFG areas) and substitute
alternative control measures where the state considers appropriate. EPA believes that the state's
should retain flexibility to revise air quality plans (i.e., State Implementation Plans) by select-
ing control measures as long as the states make the necessary demonstrations required under the
Act.
For Further Information:
For further information, feel free to contact one of the following people: Christine Hawk
(202-233-9672) or Diane Turchetta (202-233-9036).
A copy of this rule is available on the Internet at:
http://www.epa.gov/omswww/.
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