You are on page 1of 47

10584 Federal Register / Vol. 84, No.

55 / Thursday, March 21, 2019 / Proposed Rules

ENVIRONMENTAL PROTECTION renewable identification number (RIN) a.m.–4:30 p.m., Monday–Friday (except
AGENCY market and prevent market Federal Holidays).
manipulation. Instructions: All submissions received
40 CFR Part 80 DATES: Comments must be received on must include the Docket ID No. for this
[EPA–HQ–OAR–2018–0775; FRL–9991–04– or before April 29, 2019. Under the rulemaking. Comments received may be
OAR] Paperwork Reduction Act (PRA), posted without change to https://
comments on the information collection www.regulations.gov, including any
RIN 2060–AU34 personal information provided. For
provisions are best assured of
Modifications to Fuel Regulations To consideration if the Office of detailed instructions on sending
Provide Flexibility for E15; Management and Budget (OMB) comments and additional information
Modifications to RFS RIN Market receives a copy of your comments on or on the rulemaking process, see the
Regulations before April 22, 2019. ‘‘Public Participation’’ heading of the
Public Hearing. EPA will announce SUPPLEMENTARY INFORMATION section of
AGENCY: Environmental Protection the public hearing date and location for this document.
Agency (EPA). this proposal in a supplemental Federal FOR FURTHER INFORMATION CONTACT: Julia
ACTION: Proposed rule. Register document. MacAllister, Office of Transportation
ADDRESSES: You may send your and Air Quality, Assessment and
SUMMARY: The Environmental Protection comments, identified by Docket ID No. Standards Division, Environmental
Agency (EPA) is proposing regulatory EPA–HQ–OAR–2018–0775, by any of Protection Agency, 2000 Traverwood
changes to allow gasoline blended with the following methods: Drive, Ann Arbor, MI 48105; telephone
up to 15 percent ethanol to take • Federal eRulemaking Portal: http:// number: 734–214–4131; email address:
advantage of the 1-pound per square www.regulations.gov (our preferred macallister.julia@epa.gov.
inch (psi) Reid Vapor Pressure (RVP) method) Follow the online instructions
waiver that currently applies to E10 for submitting comments. SUPPLEMENTARY INFORMATION:
during the summer months. EPA is also • Mail: U.S. Environmental Potentially Affected Entities. Entities
proposing an interpretive rulemaking Protection Agency, EPA Docket Center, potentially affected by this proposed
which defines gasoline blended with up Office of Air and Radiation Docket, Mail rule include those involved with the
to 15 percent ethanol as ‘‘substantially Code 28221T, 1200 Pennsylvania production, importation, distribution,
similar’’ to the fuel used to certify Tier Avenue NW, Washington, DC 20460. marketing, and retailing of
3 motor vehicles. Finally, EPA is • Hand Delivery/Courier: EPA Docket transportation fuels, including gasoline
proposing regulatory changes to modify Center, WJC West Building, Room 3334, and diesel fuel or renewable fuels such
certain elements of the Renewable Fuel 1301 Constitution Avenue NW, as ethanol, biodiesel, renewable diesel,
Standard (RFS) compliance system, in Washington, DC 20004. The Docket and biogas. Potentially affected
order to improve functioning of the Center’s hours of operations are 8:30 categories include:

Category NAICS 1 codes SIC 2 codes Examples of potentially affected entities

Industry ........................... 324110 2911 Petroleum refineries.


Industry ........................... 325193 2869 Ethyl alcohol manufacturing.
Industry ........................... 325199 2869 Other basic organic chemical manufacturing.
Industry ........................... 424690 5169 Chemical and allied products merchant whole-
salers.
Industry ........................... 424710 5171 Petroleum bulk stations and terminals.
Industry ........................... 424720 5172 Petroleum and petroleum products merchant
wholesalers.
Industry ........................... 454319 5989 Gasoline service stations.
Industry ........................... 447190 5541 Marine service stations.
1 North American Industry Classification System (NAICS).
2 Standard Industrial Classification (SIC).

This table is not intended to be Public Participation. Submit your should include discussion of all points
exhaustive, but rather provides a guide comments, identified by Docket ID No. you wish to make. EPA will generally
for readers regarding entities likely to be EPA–HQ–OAR–2018–0775, at https:// not consider comments or comment
affected by this proposed action. This www.regulations.gov (our preferred contents located outside of the primary
table lists the types of entities that EPA method), or the other methods submission (i.e., on the web, cloud, or
is now aware could potentially be identified in the ADDRESSES section. other file sharing system). For
affected by this proposed action. Other Once submitted, comments cannot be additional submission methods, the full
types of entities not listed in the table edited or removed from the docket. EPA EPA public comment policy,
could also be affected. To determine may publish any comment received to information about CBI or multimedia
whether your entity would be affected its public docket. Do not submit submissions, and general guidance on
amozie on DSK9F9SC42PROD with PROPOSALS2

by this proposed action, you should electronically any information you making effective comments, please visit
carefully examine the applicability consider to be Confidential Business https://www.epa.gov/dockets/
criteria in 40 CFR part 80. If you have Information (CBI) or other information commenting-epa-dockets.
any questions regarding the whose disclosure is restricted by statute.
applicability of this proposed action to Multimedia submissions (audio, video, Outline of This Preamble
a particular entity, consult the person etc.) must be accompanied by a written I. Executive Summary
listed in the FOR FURTHER INFORMATION comment. The written comment is A. Purpose of This Action
CONTACT section. considered the official comment and

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules 10585

B. Summary of the Major Provisions of Minority Populations and Low-Income exceeding 9.0 psi during the summer.4
This Action Populations Currently, only blends of ethanol and
1. E15 RVP V. Statutory Authority gasoline containing at least 9 percent
2. RIN Market Reform
II. Extension of the 1-psi Waiver to E15 I. Executive Summary and no more than 10 percent ethanol by
A. Background volume (E10) are granted the 1-psi
1. Background of E10 and E15 CAA Sec. A. Purpose of This Action waiver.5
211(f)(4) Waivers
The objectives of this action are EPA is proposing several steps to
2. Background on CAA Sec. 211(h)
B. Proposed Interpretation of CAA Sec. twofold. First, this rulemaking will take accomplish this change. First, we are
211(h)(4) steps intended to create parity in the proposing to modify our interpretation
1. Proposed Interpretation way the RVP of both E10 and E15 fuels of CAA sec. 211(h)(4). Second, we are
2. Regulatory Amendments is treated under EPA regulations. proposing a regulation that would effect
3. Effects on Regulated Parties Second, this action proposes reforms to two changes: (1) Remove limitations in
C. Proposed Interpretation of
RIN regulations intended to increase our regulations that were put in place in
‘‘Substantially Similar’’ for Gasoline
1. Statutory Framework transparency and deter potential keeping with the prior interpretation of
2. Certification Fuels manipulative and other anti-competitive CAA sec. 211(h)(4) on the volatility of
3. History of Sub Sim Interpretations behaviors in the RIN market. E15 promulgated in the E15 Misfueling
4. Criteria for Determining Whether a Fuel Mitigation Rule (‘‘MMR’’); 6 and (2)
Is ‘‘Substantially Similar’’ B. Summary of the Major Provisions of
This Action modify the associated product transfer
5. Technical Rationale and Discussion
6. Other Aspects of the Proposed
document (PTD) requirements also
Interpretative Rulemaking 1. E15 RVP promulgated in the MMR. Third, we are
D. E15 Misfueling Mitigation proposing to clarify our interpretation of
E. E15 Emission Impacts
We are proposing to adjust the CAA sec. 211(f), making it clear that the
F. E15 Economic Impacts volatility requirements for E15 during conditions on the CAA sec. 211(f)(4)
1. Benefits for E15 RVP the summer season or the period of May
waivers granted to E15 in 2010 and 2011
2. Costs for E15 RVP 1 through September 15.1 2 The changed
III. RIN Market Reforms
do not restrict the application of the 1-
volatility requirements for these blends
A. Overview of RFS Compliance psi waiver to downstream oxygenate
will allow E15 to receive the benefit of
B. RIN Market Assessment the provision at CAA sec. 211(h)(4), blenders in most circumstances.
C. President’s Directive As a result of this action, parties
D. Objectives
commonly referred to as ‘‘the 1-psi
E. Proposed Approach to Individual waiver.’’ The 1-psi waiver allows would be able to make and distribute
Regulatory Reforms gasoline-ethanol blends to have a higher E15 made with the same conventional
1. Reform One: Public Disclosure if RIN RVP 3 than would be allowed under blendstock for oxygenate blending
Holdings Exceed Certain Threshold CAA sec. 211(h)(1) and the (CBOB) 7 that is used to make E10 by
2. Reform Two: Increase RFS Compliance corresponding volatility regulations, oxygenate blenders during the summer.8
Frequency which prohibit the RVP of gasoline from E15 would then be held to the same
3. Reform Three: Limiting Who Can
gasoline volatility standards that
Purchase Separated RINs
4. Reform Four: Limiting Duration of RIN
1 For purposes of this preamble, E15 refers to currently apply to E10, maintaining
gasoline-ethanol blended fuels that contain greater substantially the same level of
Holdings by Non-Obligated Parties than 10 volume percent and no more than 15
5. Enhancing EPA’s Market Monitoring volume percent ethanol content.
emissions performance as E10 since E15
Capabilities 2 CAA sec. 211(h)(1) requires EPA to establish made from the same CBOB during the
F. RIN Market Reform Economic Impacts volatility requirements during the high ozone summer would have slightly lower RVP
1. Benefits of RIN Market Reform season. To implement these requirements, EPA than E10 and would be expected to have
2. Costs of RIN Market Reform defines ‘‘high ozone season’’ at 40 CFR 80.27 as the
G. Conclusion period from June 1 to September 15. The
similar emissions performance as
IV. Statutory and Executive Order Reviews regulations at 40 CFR 80.27 also specify that all discussed in Sections II.C and II.E.
A. Executive Order 12866: Regulatory parties except for retailers must make and distribute
gasoline meeting the RVP standards at § 80.27 from
As discussed in Section II.C, we are
Planning and Review and Executive also proposing a ‘‘substantially similar’’
May 1 through September 15 and calls this period
Order 13563: Improving Regulation and the ‘‘regulatory control period.’’ The E15 partial (sub sim) interpretative rulemaking for
Regulatory Review waivers impose the 9.0 psi RVP limit on E15 from
B. Executive Order 13771: Reducing May 1 through September 15. In general practice by 4 In a few areas, specified at 40 CFR 80.27, the
Regulations and Controlling Regulatory industry and for purposes of this preamble, the high
Costs ozone season and regulatory control period is RVP standard is 7.8 psi. In these areas, after
referred to as the ‘‘summer’’ or ‘‘summer season’’ application of the 1-psi waiver, gasoline-ethanol
C. Paperwork Reduction Act (PRA)
and gasoline produced to be used during the blended fuels covered by the 1-psi waiver could
D. Regulatory Flexibility Act (RFA) have an RVP of up to 8.8 psi.
E. Unfunded Mandates Reform Act regulatory control period and high ozone season is
5 This applies only to conventional gasoline. E10
(UMRA) called ‘‘summer gasoline.’’ EPA does not have any
volatility requirements on gasoline outside of the reformulated gasoline does not receive the 1-psi
F. Executive Order 13132: Federalism summer season. waiver under CAA sec. 211(h)(4), and neither
G. Executive Order 13175: Consultation 3 RVP is a measure of the volatility of gasoline. would E15 reformulated gasoline as a result of this
and Coordination With Indian Tribal Gasoline must have volatility in the proper range proposed action. Reformulated blendstock for
Governments to prevent driveability, performance, and emissions oxygenate blending would continue to need to meet
H. Executive Order 13045: Protection of problems. Too low and the gasoline will not ignite a lower RVP level to allow for the subsequent
Children From Environmental Health properly; too high and the vehicle may experience addition of ethanol.
amozie on DSK9F9SC42PROD with PROPOSALS2

6 See 76 FR 44406 (July 25, 2011).


Risks and Safety Risks vapor lock. Importantly for this proposal,
7 CBOB is the base gasoline made specifically for
I. Executive Order 13211: Actions excessively high volatility also leads to increased
evaporative emissions from the vehicle. Vehicle blending with 10 percent ethanol in conventional
Concerning Regulations That
evaporative emission control systems are designed gasoline areas of the country.
Significantly Affect Energy Supply,
and certified on gasoline with a volatility of 9.0 psi 8 EPA does not have volatility limitations on
Distribution, or Use RVP. Higher volatility gasoline may overwhelm the gasoline outside of the summer season. Therefore,
J. National Technology Transfer and vehicle’s evaporative control system, leading to a E15 can already be made from the same blendstock
Advancement Act (NTTAA) condition described as ‘‘breakthrough’’ of the used for E10 outside of the summer season. The rest
K. Executive Order 12898: Federal Actions cannister and mostly uncontrolled evaporative of the year is commonly referred to as the ‘‘winter
To Address Environmental Justice in emissions. season’’ or ‘‘winter.’’

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00003 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
10586 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules

gasoline.9 We are proposing two The first threshold would be triggered if proposing that a non-obligated party
alternative sub sim interpretations. We a party’s end-of-day separated D6 RIN would be required to sell or retire as
are proposing that E15 with an RVP of holdings exceeded three percent of the many RINs as it obtained in a quarter.
10.0 psi is sub sim to fuel used to certify total implied conventional biofuel We are proposing that parties would
Tier 3 light duty vehicles (i.e., E10 with volume requirement. An obligated party make a yes/no certification statement to
an RVP of 9.0 psi). We are also that triggered the first threshold would EPA about its compliance with this
proposing and seeking comment on an then apply a second threshold by limit in a quarterly report and that
alternative interpretation that E15 with comparing its end-of-day separated D6 auditors would confirm this statement
an RVP of 9.0 psi is sub sim to fuel used RIN holdings with 130 percent of its in the annual attest engagement.
to certify Tier 3 light duty vehicles. individual implied conventional Lastly, we outline our consideration
Either of these sub sim interpretations renewable volume obligation (RVO). We of taking additional steps beyond those
would enable E15 to be lawfully are proposing that parties make daily listed in the President’s directive to
blended from the same gasoline calculations and make a yes/no enhance our market monitoring
blendstock (i.e., CBOB) that is used to certification statement to EPA in a capabilities. We propose that auditors
make E10 during the summer by all fuel quarterly report and that we would would include in their attest
manufacturers (in addition to oxygenate publish on our website the names of any engagements to EPA a full list of a
blenders who would be able to do so parties that reported exceeding the party’s affiliates, including affiliates not
without a new sub sim interpretative thresholds. We seek comment on registered with the RFS program. To
rulemaking). whether exceeding the thresholds improve our abilities to analyze and
should be considered a prohibited act. publish RIN price data, we propose that
2. RIN Market Reform parties would follow certain
We are also proposing that the RIN
EPA takes claims of RIN market holdings of corporate affiliates be conventions when reporting RIN prices
manipulation seriously and although we included in a party’s calculations to to EPA and that they would report
have yet to see data-based evidence of determine if they trigger a threshold. whether the RIN transaction was on the
such behavior, the potential for For the second reform, we are spot market or as the result of a term
manipulation is a concern. Accordingly, proposing to establish RIN retirement contract. We also explain that we plan
we are proposing the four reforms requirements for the first three quarters to update business rules in EMTS to
outlined in President Trump’s October of the compliance year, calculated by an require that both parties in a RIN
11, 2018 statement 10 and are requesting obligated party as its gasoline and diesel transaction enter the same RIN price.
comments on additional steps we can production and import volume through Finally, we discuss the possibility of
take to identify and prevent RIN market the end of the quarter multiplied by the employing a third-party market monitor
manipulation. Specifically, we are current year renewable fuel standard. to conduct analysis of the RIN market,
proposing and seeking comment on the We propose to discount the requirement including screening for potential anti-
following RIN market reforms outlined to 80 percent of the calculated volume competitive behavior.
by the President, as well as some to provide necessary flexibility.
additional items identified by EPA: II. Extension of the 1-psi Waiver to E15
Obligated parties would submit reports
• Requiring public disclosure when to EPA 60 days after the end of the In this action, we are proposing to
RIN holdings held by an individual quarter to demonstrate compliance with adjust the volatility requirements for
actor exceed specified limits. these requirements and could use any E15 during the summer season based on
• Requiring the retirement of RINs for D-code RINs to do so. This reform a revised interpretation of CAA sec.
the purpose of compliance be made in would not impact the current annual 211(h)(4). The changed volatility
real time. RVO calculations or compliance, requirements for these blends will allow
• Prohibiting entities other than including the two-year RIN life, the E15 to receive the benefit of the 1-psi
obligated parties from purchasing annual deficit carryover, or the 20 waiver. The 1-psi waiver, at CAA sec.
separated RINs. percent carryover provisions. We 211(h)(4), allows gasoline-ethanol
• Limiting the length of time a non- propose that an obligated party that fell blends to have a higher RVP than would
obligated party can hold RINs. short of its quarterly RIN retirement be allowed under CAA sec. 211(h)(1)
For the first reform, we are proposing and the corresponding volatility
requirement in the current year would
to set two RIN holding thresholds that regulations that prohibit the RVP of
not be able to incur a deficit in its next
would work in tandem to prevent gasoline from exceeding 9.0 psi during
year annual RVO.
potential accumulation of market For the third reform, we are proposing the summer. Currently, EPA regulations
power. These thresholds would apply to that only obligated parties, exporters, only grant the 1-psi waiver to blends of
holdings of separated D6 RINs only.11 and certain non-obligated parties be ethanol and gasoline containing at least
9 EPA last issued an interpretative rulemaking for
allowed to purchase separated D6 RINs. 9 percent and no more than 10 percent
what it considers sub sim for gasoline in 2008. See
Non-obligated parties would be exempt ethanol by volume. The proposed
73 FR 22281 (April 25, 2008). from this proposed restriction if they interpretation in this action is in
10 See: https://www.whitehouse.gov/briefings- were a corporate or contractual affiliate response to the increased presence of
statements/president-donald-j-trump-expanding- to an obligated party. This would E15 in the gasoline marketplace, and the
waivers-e15-increasing-transparency-rin-market.
11 RINs specify a ‘‘D-code’’ corresponding to the
include blenders who could conditions that led us to provide the
renewable fuel category applicable to the fuel, as demonstrate that they had contracts to original 1-psi waiver for E10 in 1990 are
determined by the feedstock used, fuel type deliver separated RINs to an obligated equally applicable to E15 today.
amozie on DSK9F9SC42PROD with PROPOSALS2

produced and GHG emissions of the fuel, among party for the purpose of compliance. The volatility of E15 is also limited by
other characteristics. There are five different D- CAA sec. 211(f). CAA sec. 211(f)
Codes for RINs in the RFS program. D3 RINs are
Non-obligated parties that need to
cellulosic biofuel RINs. D4 RINs are biomass-based replace invalid RINs would also be prohibits the introduction into
diesel (including both biodiesel and renewable exempt from this proposed provision. commerce of fuels and fuel additives
diesel) RINs. D5 RINs are advanced biofuel RINs. For the fourth reform, we are unless they are substantially similar to
D6 RINs are conventional biofuel RINs (primarily
corn ethanol). D7 RINs are cellulosic diesel RINs
proposing a limit on the duration that a fuels utilized in the certification of
which meet the requirements for both cellulosic non-obligated party could hold motor vehicles, or receive a waiver from
biofuel and biomass-based diesel. separated D6 RINs. Specifically, we are the sub sim requirement in accordance

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00004 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules 10587

with CAA sec. 211(f)(4). E15 currently similar (commonly referred to as ‘‘sub vehicles, heavy-duty gasoline engines
has a sub sim waiver, and the waiver sim’’) to any fuel or fuel additive used and vehicles, highway and off-highway
conditions put in place for E15 set the in the certification of any MY1975, or motorcycles, and nonroad engines,
maximum RVP level at 9.0 psi. In order subsequent model year, vehicle or vehicles, and equipment. This denial
to allow E15 to receive the 1-psi waiver engine under CAA sec. 206. Fuels that was based on EPA’s engineering
under CAA sec. 211(h)(4) and introduce are not sub sim to a fuel used in judgement that E15 could adversely
E15 at the higher RVP level into certification cannot be introduced into affect the emissions and emissions
commerce, we must address the commerce unless EPA has granted a controls of vehicles, engines, and
statutory provisions under both CAA waiver under CAA sec. 211(f)(4). CAA equipment not covered by the partial
sec. 211(f) and (h). sec. 211(f)(4) provides that upon waivers and that the applicants had not
EPA is proposing several steps to application of any fuel or fuel additive provided sufficient data or other
accomplish this change. First, we are manufacturer, the Administrator may information to demonstrate that E15
proposing to modify our interpretation waive the prohibitions of CAA sec. would not cause or contribute to a
of CAA sec. 211(h)(4). Under this new 211(f)(1) if the Administrator failure to achieve compliance with the
interpretation, ethanol blends determines that the applicant has emissions standards to which these
containing at least 10 percent ethanol established that such fuel or fuel vehicles, engines, and equipment were
would receive the 1-psi waiver, additive, or a specified concentration certified over their full useful lives, as
including E15. To effectuate this thereof, will not cause or contribute to required by CAA sec. 211(f)(4).
change, we are proposing the following a failure of any emission control device In the October 2010 waiver, for
changes to EPA’s fuels regulations: (1) or system (over the useful life of the MY2007 and newer motor vehicles, EPA
Remove limitations in our regulations motor vehicle, motor vehicle engine, also concluded that the data and
that were put in place in keeping with nonroad engine or nonroad vehicle in information show that E15 will not lead
the prior interpretation of CAA sec. which such device or system is used) to to violations of evaporative emissions
211(h)(4) on the volatility of E15 achieve compliance by the vehicle or standards, so long as the fuel does not
promulgated in 40 CFR 80.27 and the engine with the emission standards to exceed an RVP of 9.0 psi in the
MMR (i.e., 40 CFR part 80, subpart N); which it has been certified pursuant to summer.17 Subsequently, in the January
and (2) modify the associated PTD CAA sec. 206 and 213(a). 2011 waiver, EPA imposed identical
requirements promulgated in the MMR. In 1978, a waiver application was waiver conditions for MY2001–2006
After application of the CAA sec. submitted for gasoline containing motor vehicles, including the
211(h)(4) waiver, we must then ensure ethanol at 10 percent by volume (E10). requirement that the fuel not exceed an
that E15 with an RVP of 10 psi can be EPA did not act to grant or deny the RVP of 9.0 psi in the summer, based on
introduced into commerce. Therefore, as petition for a waiver for E10, and the same conclusion.18
a second step, in order to allow the consequently, under the statutory Taken together, these partial waivers
introduction into commerce of E15 at scheme as it existed at that time, the permitted E15 to be used in MY2001
10.0 RVP in the summer under CAA sec. waiver was deemed granted by and newer light-duty motor vehicles
211(f), we are co-proposing two operation of law.12 Thus, E10 was subject to particular waiver conditions,
potential mechanisms. The first granted a waiver under CAA sec. including fuel quality conditions and
mechanism clarifies our interpretation 211(f)(4) without any conditions, in conditions on the sale and use of E15.
of CAA sec. 211(f), making it clear that contrast to prior CAA sec. 211(f)(4) These waiver conditions included the
the conditions on the CAA sec. 211(f)(4) waivers, which included, for example, prohibition on the use of E15 in pre-
waivers granted to E15 in 2010 and 2011 conditions on RVP.13 MY2001 motor vehicles, in addition to
do not restrict the application of the For E15, EPA granted partial waivers heavy-duty gasoline engines or vehicles,
under CAA sec. 211(f)(4) in 2010 and or motorcycles, as well as any nonroad
CAA sec. 211(h)(4) 1-psi waiver to
2011.14 Specifically, on October 13, engines or nonroad vehicles. The waiver
downstream oxygenate blenders, as
2010, EPA approved a partial waiver conditions also placed limitations on
explained in more detail later in this
request to allow the introduction of E15 the ethanol that can be added (both the
notice. We are co-proposing a second
into commerce for use in MY2007 and concentration and quality),19 as well as
mechanism that would find that E15 is
newer light-duty motor vehicles subject a condition that the RVP of the final fuel
substantially similar to the E10 fuel
to certain waiver conditions.15 not exceed 9.0 psi.20 The waiver
utilized to certify Tier 3 light-duty
Subsequently, on January 21, 2011, EPA conditions also require fuel and fuel
vehicles, thus allowing E15 similar
extended this partial waiver to include additive manufacturers to submit a
treatment to E10 with respect to RVP.
MY2001–2006 light-duty motor vehicles misfueling mitigation plan describing
The following subsections provide
after receiving and analyzing additional all reasonable precautions for ensuring
further details on how we will
U.S. Department of Energy (‘‘DOE’’) test E15 is only used in MY2001 and newer
accomplish this change, as well as
data and finding that E15 will not cause motor vehicles, as described in the
impacts on emissions and the economy.
or contribute to a failure to achieve
A. Background compliance with the emissions 17 See 75 FR 68149–68150 (November 4, 2010).
standards to which these vehicles were 18 See 76 FR 4682–4683 (January 26, 2011).
1. Background of E10 and E15 CAA Sec. certified over their useful lives.16 EPA 19 For example, the ethanol used to make E15
211(f)(4) Waivers also denied the waiver request for must meet ASTM D4806–10 specifications for
CAA sec. 211(f)(1) makes it unlawful MY2000 and older light-duty motor ethanol quality. See ASTM D4806–10, ‘‘Standard
amozie on DSK9F9SC42PROD with PROPOSALS2

for any manufacturer of any fuel or fuel Specification for Denatured Fuel Ethanol for
Blending with Gasolines for Use as Automotive
additive (‘‘fuel or fuel additive 12 See 44 FR 20777 (April 6, 1979). Spark-Ignition Engine Fuel,’’ ASTM International,
manufacturer’’) to first introduce into 13 See e.g., ‘‘Fuels and Fuel Additives; Waiver West Conshohocken, PA, 2010.
commerce, or to increase the Application,’’ Octamix Waiver, 53 FR 3636 20 This RVP limit is identical to the limitation
(February 8, 1988). under CAA sec. 211(h)(1) of 9.0 psi RVP during the
concentration in use of, any fuel or fuel 14 See 75 FR 68094 (November 4, 2010) and 76
high ozone season. The high ozone season was
additive for use by any person in motor FR 4662 (January 26, 2011), respectively. defined by the Administrator via regulation to mean
vehicles manufactured after model year 15 See 75 FR 68094 (November 4, 2010).
the period from June 1 to September 15 of any
(MY) 1974, which is not substantially 16 See 76 FR 4662 (January 26, 2011). calendar year.

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00005 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
10588 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules

waiver conditions.21 EPA is not a. Pre-Enactment Volatility Regulations because gasohol was given a CAA sec.
proposing to revise the E15 partial In 1987, prior to the 1990 CAA 211(f)(4) waiver by operation of law, no
waivers under CAA sec. 211(f)(4), and is amendments, EPA for the first time volatility controls had previously been
therefore not soliciting comments on the proposed limitations on the volatility of placed on it. Thus, even though the
waiver itself or any of its conditions. gasoline under CAA sec. 211(c), which CAA sec. 211(f)(4) waiver allowed E10
To help facilitate the implementation provides EPA with general authority to to be lawfully introduced into
of the waiver conditions and place regulate fuels and fuel additives. These commerce, the lowered RVP standards
requirements on parties other than fuel limitations on gasoline volatility were had the potential to shut down the
and fuel additive manufacturers, EPA put into place to address evaporative nascent ethanol blending industry.
promulgated the E15 Misfueling emissions from gasoline-fueled vehicles To address this potential hurdle to
Mitigation Rule (MMR) in 2011, under due to their contribution to ozone continued ethanol blending, EPA
CAA sec. 211(c), subsequent to the E15 formation. The volatility of gasoline had proposed interim regulations for gasohol
partial waiver decisions.22 The E15 begun rising significantly in the years that allowed it to be 1.0 psi RVP higher
preceding EPA’s action, due to vehicle than otherwise required for gasoline.31
MMR imposed fuel dispenser labeling,
design becoming more tolerant of higher This is referred to as the 1-psi waiver.32
PTD, and compliance survey
RVP through fuel injected engines, as As a result, 10 percent ethanol could be
requirements on parties that make and
well as strong economic incentive to blended at downstream terminals into
distribute E15. The E15 MMR also
add butane 25 to fuel due to favorable the gasoline that refineries had already
promulgated EPA’s interpretation of the
blending economics.26 This lead to very produced. The agency, therefore,
applicability of the 1-psi waiver in CAA
high evaporative volatile organic designed the 1-psi waiver as a means of
sec. 211(h)(4) to E15 and certain
compound (VOC) emissions from the in- accommodating the CAA sec. 211(f)(4)
regulations designed to effectuate that
use fleet of gasoline vehicles. EPA waiver that was then applicable to E10
interpretation.23 In this action, EPA is
believed that matching the volatility of and to address public policy concerns,
proposing to revise the interpretation of
certification fuel to the volatility of in- such as reducing dependence on foreign
CAA sec. 211(h)(4) articulated in the oil and making use of excess
MMR and the regulations adopted to use fuel would reduce evaporative
emissions, and would help ensure agricultural production, as referenced
implement that interpretation. above. The Agency proposed that the 1-
vehicle were designed to handle in-use
2. Background on CAA Sec. 211(h) conditions. In particular, limiting the psi waiver be conditioned on sampling
volatility of gasoline to 9.0 psi RVP, and testing the final blend of gasoline
To properly understand this proposed and ethanol for RVP by all regulated
action, it is important to review the which is the level in the E0 gasoline on
which vehicles were certified under parties, including downstream blenders,
history of EPA’s volatility controls both that elected to use the waiver.33
leading up to and after the enactment of CAA sec. 206 at that time, would reduce
In 1989, EPA finalized regulations
CAA sec. 211(h). Congress enacted CAA emissions from all gasoline-related
that imposed limits on the volatility of
sec. 211(h) as part of the CAA sources, and enable additional VOC
gasoline and ethanol blends as ‘‘Phase
Amendments of 1990 to address the emission reductions.27
At the time of the 1987 proposal, I’’ of a two-phase regulation under CAA
volatility of gasoline. Congress did so in sec. 211(c), which is EPA’s general
some parties had begun the practice of
the context of EPA’s prior regulatory authority to regulate fuels and fuel
adding ethanol to gasoline after the
actions, under CAA sec. 211(c), which additives. EPA’s regulation established a
refinery process has been completed to
aimed to control the RVP of gasoline. maximum RVP limit of 10.5 psi for
make what was then known as
EPA has historically viewed Congress’s gasoline sold during the high ozone
‘‘gasohol.’’ 28 This practice was known
enactment of 211(h), therefore, as a season.34 In that action, EPA also
as ‘‘splash blending’’ ethanol into
codification of EPA’s regulatory actions gasoline and generally took place at provided a RVP allowance ‘‘for gasoline-
with regard to RVP up to that point.24 downstream terminals. At the time, ethanol blends commonly known as
Accordingly, CAA sec. 211(h)(1) gasohol also had a tax credit because gasohol’’ that was 1.0 psi higher than for
prohibits the sale of gasoline with an Congress intended to encourage the use gasoline.35 This was finalized as an
RVP in excess of 9.0 psi during the high of ethanol as a means of reducing interim measure with the intent to
ozone season while CAA sec. 211(h)(2) dependence on foreign oil and making revisit the issue in ‘‘Phase II’’ of the
allows EPA to promulgate more use of excess agricultural production.29 volatility regulations.36
stringent RVP requirements for Adding 10 percent ethanol to gasoline, EPA’s final regulations in that action
nonattainment areas. CAA sec. 211(h)(4) however, causes roughly a 1.0 psi RVP provided that in order to receive the 1-
further provides a 1.0 psi RVP increase in the blend’s volatility.30 At psi waiver, ‘‘gasoline must contain at
allowance for ‘‘fuel blends containing the time, due to the limited amount of least 9% ethanol (by volume),’’ and that
gasoline and 10 percent’’ ethanol and ethanol blended into gasoline, almost no ‘‘the ethanol content of gasoline shall be
recognizes the existence of the CAA sec. low-RVP gasoline was available into determined by use of one of the testing
211(f)(4) waiver for E10—the only which 10 percent ethanol could be methodologies specified in Appendix F
ethanol blend which had received such splash-blended without the gasoline- to this part.’’ The regulations also
a waiver at that time—in the ‘‘deemed ethanol blended fuel exceeding the provided that ‘‘the maximum ethanol
to comply’’ provisions contained in proposed RVP limit. Unlike E15, content of gasoline shall not exceed any
CAA sec. 211(h)(4)(A–C). applicable waiver conditions under
25 Butane, in this context, refers to a high-
amozie on DSK9F9SC42PROD with PROPOSALS2

31 See 52 FR 31274, 31316 (August 19, 1987).


21 See 76 FR 4662, 4582 (January 26, 2011). volatility, relatively inexpensive gasoline
22 See 76 FR 44406 (July 25, 2011). blendstock that gasoline refiners typically add to or 32 See 52 FR 31316 (August 19, 1987).
23 As discussed further in the following section, remove from gasoline to control RVP. 33 See 52 FR 31274, proposed 40 CFR 80.27(d)(1)
26 52 FR 31279 (August 19, 1987).
in promulgating regulations following the (August 19, 1987). See also 54 FR 11872–73 (March
enactment of CAA sec. 211(h)(4), EPA interpreted 27 See 52 FR 31274 at 31278–31287 (August 19, 22, 1989), where we declined to finalize this
211(h)(4) to apply to gasoline ethanol blends 1987). approach.
28 52 FR 31292 (August 19, 1987). 34 See 54 FR 11879 (March 22, 1989).
containing about 10 percent ethanol. See 56 FR
64708 (December 12, 1991). 29 Id. 35 Id.
24 See 76 FR 44433 (July 25, 2011). 30 Id. 36 Id.

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00006 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules 10589

section 211(f)(4) of the Clean Air b. Enactment of CAA Sec. 211(h) as adding less than 1.0 psi RVP to
Act.’’ 37 gasoline.’’ 43
In November 1990, Congress enacted Further, Congress also enacted a
In that action, EPA did not place
the CAA Amendments of 1990, conditional defense against liability for
limits on the upper bound of the ethanol
including CAA sec. 211(h), which violations of the RVP level allowed
content, other than by providing, as
provided the first statutory provisions under the 1-psi waiver by stating:
quoted above, that the ethanol content
specifically addressing RVP. CAA sec.
shall not exceed any applicable waiver [p]rovided; however, that a distributor,
211(h)(1) required EPA ‘‘to promulgate blender, marketer, reseller, carrier, retailer, or
conditions under CAA sec. 211(f)(4)
regulations making it unlawful . . . wholesale purchaser consumer shall be
(and thereby implicitly incorporating
during the high ozone season to sell deemed to be in full compliance with the
any upper-bound limit imposed as a
. . . or introduce into commerce provisions of this subsection and the
condition on any future applicable
gasoline with a Reid Vapor Pressure in regulations promulgated thereunder if it can
waiver). At the time, the highest demonstrate that—(A) The gasoline portion
excess of 9.0 pounds per square inch.’’
permissible ethanol content under a of the blend complies with the Reid vapor
Further in CAA sec. 211(h)(4), Congress,
CAA sec. 211(f)(4) waiver was 10 pressure limitations promulgated pursuant to
following EPA’s lead in the 1989 and
percent ethanol, and thus, this provision this subsection; (B) the ethanol portion of the
1990 volatility regulations, also allowed
could only apply to blends containing blend does not exceed its waiver condition
fuel blends containing gasoline and 10 under subsection (f)(4) of this section; and (C)
9–10 percent ethanol. In other words,
percent ethanol to have 1 psi higher no additional alcohol or other additive has
EPA designed the 1-psi waiver to allow
RVP than the RVP standard otherwise been added to increase the Reid Vapor
for the continued lawful introduction
established in CAA sec. 211(h)(1). CAA Pressure of the ethanol portion of this blend.
into commerce of E10 and, the Phase I
sec. 211(h)(4) provides the following: CAA sec. 211(h)(4).
RVP regulatory language would have
automatically accommodated future (4) Ethanol waiver. For fuel blends This is referred to as the ‘‘deemed to
increases in allowable ethanol containing gasoline and 10 percent denatured comply’’ provision, or the alternative
concentration in gasoline under a CAA anhydrous ethanol, the Reid vapor pressure compliance mechanism for the 1-psi
sec. 211(f)(4) waiver. limitation under this subsection shall be one waiver. It is considered a statutorily
In June 1990, in ‘‘Phase II’’ of the pound per square inch (psi) greater than the mandated defense that allows regulated
volatility regulations, EPA established a applicable Reid vapor pressure limitations parties such as downstream oxygenate
maximum RVP limit of 9.0 psi. The established under paragraph (1). blenders to demonstrate compliance
regulations also established an RVP with the relaxed RVP standard instead
According to legislative history, of complying with the testing provisions
limit of 7.8 psi for gasoline sold during ‘‘[t]his provision was included in
the high ozone season in both ozone in 40 CFR 80.27(d)(2) (1987). It also
recognition that gasoline and ethanol reflects Congressional response to EPA’s
attainment and nonattainment areas in are mixed after the refining process has
the southern states of the country. EPA proposed compliance testing provisions
been completed. It was recognized that for the 1-psi waiver in the 1987
further maintained the 1 psi RVP to require ethanol to meet a nine pound
allowance for blends of 10 percent proposed rulemaking, which they
RVP would require the creation of a viewed as complicated and
ethanol and gasoline and did not modify production and distribution network for
the regulations at 40 CFR 80.27(d).38 burdensome; ‘‘the enforcement strategy
sub-nine pound RVP gasoline. The cost recently proposed by the Agency . . .
Thus, both the language stating that the of producing and distributing type of
gasoline must contain at least 9 percent would be totally unworkable for those
fuel would be prohibitive to the motor vehicle fuels which are a blend of
ethanol, and the language stating that petroleum industry and would likely
the maximum ethanol content of gasoline and ethanol and which are
result in the termination of the allowed a higher RVP limit under the
gasoline shall not exceed any applicable availability of ethanol in the
waiver conditions under CAA sec. reported bill.’’ 44
marketplace.’’ 41 EPA has interpreted
211(f)(4), remained in the regulations.39 CAA sec. 211(h) as largely a codification c. Implementation of CAA Sec. 211(h)(4)
In doing so the agency reiterated that of our prior RVP regulations.42 Relevant Subsequent to Congress’s enactment
this was in recognition of the legislative history also indicates that of CAA sec. 211(h)(4), EPA modified
importance of ethanol to the nation’s Congress based the 1.0 psi waiver on these regulations to more explicitly
energy security as well as the technical data showing that blending align with the new statutory provisions,
agricultural economy sector. The agency gasoline with 9–10 percent ethanol but ‘‘did not propos[e] any change to the
also addressed air quality impacts of would result in an approximate 1 psi current requirement that the blend
allowing the 1-psi waiver given that a RVP increase for the final gasoline- contain between 9 and 10 percent
higher RVP limit for blends of 10 ethanol blend. Hearing testimony ethanol (by volume) to obtain the one
percent ethanol and gasoline would provides that ‘‘[t]he certainty of physical psi allowance.’’ 45 However, EPA did
result in increased evaporative VOC chemistry provides the assurance the modify its regulations at 40 CFR 80.27
emissions. It ‘‘reflects the moderation in addition of 10 percent ethanol to the to clarify that ‘‘gasoline must contain
EPA’s concern about negative air quality base gasoline will not exceed 1.0 psi denatured, anhydrous ethanol,’’ and
impact as well as a reluctance to RVP. . . . [A]nd the Clean Air Act itself that ‘‘[t]he concentration of the ethanol,
threaten the motor fuel ethanol which prohibits addition of more than excluding the required denaturing
production and blending industries 10 percent ethanol, alleviates any
with collapse.’’ 40 concern that the addition of ethanol to
amozie on DSK9F9SC42PROD with PROPOSALS2

43 Clean Air Act Amendments: Hearings on H.R.

37 54 FR 11872–73 (March 22, 1989) (codified at


gasoline will result in different volatility 2521, H.R. 3054 and H.R. 3196 Before the
levels than already recognized by EPA Subcommittee on Health and the Environment of
40 CFR 80.27(d)). the Committee On Energy and Commerce, 100th
38 See 55 FR 23658, 23660 (June 11, 1990). Cong. 1st Sess. (1987) at 366 (statement of Eric
39 Id. the existence of the gasohol industry.’’ 55 FR 23666 Vaughn, President and CEO of renewable Fuels
40 ‘‘While some believe the industry should not (June 11, 1990). Association).
41 S. Rep. No. 101–228, at 110 (1989) (Conf. Rep.); 44 S. Rep. No. 100–231, 100th Cong. 1st Sess. at
exist . . . [o]ther agencies and Congress will
continue to address related agricultural, trade and reprinted at 5 Leg. Hist. at 8450 (1993). 149 (1987).
energy issues which have led to federal support for 42 See 76 FR 44433 (July 25, 2011). 45 See 56 FR 64708 (December 12, 1991).

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00007 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
10590 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules

agent, must be at least 9% and no more production of a certification from the reflected the near complete transition of
than 10% (by volume) of the gasoline’’ facility from which the gasoline is the in-use gasoline supply to E10 in the
(where, as quoted above, the previous received.’’ 51 EPA also issued years following the passage of EPAct
version of the regulations provided that regulations for additional defenses and the Energy Independence and
gasoline ‘‘must contain at least 9% against liability at 40 CFR 80.28(g)(1–7). Security Act (‘‘EISA’’) and the
ethanol’’ to qualify for the 1-psi RVP implementation of the Renewable Fuel
d. Enactment of CAA sec. 211(h)(5)
waiver). We read both the statutory 1- Standard program at CAA sec. 211(o).54
psi waiver provision and the ‘‘deemed As part of the Energy Policy Act of E15 has now entered the marketplace,
to comply’’ provision in CAA sec. 2005 (‘‘EPAct’’), Public Law 109–58 but the current limitation of the
211(h)(4) together to limit the volume (2005), Congress added CAA sec. applicability of the 1-psi waiver to only
concentration of ethanol to between 9 211(h)(5), which provides: E10 is one of several hurdles to the
and 10 percent, as only blends of Upon notification, accompanied by continued entry of E15 into the
gasoline and up to 10 percent ethanol supporting documentation, from the marketplace.55 The same market
had a waiver under CAA sec. 211(f)(4) Governor of a State that the RVP limitation limitation that prompted EPA to provide
at the time EPA promulgated the RVP established by paragraph (4) will increase the 1-psi waiver for E10 in 1989
requirements.46 We further stated that emissions that contribute to air pollution in currently exists for E15. Namely, in
‘‘this is consistent with Congressional any area in the State, the Administrator shall, much of the U.S., there is very little
by regulation, apply, in lieu of the RVP
intent [because] the nature of the limitation established by paragraph (4), the low-RVP CBOB being produced and
blending process . . . further RVP limitation established by paragraph (1) made available into which 15 percent
complicates a requirement that the to all fuel blends containing gasoline and 10 ethanol could be blended while still
ethanol portion of the blend be exactly percent denatured anhydrous ethanol [sold] meeting the 9.0 psi RVP standard for
10 percent ethanol.’’ 47 For these in the area during the high ozone season. gasoline during the high ozone season.56
reasons, the 1-psi waiver reflected EPA also read this provision as As a result, parties that might otherwise
Congressional recognition of the consistent with the statutory scheme of consider making and distributing E15
existing CAA sec. 211(f)(4) waiver for CAA sec. 211(h) to apply to blends of may choose not to, given the difficulty
E10; Congress intended that the 1-psi gasoline and 9–10 percent ethanol in obtaining CBOB that when blended to
waiver from the 9.0 psi RVP produced by downstream oxygenate produce E15 would meet the 9.0 psi
requirement in CAA sec. 211(h)(1) blenders. At the time CAA sec. 211(h)(4) RVP during the summer. If we extend
would allow for E10’s continued lawful and 211(h)(5) were enacted, the the 1-psi waiver, 15 percent ethanol
introduction into commerce.48 language ‘‘the ethanol portion of the could be blended using the same CBOBs
In issuing implementing regulations blend does not exceed its waiver currently being distributed for use with
at 40 CFR 80.28(g)(8) related to the condition under subsection (f)(4)’’ could 10 percent ethanol, year-round.57
‘‘deemed to comply’’ provision in CAA only refer to an ethanol portion of up to Today’s proposal, therefore, is a
sec. 211(h)(4), EPA allowed parties to 10 percent, because only blends of response to changed circumstances
demonstrate a defense against liability gasoline and up to 10 percent ethanol since the Agency’s promulgation of RVP
by making the showings provided in had received a waiver under CAA sec. regulations in 1990, which pre-dates
CAA sec. 211(h)(4), stating that ‘‘EPA 211(f)(4). EPAct in 2005 and EISA in 2007.
believes this defense is limited to Further, because blending 15 volume
ethanol blends which meet the B. Proposed Interpretation of CAA Sec. percent ethanol into gasoline would
minimum 9 percent requirement in the 211(h)(4) result in an approximate 1.0 psi RVP
regulations and the maximum 10 In this action, we are proposing to increase, similar to E10, the resultant
percent requirement in the waivers interpret CAA sec. 211(h)(4) recognizing RVP for any gasoline-ethanol blended
under section 211(f)(4).’’ 49 In doing so, the changed gasoline marketplace since fuel would be no higher than the RVP
EPA explicitly specified its applicability the Agency last issued implementing standard plus the 1-psi waiver, which is
to E10. (‘‘The ethanol portion of the RVP regulations in 1990, in a manner currently 10.0 psi for a gasoline-ethanol
blend does not exceed 10 percent (by that is consistent with the text of the blended fuel containing 10 percent
volume)’’ as compared to CAA sec. provision, its context within CAA sec. ethanol.58 This proposed interpretation
211(h)(4), which merely references the 211(h), and Congressional intent. The is consistent with the plain language of
CAA sec. 211(f)(4) waiver. (‘‘[T]he presence of E15 in the marketplace has CAA sec. 211(h) and with Congress’
ethanol portion of the blend does not increased since EPA interpreted CAA intent to promote ethanol blending into
exceed its waiver condition under sec. 211(h)(4) in the MMR from zero 54 ‘‘Energy Independence and Security Act,’’ P.L.
subsection (f)(4) of this section’’)). We retail stations to over 1,300 retail 110–140 (2007).
also stated that the deemed to comply stations.52 In addition to granting partial 55 See,e.g., Prime the Pump: Driving Ethanol
provision was a ‘‘new defense against waivers for E15, we have also Gallons, available at: https://growthenergy.org/wp-
liability for violation of the ethanol promulgated the Tier 3 Motor Vehicle content/uploads/2019/01/MDEV-19022-PTP-
blend RVP requirement [and that] EPA Overview-2019-01-25.pdf.
Emissions and Fuel Standards Rule, 56 Some parties have access to low RVP
believes that this statutorily mandated which changed the ethanol content of blendstocks created for low-RVP areas, however
defense is in addition to and does not the vehicle certification test fuel from these blendstocks are not widely distributed in all
supersede any of the defenses currently ‘‘indolene’’ (gasoline without any added areas. For a list of state low-RVP areas, see EPA’s
contained in the regulations.’’ 50 We ‘‘State Fuels’’ website available at: https://
ethanol at 9.0 psi RVP), to E10 at 9.0 psi www.epa.gov/gasoline-standards/state-fuels.
further explained that the provision
amozie on DSK9F9SC42PROD with PROPOSALS2

RVP for the certification of all Tier 3 57 In reformulated gasoline areas (approximately
would allow ‘‘a party to demonstrate the light-duty and chassis-certified heavy- one-third of gasoline nationwide) and certain other
elements of the new defense by duty gasoline vehicles.53 This change areas that do not provide a 1-psi waiver for E10, E15
can already be blended using the same blendstocks
46 Id. used for E10.
51 Id.
58 As discussed further in Section II.B.3.b, this is
47 Id. 52 See ‘‘Availability of E15 Keeps Growing,’’
true for E15 made from blends of certified gasoline
48 Id.
available at: https://growthenergy.org/2018/02/28/ or BOB and ethanol. This volatility relationship is
49 Id. and 40 CFR 80.28(g). availability-e15-keeps-growing. not maintained when other products (e.g., natural
50 56 FR 64708. 53 See 79 FR 23414 (April 28, 2014). gas liquids) are blended to make E15.

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00008 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules 10591

gasoline, and is not expected to cause partial waivers for E15 in 2010 and more specifically, in CAA sec. 211(h)(1)
significant increases in emissions as 2011. Congress instructed EPA to promulgate
compared to E10 as discussed in Section The term ‘‘containing’’ as used in regulations prohibiting the introduction
II.E. CAA sec. 211(h)(4) in the phrase ‘‘fuel into commerce of ‘‘gasoline with a Reid
blends containing gasoline and 10 Vapor Pressure in excess of 9.0 pounds
1. Proposed Interpretation percent denatured anhydrous ethanol’’ per square inch.’’ Therefore, when
In the MMR, we interpreted CAA sec. is ambiguous. We interpret this Congress intended to impose an upper
211(h)(4) as providing a 1-psi waiver for language as establishing a lower limit, limit on the content of a particular
fuel blends of gasoline and at least 9 or floor, on the minimum ethanol compound or property of gasoline, it did
volume percent ethanol and not more content for a 1-psi waiver from the so. In contrast, in CAA sec. 211(h)(4),
than 10 volume percent ethanol. As volatility requirements expressed in Congress provided a higher RVP limit
previously explained, this interpretation CAA sec. 211(h)(1), rather than an upper for ‘‘fuel blends containing gasoline and
was premised on a reading of limit on the ethanol content. We can ten percent ethanol.’’ This provision
regulations and statutory provisions that look to the use of the term ‘‘containing’’ lacks terms modifying the term
reflected the highest available ethanol in its ordinary sense. ‘‘Containing’’ is ‘‘containing,’’ in contrast to the other
content in the gasoline marketplace at defined as ‘‘to have within: hold.’’ 63 statutory provisions referenced above,
the time of the 1990 amendments. Due Under this interpretation, the statute supporting our finding that this term is
to changes in the gasoline marketplace, sets the minimum ethanol content, such ambiguous. It is therefore permissible,
including the increased presence of that all fuels which contain at least 10 where Congress has used only the
gasoline ethanol blends of up to 15 percent ethanol may receive the 1-psi ambiguous term ‘‘containing’’ in CAA
percent ethanol, we propose to construe waiver, including blends that contain sec. 211(h)(4), to interpret ‘‘containing’’
CAA sec. 211(h)(4) as specifying the more than 10 percent ethanol.64 to mean ‘‘containing at least.’’
minimum ethanol content that fuel Therefore, E15, which has within it 10 Implementing regulations under both
blends containing ethanol and gasoline percent denatured anhydrous ethanol, CAA sec. 211(c) prior to the enactment
must contain in order to qualify for the meets this definition, and should of CAA sec. 211(h) and under CAA sec.
1-psi waiver. We are proposing a new receive the 1-psi waiver specified in 211(h) have reflected the highest
interpretation of this statutory provision CAA sec. 211(h)(4).65 permissible ethanol content at the time
under which the 1-psi waiver would We also acknowledge that Congress EPA’s RVP regulations were issued,
apply to gasoline containing at least 10 can legislate and thus could have used which was 10 percent ethanol under a
percent ethanol. In conjunction with terms that connote a minimum ethanol CAA sec. 211(f)(4) waiver. We stated
CAA sec. 211(f), this would then allow content, such as the language employed that the 1-psi waiver is ‘‘for blends of
the 1-psi waiver for any ethanol blend in CAA sec. 211(m)(2) (‘‘not less than gasoline with about 10 percent ethanol,
that has received a CAA sec. 211(f)(4) 2.7 percent’’).66 But Congress also used or gasohol’’ 68 and in regulations,
waiver, which at present are blends up terms connoting a maximum ethanol codified the conditions, providing that
to 15 percent ethanol, based on EPA’s content, such as in CAA sec. 211(k)(3) ‘‘[t]he maximum ethanol content . . . in
prior issuance of partial waivers under (‘‘shall not exceed 1.0 percent’’).67 Even gasoline shall not exceed any applicable
CAA sec. 211(f)(4) for E15. 63 Webster’s Third New International Dictionary
waiver conditions under CAA sec.
It is well settled that EPA has inherent 491 (unabridged ed. 1981). 211(f)(4) waiver.’’ 69 Additionally, EPA
authority to reconsider, revise, or repeal 64 We are not changing our definition of the term statements on the imprecise nature of
past decisions to the extent permitted by 10 percent, which includes as little as 9 percent, to ethanol-gasoline blending also support
law so long as we provide a reasoned continue to provide the necessary blending the view that neither Congress nor EPA
flexibility for E10 blends. In promulgating
explanation. This authority exists in regulations implementing CAA sec. 211(h)(4), we
intended to limit ethanol content for the
part because EPA’s interpretations of the stated that requiring exactly 10 percent ethanol 1-psi waiver. ‘‘The nature of the
statutes we administer ‘‘are not carved ‘‘would place a next to impossible burden on blending process . . . complicates a
in stone.’’ 59 An agency ‘‘must consider ethanol blenders,’’ and that ‘‘[t]he nature of the requirement that the ethanol portion of
blending process itself . . . further complicates a
varying interpretations and the wisdom requirement that the ethanol portion of the blend
the blend be exactly 10 percent
of its policy on a continuing basis.’’ 60 be exactly 10 percent ethanol.’’ See 56 FR 24245 ethanol.’’ 70
This is true when, as is the case here, (May 29, 1991). We further note that in the legislative
review is undertaken ‘‘in response to 65 CAA sec. 211(h)(5) also contains the language
history, Congress employed the term ‘‘at
changed factual circumstances or a ‘‘fuel blends containing gasoline and ten percent least’’ 10 percent ethanol when
denatured anhydrous ethanol.’’ Our changed
change in administration.’’ 61 EPA must interpretation of CAA sec. 211(h)(4) also has discussing the 1-psi waiver, which
also be cognizant where we are implications for CAA sec. 211(h)(5), which allows suggests this provision is a floor for
changing a prior position that the states to opt out of the 1-psi wavier provided by ethanol content in gasoline. For
revised position is permissible under CAA sec. 211(h)(4) for particular areas upon a example, section 216 of the House bill
showing that the 1-psi waiver will increase
the statute and must articulate a emissions that contribute to air pollution. Because provided in part that ‘‘[a] manufacturer
reasoned basis for the change.62 This the language in CAA sec. 211(h)(5) pertaining to the or processor of gasoline containing at
proposal reflects changed circumstances 1-psi waiver is identical to the language in CAA sec. least 10 percent ethanol shall be deemed
that have arisen since we issued the 211(h)(4), and both refer to the 1-psi waiver, we in full compliance.’’ 71
believe that both sections should be read together
to apply the 1-psi waiver to E10 and E15.
59 Chevron U.S.A. Inc. v. NRDC, Inc., 467 U.S.
Accordingly, we interpret CAA sec. 211(h)(5) to shall not exceed 1.0 per cent by volume;’’ ‘‘The
aromatics hydrocarbon content of the reformulated
amozie on DSK9F9SC42PROD with PROPOSALS2

837, 863 (1984). allow states to opt out of the 1-psi waiver provided
60 Id. at 863–64. by CAA sec. 211(h)(4) for fuel blends containing gasoline shall not exceed 25 percent by volume.’’)
68 55 FR 23660 (June 11, 1990).
61 Nat’l Cable & Telecomms. Ass’n v. Brand X gasoline and 9–15 percent denatured anhydrous
ethanol. 69 55 FR 23660 (June 11, 1990) and 40 CFR
internet Servs., 545 U.S. 967, 981 (2005). See also
Nat’l Ass’n of Home Builders v. EPA, 682 F.3d 66 See, e.g., CAA sec. 211(m)(2) (‘‘gasoline is to be 80.27(d)(2) (1987).
1032, 1043 (change in administration is a ‘‘perfectly blended to contain not less than 2.7 percent oxygen 70 56 FR 24245 (May 29, 1991).

reasonable basis’’ for an agency’s reappraisal of its by weight’’ during the wintertime carbon monoxide 71 Clean Air Act Amendments, H.R. 3030 (101st
regulations and programs). season). Congress, 1990). See also H.R. Rep. No. 101–490, at
62 FCC v. Fox Television Stations, Inc., 556 U.S. 67 See, e.g., CAA sec. 211(k)(3)(A)(1) and (ii) 71 (1990) (Conf. Rep.); reprinted at 2 Leg. Hist. at
502, 515. (‘‘The benzene content of reformulated gasoline 3095 (1993).

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00009 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
10592 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules

The Senate Report published along benefit of simplifying compliance defenses codified at 40 CFR 80.28(g)(1)
with the enactment of the 1990 CAA demonstrations due to the inconsistency through (7). It is not and has never been
Amendments and CAA sec. 211(h)(4) between the production of gasoline the sole enforcement mechanism for the
also describes both the purpose of batches, measured in millions of 1-psi waiver. These other equally
including CAA sec. 211(h)(4), and gallons, to ethanol blending at the effective provisions would be applicable
general language about ethanol use in terminal in batches on the order of to gasoline-ethanol blended fuels
the fuel supply. The report states that thousands of gallons. The ‘‘deemed to containing 15 percent ethanol and our
the 1-psi waiver was: comply’’ provision further supports the extending the 1-psi waiver to such
included in recognition that gasoline and interpretation that the 1-psi waiver blends should have no effect on the
ethanol are mixed after the refining process under CAA sec. 211(h)(4) can apply to enforcement of RVP standards.
has been completed. It was recognized that gasoline with ethanol content greater Regulated parties could also continue to
to require ethanol to meet a 9 pound RVP than 10 percent. The ‘‘deemed to avail themselves of this provision, if
would require the creation of a production comply’’ provision lays out the necessary. Moreover, considerations
and distribution network for sub-nine pound compliance mechanisms for regulated that animated this provision, are now
RVP gasoline. The cost of producing and largely attenuated considering changes
distributing this type of fuel would be parties, but also contemplates ethanol
prohibitive to the petroleum industry and blends beyond E10, the only gasoline- in the refinery process. Today, ethanol
would likely result in the termination of the ethanol blended fuel with a CAA sec. blending is done almost completely
availability of ethanol in the marketplace. 211(f)(4) waiver at the time of through in-line blending ethanol into
Under this provision, the RVP limitations enactment, because EPA’s waiver CBOB specially made for blending with
promulgated pursuant to this subsection for authority under that provision is not ethanol as compared to the nascent days
such ethanol/gasoline blends shall be one limited to gasoline containing any where it was splash blended after
pound per square inch greater than the completion of the refining process.
applicable Reid vapor pressure which apply
particular range of volume percent
ethanol. CAA sec. 211(h)(4)(B) provides Our primary consideration has been
to gasoline. Senate Report 101–228, at 3495.
that the ‘‘deemed to comply provision’’ to balance the goals of limiting gasoline
Finally, the Senate report states that will apply upon a demonstration that, volatility and ensure that the addition of
the 1-psi waiver would ‘‘allow ethanol among other things, ‘‘the ethanol ethanol does not cause the exceedance
blending to continue to be a viable portion of the blend does not exceed its of the maximum RVP standard, while
alternative fuel, with its beneficial waiver condition under subsection also promoting the use of ethanol
environmental, economic, agricultural, (f)(4).’’ We read this phrase to apply to consistent with the purpose of CAA sec.
energy security and foreign policy only the waiver condition specifying the 211(h)(4). As previously explained,
implications.’’ 72 While this legislative ethanol content of the fuel. Pursuant to blending gasoline with at least 10
history does not speak to the meaning percent ethanol results in an
the E15 waivers issued in 2010 and
of the word ‘‘containing,’’ it does approximate 1.0 psi RVP increase. It
2011, a fuel that includes 15 percent
articulate congressional intent in does not result in ‘‘different volatility
ethanol contains an ethanol portion that
enacting the provision, recognizing the levels than already recognized by EPA
does not exceed the 211(f)(4) waiver
role for ethanol in the marketplace. This as adding less than 1.0 psi RVP to
condition. As previously shown, if
report and other relevant legislative gasoline.’’ 73 Similarly, we also expect
Congress had wanted to limit the
history do not explicitly address that E15 produced from the same BOB
application of the (h)(4) waiver to E10,
whether CAA sec. 211(h)(4) is intended as E10 would have a similar (if not
it could have done so, but it did not.
to apply to blends with greater than 10 slightly lower) RVP than E10 and thus,
Instead, Congress contemplated that
percent ethanol, but all the reasons it would not exceed the current 10.0 psi
gives for extending the 1-psi waiver to ethanol content may increase in the
RVP limit.74 Therefore, we are fairly
gasoline ethanol blends up to 10 percent future, that parties would likely apply
confident that relative evaporative
ethanol now would similarly weigh in for an 211(f)(4) waiver for those higher
emissions effects for E15 would largely
favor of interpreting the 1-psi waiver to blends, that the 211(h)(4) waiver would
be similar or slightly less than those for
apply to E15, given that Congressional apply to these fuels, and that the
E10, as discussed in Section II.E.
action in CAA sec. 211(h) was largely a 211(h)(4) ‘‘deemed to comply’’ In sum, the primary consideration
ratification of agency regulations for provision would also apply. underlying the 1-psi waiver is to limit
RVP that were initiated beginning in Therefore, CAA sec. 211(h)(4) can be gasoline volatility while promoting the
1987, under CAA sec. 211(c). read as specifying the minimum ethanol use of ethanol due to its importance to
Congress designed the 1-psi waiver content for ethanol-gasoline blends for energy security and the agricultural
‘‘deemed to comply’’ language of CAA purposes of the 1-psi waiver while the sector. Today’s proposed interpretation,
sec. 211(h)(4) to adjust to gasoline- deemed to comply provision can be if finalized, will continue to further
ethanol blends with more than 10 construed as a defense against liability these policy concerns given that agency
volume percent ethanol if allowed for any ethanol blend that has received action will now afford similar treatment
under separate provisions of the CAA a CAA sec. 211(f)(4) waiver, which at to all ethanol-gasoline blends.
(i.e., in the case where EPA grants a present includes E15. As previously
explained, the ‘‘deemed to comply’’ 2. Regulatory Amendments
CAA sec. 211(f)(4) waiver that allows for
greater than 10 volume percent ethanol provision that was enacted at the This proposal includes technical
in gasoline). In other words, the blended inception of the RVP program to address amendments that would effectuate our
fuel is ‘‘deemed to comply’’ not because industry practices at the time, reflects
amozie on DSK9F9SC42PROD with PROPOSALS2

73 Clean Air Act Amendments: Hearings on H.R.


it is E10, but because it is a gasoline- the highest permissible ethanol content
2521, H.R. 3054 and H.R. 3196 Before the
ethanol blended fuel that has received a at that time because of the waiver under Subcommittee on Health and the House Committee
CAA sec. 211(f)(4) waiver. The Senate CAA sec. 211(f)(4). CAA sec. on Environment and Committee On Energy and
Report described the ‘‘deemed to 211(h)(4)(B) (‘‘the ethanol portion of the Commerce, 100th Cong. 1st Sess. (1987) (statement
comply’’ provision as an ‘‘alternative blend does not exceed its waiver of Eric Vaughn, President and CEO of renewable
Fuels Association).
enforcement arrangement’’ that had the condition under subsection (f)(4) of this 74 ‘‘Determination of the Potential Property
section.’’) It is a statutorily mandated Ranges of Mid-Level Ethanol Blends.’’ American
72 See S. Rep. No. 101–228 at 110 (1989). defense that is in addition to other Petroleum Institute, Washington, DC. April 2010.

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00010 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules 10593

proposed interpretation to allow the 1- Finally, we are proposing to remove vehicles, highway and off-highway
psi waiver for E15 during the summer the PTD requirements related to the 1- motorcycles, and all nonroad products.
under CAA sec. 211(h)(4). First, we are psi waiver at 40 CFR 80.1503. In 40 CFR This action also does not propose to
proposing to modify or remove volatility part 80, subpart N, we included PTD modify the misfueling mitigation
controls associated with our prior language designed to help ensure that measures promulgated in the MMR, but,
interpretation of CAA sec. 211(h)(4). E15 that did not receive the 1-psi waiver as discussed in Section II.D.3, we seek
These controls, found in 40 CFR 80.27, would be segregated from E10 that did comment on the need for additional E15
place limitations on the RVP of receive the 1-psi waiver. Since we are misfueling measures.
gasoline-ethanol blends at specific proposing to allow the 1-psi waiver for
3. Effects on Regulated Parties
concentrations. Given that the primary E15, we no longer need these PTD
effect of our proposed interpretation of requirements. However, parties that This section discusses distinctions
CAA sec. 211(h)(4) would expand the produce and distribute gasoline-ethanol between the obligations that apply to
‘‘special treatment for gasoline-ethanol blended fuels would still be required to certain parties in the fuel production,
blends’’ to fuel blends containing 9–15 identify ethanol concentrations on PTDs blending, and retail chain, and how this
percent ethanol, we are proposing to as specified in 40 CFR 80.27 and 40 CFR proposed action would affect (or would
modify the controls extending the 1-psi 80.1503. not affect) those parties. Specifically, we
waiver from gasoline containing 9–10 All other E15 misfueling mitigation discuss how the proposed CAA sec.
percent ethanol to gasoline containing provisions in 40 CFR part 80, subpart N, 211(h)(4) interpretation under which the
9–15 percent ethanol at 40 CFR 80.27 would remain unchanged. In the MMR, 1-psi waiver would extend to E15 would
and related defense provisions in 40 we promulgated regulations under CAA affect fuel manufacturers (e.g., refiners
CFR 80.28. sec. 211(c)(1), which prohibit the use of and importers of gasoline), downstream
E15 in MY2000 and older motor oxygenate blenders, and retailers that
Second, we are proposing to remove make E15 at a blender pump.
vehicles, nonroad vehicles, engines, and
or modify provisions in the MMR that
equipment (including motorcycles, and a. E15 Made by Refiners, Importers, and
were imposed to effectuate the prior 1-
heavy-duty motor vehicles). CAA sec. Downstream Oxygenate Blenders
psi waiver interpretation under CAA
211(c)(1) gives EPA authority to
sec. 211(h)(4). Subsequent to the grant In this action, we are maintaining all
‘‘control or prohibit the manufacture,
of the CAA sec. 211(f)(4) partial waivers of the CAA sec. 211(f)(4) waiver
introduction into commerce, offering for
for E15, we adopted regulations under sale, or sale’’ of any fuel or fuel additive conditions for E15 as they currently
CAA sec. 211(c) to ensure that E15 (A) whose emission products, in the apply to fuel and fuel additive
would not be used in certain vehicles judgment of the Administrator, cause or manufacturers.76 CAA sec. 211(f)(1)
and engines for which the waivers did contribute to air pollution ‘‘which may operates as a prohibition against the
not apply. To do so, in addition to the be reasonably anticipated to endanger introduction into commerce of fuels and
conditions on the waivers that applied public health or welfare’’ or (B) whose fuel additives by manufacturers of fuels
to fuel manufacturers, we promulgated emission products ‘‘will impair to a and fuel additives, and CAA sec.
regulations to ensure that those same significant degree the performance of 211(f)(4) provides a mechanism to waive
conditions were enforceable on any emission control device or system that prohibition if certain criteria are
downstream parties. No changes were which is in general use, or which the met. Therefore, fuel and fuel additive
made to the RVP regulations at 40 CFR Administrator finds has been developed manufacturers are subject to any
80.27 as a direct result of our to a point where in a reasonable time it conditions that apply to a CAA sec.
interpretation under CAA sec. 211(h)(4) would be in general use’’ were the fuel 211(f)(4) waiver. Under this approach,
that the 1-psi waiver did not extend to control or prohibition adopted. We fuel and fuel additive manufacturers
gasoline-ethanol blends with an ethanol promulgated the MMR based on our would still need to produce E15 that
concentration greater than 10 percent. assessment that E15 would significantly meets the 9.0 psi RVP requirement of
Additional regulations were put in place impair the emission control systems the waiver condition, while downstream
including regulations currently found in used in MY2000 and older light-duty parties are not similarly bound. EPA’s
40 CFR 80.1504(f) and (g) (placing motor vehicles, heavy-duty gasoline fuel and fuel additive registrations
prohibitions on the commingling of E10 engines and vehicles, highway and off- (FFARs) regulations at 40 CFR 79.2(d)
and E15), and 40 CFR 80.1503 (placing highway motorcycles, and all nonroad define which parties are fuel
PTD requirements on E15). These products. This led to our conclusion manufacturers and makes clear that
regulations were put in place in order to that under CAA sec. 211(c)(1)(A), E15 parties that only blend oxygenates at
ensure that the RVP of E15 did not use in these particular vehicles, engines, allowable levels under CAA sec. 211(f)
exceed 9.0 psi in accordance with our and non-road products would likely are excluded from the definition of fuel
interpretation of CAA sec. 211(h)(4) at result in increased VOC, carbon manufacturers. We are, however, neither
the time. However, since our proposed monoxide (CO), and nitrogen oxide reopening 40 CFR 79.2(d), nor soliciting
interpretation of CAA sec. 211(h)(4) (NOX) emissions.75 The proposed comments on this provision. We will
increases the RVP allowance to 10.0 psi, regulatory changes to 40 CFR part 80, therefore treat any comments we receive
these provisions are no longer subparts B and N in this proposed on this topic as beyond the scope of this
necessary. Additionally, because the rulemaking are solely related to our rulemaking.
RVP of E15 will be approximately the proposed interpretation to allow the 1- We are not changing our
same as E10 if produced from the same psi waiver for E15 under CAA sec. interpretation of the way the CAA
amozie on DSK9F9SC42PROD with PROPOSALS2

blendstock, we do not anticipate 211(h)(4). This proposed action would controls fuels and the way our
emissions impacts from this equal not change the basis of our CAA sec. regulations regulate fuels in any way
treatment. Given that we are proposing 211(c)(1)(A) and (B) finding in the MMR other than providing the 1-psi waiver to
to interpret CAA sec. 211(h)(4) to extend that prohibits E15 from use in MY2000
76 We note, however, that under the new
to gasoline-ethanol blends of up to 15 and older light-duty motor vehicles,
substantially similar interpretive rulemaking
percent ethanol, the prohibition on the heavy-duty gasoline engines and proposed in Section II.C, such that it includes E15,
commingling of E15 and E10 is no such waiver conditions would no longer apply to
longer necessary. 75 76 FR 44422 (July 25, 2011). fuel and fuel additive manufacturers.

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00011 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
10594 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules

gasoline containing greater than 10 blending, so the 1-psi waiver is not at regulations at 40 CFR 79.2. This
volume percent ethanol as a issue. definition explicitly excludes parties
consequence of interpreting the 1-psi The 1-psi waiver for E15 would ‘‘(other than a fuel refiner or importer)
RVP waiver to apply to E15. The 1-psi function the same way, although if a who add[] an oxygenate compound to
waiver applies to all parties that blend refiner or importer were to choose to fuel in any otherwise allowable
and distribute gasoline-ethanol blends blend E15, including but not limited to amount.’’ These excluded parties may
containing at least 10 percent ethanol blending at a co-located terminal or at also be considered ‘‘oxygenate
unless specifically restricted under a terminal downstream of a refinery blenders’’ under our regulations in 40
another portion of the CAA, in this case operated by the refiner or importer, they CFR part 80.82 An ‘‘oxygenate blender’’
CAA sec. 211(f) through the 9.0 psi RVP would not be able to use the 1-psi is defined as ‘‘any person who owns,
limit on E15 from May 1 through waiver because the exclusion from the leases, operates, controls, or supervises
September 15 as a condition of its CAA definition of a ‘‘fuel manufacturer’’ only an oxygenate blending facility, or who
sec. 211(f)(4) partial waivers. The 1-psi includes a party ‘‘(other than a fuel owns or controls the blendstock or
refiner or importer).’’ 79 This means that gasoline used or the gasoline produced
RVP waiver under CAA sec. 211(h)(4) is
refiners and importers who blend E15 at an oxygenate blending facility.’’ 83 An
thus available to downstream oxygenate
would still need to comply with the ‘‘oxygenate blending facility’’ is defined
blenders who produce E15 and to
waiver conditions under CAA sec. as ‘‘any facility (including a truck) at
downstream parties who distribute and
211(f)(4). which oxygenate is added to gasoline or
sell E15, but the 1-psi waiver is not This interpretation of CAA sec. blendstock, and at which the quality or
available to fuel or fuel additive 211(f)(4) is consistent with our past quantity of gasoline is not altered in any
manufacturers since fuel and fuel treatment of CAA sec. 211(f)(1) and other manner except for the addition of
additive manufacturers must comply (f)(4)’s applicability to only fuel and fuel deposit control additives.’’ 84
with the high ozone season 9.0 psi RVP additive manufacturers, and is further While our proposed interpretation of
E15 waiver condition. supported by our actions in the MMR, CAA sec. 211(h)(4) would allow for
This is in accordance with how the which imposed regulatory requirements gasoline-ethanol blends that contain at
fuel marketplace currently functions that are similar to the E15 CAA sec. least 10 volume percent ethanol to
with regard to E10. Refiners and 211(f)(4) waiver conditions on receive the 1-psi waiver, CAA sec. 211(f)
importers currently produce or import downstream parties, to whom the and our 40 CFR parts 79 and 80 fuels
gasoline (or conventional blendstock for waiver conditions do not reach.80 The regulations continue to limit the amount
oxygenate blending (CBOB)), which can MMR was enacted ‘‘to mitigate of ethanol allowed to be blended into
then be blended with ethanol misfueling with E15 that lawfully has gasoline, and also the gasoline ethanol
downstream. It is not until that ethanol been introduced into commerce under blends that can receive the 1-psi waiver.
is blended into the gasoline or CBOB the terms of the waiver[s]. The waiver The definition of ‘‘fuel manufacturer’’
that parties are able to receive the conditions, and implementation of the also places a limitation on the ethanol
benefits of the 1-psi waiver (i.e., an RVP waiver conditions, address a closely content of the fuel. Only parties who
volatility limit of 10.0 psi). Therefore, a related but different issue—when, how ‘‘add[] an oxygenate compound to fuel
refiner’s or importer’s gasoline or CBOB and by whom E15 can be introduced in any otherwise allowable amount’’ are
must always meet a 9.0 psi RVP into commerce under the partial waiver excluded from the definition of fuel
limitation prior to the addition of decisions. This rule only addresses the manufacturer.85 This provision only
ethanol.77 However, because the CAA issue of mitigating misfueling in the allows the addition of oxygenate
sec. 211(f)(4) waiver for E10 was granted event E15 is lawfully introduced into compounds up to the amount of any
by operation of law, and thus did not commerce under the partial waivers, CAA sec. 211(f)(4) waiver, or any
contain a waiver condition limiting the and is issued under EPA’s authority allowable oxygen content under our
RVP to 10.0 psi, in contrast to E15, under section 211(c).’’ 81 interpretation of the meaning of
refiners and importers can take As discussed above, CAA sec. 211(f) ‘‘substantially similar.’’ A party who
advantage of the 1-psi waiver for E10. It imposes limitations on fuel and fuel unlawfully adds an oxygenate
should be noted, however, that if additive manufacturers. All fuel and compound in a volume that exceeds the
another part of the CAA or EPA fuel additive manufacturers must meet oxygen content limit in the
the statutory requirements of CAA sec. interpretative definition of
regulation precludes the 1-psi waiver,
211(f)(1) or the waiver conditions ‘‘substantially similar’’ or the CAA sec.
for example, reformulated gasoline
imposed under a CAA sec. 211(f)(4) 211(f)(4) waiver condition, or who adds
(RFG) required under CAA sec. 211(k)
waiver. As previously explained fuel anything other than an oxygenate
or a low-RVP fuel program established
manufacturers are defined in our compound allowed by the substantially
in a state implementation plan, parties
cannot take advantage of the 1-psi similar interpretative rule, is a fuel
79 If a separate party operated a terminal co-
waiver for E10 or E15.78 In such manufacturer, and does not receive the
located with a refinery and the party was excluded
circumstances, however, the same from the definition of fuel manufacturers under 40
1-psi waiver for fuels containing at least
CBOBs already supplied for E10 CFR 79.2(d)(2), the party that operated the co- 10 percent ethanol.
located terminal would be not be subject to the E15 The result is that any party who is not
blending can already be used for E15 waiver conditions. As previously noted, we are a refiner or importer that produces E15
neither reopening this provision for comments nor
77 In fact, as discussed above, downstream parties soliciting comments on it and any comments on it
from only certified gasoline (including
CBOB) and denatured fuel ethanol
amozie on DSK9F9SC42PROD with PROPOSALS2

can only be deemed in compliance under CAA sec. we receive will be treated as beyond the scope of
211(h)(4)(A) if the gasoline or CBOB met the this rulemaking. would be entitled to the 1-psi waiver
applicable RVP standard prior to the addition of the 80 See 76 FR 44421 (July 25, 2011) (enacting E15
just as is the case currently when such
ethanol. MMR provisions ‘‘to ensure that E15 being sold at parties produce E10. This could occur at
78 During the pre-proposal development process, retail stations was in compliance with the RVP
we received a document related to whether condition of the E15 waiver and that an E10 fuel
82 40 CFR 80.2.
allowing E15 the 1-psi waiver would result in states that used the 1.0 psi RVP waiver under CAA sec.
83 Id.
being preempted under CAA sec. 211(c)(4). Please 211(h) was not commingled with E15, which must
see ‘‘RVP Preemption Memorandum’’ in the docket have a lower RVP in the summertime’’). 84 Id.

at EPA–HQ–OAR–2018–0775 for this document. 81 See 76 FR 44440 (July 25, 2011). 85 40 CFR 79.2(d).

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00012 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules 10595

a downstream terminal where ethanol is 80 regulations because they blend made.89 The proposed REGS rule also
added along with gasoline to a tank uncertified gasoline blendstocks into proposed to remove the FFARS
truck for delivery to a retail station. This gasoline.87 Under our regulations in 40 requirements under 40 CFR part 79 for
could also occur at retail stations that CFR part 80 (covering implementation blender pump operators that make
blend E15 onsite using blender pumps of our fuels control programs), any party gasoline via a blender pump. Since
that utilize either gasoline and that blends uncertified blendstocks into those proposed provisions have not
denatured fuel ethanol as blendstocks gasoline is a gasoline refiner and must been finalized, the only way for a
onsite, or that use gasoline (either E0 or meet all requirements applicable to blender pump operator to lawfully make
E10) and E85 86 as blendstocks onsite so gasoline refiners under 40 CFR part 80. E15 at a blender pump is to make E15
long as that E85 had itself been These requirements include, but are not with certified gasoline and E85 made
produced solely from denatured fuel limited to, sampling and testing each from ethanol and certified gasoline (or
ethanol and certified gasoline (or batch of gasoline for conformance to CBOB) or to comply with all
CBOB). EPA’s fuel standards, demonstrating requirement applicable to refiners and
compliance with annual average sulfur fuel manufacturers.
b. E15 Made at Blender Pumps and benzene standards, registering as a
For the reasons described in this Finally, and perhaps most
gasoline refiner under 40 CFR part 80,
section, a retail station that blends E15 importantly, even if we finalize the
submitting periodic and annual
using E85 that contains hydrocarbons proposed REGS rule and allow blender
compliance reports, and arranging for an
not certified as gasoline or blendstock pumps to make gasoline at blender
annual audit by an independent auditor.
for oxygenate blending (BOB) (e.g., the pumps and exempt blender pump
These requirements were put in place to
natural gas liquids that are often used at operators from complying with the
help ensure that parties downstream of
ethanol plants to denature ethanol and requirements for gasoline refiners and
gasoline refineries did not adversely
make E85) would not be entitled to the fuel manufacturers, based on
affect fuel quality in ways that damaged
1-psi waiver. information received during the
vehicle and engine emission controls
First, parties that produce E15 via a and helped ensure that the air quality comment period of the proposed REGS
blender pump using E85 made with benefits of our fuel quality regulations rule, it is likely that E15 made at
ethanol and natural gas liquids (i.e., an are met. blender pumps with E85 produced from
uncertified gasoline blendstock) are fuel Third, under our FFARS regulations natural gas liquids would often violate
manufacturers under our existing 40 in 40 CFR part 79, parties that blend the applicable RVP standards even with
CFR part 79 regulations (covering uncertified blendstocks into gasoline are the 1-psi waiver. Natural gas liquids
registration of fuels and additives), and fuel manufacturers and must register often have RVP levels well above 10.0
as such are subject to the 9.0 psi RVP their fuels and fuel additives as required psi. Adding such potentially highly
condition under the existing E15 CAA under the CAA. In the case where a volatile components to E15 (via E85) in
sec. 211(f)(4) waivers. Any party that blender pump produces E15 by significant concentrations would result
blends an uncertified gasoline blending a certified gasoline (typically in a finished E15 with a volatility in
blendstock into gasoline is a fuel E10) with E85 that contains uncertified excess of 10.0 psi RVP. Therefore, in
manufacturer under our 40 CFR part 79 blendstocks (e.g., natural gas liquids), this proposal, only E15 produced using
regulations because they are altering the the operator of the blender pump meets certified gasoline (or CBOB) and
chemical composition of a fuel. the definitions of both a gasoline refiner denatured fuel ethanol would be eligible
Regardless of our proposed under 40 CFR part 80 and a fuel for the 1-psi waiver.
interpretation of CAA sec. 211(h)(4), manufacturer under 40 CFR part 79 and c. Summary and Conclusion
then, any such parties that produce E15 must comply with associated
are still subject to the 9.0 psi RVP requirements. Table II.B.4.c–1 summarizes how we
standard. E15 made at blender pumps We proposed to address this situation believe the E15 partial waiver
may only receive the proposed in the Renewables Enhancement and conditions imposed via CAA sec.
extension of the 1-psi waiver in Growth Support (REGS) rule 88 by 211(f)(4) and the 1-psi waiver under
instances where an oxygenate blender proposing provisions that would control CAA sec. 211(h)(4) would apply to fuel
blends certified gasoline (or CBOB) with the sulfur, benzene, and volatility of E85 manufacturers, downstream oxygenate
E85 made from ethanol and certified used to make E15 via a blender pump, blenders, and retailers that make E15 via
gasoline (or CBOB). which would allow gasoline made via a blender pump as a result of our
Second, such parties are also gasoline blender pumps to meet applicable EPA proposed interpretation to allow E15 to
refiners under our existing 40 CFR part fuel quality standards and lawfully be receive the 1.0 psi waiver.

TABLE II.B.4.C–1—SUMMARY OF E15 1-psi WAIVER APPLICABILITY BY PARTY


Can take Subject to E15 Could lawfully
advantage of the waiver make/sell E15 at
1-psi waiver? conditions? 10 psi in summer?

Fuel Manufacturers ............................................................................................. Yes ......................... Yes ......................... No.


Oxygenate Blenders ........................................................................................... Yes ......................... No .......................... Yes.
amozie on DSK9F9SC42PROD with PROPOSALS2

86 For purposes of this preamble, E85 means a complies with our sampling and testing proposed limitations on the use of fuels that a
gasoline-ethanol blended fuel that contains at least requirements at 40 CFR 80.65, 80.101, and 80.1640. blender pump operator could use to make
50 volume percent ethanol but no more than 83 88 See 81 FR 80841 (November 16, 2016). compliant gasoline. In general, under the proposed
volume percent ethanol. We use the term E85 as the 89 In the proposed REGS rule, to specifically REGS rule, blender pump operators would need to
market has historically and commercially identified
address the issue of E10, E15, and other gasoline- use certified gasoline and certified E85 to assure
such fuels as E85.
87 The regulations at 40 CFR part 80 allow for ethanol blended gasolines (i.e., gasoline containing compliance with EPA’s gasoline fuel quality
parties to blend uncertified gasoline blendstock into between 16 and 50 volume percent ethanol or standards under 40 CFR part 80. See 81 FR 80847–
previously certified gasoline as long as the party ‘‘E16–50’’) produced at a blender pump, we 80848 (November 16, 2016).

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00013 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
10596 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules

TABLE II.B.4.C–1—SUMMARY OF E15 1-psi WAIVER APPLICABILITY BY PARTY—Continued


Can take Subject to E15 Could lawfully
advantage of the waiver make/sell E15 at
1-psi waiver? conditions? 10 psi in summer?

Retailers that make E15 with E85 made with gasoline/BOB ............................. Yes ......................... No .......................... Yes.
Retailers that make E15 with E85 made with something other than gasoline/ Yes ......................... Yes ......................... No.
BOB.

As mentioned above, under our Alternatively, we propse that E15 with for our proposed interpretative
proposed interpretation, all parties can an RVP of 9.0 psi is sub sim to fuel used rulemaking.
take advantage of the 1-psi waiver to certify Tier 3 light-duty vehicles.
unless they are precluded from doing so Either of these new interpretations of 1. Statutory Framework
by some other requirement. We believe sub sim would increase the allowable The Air Quality Act of 1967 and the
that the E15 waiver condition limiting concentration of ethanol blended into CAA of 1970 established the basic
the RVP of E15 to 9.0 psi during the gasoline to up to 15-volume-percent framework for EPA fuels regulation.
summer would preclude fuel because we believe that E15 is sub sim CAA sec. 211(a) allows EPA to designate
manufacturers (i.e., refiners and to Tier 3 E10 certification fuel. fuels and fuel additives for registration.
importers) from being able to introduce E15 would have similar effects on
CAA sec. 211(b) sets forth registration
E15 into commerce under CAA sec. emissions (exhaust and evaporative),
requirements for fuels and fuel additives
211(f), but would not preclude materials compatibility, and driveability
for light-duty motor vehicles certified and authorizes EPA to require health
downstream oxygenate blenders that and environmental effects testing for the
were not otherwise fuel manufacturers using Tier 3 E10 certification fuel.91
This proposed interpretative rule registration of fuels and fuel additives.
from blending E15. For retailers that CAA sec. 211(c) authorizes EPA to
blend E15 using E85 made from would, if finalized, make it lawful for
refiners and importers (e.g., fuel regulate or prohibit fuels or additives for
denatured fuel ethanol (‘‘DFE’’) and use in motor (or nonroad) vehicles or
certified gasoline (or CBOB) via a manufacturers as described in 40 CFR
79.2(d) discussed above) to make and engines if: (A) ‘‘any fuel or fuel additive
blender pump, those parties are acting or any emission product of such fuel or
analogous to downstream oxygenate introduce into commerce E15 at 10.0 psi
RVP without the use of the E15 partial fuel additive causes, or contributes, to
blenders and could lawfully make E15.
waivers since we would now interpret air pollution . . . that may reasonably
For all of the reasons described above,
E15 as sub sim to Tier 3 E10 be anticipated to endanger the public
for retailers using E85 made with
certification fuel. We are proposing two health or welfare, or (B) if emission
anything other than DFE and certified
alternative interpretations of the sub sim products of such fuel or fuel additive
gasoline (or CBOB), those parties are
provision for E15. First, we are will impair to a significant degree the
acting analogous to fuel manufacturers
proposing that E15 at 10 psi RVP is performance of any emission control
and could not lawfully make E15.
substantially similar to Tier 3 E10 device or system.’’
We seek comment on our proposed
interpretation of CAA sec. 211(h)(4) as certification fuel at 9 psi RVP. In the CAA Amendments of 1977,
specifying a minimum ethanol content Alternatively, we are proposing that E15 Congress established CAA sec. 211(f)(1),
for fuel blends containing gasoline and at 9 psi is substantially similar to Tier which prohibits manufacturers from
ethanol as well as these implementing 3 E10 certification fuel at 9 psi RVP. In first introducing into commerce any fuel
requirements. Under this construct, only conjunction with our interpretation of or fuel additive for general use in light-
certain regulated parties that produce CAA sec. 211(h)(4) described above, this duty vehicles that is not ‘‘substantially
and distribute E15 would be able to would allow all fuel manufacturers, not similar to any fuel or fuel additive
avail themselves of the 1-psi waiver. only downstream oxygenate blenders, utilized in the certification of any model
the ability to lawfully introduce into year 1975, or subsequent model year,
C. Proposed Interpretation of commerce E15 at 10.0 psi RVP from vehicle.’’ If a fuel or fuel additive is not
‘‘Substantially Similar’’ for Gasoline May 1 through September 15. sub sim, a fuel or fuel additive
This action proposes a new Prohibitions on the use of E15 in 2000 manufacturer may obtain a waiver
interpretation of ‘‘substantially similar’’ and older MY light-duty vehicles that under CAA sec. 211(f)(4) if the
which defines which fuels are currently apply as conditions of the manufacturer can demonstrate that the
substantially similar to Tier 3 E10 CAA sec. 211(f)(4) waiver and as new fuel or fuel additive ‘‘will not cause
certification fuel under CAA sec. regulations established under CAA sec. or contribute to a failure of any emission
211(f)(1), as an alternative to the 211(c), as well as the use of E15 in other control device or system (over the useful
approach described above which would vehicles, engines, and equipment not life of the motor vehicle, motor vehicle
apply the CAA sec. 211(f)(4) waiver and covered by the E15 partial waivers, engine, nonroad engine, or nonroad
its associated conditions.90 Specifically, would remain in place, and parties that vehicle in which such device or system
we are proposing that E15 with an RVP make and distribute E15 and ethanol for is used) to achieve compliance by the
of 10.0 psi is sub sim to fuel used to use in producing E15 would still need vehicle or engine with the emission
amozie on DSK9F9SC42PROD with PROPOSALS2

certify Tier 3 light-duty vehicles (i.e., to satisfy the MMR requirements under standards with respect to which it has
E10 with an RVP of 9.0 psi). 40 CFR part 80, subpart N. This section been certified.’’ Together, these CAA
outlines the background and rationale sec. 211(f) provisions were designed to
90 Tier 3 vehicles must be certified on fuels prevent fuels and fuel additives from
described at 40 CFR 1065.710(b). For purposes of 91 Auto manufacturers certified some light-duty
being introduced into commerce that
this preamble, we refer to certification test fuel used motor vehicles using E10 certification fuel as early
in certification testing for Tier 3 motor vehicles that as MY2017 and almost all auto manufacturers must
would degrade the emission
contains 10-volume-percent ethanol as ‘‘Tier 3 E10 certify their light-duty motor vehicles using E10 performance of the existing fleet and
certification fuel’’. certification fuel by MY2020. protect vehicle manufacturers from their

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00014 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules 10597

vehicles consequently failing emission the United States.’’ 95 Since MY2004, provides that we may by regulation
standards in use. service accumulation fuel used for place controls or prohibitions on fuels
As discussed above, in the CAA evaporative system aging must contain and fuel additives to protect public
Amendments of 1990, Congress added the highest concentration of ethanol health or welfare or protect emission
CAA sec. 211(h) to address the volatility available in the market. After EPA control devices or systems.97 In our past
of gasoline, which largely codified partially granted the waivers for E15 in interpretations defining what physical
EPA’s then-new RVP regulations. 2010 and 2011, we notified and chemical characteristics are
Accordingly, entirely separate from manufacturers in early 2012 that new necessary to make a fuel or fuel additive
CAA sec. 211(f), CAA sec. 211(h)(1) evaporative emission families must be ‘‘sub sim’’ to certification test fuel, we
prohibits the sale of gasoline with an aged on E15 under 40 CFR 86.1824– have taken three primary factors into
RVP in excess of 9.0 psi during the high 08(f)(1). We believe that auto account: (1) Emissions, (2) materials
ozone season (while allowing EPA to manufacturers began evaporative system compatibility, and (3) drivability.98
promulgate more stringent RVP aging on E15 as early as MY2014. We initially specified that fuel with
requirements for nonattainment areas), oxygen content up to 2.0 weight percent
3. History of Sub Sim Interpretations
and CAA sec. 211(h)(4) provides a 1.0 is sub sim to certification test fuel.99 We
psi RVP allowance for ‘‘fuel blends EPA has issued four interpretative later revised the definition to allow
containing gasoline and 10 percent’’ rules that defined the meaning of oxygen content up to 2.7 weight percent
ethanol. ‘‘substantially similar’’ for gasoline. for gasoline containing aliphatic ethers
These interpretive rules describe the and/or alcohols (excluding methanol),
2. Certification Fuels types of unleaded gasoline that are finding, based on data and our
Historically, two fuels are utilized in considered substantially similar to the experience with CAA sec. 211(f)(4)
EPA’s emissions standards certification unleaded gasoline utilized in our waiver applications, that such levels
of gasoline-powered vehicles and vehicle and engine certification would not result in emissions, materials
engines: standardized gasoline with programs by placing limits on a compatibility, or drivability problems
controlled parameters to ensure gasoline’s chemical composition and compared with certification test fuel.100
consistency across vehicle and engine physical properties, including the types
Thus, we have a history of establishing
certification used in emissions testing, and amount of alcohols and ethers
maximum oxygen content as a criterion,
and commercially available mileage (oxygenates) that may be added to
in addition to other criteria, for
accumulation fuels used to ensure gasoline. Fuels that are found to be
determining whether a fuel or fuel
durability in use of exhaust and substantially similar to our certification
additive is substantially similar to a fuel
evaporative emissions controls.92 fuels may be introduced into commerce.
utilized in certification.
Historically the fuel used in emissions Each of our past interpretative rules
provided an allowance for oxygenates With respect to fuel volatility, our sub
testing (‘‘certification test fuel’’)
within the gasoline. We last issued an sim interpretations have specified that
contained no oxygenates (e.g., ethanol)
interpretative rule in 2008 on the phrase in order to qualify as sub sim to
and was often referred to by its brand
‘‘substantially similar’’ for gasoline.96 certification test fuel, which has
name, ‘‘indolene.’’
The current substantially similar historically had an RVP of 9.0 psi, fuels
In the 2014 Tier 3 rulemaking, we
interpretative rule for unleaded gasoline need only ‘‘meet ASTM standards in
updated the certification test fuel for
allows oxygen content up to 2.7 percent general, that is, not necessarily for every
Tier 3 certified motor vehicles and
by weight for certain ethers and geographic location and time of
changed the certification test fuel from
alcohols. Despite having changed year.’’ 101 To qualify as sub sim, gasoline
E0 to E10 to reflect the widespread use
certification test fuel to include 10 (whether or not containing ethanol)
of E10 in the marketplace.93 The
volume percent ethanol, prior to this ‘‘must possess, at time of manufacture,
requirement to use Tier 3 E10
proposed action, we have not addressed all the physical and chemical
certification fuel may have applied as
what should be considered substantially characteristics of an unleaded gasoline
early as MY2015 if a manufacturer
similar to Tier 3 E10 certification fuel as specified in ASTM D 4814–88 for at
elected to comply early with the Tier 3
utilized in Tier 3 light duty vehicle least one of the Seasonal and
vehicle emissions standards, but the
certification. Geographical Volatility Classes
requirement to use E10 in at least some
In defining what qualifies as sub sim specified in the standard.’’ 102
vehicles began with MY2017. Almost all
MY2020 and newer vehicles must be to certification fuels, we have listed 4. Criteria for Determining Whether a
certified for emissions testing with Tier general physical and chemical Fuel is ‘‘Substantially Similar’’
3 E10 certification fuel with some characteristics, such as oxygen content,
because fuels and fuel additives meeting In order to be substantially similar, a
exceptions for small volume vehicle
these general ‘‘sub sim’’ characteristics fuel or fuel additive must be sub sim to
manufacturers, which must use Tier 3
will ‘‘not adversely affect emissions.’’ If a fuel used in the certification of any
E10 certification fuel by MY2022.
Service accumulation fuel for we were to later find that a fuel or fuel vehicle or engine under CAA sec. 206.
durability must be representative of additive that satisfies the physical and To make this determination, we have
commercially-available gasoline 94 and chemical sub sim characteristics ‘‘may generally considered the effects of a fuel
reasonably be anticipated to endanger or fuel additive on emissions (exhaust
evaporative emissions durability must
public health or welfare’’ or ‘‘impair to and evaporative), materials
‘‘employ gasoline fuel for the entire
a significant degree the performance of compatibility, and driveability for motor
mileage accumulation period that
amozie on DSK9F9SC42PROD with PROPOSALS2

contains ethanol in, at least, the highest any emission control device or system,’’
97 See 45 FR 67443 (October 10, 1980).
concentration permissible in gasoline either in general or in particular
98 See 56 FR 5352 (February 11, 1991).
under federal law and that is vehicles or circumstances, we have 99 See 45 FR 6743 (October 10, 1980). 2.0 wt%
commercially available in any state in authority to regulate that fuel or fuel oxygen equates to approximately 5.7 vol% ethanol.
additive under CAA sec. 211(c), which 100 See 56 FR 5352 (February 11, 1991). 2.7 wt%
92 See 46 FR 38582 (July 28, 1981). oxygen equates to approximately 7.7 vol% ethanol.
93 See 79 FR 23414 (April 28, 2014). 95 See 40 CFR 86.1824–08(f)(1). 101 See 46 FR 38585 (July 28, 1981).
94 See 40 CFR 86.113–15(a)(5). 96 See 73 FR 22281 (April 25, 2008). 102 See 73 FR 22281 (April 25, 2008).

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00015 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
10598 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules

vehicles and motor vehicle engines long-term durability impacts of the EPAct study statistical models
certified under CAA sec. 206.103 operating on E15 blends would prevent estimate approximately 2% higher NOX,
In this proposed CAA sec. 211(f)(1) MY2001 and newer light-duty vehicles 4% lower NMOG, 2% lower CO, and
interpretative rulemaking, we consider from complying with their full useful 2% higher PM for E15 compared to the
whether E15 is substantially similar to life emission standards.104 This decision E10 fuels used in the DOE study. If we
Tier 3 E10 certification fuel when used was supported by a large study instead assume an E15 splash blend
in Tier 3 light-duty vehicles. The scope conducted by DOE that tested 16 high- starting from a typical E10 market fuel,
of that comparison is relatively narrow sales vehicles spanning model years the EPAct study models project 2%
for two reasons. First, CAA sec. 211(f)(1) 1999–2007 using ethanol splash blends higher NOX, 2% higher NMOG, 2%
only requires a consideration of the made from Tier 2 certification gasoline lower CO, and 4% higher PM. Since
potential impacts on light-duty motor (E0).105 Analysis of the resulting data these figures represent the output of
vehicles and motor vehicle engines. In shows that the E15 blend produced models whose coefficients survived a
this regard, CAA sec. 211(f)(1) is approximately 5% higher NOX, 4% process of statistical testing, they are
different than what an applicant must higher NMOG, and 4% lower CO meaningful despite being small. This
demonstrate in a waiver under CAA sec. compared to E10, though none of these type of analysis is different from
211(f)(4) from the restrictions of CAA differences was statistically significant. performing a test for significant
sec. 211(f)(1). CAA sec. 211(f)(1) is This work did not measure PM differences directly on paired emission
focused on motor vehicles and motor emissions, but the expectation at the measurements, as is presented for the
vehicle engines under CAA sec. 206 and time was that PM should react to other studies discussed below, where
applies to a broad class of fuels. A CAA ethanol in a similar way as NMOG measured differences may be
sec. 211(f)(4) waiver, on the other hand, emissions. statistically insignificant due to the
requires that a specific fuel not cause or Since the time of the 2010 waiver limited scope of the test program and/
contribute any vehicle or engine decision, additional data have been or the number of variables left
certified under CAA sec. 206 and 213 to published on the effects of ethanol uncontrolled.
exceed emission standards over the blends on Tier 2 vehicles. The EPAct/ Two studies published in 2017 and
useful life of the vehicle or engine. V2/E–89 study (referred to as ‘‘EPAct 2018 by CRC, projects E–94–2 and E–
Thus, the scope of vehicles and engines study’’), jointly conducted by EPA, 94–3, respectively, examined the effects
considered to determine whether a fuel DOE/National Renewable Energy of ethanol and PM Index on PM and
is substantially similar under CAA sec. Laboratory (NREL), and the other emissions from MY2012–2015
211(f)(1) is significantly narrower than Coordinating Research Council (CRC) in Tier 2 vehicles, all with gasoline direct
the scope of vehicles and engines that 2009–2010, looked at the effects of five injected (GDI) engines and several with
must be considered by EPA for a waiver fuel properties, including ethanol turbocharging.108 109 Results for the
to be granted under CAA sec. 211(f)(4). concentration, on emissions from 15 overall test fleet of 16 vehicles in E–94–
Second, under CAA sec. 211(f)(1), the high-sales light-duty vehicles from 2 showed no statistically significant
sub sim determination need only MY2008. Measurements included PM, a effect of E10 match blends 110 relative to
demonstrate that E15 is sub sim to a fuel pollutant for which its relationship to E0 for total hydrocarbons (THC), NOX,
used in certification of a 1975 or later fuel properties had previously not been or CO, while PM increased by 19% for
MY vehicle or engine, not substantially examined in much detail for gasoline the regular-grade (87 AKI) test fuels. The
similar to all certification fuels required vehicles. The size and scope of this E–94–3 study tested a four-vehicle
and used historically (e.g., E0 for light- study allowed for statistical models to subset on four E10 splash blends made
duty vehicles and trucks prior to Tier 3) be developed that could be used to from the E0 fuels in E–94–2, and found
to assess compatibility and emission correlate the impacts of the five fuel a PM increase of 21% on average,
performance. In this case, the sub sim properties, including ethanol consistent with the effect found in the
determination demonstrates that E15 is concentration, on emissions, enabling larger E94–2 study. Assuming this PM
sub sim to Tier 3 E10 certification fuel. projections to be made of the emission effect is linear over small fuel changes,
impacts of a wide range of fuels, not we would expect around 10% higher
5. Technical Rationale and Discussion limited to those tested. Results generally PM when moving from E10 to E15.
As discussed above, we have confirmed the NOX and CO emission Comparing these results to the EPAct
considered whether a fuel has similar impacts described above, while study and DOE study above suggests
effects on emissions, materials indicating that ethanol’s effects on that later-technology vehicles with
compatibility, and driveability when NMOG and PM are more complex and direct injection have equal or lower
determining whether a fuel is depend on other fuel parameters, such
substantially similar to certification as the fuel’s distillation profile and 108 Morgan, Peter; Smith, Ian; Premnath, Vinay;

fuel. Based on existing data and our aromatics content.106 107 For example, Kroll, Svitlana; Crawford, Robert. ‘‘Evaluation and
Investigation of Fuel Effects on Gaseous and
engineering judgement, we have Particulate Emissions on SIDI In-Use Vehicles’’.
concluded that E15, with its additional 104 See 75 FR 68096 (November 4, 2010). SwRI 03.20955. Southwest Research Institute, San
105 Knoll, K., West, B., Huff, S., Thomas, J. et al.,
oxygen content relative to Tier 3 E10 Antonio, TX. CRC E–94–2. Coordinating Research
‘‘Effects of Mid-Level Ethanol Blends on Council, Alpharetta, GA. March 2017.
certification fuel, would have effects on Conventional Vehicle Emissions,’’ SAE Technical 109 Morgan, Peter; Lobato, Peter; Premnath, Vinay;
emissions, materials compatibility, and Paper 2009–01–2723, 2009. Kroll, Svitlana; Brunner, Kevin; Crawford, Robert.
drivability substantially similar to E10 106 EPA Office of Transportation and Air Quality.
‘‘Impacts of Splash-Blending on Particulate
in Tier 3 vehicles. ‘‘EPAct/V2/E–89: Assessing the Effect of Five Emissions for SIDI Engines’’. SwRI 03.20955–1.
amozie on DSK9F9SC42PROD with PROPOSALS2

Gasoline Properties on Exhaust Emissions from Southwest Research Institute, San Antonio, TX.
a. Exhaust Emissions Light-Duty Vehicles Certified to Tier 2 Standards: CRC E–94–3. Coordinating Research Council,
Final Report on Program Design and Data Alpharetta, GA. June 2018.
In the 2010 CAA sec. 211(f)(4) partial Collection’’. EPA–420–R–13–004. April 2013. 110 Matched blended fuels are fuels that have

waiver for E15, we concluded from 107 Butler, A., Sobotowski, R., Hoffman, G., and been crafted to control fuel parameters (e.g.,
available data that neither the Machiele, P., ‘‘Influence of Fuel PM Index and distillation parameters and RVP) after the blending
Ethanol Content on Particulate Emissions from of ethanol typically for research and testing
immediate combustion effects nor the Light-Duty Gasoline Vehicles,’’ SAE Technical purposes. This is contrasted with splash blended
Paper 2015–01–1072, 2015, doi:10.4271/2015–01– fuels, which are not controlled to specifically
103 See, e.g., 56 FR 5354 (February 11, 1991). 1072. account for the blending of ethanol.

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00016 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules 10599

sensitivity to ethanol blending for evaluate PM emissions from ethanol and (6) unintended leaks due to
gaseous emissions, but may be more blending. deterioration/damage that is now largely
sensitive for PM. While some criteria pollutants would monitored through onboard diagnostic
Another study published in 2018 by have relative and real increases (NOX standards.
the University of California, Riverside and PM) and others have similar For hot soak, permeation, and
Center for Environmental Research and decreases (VOC and CO) on E15 unintended leak evaporative emissions,
Technology (‘‘CE–CERT’’) looked at the compared to E10, these changes are we expect that E15 would have a similar
effects of ethanol and aromatics on relatively small. In the E15 partial effect as Tier 3 E10 certification fuel. In
emissions from five vehicles spanning waivers, we determined that effects of the E15 partial waivers, we stated that
model years 2016 to 2017, all with GDI this magnitude were too small to cause we did not expect that E15 would have
engines and certified to either Tier 3 or or contribute 2001 and newer light-duty an effect on hot soak, permeation, and
LEV III standards.111 The test fuels vehicles to exceed the vehicles’ certified unintended leak evaporative emissions
included E0, E10, and E15 blends that exhaust emissions standards and we based on a review of the data and on the
were closely matched on aromatic expect that this would also be the case fact that auto manufacturers have been
content (at two levels, 21% and 29% for Tier 3 certified vehicles. While CAA required to age vehicles on E10 for
volume) but the mid-point distillation sec. 211(f)(1) does not define specific evaporative emissions durability testing
temperature (T40–T50) was criteria for how to determine whether an since MY 2004. We are not aware of any
uncontrolled, and varied ethanol blend is substantially similar to information suggesting that Tier 3
significantly.112 Results of this study certification test gasoline, we believe vehicles would behave differently since
showed no statistically significant that the small changes in exhaust they are aged for evaporative emissions
difference in NOX, non-methane emissions from E15 relative to Tier 3 durability on E15 and certified on Tier
hydrocarbons (NMHC), or PM when E10 certification fuel used in Tier 3 3 E10 certification fuel. Furthermore, in
comparing E15 to E10 blends at either certified vehicles are within the scope of our review of the testing of permeation
aromatics level. what we have determined to be sub sim on pre-Tier 3 vehicles (i.e., prior to
While there are limited data on Tier in our prior sub sim interpretive changes made to address permeation) in
3 vehicles, the results of the Tier 2 and rulemakings. Therefore, we believe that the E15 partial waiver decisions, while
Tier 3 vehicle studies cited above are E15 is sub sim to Tier 3 E10 certification ethanol was shown to significantly
nevertheless largely consistent with fuel from the perspective of exhaust worsen permeation emissions, there was
each other given that ethanol blending emissions. However, we seek comment no discernable worsening of the impacts
also affects many other fuel properties, and request any additional information at higher ethanol concentrations.116
and given that ethanol is blended into related to the potential effects on the Consequently, we do not anticipate
gasolines in different ways that affect exhaust emissions of E15 compared to permeation emissions with E15 to be
the collateral property changes Tier 3 E10 certification fuel, particularly any higher than with E10.
differently. This makes it difficult to in Tier 3 certified vehicles given the We are proposing two alternative
interpret trends across the body of limited data currently available. approaches to assessing the evaporative
literature without detailed information b. Evaporative Emissions emissions impacts of E15 with regard to
on multiple fuel properties. However, the volatility of the fuel. First, we
EPA has set evaporative emission
since the early 1990s, a number of compare E15 at 10.0 psi to Tier 3 E10
standards for motor vehicles since 1971.
programs have studied the effects of certification fuel at 9.0 psi to evaluate
During the ensuing years, these
ethanol on emissions from earlier differences in evaporative emissions
evaporative standards have continued to
vintage vehicles, and based on these from refueling, diurnal, and running
evolve, resulting in additional
studies, emissions models have been loss emissions sources. Alternatively,
evaporative emissions reductions.
published, including the Complex we compare E15 at 9.0 psi, the fuel
Consideration of whether E15 is
Model,113 Predictive Model,114 and without a 1-psi waiver under CAA sec.
substantially similar to Tier 3 E10
MOVES simulator,115 and the results 211(h)(4), to Tier 3 E10 certification fuel
certification fuel for evaporative
from the more recent studies are also at 9.0 psi.
emissions requires consideration of the
largely consistent with them. Namely, applicable evaporative emissions Refueling, diurnal, and running loss
ethanol blending causes slight increases standards to which the particular motor evaporative emissions increase as fuel
in NOX emissions and slight decreases vehicles were certified, in this case Tier volatility increases, with gasoline with
for CO emissions. Earlier studies did not 3 motor vehicles. There are now six an RVP of 10.0 psi producing
main components to motor vehicle significantly more vapor for the
111 Karavalakis, G; Durbin, T; Yang, J; Roth, P.,
evaporative emissions that are evaporative emission control system to
‘‘Impacts of Aromatics and Ethanol Content on capture and purge through the engine
Exhaust Emissions from Gasoline Direct Injection important for our standards: (1) Diurnal
(GDI) Vehicles’’. University of California, CE–CERT, (evaporative emissions that come off the than gasoline with an RVP of 9.0 psi.117
April 2018. fuel system as a motor vehicle heats up However, because we specifically
112 The EPAct study found T50 to have a
during the course of the day); (2) addressed gasoline volatility in our
meaningful and statistically significant impact on prior 1981, 1991, and 2008 sub sim
NMOG, NMHC, NOX, and PM emissions. refueling emissions (evaporative
113 See ‘‘Complex Model Used to Analyze RFG emissions that come off the fuel system reinterpretations,118 we are not
and Anti-dumping Emissions Performance as the vehicle is refueled); (3) hot soak proposing to modify our long-standing
Standards,’’ available at https://www.epa.gov/fuels- (evaporative emissions that come off a
amozie on DSK9F9SC42PROD with PROPOSALS2

registration-reporting-and-compliance-help/ 116 See 75 FR 68115–68120 (November 4, 2010)

complex-model-used-analyze-rfg-and-anti-
hot motor vehicle as it cools down after and 76 FR 4675–4681 (January 26, 2011).
dumping. the engine is shut off); (4) running loss 117 These effects are discussed more in Section
114 See ‘‘California Gasoline Predictive Models, (evaporative emissions that come off the II.E.
and CARBOB Model Development,’’ available at fuel system during motor vehicle 118 See 46 FR 38582 (July 28, 1981), 56 FR 5352
https://www.arb.ca.gov/fuels/gasoline/premodel/ operation); (5) permeation (evaporative (February 11, 1991), and 73 FR 22277 (April 25,
pmdevelop.htm. 2008), respectively. Historically, we have defined
115 See ‘‘Moves and Other Mobile Source emissions that come through the walls sub sim with regards to volatility as being anything
Emissions Models,’’ available at: https:// of elastomers in the fuel system and are within the general ASTM specifications for
www.epa.gov/moves. measured as part of the diurnal test); volatility for any location and time of year.

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00017 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
10600 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules

approach to controlling volatility in this certification fuel at 9.0 psi RVP during c. Materials Compatibility
action, and because there are not the summer. This would allow us, from Materials compatibility is a key factor
refueling, diurnal, or running loss a technical standpoint, to consider the in considering what fuels or fuel
evaporative emission impacts of E15 impacts of RVP on evaporative additives are sub sim to certification
relative to Tier 3 E10 certification fuel emissions, and in particular on fuel, insofar as poor materials
apart from RVP, we do not believe these refueling, diurnal, and running loss compatibility can lead to serious
evaporative emission impacts are evaporative emissions under CAA sec. exhaust and evaporative emission
relevant to our proposed interpretation 211(f)(1). Refueling, diurnal, and compliance problems not only
of sub sim. Furthermore, our existing running loss evaporative emissions are immediately upon use, but especially
regulations promulgated under CAA mostly a function of volatility of the over the full useful life of vehicles and
sec. 211(c) and 211(h) are a sufficient fuel. Therefore, if two fuels have the engines. In the E15 partial waivers, we
mechanism to control the RVP of same RVP, the expected evaporative determined that the use of E15 in
gasoline. Since this interpretation emissions from the two fuels would be MY2001 and newer light-duty motor
primarily responds to the fact that we similar. In this situation, since there is vehicles ‘‘will not [result in] materials
have now changed Tier 3 certification no difference in RVP, E15 at 9.0 psi RVP compatibility issues that lead to exhaust
fuel to include 10 percent ethanol, we would have nearly identical evaporative or evaporative emissions
do not believe modification of our sub emissions to E10 at 9.0 psi RVP from exceedances.’’ 120 We argued that
sim interpretation to set a specific RVP refueling, diurnal, and running loss ‘‘[n]ewer motor vehicles, such as Tier 2
level would be appropriate. emissions sources. and NLEV vehicles (MY2001 and
Historically, the primary purpose of newer), on the other hand, were
the requirement under the definition of We believe that under CAA sec.
211(f)(1) we only need to determine that designed to encounter more regular
substantially similar that gasoline must ethanol exposure compared to earlier
meet a volatility class under the ASTM E15 at 9.0 psi RVP is sub sim to Tier 3
E10 certification fuel at 9.0 psi RVP in model year motor vehicles’’ since EPA’s
specification for gasoline was to ensure in-use verification program would
that the fuel was physically and order for fuel manufacturers and
require auto manufacturers to place
chemically similar to gasoline as to be downstream parties to take advantage of
more ‘‘emphasis on real world motor
used in a gasoline-fueled motor vehicle. the CAA sec. 211(h)(4) waiver. Congress
vehicle testing’’ prompting
For example, in the 1980 sub sim intended for gasoline-ethanol blends to
manufacturers to consider commercially
interpretative rulemaking, we allowed have a 1-psi waiver in order to promote
available fuels containing ethanol when
gasoline-ethanol blends containing up ethanol blending in gasoline. In other
developing and testing their emissions
to 2.0 weight percent oxygen (about 5.5 words, given the existence of CAA sec. systems.121 Based on this assessment
volume percent ethanol); such fuel 211(h)(4), we believe it is appropriate plus confirmatory data from DOE’s
would experience a similar 1-psi when interpreting sub sim for CAA sec. extensive test program that aged
increase to E10 or E15 if produced using 211(f)(1) to compare E15 at 9.0 psi RVP MY2001 and newer vehicles up to
the same base gasoline. Even during to E10 certification test fuel at 9.0 psi 120,000 miles on E15, we concluded
1980, certification fuel used for RVP. CAA sec. 211(h)(4) then provides that MY2001 and newer vehicles would
gasoline-fueled motor vehicles was the 1-psi waiver to E15. Therefore, not have materials compatibility issues
expected to have an RVP of 9.0 psi.119 under this alternative we would propose with E15. We expect that Tier 3 certified
Therefore, we have not generally to interpret sub sim to apply to gasoline vehicles would have similar, if not
considered the expected increase in with a maximum of 9.0 psi RVP during better, materials compatibility with E15
RVP resulting from the addition of RVP the summer. compared to MY2001 and newer
when determining whether a fuel is sub vehicles since Tier 3 certified vehicles
In summary, we expect that E15
sim to gasoline certification fuel. should be designed to encounter E15 in-
We determined that such a change would have similar evaporative
emissions effects as Tier 3 E10 use and manufacturers are required to
was unnecessary and declined to
certification fuel for Tier 3 light-duty use E15 as an aging fuel for evaporative
impose such a limitation when we
vehicles with regard to evaporative durability testing.
reinterpreted sub sim in 1991 and in As required under the vehicle and
2008. In 1991, we maintained the view emissions from permeation, hot soak,
and other unintended evaporative certification regulations,122 since
that sub sim fuels need only meet granting the E15 partial waivers, E15 is
general ASTM specifications (i.e., any emissions. For refueling, diurnal and
running loss evaporative emissions, we now used as an aging fuel for service
volatility class in ASTM D 4814–88) for accumulation for evaporative durability
volatility. This was after we are not proposing to alter the existing
interpretation of substantially similar. testing. Auto manufacturers have used
promulgated the Phase I and Phase II E15 for service accumulation for
RVP standards for gasoline under CAA As explained above in our proposed
interpretation of CAA sec. 211(h)(4), we evaporative durability testing since at
sec. 211(c) and Congress enacted CAA least MY2014. This means that many
sec. 211(h) in 1990, which, as discussed believe it was Congress’ intent to allow
for gasoline-ethanol blended fuels Tier 2 certified vehicles since MY2014
above, we have interpreted as and all Tier 3 certified vehicles have
essentially codifying our regulatory containing at least 10 percent ethanol to
receive the 1-psi waiver and we have been aged on E15 and have been
approach to fuel volatility as it existed designed with materials capable of
prior to 1990. In 2008, when we interpreted sub sim under 211(f)(1) to be
handling E15 for extended periods of
provided flexibility for testing gasoline consistent with Congress’ intent.
time.
amozie on DSK9F9SC42PROD with PROPOSALS2

used only in Alaska to meet sub sim Therefore, we are proposing that E15 at
Therefore, we would not expect any
volatility requirements, we chose to 10.0 psi RVP is sub sim to Tier 3 E10
materials compatibility issues from E15
maintain the existing volatility language certification test fuel at 9.0 psi RVP
in Tier 3 vehicles and we expect that
for gasoline for the rest of the U.S. when used in Tier 3 vehicles.
We are also proposing that E15 at 9.0 Alternatively, we propose that E15 at 120 See 75 FR 68122–68123 (November 4, 2010);
psi RVP is sub sim to Tier 3 E10 9.0 psi RVP is sub sim to Tier 3 E10 76 FR 4681 (January 26, 2011).
certification fuel at 9.0 psi RVP when 121 See 75 FR 68122 (November 4, 2010).
119 See 40 CFR 86.113–78 (1977). used in Tier 3 vehicles. 122 See 40 CFR 86.1824–08(f)(1).

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00018 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules 10601

E15 would have substantially similar or ensure that gasoline-ethanol blends percent ethanol as sub sim, while
identical materials compatibility with have certain physical and chemical keeping the oxygen content limit of 2.7
Tier 3 E10 certification fuel. characteristics, like the gasoline-ethanol weight percent for other oxygenates. We
blend having distillation parameters seek comment on whether we should
d. Driveability
falling within specified ranges, to interpret sub sim to encompass other
A change in the driveability of a ensure that when the gasoline-ethanol oxygenates and request any supporting
motor vehicle that results in significant blended fuel is used, driveability issues data on the potential effects of other
deviation from normal operation (e.g., will not arise.125 oxygenates on emissions, materials
stalling, hesitation, etc.) would result in For these reasons, we believe that E15 compatibility, and driveability of Tier 3
increased emissions. These increases would have similar driveability vehicles.
may not be demonstrated in the characteristics to Tier 3 E10 certification
emission certification test cycles but fuel. 6. Other Aspects of the Proposed
instead are present during in-use Interpretative Rulemaking
operation. In addition to consumer e. Conclusion
a. Effects of Proposed Interpretation of
dissatisfaction, a motor vehicle stall and For reasons described above, we are CAA sec. 211(h)(4)
subsequent restart can result in a proposing that E15 is substantially
significant increase in emissions similar to Tier 3 E10 certification fuel. The proposed new interpretation of
because HC and CO emission rates are As discussed above, when interpreting ‘‘substantially similar’’ interpreting E15
typically highest during vehicle starts, which fuels and fuel additives are sub to be sub sim to Tier 3 E10 certification
especially cold starts. Further, concerns sum to certification fuel under CAA sec. fuel discussed in this section would
exist if the consumer or operator 211(f)(1), we consider those potential make it lawful for refiners and importers
tampers with the motor vehicle in an effects of relevance under CAA sec. to make and introduce into commerce
attempt to correct the driveability issue 211(f)(1) of fuels and fuel additives on E15 without the use of the E15 partial
since consumers may attempt to modify certified motor vehicles’ emissions waivers. This proposed interpretation of
a motor vehicle from its original (exhaust and evaporative), materials ‘‘substantially similar’’ in conjunction
certified configuration. Thus, we have compatibility, and driveability. with the proposed interpretation of CAA
considered whether fuels or fuel Regarding emissions, while E15 sec. 211(h)(4) would also extend the
additives have an adverse effect on compared with Tier 3 E10 certification exemption from the CAA sec. 211(h)(1)
driveability relative to certification fuel test fuel would have small emissions upper RVP limit from 9.0 psi to 10.0 psi
to define what is substantially similar. changes in Tier 3 vehicles, we expect for fuels containing 9–15 percent
We concluded in the E15 partial that E15 would exhibit similar exhaust ethanol.
waivers that we did not believe that E15 and evaporative emissions for Tier 3 As previously explained, the deemed
would cause driveability concerns for vehicles certified on Tier 3 E10 to comply provision was promulgated at
MY2001 and newer light-duty vehicles. certification fuel. For materials the inception of the RVP program when
We reviewed the data and information compatibility and driveability, we industry had just begun blending
from the over 30 different test programs expect that due to E15 being used as a ethanol in gasoline and reflects the
evaluated to grant the E15 partial service accumulation fuel for highest permissible ethanol content
waivers and we found ‘‘no specific evaporative emissions aging, as well as under the waiver under CAA sec.
reports of driveability, operability or on- our conclusions for MY2001 and newer 211(f)(4). Specifically, the deemed to
board diagnostics (OBD) issues across light-duty motor vehicles regarding comply provision applies where ‘‘the
many different vehicles and duty cycles materials compatibility and driveability ethanol portion of the blend does not
including lab testing and in-use in the E15 partial waivers, E15 would be exceed its waiver condition under
operation.’’ 123 sub sim to Tier 3 E10 certification fuel. subsection (f)(4) of this section.’’ 127 A
After having granted the partial E15 Our proposed interpretation is limited plain reading of this provision therefore,
waivers, we believe that Tier 2 and Tier to gasoline that contains only ethanol would suggest that it could not apply
3 vehicles also have better capability of content up to 15 percent as this is the where the agency concludes that a fuel
operating on E15, since as mentioned only oxygenate that we have sufficient is substantially similar to certification
above, auto manufacturers have been data and information to support at this fuels, under CAA sec. 211(f)(1).
required to use E15 as an aging fuel for time.126 Other oxygenates (notably However, we seek comment on the
evaporative durability aging since at isobutanol) may have similar emissions continued use of the deemed to comply
least MY2014. effects to Tier 3 E10 certification fuel, provision to ease the demonstration
We also believe that the producers but we lack the data and information on burdens for fuels that do not have a
and distributors of gasoline adhere to emissions, materials compatibility, and CAA sec. 211(f)(4) waiver, but
ASTM specifications for gasoline (i.e., driveability as established for ethanol as nonetheless can be introduced into
ASTM D 4814),124 which helps address part of the E15 partial waiver decisions commerce because they are
the driveability of gasoline that contains and the Tier 3 rulemaking. Therefore, substantially similar to Tier 3 E10
up to 15 volume percent ethanol. As our proposed interpretation of sub sim certification fuel.
E15 has been in the market since at least for gasoline would interpret gasoline- If we finalize our interpretation of
2012, industry, through ASTM ethanol blends containing up to 15 substantially similar proposed in
International, has worked to develop Section II.C, the 1-psi waiver would be
voluntary consensus-based standards to 125 Id.
available to fuel manufacturers, refiners,
amozie on DSK9F9SC42PROD with PROPOSALS2

help ensure the quality of E15 made and 126 It should also be noted that we chose to
and importers, in contrast to the
used in the marketplace. For example, express the proposed increase in gasoline-ethanol
content in terms of volume percentage versus approach discussed in Section II.B,
ASTM D4814–18c has language to converting to weight percent oxygenate. We did this which would only allow downstream
for two reasons. First, as stated, we believe we only parties to take advantage of the 1-psi
123 See 76 FR 4681–82 (January 26, 2011). have data and information to support an waiver. However, retailers that produce
124 ASTM Standard D4814, 2019, ‘‘Standard interpretation for gasoline containing only ethanol
Specification for Automotive Spark-Ignition Engine up to 15 volume percent. Second, this avoids the E15 via a blender pump would still have
Fuel,’’ ASTM International, West Conshohocken, issues associated with the variability in the density
PA, 2003, DOI: 10.1520/C0033–03, www.astm.org. of gasoline. 127 CAA sec. 211(h)(4)(B).

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00019 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
10602 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules

issues complying with EPA fuels One implication of a sub sim vehicles) due to our engineering
regulations at 40 CFR parts 79 and 80 interpretation that includes E15 under assessment that these vehicles, engines,
unless they made the E15 solely from CAA sec. 211(f)(1) would be that a and equipment may experience
DFE and certified gasoline (or CBOB). waiver under CAA sec. 211(f)(4) will no emissions failures over these vehicles,
longer be necessary for E15 to be engines, and equipments’ full useful
b. Regulatory Amendments introduced into commerce. This would lives. Also, as discussed above, in the
The technical amendments to our in effect remove the conditions of the MMR we concluded that under CAA
regulations discussed in Section II.B.2, E15 partial waivers imposed on fuel and sec. 211(c)(1)(A), the likely result would
in the context of our first approach to fuel additive manufacturers, in the be increased VOC, CO, and NOX
allow the 1-psi waiver for E15 during absence of any limitations on the sub emissions were these particular engines,
the summer, would also be necessary sim interpretation. This would mean vehicles and equipment to use E15. The
were EPA to finalize a new that the conditions in the E15 partial prohibitions and regulatory
interpretation of ‘‘substantially similar’’ waivers designed to limit the requirements were designed to help
that finds that E15 is sub sim to Tier 3 introduction into commerce of E15 to mitigate the misfueling of E15 in these
E10 certification fuel. The regulatory only MY2001 and newer light-duty vehicles.
changes would be identical to those motor vehicles would not apply. The There are still millions of MY2000
discussed in Section II.B.2, as those need for the conditions on the E15 and older motor vehicles on the road
regulatory changes would be partial waivers may be partially (although they will over time make a
promulgated to effectuate our new mitigated because we have already put smaller contribution to vehicle miles
interpretation of CAA sec. 211(h)(4). In in place parallel restrictions in our travelled) and hundreds of millions of
short, we would promulgate regulatory regulations in the E15 MMR rulemaking pieces of nonroad equipment not
amendments modifying the ethanol at 40 CFR part 80, subpart N.128 designed for and prohibited from E15
content at 40 CFR 80.27 to blends of However, some conditions in the E15 use. The existing conditions on the E15
gasoline containing 9–15 percent partial waivers are not part of the MMR. partial waivers under CAA sec. 211(f)(4)
ethanol. We would also promulgate One such condition is the requirement help ensure E15 fuel quality and
regulations removing requirements that fuel and fuel additive mitigate the misfueling of vehicles,
implemented in the MMR relating to (1) manufacturers have an EPA-approved engines, and equipment and we believe
comingling of E10 and E15; and (2) PTD misfueling mitigation plan (MMP) prior it is appropriate to continue to impose
requirements for E15 that would no to introducing E15 into commerce. the same conditions on parties that
While MMPs generally commit fuel and introduce E15 into commerce under a
longer be necessary were E15 to receive
fuel additive manufacturers to adhere to CAA sec. 211(f)(1) sub sim
the 1-psi waiver. As discussed in
regulatory requirements of the MMR, interpretative rulemaking. Therefore, we
Section II.B.2, all other regulations
MMPs also commit these manufacturers are proposing and seek comment on
promulgated as part of the MMR would
to participate in public outreach on the certain limitations, including those
remain in place.
appropriate use of E15 and allow for contained in the current CAA sec.
c. Potential Conditions As Part of CAA specific, additional misfueling 211(f)(4) waiver, as part of an
sec. 211(f)(1) Interpretative Rulemaking mitigation measures that may apply in interpretative rulemaking which defines
a manufacturers specific situation. E15 as substantially similar to Tier 3
CAA sec. 211(f)(1)(A) prohibits fuel or Another condition in the E15 partial E10 certification fuel under CAA sec.
fuel additive manufacturers from first waivers is that ethanol producers must 211(f)(1).
introducing into commerce, or manufacture denatured fuel ethanol that Additionally, we seek comment on
increasing the concentration in use of, meets industry established quality whether this proposed sub sim
any fuel or fuel additive for general use standards if used to make E15. This interpretation for E15 should be limited
in light-duty motor vehicles which is requirement is not currently part of to the subset of the national vehicle and
not substantially similar to that utilized EPA’s fuels regulations. engine fleet to which the current E15
in the certification of motor vehicles or Furthermore, as discussed, the waivers apply (MY2001 and newer
engines under CAA sec. 206. As technical basis to deny the E15 waiver light-duty motor vehicles) or on which
explained above, we have interpreted request for MY2000 and older motor our assessment in Section II.C is based
the ‘‘substantially similar’’ provision vehicles and nonroad products and (i.e., only to vehicles and engines
several times to allow the introduction promulgate the MMR is unchanged and certified using Tier 3 E10 certification
into commerce of certain fuel blends. removing the conditions in the E15 fuel). While we have not previously
The language of CAA sec. 211(f)(1) does partial waivers removes a layer of imposed conditions in substantially
not address whether and how EPA can protection against the misfueling of similar interpretative rulemakings
restrict its determination that a these vehicles, engines, and designed to limit the applicability to
particular fuel is ‘‘substantially similar’’ equipment.129 We denied the E15 certain classes of vehicles, engines, and
to a certification fuel. Given the fact that waiver request for MY2000 and older equipment, for the reasons explained
there have now been multiple motor vehicles, nonroad vehicles, above, we are seeking comment in this
certification fuels since 1977, when engines, and equipment (including case. The record has not changed with
CAA sec. 211(f)(1) was first enacted, we motorcycles, and heavy-duty motor respect to the inability of older vehicles,
believe it is reasonable to interpret this nonroad equipment, motorcycles, or
provision as allowing EPA to apply 128 As noted above, these restrictions remain heavy-duty trucks to use E15, which
amozie on DSK9F9SC42PROD with PROPOSALS2

restrictions on a sub sim determination, necessary, and we are not proposing to lift the formed the basis of our denial of the E15
where the restrictions are intended to prohibition at 40 CFR 80.1504(a)(1) on the sale,
introduction, or use of E15 into MY2000 and older
waiver request for such vehicles,
avoid the kinds of problems that light-duty motor vehicles, heavy-duty motor engines, and equipment.
prompted the prohibition against vehicles, or nonroad engines, vehicles, and Furthermore, our assessment in
introduction into commerce. We solicit equipment, nor are we proposing to remove any of Section II.C was limited to only Tier 3
the misfueling mitigation requirements in the E15
comment on this approach, including MMR. Consequently, those marketplace protections E10 certification fuel used to certify
comments on the specific conditions we will be unaffected by this proposed action. MY2020 (some earlier) light-duty
should impose. 129 See 75 FR 68127–68138 (November 4, 2010). vehicles, not all in-use vehicles and

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00020 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules 10603

engines that run on gasoline. Such a appropriate. We also recognize that significant increase in evaporative
condition would be in recognition of the additional misfueling mitigation emissions. To accurately assess
fact that, in contrast to the date when measures would most likely place a emission impacts in this case, however,
CAA sec. 211(f)(1) was enacted, not all significant burden on retailers, many of we need to examine current real-world
gasoline vehicles and equipment are whom are small businesses, to upgrade circumstances. Namely, we expect any
certified on the same gasoline. All other fuel dispensers to implement physical E15 introduced into the market to
vehicles, engines, and equipment prior barriers to E15 use or employ radio- displace E10 that is already being sold
to Tier 3 used certification fuel without frequency identification (RFID) and that carries the 1-psi waiver in
ethanol, and some nonroad vehicles, technology. Therefore, we seek conventional gasoline areas (E10 has
engines, and equipment are still comment on whether additional nearly 100 percent market share for
certified using E0. A condition limiting misfueling mitigation measures would gasoline sold in the U.S.). E15 has a
the applicability of the sub sim be appropriate and we specifically seek slightly lower RVP than E10 when made
interpretative rulemaking to vehicles comment on the costs and benefits of from the same BOB, a situation we
certified on Tier 3 certification fuel such measures on affected parties. believe will be the case unless E15 use
would recognize the fact that most becomes widespread.131 Thus, to the
E. E15 Criteria Pollutant and Air Toxics
vehicles, engines, and equipment were extent that E15 displaces E10 in the
Emission Impacts
not certified on E10, and prevent short term, E15 is expected to lower the
emission exceedances by limiting which As discussed above, we expect the volatility of in-use gasoline by as much
vehicles, engines, and equipment could emissions of E15 to be substantially as 0.1 psi.132
use E15 under the proposed sub sim similar to those of E10 Tier 3 Use of E15 blends will have other
interpretative rulemaking. certification fuel when used in Tier 3 criteria pollutant emission impacts
Finally, we seek comment on whether light-duty vehicles. This section beyond those related to volatility
we can impose the existing waiver describes expected emissions effects of described above. Assuming E15 is made
conditions in the E15 partial waivers, in the proposed action on evaporative and from the same BOB as E10, we expect
their entirety, as conditions in the exhaust emissions of E15 relative to E10 the additional 5 volume percent ethanol
proposed substantially similar typically available in the marketplace. to further dilute hydrocarbon fuel
Evaporative emissions from vehicles components such as aromatics,
interpretative rulemaking. The
comprise approximately 60 percent of producing changes in several exhaust
conditions on the E15 partial waivers
the VOC emissions during summertime emissions such as NOX, NMOG, and
provide additional misfueling
conditions from the current vehicle fleet benzene.133 134 Ethanol also causes
mitigation and fuel quality protections,
based on results produced by changes in the volatility profile of the
which as mentioned above some
MOVES2014b, and such VOC emissions blended fuel, typically lowering the
stakeholders believe may need to be contribute to ambient levels of ozone,
bolstered in the future as E15 becomes mid-point distillation temperature (T50)
PM, and air toxics, all of which significantly, and the 90 percent
more available to consumers. endanger public health and welfare. temperature (T90) slightly.135 Table
D. E15 Misfueling Mitigation Today’s vehicles are equipped with II.E–1 shows predicted fuel property
charcoal cannisters to capture vapors and exhaust emission changes for Tier
Some stakeholders have raised
generated during refueling as well as 2 vehicles using both E10 certification
concerns since the President’s
daily diurnal temperature fluctuations. gasoline and a typical market E10 as
announcement over whether the
This stored vapor is then drawn into the baselines for comparison. Results using
remaining E15 misfueling mitigation
engine and combusted during vehicle the EPAct model developed from the
measures would be sufficient in light of
operation. EPAct/V2/E–89 study described in
this proposed action.130 These Currently and historically, vehicle
stakeholders suggested that a possible Section II.C.5.a suggest E15 blends are
manufacturers have been required to expected to produce slightly lower CO,
consequence of this proposed action certify their vehicles on test gasoline
would be an increase in the availability and slightly higher NOX and PM
with a volatility of 9.0 psi RVP under
of E15 in the market resulting in an severe operating conditions similar to 131 We believe it would be unlikely for refiners to
increase in the potential misfueling of what might be expected on high ozone produce an E15 CBOB for such a small difference
E15 in nonroad vehicles, engines, and days. The evaporative emission in RVP. However, refiners may want to create a
equipment and MY2000 and older light- standards have been progressively made
CBOB with a slightly lower octane level to account
duty vehicles. These stakeholders for the increased octane from the additional ethanol
more stringent over time, such that in E15 versus E10. We believe this would only
suggested that, in light of their concerns under the Tier 3 standards they require occur if E15 comprised a large part of a
and advancements in technology since essentially zero vapor loss during conventional gasoline area’s market.
our MMR rule, we seek comment on a normal operation on 9.0-psi fuel.
132 ‘‘Determination of the Potential Property

wide range of additional misfueling Ranges of Mid-Level Ethanol Blends.’’ American


Increasing fuel RVP from 9.0 psi to 10.0 Petroleum Institute, Washington, DC. April 2010.
mitigation measures to help avoid the psi increases fuel vapor generation 133 For the effects of sulfur on emissions see Table
misfueling of E15. significantly under summertime ES–3 in ‘‘The Effects of Ultra-Low Sulfur Gasoline
While we believe additional conditions, which can overwhelm a on Emissions from Tier 2 Vehicles in the In-Use
misfueling measures are unnecessary at Fleet.’’ U.S. EPA Office of Transportation and Air
vehicle’s evaporative control system and Quality, Ann Arbor MI. EPA–420–R–14–002, March
this time and outside the scope of this push it out of compliance. 2014.
proposed action, we recognize that as Consequently, controlling the volatility 134 For the effects of ethanol and aromatics on
amozie on DSK9F9SC42PROD with PROPOSALS2

E15 and other higher-level ethanol of gasoline during the summer is emissions see Tables ES–1 through ES–4 in
blends become more prevalent in the ‘‘Assessing the Effect of Five Gasoline Properties on
important in order to control the Exhaust Emissions from Light-Duty Vehicles
marketplace, the use of additional evaporative VOC emissions produced by Certified to Tier 2 Standards: Analysis of Data from
misfueling mitigation measures may be vehicles and engines in-use. EPAct Phase 3 (EPAct/V2/E–89): Final Report.’’
This proposal changes the volatility U.S. EPA Office of Transportation and Air Quality,
130 See ‘‘Joint Comments on E15 Education and Ann Arbor MI. EPA–420–R–13–002, March 2013.
Outreach’’ from the Outdoor Power Equipment
standard that applies to E15 in-use from 135 ‘‘Determination of the Potential Property

Institute and the National Marine Manufacturers 9.0 psi to 10.0 psi RVP. Viewing this Ranges of Mid-Level Ethanol Blends.’’ American
Association to EPA, January 29, 2019. change in isolation, one might expect a Petroleum Institute, Washington, DC. April 2010.

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00021 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
10604 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules

compared to their E10 blending base. direction depending on the T50 of the
Changes in NMOG (or VOC) vary in blending base.

TABLE II.E–1—EXAMPLE EMISSION IMPACTS OF E15 BLENDS BASED ON EPACT MODEL


Fuel properties used in analysis E15 emissions impact relative to indicated
baseline

Eth. vol Arom. vol RVP T50 T90 CO NMOG NOX PM


(%) (%) (psi) (°F) (°F) (%) (%) (%) (%)

Baseline: E10 certification fuel at


9 psi .......................................... 10.0 23.0 9.0 200 325 ................ ................ ................ ................
E15 at 9 psi (splash) .................... 15.0 21.9 9.0 163 321 ¥2.5 ¥5.6 1.8 2.7
E15 at 10 psi (splash) .................. 15.0 21.9 10.0 163 321 ¥1.3 ¥8.0 1.8 2.7
Baseline: E10 market fuel at 10
psi ............................................. 10.0 23.0 10.0 180 320 ................ ................ ................ ................
E15 at 10 psi (splash) .................. 15.0 21.9 10.0 160 316 ¥2.0 2.2 2.5 4.0
E15 at 10 psi (MOVES Fuel Wiz-
ard) * ......................................... 15.0 21.7 10.0 167 318 ¥2.6 1.4 2.7 4.1
* The MOVES Fuel Wizard attempts to estimate how properties would change in a widespread blending scenario.

If E15 use becomes widespread in the 2. Costs for E15 RVP purchase and blend the requisite
longer term, refiners may adjust the base Our proposal to allow E15 to take volumes of renewable fuels into the
blendstock to accommodate the advantage of the 1-psi waiver in the petroleum-derived transportation fuels
additional ethanol. During the rapid summer may help open new market they produce or import. However, to
expansion of E10 blending between opportunities for E15. However, fuel allow the market to function more
2007–2012, aromatics levels were manufacturers and distributors of E15 efficiently and avoid market disruption,
observed to decline by a few volume would not be compelled to make or offer in implementing the statutorily-required
percent while pump octane levels E15 and could choose to offer E15 as credit program, and to assist obligated
stayed constant, and octane match- dictated by market demands and parties in meeting their individual
blending is understood to have been a individual business decisions. RVOs, Congress directed EPA to
contributing factor.136 137 For other fuel Overall, we anticipate very little establish, through a transparent public
properties, such as sulfur and benzene change in costs regarding the proposed rulemaking process, a system for the
regulatory provisions to allow E15 to generation and use of renewable fuel
content, refiner control could be relaxed
receive the 1-psi waiver in the summer. program credits.141 The credits created
slightly for E15 blendstocks with the
This action places no new regulatory under this program are known as RINs.
finished market E15 blend still meeting RINs are credits that are generated upon
burdens on any party in the gasoline or
with the regulatory limits. Moving from production of qualifying renewable fuel
denatured fuel ethanol distribution
E15 splash blends to match blends may and ultimately used by obligated parties
system and modifies, but does not
then undo some small emission remove, PTD requirements for E15. to demonstrate compliance. Renewable
reductions occurring when E15 is made Hence, we expect that these proposed fuel producers and importers generate
from refinery blendstocks designed for provisions would not substantially alter and assign RINs to the renewable fuel
E10. the cost of compliance for parties that they produce or import. These RINs are
F. E15 Economic Impacts produce and distribute E15. then transferred with the renewable fuel
to the downstream parties that blend the
1. Benefits for E15 RVP III. RIN Market Reforms
renewable fuel into transportation fuel.
A. Overview of RFS Compliance In lieu of blending the renewable fuels
We anticipate that providing the themselves to demonstrate compliance,
flexibility to use E15 at 10.0 psi RVP in The RFS program began in 2006,
pursuant to the requirements in CAA obligated parties have the option to
the summer could help incentivize instead purchase RINs from other
sec. 211(o) that were added through the
retailers to introduce E15 into the parties that blend renewable fuels.
Energy Policy Act of 2005 (EPAct). The
marketplace. In situations where statutory requirements for the RFS The assigned RINs that accompany
denatured fuel ethanol is cheaper than program were subsequently modified the renewable fuel can primarily be
gasoline, parties may elect to make E15 through the Energy Independence and separated from the fuel if the fuel is
more widely available, which may Security Act of 2007 (EISA), leading to purchased by an obligated party or
result in a modest decrease in fuel the publication of major revisions to the blended into transportation fuel. Once
prices at the pump. This could help to regulatory requirements on March 26, separated, RINs can be traded as a
further the use of increased volumes of 2010.138 separate commodity from the renewable
renewable fuels under the RFS program, Under CAA sec. 211(o), EPA is fuel. Obligated parties accumulate RINs
which in turn could provide energy required to set renewable fuel over the course of the year, either by
amozie on DSK9F9SC42PROD with PROPOSALS2

security benefits. percentage standards every year.139 To buying renewable fuel with assigned
comply, obligated parties 140 can RINs that they separate and retain for
136 See Figure 3–4 of the Regulatory Impact compliance (and either blend the fuel
Analysis for ‘‘Control of Air Pollution from Motor 138 See 75 FR 14670 (March 26, 2010). themselves or rely on others to do on
Vehicles: Tier 3 Motor Vehicle Emission and Fuel 139 See,e.g., final rule establishing the RFS their behalf), or by purchasing separated
Standards.’’ EPA–420–R–14–005, February 2014. standards for 2019 and biomass-based diesel
137 See Figure 65 of ‘‘Fuel Trends Report: volume for 2020 (83 FR 63704, December 11, 2018).
RINs on the open market. All RIN
Gasoline 2006–2016.’’ EPA–420–R–17–005. October 140 Obligated parties are refiners and importers of

2017. gasoline and diesel fuel. See 40 CFR 80.1406. 141 See CAA sec. 211(o)(5).

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00022 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules 10605

transactions, including the generation of year. There are also associated final rule preamble, we summarized the
RINs, RIN trades, and the retirement of registration, reporting, and comments of several parties as saying
RINs to satisfy an obligated party’s recordkeeping requirements. ‘‘that unlimited trading among all
RVOs, are reported to EPA using the interested parties would increase
B. RIN Market Assessment
EPA Moderated Transaction System liquidity and transparency in the RIN
(EMTS).142 Renewable fuel producers and market,’’ and ‘‘that increasing the
The annual RVOs for a given importers generate RINs by entering number of participants would facilitate
obligated party are calculated by their renewable fuel production or the acquisition of RINs by obligated
multiplying the obligated party’s total import information into EMTS. When a
parties and promote economic
annual production and import of renewable fuel producer or importer
efficiency.’’ 145
gasoline and diesel fuel by four annual transfers ownership of the fuel to
percent standards corresponding to the another party, the assigned RINs usually Individual transaction prices are
four renewable fuel categories transfer as well. Both parties must generally not made public, but some
established by Congress.143 Each report information about the RIN services, such as OPIS and Argus, offer
obligated party must obtain sufficient transaction to EMTS within five days of daily price information on commodities
RINs of each category to demonstrate the transfer. Parties must also report in such as RINs from a subset of parties
compliance with its individual RVOs for EMTS when they separate RINs from that trade in the RIN market. The public
the four annual percentage standards. fuel, when they trade separated RINs can access this information for a fee
Obligated parties comply on an annual with another party, and when they retire paid to these service providers.
average basis, through their annual RINs for compliance or other reasons. Recently, EPA began posting aggregated
compliance report to EPA that identifies EMTS effectively acts as an electronic weekly RIN price information reported
their obligation based on gasoline and platform that records RIN transactions, to EPA through EMTS on our public
diesel production/import and identifies conducts RIN title transfers between website, which is updated monthly.146
the RINs acquired and retired for that parties, and maintains a RIN account RIN prices are a function of multiple
year’s compliance. Thus, compliance balance for each registered party. factors, including but not limited to
under the RFS program requires RINs are transacted through contracts
changes in petroleum prices,
obligated parties to understand how to or on the spot market, in bilateral trades
agricultural feedstock (e.g., corn, soy)
calculate their individual obligations directly between buyers and sellers, or
facilitated by third-party brokers. EPA prices, and expectations of future
based on the four percentage standards, market shifts and standards. RIN prices
and then to plan for their annual designed the RIN system to operate as
a relatively ‘‘open’’ trading market in may also fluctuate as the market
compliance demonstration through RIN
order to maximize liquidity and ensure responds to RFS standards and
acquisition, either through blending or
a robust marketplace for RINs. For expectations of future EPA policy
through trading, over the course of the
example, in establishing the original decisions.
142 Public EMTS data can be found on EPA’s trading program, EPA attempted to
website at https://www.epa.gov/fuels-registration- provide as much compliance flexibility Program—Summary and Analysis of Comments.’’
reporting-and-compliance-help/public-data- EPA 420–R–07–006, April 2007, available at https://
as possible and did not place limits on www.epa.gov/sites/production/files/2015-08/
renewable-fuel-standard.
143 The 2019 percentage standards for cellulosic
the number of allowable RIN trades, nor documents/420r07006.pdf.
biofuel, biomass-based diesel, advanced biofuel, restrict the types of parties that could 145 See 72 FR 23944 (May 1, 2007).

and total renewable fuel are 0.230%, 1.73%, 2.71%, acquire and trade RINs. Several 146 See https://www.epa.gov/fuels-registration-

and 10.97%, respectively. The cellulosic and stakeholders from across the fuels reporting-and-compliance-help/rin-trades-and-
biomass-based diesel standards are nested within industries supported the trading system price-information. The RIN Price dataset shows
the advanced biofuel standard, which is itself historical, weekly, volume-weighted average RIN
nested in the total renewable fuel standard. This we finalized in 2007.144 In the RFS1 price data for separated RINs as reported to EPA
implies a conventional renewable fuel percentage through EMTS. Price filters are applied to the data
standard of 8.26%. See 83 FR 63704 (December 11, 144 See Chapter 5.4.3 of ‘‘Regulation of Fuels and set to remove outliers and data is aggregated to
2018). Fuel Additives: Renewable Fuel Standard protect confidential business information.
amozie on DSK9F9SC42PROD with PROPOSALS2

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00023 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
10606 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules

While there are many different factors to E10 was economically viable for vehicles, and relatively few retail
that impact RIN prices, a review of the blenders in these years. The D6 RIN stations offer these higher-level ethanol
historical RIN price data demonstrates price was therefore very low, blends due to the combination of the
that RIN prices generally follow approximately equal to the transaction high cost of the infrastructure upgrades
expected market principles. For costs of trading RINs between parties. to enable most existing stations to sell
example, in the early years of the RFS In 2013, however, the implied E85 and the low demand for E85, even
program (2010–2012) D6 RIN prices (for conventional biofuel volume established among FFV owners.148 The relatively
mostly corn ethanol) were generally by the RFS program exceeded the low number of stations selling E85 has
only a few cents. During this time, the volume of ethanol that could be blended also hindered the competitiveness of the
implied conventional biofuel volume into gasoline at a rate of up to 10 pricing of the few retail stations that do
(the difference between the total percent (the E10 blendwall). To meet sell these blends. As a result, in most
renewable fuel volume and the the aggregate RVOs, obligated parties cases obligated parties have turned to
advanced biofuel volume and the only now needed to acquire RINs beyond additional volumes of biodiesel and
volume to which D6 RINs can be those that were available from blending renewable diesel instead of E85 or other
applied) could be met by blending ethanol as E10. These additional RINs higher level ethanol blends to meet their
ethanol as E10. The blending of ethanol had to come from either blending implied conventional biofuel volume
up to E10 was driven by economic ethanol into higher-level ethanol blends obligation and therefore their total
factors rather than financial incentives (e.g., E85) or blending non-ethanol renewable fuel obligation.149 D4 (BBD)
provided by the RFS program.147 First, biofuels (such as biodiesel or renewable RINs, generated for biodiesel and
ethanol has a relatively high octane diesel beyond what was needed to renewable diesel, have in effect served
value, and thus is attractive as a satisfy the biomass-based diesel (BBD) as a ceiling for D6 RIN prices since
gasoline blendstock component. and advanced biofuel volume excess D4 RINs can be used to satisfy an
Second, ethanol was cheaper on a standards). Blending ethanol into higher obligated party’s total renewable fuel
volumetric (per gallon) basis than level blends, unlike the blending of obligation. As a result, the D6 RIN price
gasoline during this time period, and it ethanol into E10 blends, was not an rose to just slightly below the D4 RIN
was therefore economic to blend at economically viable practice in 2013 price. With a few exceptions (such as in
levels up to 10 percent. Third, though (nor is it currently) absent the incentives the first half of 2017) when the total
ethanol contains about one-third less provided by the RFS program (i.e., the renewable fuel obligation has been at or
energy than gasoline on a per-gallon RIN price). Although ethanol has a below the E10 blendwall, the D6 RIN
basis, that fuel economy difference higher octane value than gasoline, the price has generally moved in
between E10 and gasoline without existing vehicle fleet in the United
ethanol (E0) is relatively small States does not realize an additional 148 Pouliot, S., Liao, K.A., Babcock, B.A.;

(approximately 3 percent) and is largely benefit from the higher octane level of ‘‘Estimating Willingness to Pay for E85 in the
amozie on DSK9F9SC42PROD with PROPOSALS2

unnoticed by consumers. In light of high ethanol blends such as E85. United States Using an Intercept Survey of Flex
Motorists.’’ Working Paper 16–WP 562, Center for
these factors, the blending of ethanol up Further, consumers notice the decrease Agricultural and Rural Development, Iowa State
in fuel economy (between 15 and 27 University, June 2018.
147 Until 2013, the price for D6 (conventional percent) in such blends. This is because 149 While biodiesel and renewable diesel remain

biofuel) RINs, the vast majority of which were ethanol contains about one-third less considerably more expensive than diesel fuel, the
generated for ethanol produced from corn starch, recently expired tax subsidy for them, coupled with
was negligible (See Figure III.B–1). The Volumetric
energy than gasoline on a per-gallon a lesser infrastructure hurdle enabled them to be a
Ethanol Excise Tax Credit was also available to basis. The sale of higher-level ethanol more economical option than higher level ethanol
EP21MR19.000</GPH>

ethanol blenders through 2011. blends is also limited to flexible fuel blends in recent years.

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00024 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules 10607

conjunction with the D4 RIN price since economic fundamentals further cost of RINs in the market price of the
2013. supports this view of the D4 RIN market gasoline and diesel fuel they sell.152
D5 RIN prices similarly followed stating that ‘‘movements in the D4 RIN
distinct pricing patterns prior to C. President’s Directive
price at frequencies of a month or longer
reaching the E10 blendwall in 2013 and are well explained by two economic Some RFS stakeholders have voiced
in the years since 2013. Prior to fundamentals: the spread between the concerns regarding whether elevated
reaching the blendwall, a significant biodiesel and Ultra Low Sulfur Diesel RIN prices and excessive RIN price
volume of the D5 RINs were generated prices and whether the biodiesel tax volatility are being caused at least in
for imported sugarcane ethanol. Since credit is in effect.’’ 151 part by some type of market
sugarcane ethanol was generally more Finally, the D3 RIN price has manipulation. In comments to proposed
expensive to produce than corn ethanol generally followed the combined prices EPA rulemakings, litigation filings and
(driven by high world sugar prices), the of the cellulosic waiver credit (CWC) arguments, and via meetings with EPA
D5 RIN price generally reflected the and the D4/D5 RIN price. Each year staff, some stakeholders have described
price difference between corn ethanol since 2010, we have reduced the conditions that they believe make the
and sugarcane ethanol during this time required volume of cellulosic biofuel RIN market vulnerable to anti-
period. When the E10 blendwall was from the statutory volumes using the competitive behavior. For example,
reached in 2013 it became much more cellulosic waiver authority set forth in commenters have described a thin
expensive to blend additional volumes CAA sec. 211(o)(7)(D). When EPA takes market volume, opaque price signals,
of ethanol (both for corn ethanol and this action, the statute requires that we and inelastic demand and supply curves
sugarcane ethanol) since additional make CWCs available for purchase to and have provided specific examples of
ethanol had to be sold in higher-level obligated parties at a price determined behavior they find manipulative, such
ethanol blends. As a result, the primary using a formula given in the statute. as phantom RIN offers that suddenly
fuels used to satisfy the implied volume CWCs can be used to satisfy an vanish and reappear at higher prices
of ‘‘other advanced’’ biofuels (the obligated party’s cellulosic biofuel after a party attempts to buy them at the
remaining advanced biofuel volume obligation, but unlike a D3 (or D7) RIN, purported asking price.153 These
after subtracting the required volumes of a CWC cannot be used towards stakeholders also speculate that, as a
BBD and cellulosic biofuel) in 2013 and satisfying an obligated party’s advanced result of market conditions and price
the following years have been biodiesel biofuel or total renewable fuel volatility, anti-competitive behavior is
and renewable diesel. The D5 RIN price obligations. Thus, a D3 RIN has the taking place. For example, commenters
in these years has followed the D4 RIN ‘‘compliance equivalency’’ of a CWC have argued that a small number of
price, with the few cents difference plus a D5 (or D4) RIN. As expected, the sophisticated market participants
between the two RIN prices reflecting D3 RIN price has generally been slightly control a large number of ‘‘surplus’’
the fact that, unlike D4 RINs, D5 RINs less than the sum of the CWC price and RINs that they hoard and use to squeeze
can only be used towards an obligated the D4/D5 RIN price. This price point the market.
party’s advanced biofuel and total reflects the compliance certainty that We take these claims of market
renewable fuel obligations (and not the the CWC offers (CWCs cannot later be manipulation seriously and have taken
BBD obligation). determined to be invalid) as well as the formal action previously to investigate
As with D6 and D5 RIN prices, D4 fact that CWCs can simply be purchased claims of manipulation. In March 2016,
RIN prices generally follow expected directly from EPA at the compliance EPA entered into a Memorandum of
market fundamentals. D4 RIN prices are deadline rather than purchased in Understanding (MOU) with the
generally equal to the difference Commodity Futures Trading
relatively small quantities from biofuel
between the market prices of biodiesel Commission (CFTC).154 Under the
producers or blenders.
and petroleum diesel, after accounting Obligated parties that purchased RINs MOU, we provided CFTC with certain
for the biodiesel tax credit. For each on the market for compliance in 2013 RIN data for analysis in order to
year from 2010 through 2017, a $1 per saw their D6 RIN prices substantially facilitate an EPA investigation.
gallon biodiesel blenders tax credit from increase from the year prior (see Figure Although we have yet to see data-
the Internal Revenue Service has also III.B.1). Though this increase in D6 RIN based evidence of RIN market
been available. In some years, such as manipulation, the potential for such
prices was the result of structural
2013 and 2016, this tax credit was behavior is a concern, and we have
changes in the market, as described
available prospectively (i.e., the tax already formally solicited comment
above, increasing D6 RIN prices did
credit was in place throughout the year). from stakeholders on potential changes
raise concerns regarding whether market
In other cases, such as in 2012 and that might address such issues. In the
manipulation played some role in
2017, the tax credit was only available 2018 RVO proposal, we broadly sought
elevated prices. Some RFS stakeholders
retroactively (i.e., the tax credit was not input on potential regulatory changes
petitioned EPA to change the definition
extended until near the end of the year related to RIN trading as well as on
of obligated party, arguing in part that
or after the year had ended but applied ways to increase program
the current point of obligation facilitates
to all qualifying biodiesel and
renewable diesel blended in that year). price manipulation. In response to those
152 See ‘‘Denial of Petitions for Rulemaking to
The biodiesel blenders tax credit has not petitions, EPA conducted an extensive
Change the RFS Point of Obligation’’ (2017),
yet been extended to 2018 or 2019 by analysis of RIN prices and market available at https://nepis.epa.gov/Exe/ZyPDF.
Congress.150 For years in which the dynamics. After studying the data, we cgi?Dockey=P100TBGV.pdf.
amozie on DSK9F9SC42PROD with PROPOSALS2

biodiesel tax credit was not in place concluded that RIN prices generally 153 See, e.g., comments from Monroe Energy

reflected market fundamentals and that (Docket Item No. EPA–HQ–OAR–2018–0167–0622).


prospectively, the D4 RIN prices 154 See ‘‘Memorandum of Understanding Between
generally reflected the market’s obligated parties (including parties that
the Environmental Protection Agency and the
confidence that the tax credit would purchase separated RINs) recover the Commodity Futures Trading Commission on the
ultimately be applicable. A recent paper Sharing of Information Available to EPA Related to
151 Irwin, S.H., K. McCormack, and J.H. Stock the Functioning of Renewable Fuel and Related
investigating the price of D4 RINs and (2018). ‘‘The Price of Biodiesel RINs and Economic Markets’’ (2016), available at https://www.epa.gov/
Fundamentals,’’ NBER Working Paper Series, sites/production/files/2016-03/documents/epa-cftc-
150 As of February 28, 2019. Working Paper 25341. mou-2016-03-16.pdf.

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00025 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
10608 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules

transparency.155 We received comments ideas and offered others for our such anti-competitive behaviors to
from stakeholders suggesting a number consideration while some commenters occur, it could undermine the
of regulatory changes related to who opposed both the specific reform confidence of market participants in the
may purchase RINs, the duration for proposals and the general concept of RIN market and undermine the RFS
which RINs could be held, and other interfering with the open RIN market in program itself. Consequently, in this
potential requirements related to the any way. Summaries of, and responses action, we are proposing regulatory
buying, selling, or holding of RINs. We to, those comments are included changes based upon the President’s
also received a number of suggestions throughout this action as we explain the Directive that could help prevent anti-
for increasing the amount of data related rationale behind the proposals we are competitive behavior. For each reform,
to the RIN market that we make publicly making today. we evaluated comments already
available. We evaluated these ideas, and On October 11, 2018, President submitted to EPA describing its
in the 2019 RVO proposal, we listed Trump issued a White House advantages and disadvantages. We also
those that were under consideration for statement 157 explaining that EPA was evaluated how a reform could be
implementation at that time, including: being directed to initiate a rulemaking designed and implemented, whether a
Prohibiting parties other than obligated to address RIN price manipulation reform could be gamed or have
parties from purchasing separated RINs; claims and increase transparency in the unintended consequences, and what
requiring public disclosure if a party RIN market. Specifically, the potential burden and cost it could place
holds a certain percentage of the RIN memorandum directs EPA to consider on regulated parties and on EPA. In
market; requiring obligated parties to potential reforms to the RIN regulations, Section III.E, we describe our evaluation
retire RINs for compliance purposes on including but not limited to the in detail for each reform, including
a more frequent basis; and publicly following proposals: sharing comments received from
posting information on RIN prices, • Prohibiting entities other than stakeholders on similar market reform
small refinery exemptions, and RIN obligated parties from purchasing ideas solicited in prior rulemakings.
holdings by different categories of separated RINs. EPA designed the RIN system and
entities.156 We requested comment on • Requiring public disclosure when regulations to maximize compliance
the expected impact that these specific RIN holdings held by an individual flexibility and market liquidity. We
changes could have on the RIN market, actor exceed specified limits. realize that new market restrictions
either positively or negatively. • Limiting the length of time a non- could impact that flexibility and
We received many comments in obligated party can hold RINs. liquidity. For example, we note the
support of publicly posting more RFS • Requiring the retirement of RINs for numerous comments received on the
program data. In response, in September the purpose of compliance be made in 2019 RVO rule stating that changes to
2018, we began publishing weekly real time. the RIN market structure could reduce
aggregated RIN prices, as reported in Pursuant to this directive, we are liquidity, increase volatility, and make
EMTS by sellers and buyers, as well as proposing these reforms. the RIN market function less efficiently,
weekly aggregated transaction volumes. increasing costs to obligated parties and
D. Objectives
We believe publishing as much data and consumers.159 In addition, a white
information on the RIN market as We are interested in ensuring that the paper on the President’s Directive
possible, while still protecting RIN market works efficiently and is free recently released by the American
confidential business information, of anti-competitive behavior. We affirm Petroleum Institute (API) cautions that
improves market transparency and that price manipulation through anti- ‘‘the proposed regulatory changes are
helps obligated parties and other market competitive behavior, similar to what is likely to create additional significant
participants make informed decisions. referred to as cornering or squeezing the problems of their own’’ and that
We also believe that these data can market, and false or misleading ‘‘history suggests that regulatory
reduce information asymmetry among representations in transactions, is agencies should be extremely cautious
market participants increasing antithetical to effective market operation in changing established rules in
confidence in the market. In addition, and should be discouraged.158 Were regulated markets.’’ 160 Interested
we began publishing information on stakeholders have also suggested that
157 See ‘‘President Donald J. Trump is Expanding
small refinery exemption requests some reforms could impact the ability of
Waivers for E15 and Increasing Transparency in the
received and granted by EPA and the RIN Market’’ Fact Sheet, available at: https:// small, less recognized, or new
volumes of gasoline and diesel fuel www.whitehouse.gov/briefings-statements/ renewable fuel producers and blenders
exempted. This helped all obligated president-donald-j-trump-expanding-waivers-e15- to enter the market. Finally, we
parties account for the potential volume increasing-transparency-rin-market.
understand that some reforms could
158 Such behaviors may also violate the anti-fraud
exempted under these provisions and inadvertently affect otherwise legitimate
and anti-manipulation provisions of the Commodity
make adjustments to their compliance Exchange Act. See, e.g., Section 9(a)(2) of the CEA, market behavior. For example, parties
strategies accordingly. 7 U.S.C. 13(a)(2) (2012), states that it is a felony for that make a profit on the RIN market are
We also received a wide variety of ‘‘Any person to manipulate or attempt to not necessarily conducting
comments regarding the other ideas we manipulate the price of any commodity in interstate
commerce . . . or to corner or attempt to corner any
put forth for comment in the 2019 RVO: such commodity or knowingly to deliver or cause manipulative or deceptive device or
prohibiting parties other than obligated to be delivered for transmission through the mails contrivance. . . .’’
parties from purchasing separated RINs, or interstate commerce by telegraph, telephone, 159 See, e.g., comments to the 2019 RVO rule from

requiring public disclosure if a party wireless, or other means of communication false or Steptoe & Johnson LLP on behalf of the National
amozie on DSK9F9SC42PROD with PROPOSALS2

misleading or knowingly inaccurate reports Association of Convenience Stores (NACS) and the
holds a certain percentage of the RIN concerning crop or market information or Society of Independent Gasoline Marketers of
market, and requiring obligated parties conditions that affect or tend to affect the price of America (SIGMA), BP, and American Petroleum
to retire RINs for compliance purposes any commodity in interstate commerce.’’ Section Institute (API) in Docket No. EPA–HQ–OAR–2018–
on a more frequent basis. Some 6(c)(1) of the CEA, 7 U.S.C. 9(1) (2012), titled 0167.
Prohibition against manipulation, states that ‘‘it 160 See ‘‘An Analysis of the Renewable Fuel
commenters expressed support for these shall be unlawful for any person, directly or Standard’s RIN Market’’, Covington & Burling LLP,
indirectly, to use or employ, or attempt to use or February 15, 2019, available at https://www.api.org/
155 See 82 FR 34206 (July 21, 2017). employ, in connection with . . . a contract of sale ∼/media/Files/Policy/Fuels-and-Renewables/2019/
156 See 83 FR 32024 (July 10, 2018). of any commodity in interstate commerce . . . any RIN-market-paper.pdf.

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00026 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules 10609

manipulative or anti-competitive the reforms provide, or detract from, also proposing that the RIN holdings of
behavior and may very well be symmetry in the marketplace, so that corporate affiliates be included in a
increasing market efficiency and one set of actors is not advantaged at the party’s calculations to determine if they
liquidity with their actions. Therefore, expense of another set operating in the trigger a threshold. The definition of
we have taken into consideration the same market. corporate affiliate, calculation of the
potential for reforms to harm the RIN thresholds and specifics of the reporting
1. Reform One: Public Disclosure if RIN
market in this proposed action. requirements are discussed in more
We are proposing regulatory changes Holdings Exceed Certain Threshold
detail below.
in this action for all four reforms The first potential reform from the The purpose of putting into place a
identified in the President’s Directive President’s Directive that we address in disclosure requirement is twofold: first,
and request comments on both the this action is a requirement for public to provide transparency in the market
positive and negative consequences of disclosure when a party’s RIN holdings regarding how often certain RIN
each reform. We intend to finalize the exceed a certain threshold. The position thresholds are reached and
reforms that we conclude are beneficial fundamental concept underpinning this exceeded, and second, to disincentivize
for the RFS program, the RIN market, reform is that increased transparency such behavior by requiring public
and the RFS stakeholders, and do not can help deter market actors from disclosure. If the threshold were ever
impose unnecessary burden. For all four amassing an excess of separated RINs, exceeded, public disclosure would alert
reforms outlined in this action, we focus which due to the concentration in market participants and where
on separated RINs only; we believe the ownership of available supplies could appropriate prompt a closer review of
physical storage limitations faced by result in undue influence or market the circumstances by EPA. Were the
renewable fuel already reduce the power. This reform could also let threshold to be exceeded, we could then
opportunity for price manipulation of market participants know the consider further actions to investigate
assigned RINs and that the existing underlying status of the market. A for anti-competitive behavior and help
regulations at 40 CFR 80.1428 already concentration of separated RINs, if prevent similar behavior in the future.
include anti-hoarding provisions for sufficiently large in scope, could be We seek comment on what those further
RINs attached to renewable fuel. used by a party to manipulate the actions might entail, including actions
Furthermore, for each of the four market by artificially affecting prices in to address concerns within the broader
reforms, we evaluate whether we should any direction. The most extreme RIN market generally.
limit the proposed regulatory provision examples of market power are It is important to emphasize that we
to D6 RINs only. Stakeholder concerns monopolies, but concentration can be a use the term ‘‘threshold’’ in this
over market manipulation focused concern even for markets with many proposed regulatory modification to
mainly on D6 RINs because, as participants when only a few control the mean a level that may be exceeded, with
described in Section III.B, in 2013 the majority of available supply at any given only a disclosure consequence if
overall demand for RINs increased due point in time. exceeded. We use the term ‘‘limit’’ in
to the increased RVO set in the statute In this action, we are proposing to set this action to mean a level that may not
while the supply of D6 RINs remained two thresholds that would work in be exceeded, with a potential
nearly flat due to the E10 blendwall.161 tandem to identify parties that have enforcement consequence if exceeded.
D6 RINs are also the predominant RIN amassed RINs in excess of normal As an alternative to the RIN holding
type generated, and therefore impacts business practices, which could indicate thresholds we are proposing, we seek
on D6 RIN prices have much larger an intent to assert an inappropriate comment on establishing a RIN holdings
consequences for obligated parties than influence on the market. These limit, whereby we would prohibit
impacts on the prices of other RIN thresholds would apply to holdings of parties from holding more than a certain
types.162 For each reform discussed in separated D6 RINs only. The first level of RINs. Other marketplaces have
Section III.E, we explain whether it is threshold would be triggered if a party’s established such limits, and we discuss
feasible to propose that the reform apply end-of-day separated D6 RIN holdings the distinction, as well as the reasons
to D6 RINs only and our rationale. We exceeded three percent of the total for pursuing the threshold/disclosure
seek comment on narrowing the scope implied conventional biofuel volume approach, below. We seek comment on
of the proposals in this action to D6 requirement (e.g., 15 billion gallons for this alternative proposal and on the
RINs only. compliance year 2018) set for that year issue generally.
by EPA in the RVO rule, which is the Regulatory bodies supervising
E. Proposed Approach to Individual total renewable fuel volume markets regularly take measures to
Regulatory Reforms requirement minus the advanced fuel prevent excessive market power, and it
For each potential reform, we discuss volume requirement. A party without an is useful when considering new
the basic concept, its implications for RVO (a non-obligated party) that regulations in the RIN market to assess
the program and marketplace, the scope triggered the first threshold would the tools used in other comparable
and design of the specific regulatory notify EPA of an exceedance at the end areas. Tools used in other markets to
modification in question, and other of the quarter. An obligated party that accomplish similar market power-
relevant details. Broadly speaking, EPA triggered the first threshold would apply limiting objectives include collecting
is interested not only in comments on the second threshold by comparing its market participant data, conducting
specific individual reforms, but also on end-of-day separated D6 RIN holdings market surveillance, publicly disclosing
how the various reforms might work in with 130 percent of its individual market information, and restricting the
amozie on DSK9F9SC42PROD with PROPOSALS2

combination, and the degree to which implied conventional RVO. Only activity of certain market participants.
obligated parties that triggered both the Physical commodity markets are not
161 We acknowledge that the stock of D6 RINs has first and second thresholds would notify typically regulated with holdings
fluctuated over time due to market shifts, EPA EPA of an exceedance at the end of the thresholds or limits, however, because
actions, and other factors, and that a larger stock of quarter. In this action, we are proposing the physical restrictions to hoarding,
RINs puts downward pressure on RIN prices.
162 According to data from EMTS approximately to publish on our website on a quarterly like limited physical storage space,
78 percent of all RINs generated in 2018 were D6 basis the names of any parties that obviate the need for regulatory
RINs. report exceeding the thresholds. We are restriction and oversight. Rather,

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00027 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
10610 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules

holding thresholds and limits are EPA’s Acid Rain Program168 nor b. Scope
usually reserved for futures and California’s Low Carbon Fuel Standard As discussed in Section III.D, for each
derivative markets where such physical (LCFS) 169 has limits or thresholds on of the four potential reforms, we
constraints do not serve as a check on allowance or credit holdings, and we are evaluated whether we could limit the
market concentration. For example, the unaware of any state Renewable scope of the measure to D6 RINs. For
CFTC currently maintains limits on the Portfolio Standard (RPS) program 170 this provision of publicly disclosing
number of open positions 163 that parties that enforces a renewable energy credit when a party exceeds a RIN holding
can take at a given time in nine holding threshold or limit. threshold, we concluded that we could
agricultural markets.164 Other entities limit its scope to D6 RINs without
registered with the CFTC, called a. Implications and Discussion
compromising its intended effect. Also,
Exchanges, impose and enforce position we believe that we can practically
We believe that requiring public
limits on a large number of remaining design and propose a maximum D6 RIN
disclosure by parties that exceed a
futures and options. holding threshold without setting one
RINs do not fall neatly into either certain RIN holding threshold could
prove beneficial for the market as a for D3, D4, or D5 RINs. Not only have
category; they are neither limited by D6 RINs raised the most stakeholder
physical storage space nor a derivative. whole. It could disincentivize parties
from gaining market power, signal concern, as discussed above, but the
In looking for analogs in other regulated nested nature of the RVOs and the
markets, it is therefore helpful to see potentially harmful behavior to
competitors, regulators, and policy unique characteristics of other RIN
how other environmental allowance markets (e.g., D3) would make covering
markets operate for purposes of makers, and be used to justify stronger
preventative actions. However, this all RIN categories considerably more
comparison. For this action, we looked complicated. As also discussed in
at other environmental credit programs reform could also have detrimental
effects, especially if not designed Section III.D, we are further limiting our
and their markets to better understand proposal of this measure to separated
options for the RIN market and found properly. Excess market power is very
difficult to quantify in any given market, RINs because we believe the physical
that different markets operate with storage limitations faced by renewable
different approaches. For example, the even if regulators have perfect
knowledge of all market conditions. A fuel already reduce the opportunity for
California Air Resources Board (CARB) price manipulation of assigned RINs
enforces an allowance holding limit in real risk exists of setting a RIN holding
threshold in this rulemaking incorrectly. and that the existing regulations at 40
the California Cap-and-Trade Program CFR 80.1428 already include anti-
for greenhouse gas emissions; 165 the If a threshold is set too low, it could
unnecessarily compromise market hoarding provisions for RINs attached to
Regional Greenhouse Gas Initiative renewable fuel. Finally, we are
(RGGI) 166 enforces a credit purchasing efficiency and liquidity and interfere
with obligated parties’ ability to comply proposing that this threshold cover any
limit in the RGGI cap-and-trade program vintage D6 RINs that are available for
credit auctions; and the Government of with regulations by disincentivizing
them from holding the necessary compliance with the current year RVO.
Canada enforced a limit in its Federal
quantity of RINs to meet their RVO. We We seek comment on these proposed
Renewable Fuels Regulations on the
therefore believe that a threshold with a aspects of this reform.
number of compliance credits a primary
supplier can own at the end of each consequence of public disclosure is c. Methodology for the RIN Holding
month.167 On the other hand, neither appropriate rather than a holding limit Threshold 171
with an enforcement consequence. A
In this action, we are proposing to set
163 An open position refers to a contract for the threshold serves as a deterrent and
two holding thresholds. As stated above,
purchase or sale of a commodity fur future delivery. warning bell without the risk of
See CFTC Regulation 150.2, 17 CFR 150.2 (2012), it is extremely difficult to pinpoint a
unnecessarily causing harm. We also
available at https://ecfr.io/Title-17/se17.2.150_12. specific market share that would equate
believe that, in the face of insufficient
164 See CFTC Regulation 150.2, 17 CFR 150.2
to concerning market power. Therefore,
(2012), available at https://ecfr.io/Title-17/ evidence of any identified parties
we approach this reform by instead
se17.2.150_12. currently exhibiting what might be
165 More information on California’s Cap and estimating the holding level that we
considered excessive market power,
Trade program can be found at https://www.arb. believe would be consistent with
public disclosure is an appropriate first
ca.gov/cc/capandtrade/capandtrade.htm. legitimate market needs. We recognize
Information about the allowance holding limit can action. EPA could follow up with more
that legitimate holdings for obligated
be found in ‘‘Facts About Cap and Trade: Market restrictive measures later if warranted
Oversight and Enforcement’’ (2011), available at parties relate to the number of RINs they
and seeks comment on what follow-up
https://www.arb.ca.gov/cc/capandtrade/market_ need for compliance with their RVO, so
oversight.pdf. actions might be appropriate.
we logically conclude that an obligated
166 The Regional Greenhouse Gas Initiative (RGGI)
The following sections outline the party threshold should relate to its RVO.
is a cooperative effort among the states of
Connecticut, Delaware, Maine, Maryland,
various considerations we made in We also recognize that non-obligated
Massachusetts, New Hampshire, New York, Rhode designing this proposed measure. parties have no RVO and require a
Island, and Vermont to cap and reduce CO2 different threshold methodology. Non-
emissions from the power sector. More information
on RGGI can be found at https://www.rggi.org.
168 More information on EPA’s Acid Rain Program
obligated parties have less need to hold
can be found at https://www.epa.gov/airmarkets/ RINs than obligated parties because they
Information about the credit purchasing limit can
acid-rain-program.
be found in ‘‘CO2 Allowance Auctions Frequently
169 More information on California’s LCFS
have no compliance use for them, so we
Asked Questions’’ (2017), available at https:// believe their threshold should generally
www.rggi.org/sites/default/files/Uploads/Auction- Program can be found at https://www.arb.ca.gov/
amozie on DSK9F9SC42PROD with PROPOSALS2

Materials/38/RGGI_CO2_Allowance_Auction_ fuels/lcfs/lcfs.htm. be set lower. Thus, we believe one lower


FAQs_Jan_10_2017.pdf. 170 An RPS is a regulatory method mandating
threshold that covers everybody and a
167 More information on Canada’s Federal utility companies operating within a certain second higher threshold that adjusts to
Renewable Fuel Regulations, including about the jurisdiction to increase production of energy from
credit limit, can be found in ‘‘Questions & Answers renewable resources. More information on RPS the compliance needs of obligated
on the Federal Renewable Fuels Regulations’’ programs can be found in ‘‘Chapter 5. Renewable
(2012), available at https://www.canada.ca/en/ Portfolio Standards’’ of ‘‘EPA Energy and 171 We refer to the threshold in the singular in the

environment-climate-change/services/canadian- Environment Guide to Action’’ (2015), available at title to describe the overall policy, but as described
environmental-protection-act-registry/publications/ https://www.epa.gov/sites/production/files/2017- in this section, we are actually proposing a dual
revised-questions-answers-renewable-fuels.html. 06/documents/guide_action_full.pdf. threshold approach.

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00028 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules 10611

parties together would adequately markets are granted by the CFTC or threshold in the first quarter of the year
constrain a market with a very wide Exchanges on a case-by-case basis to should be 125 percent of the other
range of participants. Both non- parties that demonstrate valid months because parties may need to
obligated parties and obligated parties commercial stakes in the underlying hold RINs for two overlapping RVOs in
would be held to similar incentives. physical market.173 In addition, parties that quarter rather than just one. In our
We are proposing a primary D6 RIN that are covered by the cap and have an hypothetical example, this would
holding threshold for all RIN-holding emissions compliance obligation under amount to three percent of 18.75 billion
parties relative to the implied the California Cap-and-Trade Program D6 RINs, or 562.5 million D6 RINs. We
conventional biofuel volume are allowed to hold more allowances propose that a party’s RIN balance at the
requirement finalized by EPA each year. than parties not covered by the cap. end of each day in EMTS would be
We determine the implied conventional While all parties participating in the combined with any RINs in pending
biofuel volume requirement by California Cap-and-Trade Program are trades at the end of the day. We seek
subtracting the advanced fuel volume subject to the same fixed annual holding comment on this approach.
requirement from the total renewable limit, parties with a compliance To determine the primary threshold of
fuel volume requirement because D6 obligation qualify for a limited three percent, we considered thresholds
RINs can only be used to meet the exemption from the holding limit. in other programs as well as an analysis
implied conventional biofuel portion of Allowances placed in a covered entity’s of RFS RIN holdings. We looked at the
the total RVO. For example, if the compliance account (from which the linked cap-and-trade programs
implied conventional biofuel volume entity can no longer remove or trade implemented by California and Quebec
requirement were 15 billion in a given allowances) up to the limited exemption as examples. They use a formula that
year, a certain percentage of 15 billion do not count against the holding limit. calculates a holding limit of about three
would be the primary threshold for that The limited exemption is based on percent of their combined annual
year. A threshold relative to the volume lagged values of the entity’s reported allowance budgets every year.175 Based
requirement adjusts over time to the size emissions and is large enough to cover on our discussions with CARB
of the annual standard rather than to the the entity’s cumulative emissions concerning the implementation and
number of RINs in the market. The obligations. This ensures that entities effectiveness of that threshold, we are
benefit of this approach is that the with compliance obligations greater proposing a similar level. We therefore
volume requirement does not change, so than the holding limit can still acquire conclude that a holding limit or
parties know exactly what level to avoid and hold compliance instruments to threshold of three percent of an
at all times. This approach is similar to comply with their obligations.174 We allowance or credit standard can
the calculation of the allowance holding seek comment on the general concept of identify parties which have acquired
limit used in the linked cap-and-trade a secondary threshold for obligated RIN holdings larger than necessary for
programs implemented by California parties in the RFS program. normal business operations and which
and Quebec.172 may indicate an effort to assert
In this action, we are proposing to set d. Setting the Primary Threshold inappropriate market power. To help
a secondary threshold for obligated We are proposing that all RIN-holding inform our assessment of a three-percent
parties. We recognize that larger parties would be subject to a primary threshold, we conducted a screening
obligated parties with large RVOs have threshold for disclosure. We are analysis using individual-level data to
valid reasons to accumulate and hold a proposing one approach to calculating evaluate historical market shares.
volume of RINs that might exceed the the primary threshold that adjusts Specifically, we looked at daily D6 RIN
primary threshold, not only to meet depending on how many RVOs are in holdings aggregated by company
their next annual compliance obligation effect. For anytime between April 1 and between April 1, 2017 and April 1,
but also to bank additional RINs for December 31, when only one set of 2018, compared to the overall market.
compliance with the following year’s annual RVOs is in effect, we are For simplicity, we looked at D6 RINs of
obligation. As explained in Section proposing that the primary threshold all vintages. Using our proposed
III.D, many instances of RIN would equal three percent of the annual equations for the primary threshold, we
accumulation are legitimate and are not implied conventional biofuel volume found that in that one-year period, 13
related to price manipulation, making it requirement established by EPA in a out of 126 obligated parties would have
that much harder for regulators to rule promulgated each year to set the exceeded the three percent primary
pinpoint the instances of RIN annual renewable fuel standards. In our threshold. None of the 280 non-
accumulation that are not based on hypothetical example, this would obligated parties that held separated D6
legitimate commercial or compliance amount to three percent of 15 billion D6 RINs in that time period exceeded the
needs. For example, parties that RINs, or 450 million D6 RINs. For three percent primary threshold.176
anytime between January 1 and March We seek comment on the general
anticipate an increase in the price of
31, when two sets of annual RVOS are approach of setting the primary D6 RIN
RINs and/or the quantity of RINs they
in effect, we are proposing that the holding threshold relative to the
will need for compliance purposes in
primary threshold would be three implied conventional biofuel volume
future years may choose to acquire RINs requirement and the specific application
beyond their needs for the current year percent of 125 percent of the annual
of a three-percent threshold. We also
for use in the following year. Therefore, implied conventional biofuel volume
seek comment on the actual thresholds
we recognize that the threshold would requirement. We are proposing that the
that this calculation generates, whether
amozie on DSK9F9SC42PROD with PROPOSALS2

have to somehow account for and allow it is appropriate, and whether it could
173 A position limit refers to a limit on the
RINs held to meet compliance harm any market participants and, if so,
number of contracts for the purchase or sale of a
obligations. For example, exemptions to commodity for future delivery a party can hold. See
position limits in futures and options CFTC Regulation 150.2, 17 CFR 150.2 (2012) at 175 See calculation in the memorandum,
https://ecfr.io/Title-17/se17.2.150_12. ‘‘California and Quebec Holding Limit
172 See ‘‘Facts About Holding Limit for Linked 174 See ‘‘Facts About Limited Exemption from the Percentages,’’ available in the docket for this action.
Cap-and-Trade Programs’’ (September 14, 2018), Holding Limit’’ (December 1, 2017), available at 176 See calculation in the memorandum,

available at https://www.arb.ca.gov/cc/ https://www.arb.ca.gov/cc/capandtrade/limited_ ‘‘Threshold Calculations for D6 RIN Holding


capandtrade/holding_limit.pdf. exemption.pdf. Parties,’’ available in the docket for this action.

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00029 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
10612 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules

how. We also considered setting two is not a holding limit or threshold per could potentially command market
primary thresholds, one for obligated se, it is a limit that relates to preventing power with the potential to artificially
parties set at three percent and a lower a party from establishing undue market influence price. For obligated parties,
one for non-obligated parties set at one power. Therefore, if we were to choose however, a second test would be needed
percent (an obligated party would still this approach to setting a threshold in to evaluate their holdings against their
apply the secondary threshold if it the final rule, we would consider a D6 compliance obligation because that
exceeded its primary threshold). In our RIN holding threshold at or around 25 could explain their sizeable holdings.
hypothetical example, a one percent percent of total available D6 RINs. In For the secondary threshold, we are
threshold would amount to 150 million our screening analysis, we compared proposing that an obligated party would
RINs from April 1 to December 31 and maximum individual end-of-day D6 RIN compare its implied conventional
188 million RINs from January 1 to holdings in every quarter between 2013 biofuel RVO to its D6 RIN holdings of
March 31. We considered this approach and 2018 to total available D6 RINs in all vintages, on a daily basis. If the D6
because a one percent primary threshold that quarter. We looked at all, non- RIN holdings are more than 130 percent
for non-obligated parties could expired D6 RINs regardless of the year of the implied conventional biofuel
potentially meet the objectives outlined in which they were generated.179 We RVO on any day, the obligated party
in Sections III.E.3 and III.E.4 in a found that the maximum market share would trigger the public disclosure
simplified and more streamlined way over that entire time period, by any requirement. We are proposing one
than the various reforms proposed in individual RIN holder, was 18 percent. approach to calculating the secondary
those sections. In our screening In other words, on one day, one party threshold that adjusts depending on
analysis, we found that two non- held 18 percent of the 9.9 billion D6 how many RVOs are in effect. We want
obligated parties would have exceeded separated RINs available on that day. In to account for the fact that, generally, an
the one percent threshold during the that particular case, an obligated party obligated party holds more D6 RINs in
time period analyzed, though we did hit the 18-percent level in the first the first three months of the year when
not consider whether the parties were quarter of 2017, at a time when other it is preparing to retire for the prior
affiliated with an obligated party, as obligated parties were retiring hundreds year’s obligation while also
described below.177 We seek comment of millions of RINs in single EMTS accumulating RINs for the current year’s
on this considered approach of limiting transactions for the upcoming obligation.
non-obligated parties using just one compliance deadline. This activity For days between April 1 and
reform, a lower primary threshold of dropped the total available RINs in the December 31, an obligated party would
one percent. market suddenly and drastically. Setting multiply its gasoline and diesel
aside those periods of time where production and import volume from the
We considered but are not proposing prior year by the difference between the
setting a threshold relative to total significant and sudden RIN retirements
were occurring, the maximum level of renewable fuel percentage standard
separated D6 RINs available in the from the prior year and the advanced
market. The downside of this approach D6 RINs that any one party held at a
time was between 10 and 14 percent of fuel percentage standard from the prior
is that the quantity of total available year. It would also account for any
RINs changes continuously, and it is not all D6 RINs.180 These figures are
commensurate with the gasoline and deficit volume it carried over from the
possible for market participants to know prior year. See the proposed equations
what it is at every moment. This makes diesel production market share of the
largest refiners. We seek comment on at 40 CFR 80.1435 for more detail on
it difficult to calculate the threshold at this proposed approach.
any given time. Another downside of our proposal to set the primary
For days between January 1 and
this approach is that it uses all threshold relative to the annual implied
March 31, an obligated party would
unretired, separated D6 RINs as a proxy conventional biofuel volume multiply its gasoline and diesel
for available D6 RINs because that is the requirement and on the alternative production and import volume from the
best information that either the market approach considered but not proposed. prior year by 125 percent of the
or EPA has. If a party were to keep D6 e. The Secondary Threshold difference between the renewable fuel
RINs off the market, as is alleged by percentage standard from the prior year
some parties, then our proxy would If a RIN-holding party exceeded the
and the advanced fuel percentage
become an overestimate of the actual primary threshold, it would indicate
standard from the prior year. It would
number of D6 RINs available. Thus, this that its D6 RIN holdings were a sizeable
also account for any deficit volume it
approach would underestimate a party’s share of the market. For parties with no
carried over two years ago to the prior
market share. In considering this RVO, this would signal a position that
year. See the proposed equations at 40
approach, we also could not find a CFR 80.1435 for more detail on this
Auction-Materials/38/RGGI_CO2_Allowance_
universal standard for the level of Auction_FAQs_Jan_10_2017.pdf. proposed approach. We are proposing
market share that constitutes an 179 CAA sec. 211(o)(5) requires that EPA establish that obligated parties who triggered the
inappropriate or concerning level of a credit program as part of its RFS regulations, and primary threshold would conduct this
market power. The only example we that the credits be valid to show compliance for 12 secondary threshold calculation at least
could find of another environmental months as of the date of generation. EPA
implemented this requirement through the use of
quarterly using daily RIN holding levels
credit program that implements a RINs, which can be used to demonstrate and implied conventional biofuel RVOs.
market share limit is the RGGI program, compliance for the year in which they are generated We also considered requiring the
which applies a 25-percent limit to the or the subsequent compliance year. Obligated calculations at the end of the
amozie on DSK9F9SC42PROD with PROPOSALS2

number of credits a party can purchase parties can obtain more RINs than they need in a compliance year when the actual annual
given compliance year, allowing them to ‘‘carry
at a single credit auction.178 Though this over’’ these excess RINs for use in the subsequent RVO becomes known. For example, on
compliance year, although use of these carryover March 31, when a large obligated party
177 See calculation in the memorandum, RINs is limited to 20 percent of the obligated party’s reports to EPA its actual gasoline and
‘‘Threshold Calculations for D6 RIN Holding RVO. diesel production and import volume
Parties,’’ available in the docket for this action. 180 The full analysis is detailed in the
178 See ‘‘CO Allowance Auctions Frequently memorandum, ‘‘Daily Comparison of Individual
and its RVOs for the prior year, it could
2
Asked Questions’’ (January 10, 2017), available at RIN Holdings to Total Available RINs,’’ available in also evaluate its daily D6 RIN holdings
https://www.rggi.org/sites/default/files/Uploads/ the docket for this action. against the implied conventional biofuel

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00030 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules 10613

RVO for the year. The downside to this f. Aggregating RIN Holdings holding thresholds for reporting, we
approach is that the red flag for Market power can be applied in an would intend to require that the RIN
potentially problematic market power anti-competitive way when a party holdings of all parties affiliated by
could come long after the excessive RIN controls a sufficiently large share of corporate ownership would
holding level occurs, in some cases over available supply, in this case separated nevertheless still be aggregated together.
a year later. This delay between the RIN In order to propose a definition for the
D6 RINs. As already described, we are
holding level and public disclosure of term ‘‘corporate affiliate,’’ we reviewed
proposing in this action to require a RIN
the exceedance would decrease the how other environmental credit
holding reporting threshold on at least
effectiveness of the reform and hamper programs define and apply this concept.
each individual entity registered to
its intended purpose of deterrence and California’s Cap-and-Trade Program
transact RINs in EMTS. However, two
market notification. Therefore, we are applies a shared, single allowance
individual entities with independent
not proposing such an option. We seek holding limit to entities and their direct
registration profiles in EMTS may be
comment on the quarterly interval corporate associations, which they
affiliated and may have control over
generally define as when one entity has
proposed. We chose 130 percent each other’s RIN holdings and each
more than 50-percent ownership in
because it allows for holdings of 100 other’s actions. For example, two another entity or when two entities
percent of their implied conventional entities may be subsidiaries of the same share a common parent (i.e., when there
biofuel RVO, 20 percent for banking, parent company or one entity may be is a common entity of which the two
and 10 percent for additional flexibility the official financial asset trading arm of entities are subsidiaries). In addition,
and uncertainty. This flexibility would, the other. In each of these cases, each the California Cap-and-Trade Program
for example, cover potentially invalid entity may have control over a larger requires that entities report, when
D6 RINs that may not be sold or retired RIN holding than its individual EMTS requested, information related to
according to the existing part 80 account would suggest. indirect corporate associations, which
regulations. With the secondary In addition, we note that a RIN they define as ownership of more than
threshold in place, an obligated party holding threshold applied to individual 20 percent but less than or equal to 50
with end-of-day D6 RIN holdings in a parties, without regard to their percent.183 For the RGGI program
given quarter below the primary affiliations, would create a large gaming auction purchase limit, corporate
threshold would not trigger public opportunity. One party that wanted to association occurs when one applicant
disclosure, while an obligated party gain market power but evade the RIN has more than 20-percent ownership in
with D6 RIN holdings above the primary holding reporting threshold provision another applicant or when one party has
threshold would conduct a second test could spin-off various subsidiaries that 20-percent ownership in two applicants
against 130 percent of their implied would each hold RINs below the (parent company).184
conventional biofuel RVO to date to reporting threshold. It is our intent to In this action, we are proposing that
determine whether public disclosure design this reform to prevent such two parties are corporate affiliates if one
would be triggered. gaming. has more than 20-percent ownership in
As a result, we are proposing in this the other or if both parties are owned
In our screening analysis, we found action that a party would aggregate its more than 20 percent by the same
that in the 2017 compliance year, RIN holdings with the holdings of all parent company. We are proposing a
thirteen obligated parties would have other parties with overlapping ‘‘more than 20’’ percent ownership level
exceeded a three-percent primary ownership or corporate control for because it is consistent with the value
threshold and would have applied the evaluation against the thresholds. This that the other programs apply. For this
secondary threshold. We found that methodology is similarly applied by proposed provision on a D6 RIN holding
three would have also exceeded the 130- CARB for the California cap-and-trade threshold, we are proposing that only
percent threshold at least once.181 We credit holding limit and by RGGI for the corporate affiliates registered to own
note that we were unable to fully RGGI program auction purchasing limit. RINs in EMTS would be included in the
aggregate holdings and RVOs by We provide a few examples to illustrate RIN holding aggregation. Corporate
corporate affiliates, as described further this proposed concept. If an obligated affiliates that are not registered in EMTS
below, or account for RINs that an party were owned by a non-obligated to own RINs would not need to be
obligated party was holding for a small party, then the combined D6 RIN included in the threshold calculations
refinery with an exemption approval holdings would first be applied against as these affiliates cannot hold RINs.185
from EPA.182 Nonetheless, this analysis the primary threshold. If the primary We considered but are not proposing
suggests that a few obligated parties threshold were triggered, then the to require aggregation of RIN holdings
might have to report triggering the combined D6 RIN holdings would be for comparison to the threshold among
proposed D6 RIN holding threshold in applied against the secondary threshold parties with a contractual relationship,
the future. We seek comment on using the obligated party’s implied for example if there is an implicit or
proposing to set the secondary threshold conventional biofuel RVO. If two non-
at 130 percent of the implied obligated parties were affiliated by 183 See ‘‘Chapter 3.1.A: Disclosure of Corporate

corporate ownership, then their Associations, Consultants or Advisors, and


conventional biofuel RVO to date for Knowledgeable Employees’’ of ‘‘Cap-and-Trade
obligated parties and the 125 percent combined D6 RIN holdings would be Regulation Instructional Guidance’’ (February
factor that would be applied in the first applied against the primary threshold 2015), available at https://www.arb.ca.gov/cc/
quarter of the year. only. If two obligated parties were capandtrade/guidance/guidance.htm.
amozie on DSK9F9SC42PROD with PROPOSALS2

184 See ‘‘Auction Notice for CO Allowance


affiliated by corporate ownership, then 2
Auction 42 on December 05, 2018’’ (October 9,
181 We aggregated all facilities by their company their combined D6 RIN holdings would 2018), available at https://www.rggi.org/sites/
ID in EMTS to get a company total for both RIN be applied against the primary threshold default/files/Uploads/Auction-Materials/42/
holdings and thresholds. See calculations in the first and then, if necessary, against the Auction_Notice_Oct_09_2018.pdf.
memorandum, ‘‘Threshold Calculations for D6 RIN secondary threshold using the obligated 185 For diagrams and examples of different types
Holding Parties,’’ available in the docket for this of affiliates, see the memorandum, ‘‘Affiliates and
action. parties’ implied combined conventional Groups Definitional Relationship and
182 While our analysis could not account for this, biofuel RVO. Were we to finalize any Requirements,’’ available in the docket for this
our proposed regulations do. other approaches to establishing RIN action.

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00031 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
10614 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules

explicit agreement in place for one to Under the approach proposed in this the power to control whether this
purchase RINs for the other. As such, an action, a large obligated party that information is released.
obligated party that has a contract in triggers the primary threshold would We seek comment on whether
place with a trader or a blender for apply the secondary threshold of 130 publication of whether the parties in a
delivery of D6 RINs would not add percent of its implied conventional fuel corporate affiliate group exceeded the
those D6 RINs to its holdings for RVO to date, which in turn is calculated RIN holding threshold would disclose
comparison to the threshold until by multiplying a publicly known underlying CBI or otherwise would
delivery occurred. We realize that this percentage standard with its annual likely result in substantial competitive
proposed approach would omit some gasoline and diesel production or harm to a particular company. Please
RINs from the threshold comparison import volume. We recognize that fuel identify the specific data element and
that could be under a party’s control. production volume and import volume explain how the public release of that
However, we believe that a methodology are closely protected by refiners and particular value would or would not be
for including such contractual importers as sensitive information that likely to result in disclosure of
relationships in the aggregation would underlying CBI or otherwise cause
could potentially harm competitiveness
be too complex and could result in substantial competitive harm. If the
if disclosed. Therefore, in our
double-counting RINs. We seek concern is that the release of being
evaluation of public disclosure, we also
comment on our proposed approach to above a threshold would allow
need to consider whether fuel volume competitors to derive a CBI value for an
defining corporate affiliate and on could be computed, back-calculated, or
omitting contractual affiliates from the individual facility or company,
otherwise discerned by publishing specifically describe the mechanism by
RIN holding aggregation. whether a party exceeded an RVO- which this could occur. Describe any
g. CBI Determination relative threshold. We find that it could unique process or aspect of a facility or
not, since neither the threshold nor any company that would be revealed if the
We are proposing to require public numbers above it relates to or requires data were made publicly available. If the
disclosure of the name of a party that a specific fuel volume. The threshold value would disclose underlying CBI
reported exceeding the EPA-set RIN and the figure of comparison are ratios only when used in combination with
holding threshold. We are not proposing and do not disclose or make discernable other publicly available data, then
to publicly disclose the actual RIN information about the actual fuel identify the information that could be
holding level, the amount by which it production or import volume. revealed, describe how it would be
exceeded the threshold, when it calculated or otherwise discerned,
exceeded the threshold, how many We also considered whether any
information related to this proposed explain why the information is
times it did so, or which threshold was sensitive, describe the competitive harm
applied. As such, we are proposing to disclosure could warrant CBI treatment,
such as information that has not yet that its disclosure would be likely to
determine that a yes/no answer to this cause, and identify the source of the
threshold question does not qualify as gone through a formal CBI
determination process by EPA. We do other data. If the data are physically
CBI under the CAA. We find that published, such as in a book, industry
whether a party exceeded a RIN-holding not believe the information we propose
to disclose constitutes CBI because, as trade publication, or federal agency
threshold provides very little insight publication, provide the title, volume
into its actual RIN holding level, its previously discussed, the underlying
RIN holding level is sufficiently number (if applicable), author(s),
gasoline or diesel production or import publisher, publication date, frequency
volume, or any other information that masked. We believe it is in the interest
of the market and the program to of publication, and International
competitors could use to discern Standard Book Number (ISBN), or other
sensitive information. publicly disclose exceedances of the
proposed threshold. We are proposing a identifier. For data published on a
In responding to a Freedom of website, provide the address of the
threshold in this action that is
Information Act (FOIA) request in 2013, website, the date the website was last
sufficiently high to only be exceeded by
we determined that certain data visited, and identify the website
volume of RINs that is likely more than
collected and stored by EMTS at that publisher and content author. Avoid
a party would need for compliance or
time were CBI, including a party’s RIN conclusory and unsubstantiated
for any other legitimate business need.
holdings at the end of the quarter.186 We statements or general assertions
We believe that our proposed threshold
recognize that in our evaluation of regarding potential harm.
is consistent with the level of RIN In summary, we have found that the
disclosing whether an entity exceeded a
holdings that could cause excessive information described in this section for
RIN holding threshold, we therefore
market power, and we want to protect public disclosure is clearly not entitled
need to carefully consider whether the
the integrity and functioning of the RIN to CBI treatment. We are describing our
underlying RIN holding level is
market by deterring potentially anti- finding and the rationale behind it in
sufficiently masked. In other words, we
need to ensure that we do not disclose competitive behavior through public this notice of proposed rulemaking
underlying CBI data or allow the CBI to disclosure. We also note that the because we expect this finding to be of
be computed, back-calculated, or disclosure would come after the sale high interest to stakeholders. We
otherwise discerned using other were completed and would not be encourage those with CBI concerns to
publicly available data. Since the actual associated with a date or dates, so submit comments, which we will take
RIN level cannot be discerned or back- disclosing the threshold-related into consideration in the finalization of
amozie on DSK9F9SC42PROD with PROPOSALS2

calculated by knowing whether the information could not interfere with a this rulemaking.
threshold was exceeded, we believe our sale negotiated in the past. Finally, we
note that a company can control h. Reporting and Recordkeeping
proposed public disclosure Requirements
accomplishes this objective. whether it exceeds the threshold and
therefore whether its exceedance will be In this action, we are proposing that
186 See EPA’s FOIA Request Confidentiality
publicly disclosed by ensuring that its parties would calculate the threshold for
Determination document (Docket Item No. EPA-HQ- RIN holdings never exceed the each day, and parties that triggered the
OAR-2016-0041-0023). threshold. In this way, a company has threshold for a day would be required

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00032 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules 10615

to report the event to EPA by the large, who want to know the identity of consideration, we have tried to balance
quarterly reporting deadlines specified those that hold RINs in excess of the this reform with our proposed reform
in Table 1 to 40 CFR 80.1452. We seek amount that flags potential market that would limit the duration that a non-
comment on the proposed quarterly power concerns would only need to go obligated party could hold separated
frequency and whether quarterly notice to one place, EPA’s website, to find all RINs (discussed in Section III.E.4).
allows for too much lag between an publicly available information on the Namely, this proposal would establish
exceedance and disclosure . For a topic. We seek comment on our that both program compliance and the
corporate affiliate group that triggered proposal to publish the names of parties requirement for non-obligated parties to
the threshold together, each registered that exceed the RIN holding disclosure sell their separated RINs apply at
party would be required to separately threshold on the EPA website. quarterly intervals. We believe this
notify EPA of the event. We are symmetry will help to facilitate more
2. Reform Two: Increase RFS
proposing to add a yes/no question on frequent compliance and reduce the risk
Compliance Frequency
triggering the threshold to the RIN of one party having an unfair advantage
Activity Report that all RIN-holding The second potential reform we over the other since both sides would
parties are already required to submit to address in this action is establishing a face similar obligations to buy and sell
EPA quarterly. The party would select requirement for more frequent RINs within the required timeframes.
‘‘no’’ if the threshold was never retirement of RINs for purposes of We believe that more frequent RIN
triggered during the given quarter or program compliance. The fundamental retirement could help smooth demand
‘‘yes’’ if it was triggered at least once in concept underpinning this reform is for RINs across the year. However,
the quarter. The submitting official that, if it were finalized, obligated under this proposed reform, RIN
would be required to certify the parties would be required to retire RINs demand could still increase at certain
completeness and accuracy of that in their accounts gradually over the year times of the year due to circumstances
answer upon report submission. We are rather than all at once at the end of the beyond EPA’s control, which could
also proposing that independent year. We believe that requiring RINs to make purchasers particularly vulnerable
auditors would need to review all daily be retired for compliance on a more to manipulative terms from sellers at
threshold calculations during the attest frequent basis could potentially help those times. Even though the magnitude
engagement process and would need to minimize opportunities for hoarding or of the obligation would be roughly
include in their attest engagement report other behavior that could negatively decreased by a factor of four, sellers
to EPA confirmation that the party impact the RIN market. Further, we with excess RINs beyond their quarterly
believe this regulatory modification retirement requirements could still
notified EPA as required of all instances
would have the added benefit of helping exercise power over the RIN market—
of the threshold being triggered. This
obligated parties reduce the risk of non- now several times throughout the year
would include confirmation that the D6
compliance at the end of the year since before each quarterly deadline instead
RIN holdings and RVOs, if applicable, of
they would be required to obtain RINs of just once annually. Market power is
all corporate affiliates were fully and
to meet a portion of their individual relative, and we recognize that a smaller
properly accounted for in the
RVO on a quarterly basis. stockpile of RINs in a party’s account
calculations. We therefore are proposing Under this reform, we are proposing
that parties registered to hold RINs be relative to a smaller pool of available
to establish RIN retirement requirements RINs can still result in market power.
required to keep as records all threshold for the first three quarters of the
calculations, including corporate Therefore, the ultimate benefit of this
compliance year, calculated as the reform on the RIN market and on
affiliate values, and provide those gasoline and diesel production and parties’ behavior is unclear.
records to the auditor for review. import volume through the end of the
The proposed calculation would use quarter multiplied by 80 percent of the a. Implications on the Annual RVO
gasoline and diesel production and current year renewable fuel standard. In this action, we are not proposing to
import volumes from the prior We are proposing to include the 80 change the timeframe of the annual RVO
compliance year as a proxy for volumes percent factor for these interim RIN or the annual RVO compliance
in the current year. We recognize that retirements to address the inherent obligation. Rather, we are proposing to
the calculations could be an inaccurate uncertainty of projecting an obligated maintain the annual RVO and annual
representation of current year volumes party’s obligation without full RVO compliance obligation and to add
in some cases, such as mergers or big information. Obligated parties would requirements for periodic RIN
changes in import volumes from year to submit reports to EPA 60 days after the retirement throughout the year. This is
year. However, in most situations we end of the quarter to demonstrate similar to personal tax requirements
envision that these year-to-year changes compliance with these requirements imposed by the IRS and states; money
may not impact the necessity to report. and could use any D-code RINs to do so. is generally withheld from an
We seek comment on ways to fairly This reform would not impact the individual’s paycheck throughout the
account for these limited situations. current annual RVO calculations or year based on an estimate of their
In this action, we are proposing that compliance, including the two-year RIN annual tax burden, but the actual annual
EPA would be responsible for publicly life, the annual deficit carryover, or the tax burden is only calculated and due
disclosing that a party notified us of 20 percent carryover provisions. for full payment once the tax year is
exceeding the threshold. We already Specifics on the calculations, reporting over. By proposing a requirement for
maintain and regularly update a requirements and schedules are obligated parties to retire RINs
amozie on DSK9F9SC42PROD with PROPOSALS2

centralized website for RFS data 187 that discussed in more detail below. periodically through the year, we are
has become the hub for up-to-date Some stakeholders have voiced able to leave intact the many elements
program information and transparency. concern about asymmetry in the market of the RFS program that are based on an
Stakeholders, as well as the public at if EPA were to establish a more frequent annual program (e.g., the annual deficit
187 Public EMTS data can be found on EPA’s
compliance period for obligated parties provision, the annual 20 percent
website at https://www.epa.gov/fuels-registration-
without requiring RIN holders to make carryover provision, and the two-year
reporting-and-compliance-help/public-data- RINs available more frequently, and vice life of a RIN). We believe that these
renewable-fuel-standard. versa. Taking this concern under annual program components, as

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00033 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
10616 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules

described further below, are functioning carryover provision continue to only 2017, the monthly generation of
effectively and that changing these apply to the annual RVO. We are not biomass-based diesel (D4) RINs is
annual program components could proposing to apply this provision to any lowest in January because biodiesel
create harmful unintended interval other than annually. Therefore, blending drops in the winter months
consequences. We believe we can leave an obligated party that retired RINs when gelling of biodiesel can occur in
these annual elements of the program periodically during the year, pursuant to some regions. The monthly D4
unchanged while still accomplishing this action, could use any amount of generation rate increased gradually until
the objective of this reform. prior year RINs to do so, subject to the July when it began to decrease again.
The current RFS program is designed requirements that the final annual RVO Finally, generation spiked higher in
around an annual RVO. As specified in compliance demonstration is consistent December than in any other month as
40 CFR 80.1407(a), obligated parties with the 20-percent carryover provision. parties worked to meet the RFS
wait until the compliance year has requirement that renewable fuel must be
passed to calculate their annual RVOs b. Compliance Frequency
generated and blended in the same
using their actual annual gasoline and During the development of this calendar year (and in some years rushed
diesel production and import volume. proposed rule, we considered to take advantage of expiring tax
The RVO equations also account for establishing compliance frequencies credits). In fact, generation of all four D-
deficits on an annual basis, such that a other than quarterly. Ultimately, code RINs peaked in December. When
deficit incurred in the prior year is however, we chose to propose a we compared these monthly generation
carried over into the current year. 40 quarterly compliance frequency for rates to a potential monthly RIN
CFR 80.1427(a) specifies how obligated obligated parties; a quarterly retirement requirement based on
parties demonstrate compliance with requirement appears to balance the estimated monthly gasoline and diesel
this annual RVO. These equations were objectives of a more frequent volumes,189 we saw that in many
designed so that an obligated party has compliance requirement without being months, the demand for RINs exceeded
an entire year to collect enough RINs to overly burdensome or introducing the generation of new RINs. In addition,
address any deficit carried over from the excessive complexity. As such, when we compared the monthly
prior year. We believe that this annual obligated parties would be required to generation of all D-code RINs with
approach to satisfying prior year deficits use new equations proposed at 40 CFR potential monthly RIN retirement
should continue unchanged. Therefore, 80.1427(d) for the first, second, and requirement, we found that cumulative
we are not proposing any edits to 40 third quarters of a year. Obligated
RIN generation would not catch up to
CFR 80.1407(a) or 80.1427(a). parties would not have a separate RIN
the cumulative RIN retirement
The deficit provision comes from retirement requirement for the fourth
requirement until December. This lack
direction in the CAA for EPA to include quarter and would instead continue to
of alignment in time between RIN
provisions allowing any person to carry use the existing RVO equations at 40
generation and gasoline/diesel fuel
forward a renewable fuel deficit from CFR 80.1427(a) to demonstrate
demand renders ‘‘real time’’ RIN
one calendar year to the next when compliance with the annual RVO. We
retirement infeasible. We concluded
certain conditions are met. The seek comment on a quarterly frequency
from this analysis that it is important to
conditions outlined in the CAA are and on whether obligated parties that
provide some margin of time-flexibility
‘‘that the person, in the calendar year reporting gasoline and diesel production
to allow obligated parties to acquire
following the year in which the and import volumes to the Energy
Information Agency (EIA) weekly and RINs for compliance and that too-
renewable fuel deficit is created (i)
monthly would prefer a frequency frequent retirement requirements would
achieve compliance with the renewable
greater than quarterly that aligns with be too restrictive and
fuel requirements under paragraph (2);
and (ii) generates or purchases the EIA survey frequency. counterproductive.
additional renewable fuel credits to We considered a provision that would We seek comment on the
offset the renewable fuel deficit of the require RIN retirement for every batch of appropriateness of a quarterly frequency
previous year.’’ 188 Since the statute gasoline or diesel immediately or requirement and on other potential
specifies that an obligated party can shortly after it is produced or imported, frequencies, such as monthly or bi-
create a deficit on an annual basis, we but we do not believe a practical annually. Because of the need for
are proposing in this action to maintain implementation framework for this flexibility, we also considered several
that annual flexibility. Therefore, an concept exists. It would be virtually compliance deadlines, by which
obligated party would be allowed to fall impossible for the market to obligated parties would need to achieve
short of its RIN retirement requirements instantaneously meet such tight demand the quarterly compliance requirements.
in any or all periods of one compliance for RINs by obligated parties. The See Section III.E.2.f for a discussion of
year as long as it retired RINs at some generation of RINs and the production deadline options considered and the
point in the following compliance year and import of transportation fuel are not deadlines we are proposing in this
to offset the following year’s obligation, time aligned over the course of the year. action.
which includes the current year deficit. We believe that a quarterly RIN c. Scope
See Section III.E.2.e for further retirement requirement is close enough
discussion on such RIN retirement to ‘‘real time’’ compliance to meet the As discussed earlier in this preamble,
shortfalls. objectives of this reform while still for each reform we considered whether
Finally, 40 CFR 80.1427(a)(5) providing enough flexibility for we could limit its scope to reduce the
amozie on DSK9F9SC42PROD with PROPOSALS2

specifies that no more than 20 percent obligated parties to feasibly comply. risk of unintended negative
of an obligated party’s current year RVO As part of our analysis, we reviewed consequences while still meeting the
can be satisfied with prior year RINs. In the historic pace of RIN generation objective of the reform. In particular, we
this action, we are not proposing any throughout a calendar year. We considered whether we could limit the
amendments to this part of the observed that RIN generation is not 189 See calculation in the memorandum,
regulation. We propose that this consistent throughout the year and ‘‘Comparison of Monthly RIN Generation Rates to
varies depending on the month or a Potential Monthly RVO,’’ available in the docket
188 See CAA sec. 211(o)(5)(D). season. For example, in calendar year for this action.

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00034 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules 10617

reforms to just D6 RINs since D6 RINs reform altogether. Considering this find it unbalanced and unfair. We seek
are the main source of market example under the proposed approach comment on adjusting this reform to a
manipulation concern. instead, the obligated party that retired holding rather than retirement
For the compliance frequency reform no RINs in the first three quarters of a requirement to address concerns with
outlined here in Section III.E.2, we given year would be required to meet the threshold calculations.
concluded that, because of the nested the quarterly RIN retirement
nature of the RIN system, we could not f. Compliance Deadline
requirements of the following year. We
require retirement of only D6 RINs. For seek comment on allowing shortfalls Under the existing regulations, the
example, an obligated party could under certain conditions and on our deadline by which obligated parties
choose to retire only D3, D4, and D5 approach to preventing shortfalls over must demonstrate compliance with their
RINs, which are nested in the renewable multiple years. We seek comment on the annual RVOs is March 31 of the year
fuel obligation, to comply with its alternative we considered as well as following the compliance year. As such,
renewable fuel RVO. Therefore, we are other alternative approaches parties have three months after the last
proposing a quarterly RIN retirement commenters recommend. day of the compliance period to compile
requirement based on only the their gasoline and diesel production and
renewable fuel RVO in this action and e. Calculating the RIN Retirement import volumes, calculate their RVOs,
allowing obligated parties to retire any Requirement acquire the necessary number of RINs,
D-code of RINs to meet it. We are proposing in this action that and submit their annual compliance
the RIN retirement requirements for the reporting forms. This three-month
d. Incurring a Shortfall first three quarters of a compliance year administrative period is necessary for
In this action, we are proposing that would be calculated as 80 percent of an obligated parties to complete all of the
an obligated party would be allowed to obligated party’s cumulative gasoline required compliance steps properly.
fall short of a quarterly RIN retirement and diesel production and import In this action, we are proposing that
requirement if it met certain conditions. volume multiplied by the renewable an administrative period be added to the
This shortfall provision would mirror fuel percentage standard for the current end of the first, second, and third
the flexibility provided by the annual year. As explained above, the quarterly quarters for demonstration of
deficit provision described above. RIN retirement equations would not compliance with the periodic RIN
Under one set of conditions, a party include an input for any prior year retirement requirements. We are
would be allowed to incur a shortfall in deficit carried over or a limitation on proposing a two-month administrative
a quarter of a given year as long as in the year of the RINs used. We believe period such that the compliance
the following year it satisfied all three that an 80-percent flexibility would demonstration deadlines would be June
quarterly RIN retirement obligations. address the seasonal variability in RIN 1, September 1, and December 1 of the
Under a second set of conditions, a generation that could impede a party’s compliance year. This delayed schedule
party would be allowed to incur a ability to acquire 100 percent of its would provide obligated parties with
shortfall in a quarter of a given year and required RINs. We also believe that an additional time to gather production
in a quarter of the following year if its 80-percent flexibility would provide and import volumes, acquire RINs, and
annual RVO for the current year were some leeway for volume errors complete the reporting forms and would
equal to zero (e.g., as the result of an identified at the end of the year through align with existing quarterly reporting
approved small refinery exemption). the attest engagement process. We seek deadlines. RINs generated during the
Under this proposal, a shortfall in one comment on this approach to providing administrative period could be used for
quarter would have the same effect as a obligated parties with this flexibility compliance in the previous quarter. We
shortfall in all three quarters of the year and on the value of 80 percent that we are proposing that a three-month
on a party’s ability to incur shortfalls in chose to propose and whether a administrative period and the March 31
the following year. We are proposing different value would be more compliance demonstration deadline
amendments to 40 CFR 80.1427(b) to appropriate. continue to apply to the annual RVO.
reflect this provision. We considered, but are not proposing, We seek comment on these proposed
We considered an alternative setting a RIN holding requirement rather deadlines and on whether a different
approach under which a party’s than a RIN retirement requirement. administrative period or periods would
shortfall in one or more quarters of a Under this approach, obligated parties be more appropriate.
year would not affect a party’s ability to would need to demonstrate that they
incur a shortfall in one or more quarters owned at least 80 percent of their g. Reporting and Recordkeeping
of the following year. However, we cumulative volumes multiplied by the In this action, we are proposing that
believe this alternative would create a renewable fuel percentage standard. compliance with the quarterly RIN
loophole to this reform that could be One reason for this approach is that it retirement requirements would be
exploited by obligated parties to could better align with the RIN holding demonstrated to EPA through reporting.
circumvent the proposed quarterly RIN threshold calculations proposed in The quarterly deadlines described above
retirement requirements. By way of Section III.E.1, which would not adjust would be reporting deadlines and
example, consider an obligated party the threshold as RINs were retired every would align with the existing deadlines
that retired no RINs in the first three quarter. As such, an obligated party that for RIN generation, transaction, and
quarters of a given year and then fully had retired 60 percent of its annual activity reports. We believe that aligning
complied with its annual RVOs at the renewable fuel obligation after three our proposed quarterly deadlines with
amozie on DSK9F9SC42PROD with PROPOSALS2

end of the year by retiring all required quarters would only have a legitimate deadlines for existing reporting
RINs. Under the alternative approach, need to hold the 40 percent of its annual requirements would be an easier
the obligated party would be allowed to obligation remaining plus 30-percent adjustment for parties. To implement
incur shortfalls in all three quarters of headroom, but it would be allowed this reporting requirement, we are
the following year and could repeat this under our proposal to hold 130 percent. proposing that obligated parties would
compliance strategy again and again. We proposed these calculations in report cumulative gasoline and diesel
This would amount to a circumvention Section III.E.1 to keep them simple, but production and import volumes and
of the proposed quarterly compliance we realize that some commenters may demonstration of compliance with

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00035 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
10618 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules

requirements in the first three quarters. year. When EPA grants an RFS from others.190 This is also how the
We are also proposing to update exemption, the exempt refinery has no credit provisions in our gasoline sulfur
recordkeeping requirements to include RFS obligation during the compliance and benzene programs are structured. In
all applicable quarterly values and year for which an exemption has been those EPA programs, the obligated
calculations. We are not proposing to granted. For small refineries that parties are both the generators of the
amend the attest engagement due date, received RFS hardship exemptions, credits and the users of the credits and
so it would continue to be required once their annual RVO would be zeroed out. are the only parties that need to take any
at the end of each compliance year. The Since the small refineries wouldn’t action. Conversely, in the RFS program,
RIN generation, transaction, and activity trigger the annual deficit provision in obligated parties are typically
reports would continue to be required that year, they could repeat the same dependent on the action of other parties,
quarterly. steps in the next year if they still faced such as renewable fuel producers and
We are proposing that any minor hardship. We note that an obligated blenders, to actually introduce the
adjustments that an obligated party party reporting at an aggregated level for renewable fuel and the RINs into the
would need to make to a prior quarter’s multiple refineries, including at least marketplace. Consequently, the RFS
reported volumes due to an EPA- one small refinery, would not zero out program was set up differently.
reported remedial action would be its total annual RVO. Rather, when EPA
required to be accounted for in the next Supporters of this regulatory change
approved its small refinery
RIN retirement calculation and argue that, since obligated parties are
exemption(s), it would exclude the
demonstration. Since the obligated party the only parties who need to purchase
small refinery volumes from its annual
would be certifying that their reported RINs for the purpose of compliance,
RVO calculations but still include
values were accurate to the best of their obligated parties should be the only
volumes from the other refineries. As
knowledge, we believe that the risk of parties allowed to purchase separated
such, we believe that a small refinery
gaming the regulations by consistently RINs. The goal of this reform is to
that would like to take the compliance
under-calculating a quarterly RIN minimize the number of parties trading
path outlined above would have to
retirement requirement is low. A RINs so as to reduce the risk of hoarding
report on a facility-by-facility basis,
continued pattern of under-calculating or other actions by non-obligated parties
rather than on an aggregated basis. An
by one party could potentially result in that could improperly impact the prices
obligated party that wished to report at
an enforcement action. We seek of RINs and thus impact the cost of
an aggregated level would have to
comment to this approach to remedial compliance for obligated parties. In
account for any small refinery volumes
action volume adjustments and on developing this proposed reform, EPA is
when calculating and complying with
alternatives to account for them in this taking into consideration the concerns
its quarterly RIN retirement
action. that limiting the parties that can trade
requirement.
in the RIN market could have negative
h. Small Refinery Exemptions If the small refinery chose to comply unintended consequences, as discussed
Under this reform, we are proposing with the proposed quarterly RIN below.
that all obligated parties would be retirement requirements and then
received an RFS exemption from EPA, Under this reform, we are proposing
required to meet RIN retirement that only obligated parties, exporters
requirements on a quarterly basis. This then we would work with the small
refinery to unretire its RINs as we do and certain non-obligated parties be
means that small refineries that submit allowed to purchase separated D6 RINs.
a petition for an extension of the small now under the current annual reporting
requirements. We are not seeking Non-obligated parties would be exempt
refinery exemption would typically face from this proposed provision if they
reporting and RIN retirement comment on whether EPA can unretire
RINs after granting a small refinery were a corporate affiliate or a
requirements before EPA issues a contractual affiliate of an obligate party.
decision on the petition. Even under the exemption. If the small refinery chose to
current annual reporting requirements, incur a RIN retirement shortfall in the As explained in Section III.B of this
many small refineries already choose to first three quarters but did not receive action, RINs are generated with the
retire RINs before EPA acts on their an exemption from EPA, then it would generation of renewable fuel and move
petitions, understanding that EPA will be required to comply with the annual downstream of the producer attached to
later ‘‘unretire’’ those RINs should EPA RVO by March 31 as they also do under the renewable fuel. When a blender
ultimately decide exemption is the current annual reporting acquires the renewable fuel and blends
warranted for that refinery in that requirement by either obtaining the it with conventional fuel, the blender is
compliance year. However, we appropriate number of RINs or by taking required to separate the RIN from the
recognize that quarterly RIN retirement a deficit. In that case, whether they met renewable fuel. The separated RIN
obligations for small refineries that may the annual obligation or carried a deficit becomes its own commodity separate
receive an exemption would not into the following year, they would be from the renewable fuel that can be
necessarily be efficient. As described prohibited from incurring a shortfall in traded and used separately. By the very
below, small refineries that expect to any quarter of the following year. nature of the blender’s role in the fuel
receive hardship relief can alternatively 3. Reform Three: Limiting Who Can distribution system and the
defer quarterly reporting under the Purchase Separated RINs requirements of the RFS program,
retirement shortfall provisions proposed blenders must become owners of
in this action provided they did not The third potential reform from the separated RINs. Therefore, this reform is
amozie on DSK9F9SC42PROD with PROPOSALS2

carry a deficit from the previous President’s Directive that we address in limited to only the purchase of
compliance year (e.g., if they received this action is limiting the purchasing of separated RINs.
hardship relief in the previous year). separated RINs to obligated parties only.
Under this proposal, all refineries Canada structured its Federal 190 See ‘‘Questions & Answers on the Federal

including small refineries would be able Renewable Fuels Regulations this way Renewable Fuels Regulations’’ (2012), available at
by only permitting primary suppliers, https://www.canada.ca/en/environment-climate-
to incur a full RIN requirement shortfall change/services/canadian-environmental-
in the first three quarters as long as they the regulated parties under those protection-act-registry/publications/revised-
had not incurred a deficit in the prior regulations, to acquire compliance units questions-answers-renewable-fuels.html.

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00036 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules 10619

a. Implications and Discussion would weaken the market signal the potential negative consequences on
As described above, this reform function of RIN prices. For example, the the RFS program. We seek comment on
would limit the purchasing of separated RIN price is used by obligated parties to these potential consequences as well as
D6 RINs to obligated parties and certain estimate the compliance cost they need comments on alternative approaches to
non-obligated parties. Some to recover through their fuel pricing, by implement this reform.
stakeholders have commented that this biofuel producers to gauge supply and
b. Scope
reform would be beneficial because it demand of the biofuel market, and by
downstream parties to decide whether We are proposing to limit the scope of
would specifically block market traders
to build out more blending this reform to D6 RINs only. D6 RINs are
and brokers whose only intention is to
infrastructure. Curtailed market the D-code about which we have heard
make a profit in the RIN market and
liquidity could weaken everyone’s concerns related to hoarding and market
may have an incentive to engage in
ability to react to the market effectively. manipulation. In order to limit any
manipulative or anti-competitive
Some stakeholders have also provided unintended consequences of this action,
behavior to boost their profits.191 (We
comment to EPA outside of the 2019 we believe it is sensible to limit this
note, however, that simply making a
RVO rulemaking about how this reform action to D6 RINs. For example, we
profit on the RIN market is not
would harm them and their business believe that it would be very
manipulative or anti-competitive
operations directly. Specifically, we challenging to restrict the purchasing of
behavior.) Limiting non-obligated
heard from some non-obligated parties separated D3 RINs because D3 RINs
parties from purchasing separated D6
who play a large role in the existing fuel generated from biogas to fuel natural gas
RINs could help deter or prevent that
market by blending biofuel with vehicles are generated at the same time
potential behavior from occurring in the
petroleum-based fuel and moving the as they are separated; it would not be
future. Conversely, some have claimed
blended fuel downstream to retailers. possible to distinguish parties who own
that limiting the number of parties
These blenders enter into term contracts a D3 RIN from parties who separated it.
participating could harm the RIN market
with obligated parties for delivery of a We seek comment on our narrow
and have other unintended
specific quantity of RINs at the end of application of this reform to D6 RINs
consequences. In fact, this specific
the contract period. Blenders base their only and on concerns of anti-
reform was explicitly raised for
commitment on expected fuel blending competitive behavior related to the
consideration in the 2019 RVO
volumes, which relate to expected fuel purchasing of other D-code RINs.
proposal, and we received multiple In this action, we are proposing that
comments in opposition, citing the production and fuel demand. However,
if fuel production or demand fell shorter obligated parties as well as a limited set
harm this reform would likely cause. of non-obligated parties would be
For example, many parties commented than expected, RIN separation by the
blender would also fall short. In order allowed to purchase separated D6 RINs
that the liquidity of the RIN market freely. We considered a firm prohibition
would decline if RIN market to meet its contractual obligation in this
situation, the blender would have to buy on all transactions of all parties other
participation were curtailed. These than obligated parties from purchasing
comments stated that some parties separated RINs on the RIN market. A
reform that prohibited blenders from D6 RINs, but we believe that certain
without a compliance obligation limited situations involving non-
buying separated RINs would require
alleviate the burden on the seller of obligated parties should continue to be
blenders and their obligated party
finding a counterpart willing to buy the allowed for the RFS to function
counter-parties to restructure the RIN
exact amount of RINs for sale at that properly. We outline those situations
delivery guarantees in the current
exact time. They do so by aggregating and allowances below.
contracts. Therefore, some of these
small RIN bundles for large buyers, First, we are proposing that a party
blenders have expressed concern with
disaggregating large RIN parcels for sale that is a corporate affiliate or a
the harm to them and the operation of
to multiple buyers, and holding RINs contractual affiliate, as proposed at 40
the RFS program that this reform could
until the parties are ready to buy. Some CFR 80.1401, to an obligated party
cause. They’ve also highlighted the
commenters also stated that, especially would be allowed to execute a separated
asymmetry this would create in the
in a market as sensitive to policy fuels system between refineries and D6 RIN purchase transaction. This
announcements as the RIN market, blenders; blenders who fall short of would include a party that is owned
higher participation can reduce their RIN supply contracts with more than 20 percent by an obligated
volatility and help the market adjust to refineries would not be able to fill the party or that owns more than 20 percent
a policy or other shock more quickly gap while refineries who fall short of of an obligated party. This would also
than curtailed participation. As such, their petroleum-based fuel contracts include a party that has an agreement to
these comments warned that restricting with blenders would be able to fill the deliver RINs to an obligated party.
participation in the RIN market would gap by purchasing gasoline, diesel, or Based on discussions with some
reduce liquidity, increase volatility, and blendstock on the market as needed. obligated parties, we believe that they
ultimately increase RIN prices.192 Therefore, they characterize a reform routinely contract with third-parties,
Some commenters explained that a that prohibits them from purchasing such as traders, to deliver separated D6
RIN price reflecting higher transaction separated RINs as creating an uneven RINs. We have also learned, as
costs would not be representative of the playing field in the fuels industry. described in Section III.E.3.a, that some
fundamentals of the market and thus For all of the reasons listed above, we non-obligated parties routinely commit
are not proposing to prohibit all but under contract to deliver D6 RINs to
amozie on DSK9F9SC42PROD with PROPOSALS2

191 See, e.g., comments from HollyFrontier


obligated parties from purchasing obligated parties based on their
(Docket Item No. EPA–HQ–OAR–2018–0167–1198),
Monroe Energy (Docket Item No. EPA–HQ–OAR– separated D6 RINs because we recognize anticipated future blending volumes
2018–0167–0622), and Valero (Docket Item No. that doing so could cause harm to and must purchase separated D6 RINs
EPA–HQ–OAR–2018–0167–1041). parties, the D6 RIN market, and to the on the market to satisfy the contract if
192 See, e.g., comments from ACT Commodities
RFS program. Thus, our proposal to their blending volumes fall short. We
(Docket Item No. EPA–HQ–OAR–2018–0167–0615),
Phillips 66 (Docket Item No. EPA–HQ–OAR–2018–
limit this reform reflects a weighing of believe all of these contractual
0167–1267), and Shell (Docket Item No. EPA–HQ– the beneficial aspects of deterring transactions are helpful to obligated
OAR–2018–0167–0513). potential market manipulation against parties and that obligated parties, the

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00037 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
10620 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules

very parties this reform is attempting to the entire purpose of this reform and proposing, an alternative approach to
protect, would be harmed if these types create a sizable implementation burden accomplishing the intended goals of this
of contractual transactions were on EPA to no avail. We seek comment reform objective could be to rely only on
prohibited. on ways this gaming could be prevented the first reform discussed in Section
Second, we are proposing that non- should we finalize this reform, III.E.1. Rather than restricting who
obligated parties needing to replace including limiting the number of could purchase and who could sell to
invalid RINs would also be allowed to separated D6 RINs that importers, whom, we could address the concern
purchase separated RINs for that blender refiners, and non-obligated that non-obligated parties might hoard
purpose. Parties that generate renewable parties exempted from this prohibition RINs only by imposing a limit on their
fuel with RINs attached sometimes can purchase. This is similar to the D6 RIN holding. The holding limit
make errors in their renewable fuel and limitation we placed on the ability of specifically on non-obligated parties
RIN calculations, and blenders that certain obligated parties to separate could be lower than the three percent of
purchase RINs attached to renewable RINs under 40 CFR 80.1429(b)(9). the annual conventional biofuel volume
fuel sometimes learn too late that the requirement proposed. We seek
RINs they’ve acquired are fraudulent or c. Reporting and Recordkeeping
comment on these alternatives and on
erroneous. We believe that the most As described in Section III.E.1.h, we any other alternatives commenters
straightforward and practical way to are proposing to add a yes/no field on recommend.
allow these parties to stay compliant the D6 RIN holding threshold to the RIN
with the RFS program is to continue to Activity Report that all RIN holding 4. Reform Four: Limiting Duration of
allow them to replace invalid RINs by parties already submit to EPA quarterly. RIN Holdings by Non-Obligated Parties
purchasing new separated RINs from the Since all RIN holding parties already The fourth potential reform from the
market. submit these reports quarterly, we President’s Directive that we address in
Third, we are proposing that exporters believe the incremental reporting this action is limiting the duration a
of renewable fuel that needed D6 RINs burden of filling out a new threshold non-obligated party can hold RINs. In
to satisfy their exporter RVOs according field would be minimal. In order to Section III.E.3, we describe our proposal
to 40 CFR 80.1430 would be allowed to maintain compliance oversight of this to restrict certain non-obligated parties
purchase separated D6 RINs in these RIN purchasing restriction on non- from purchasing separated RINs but still
limited situations. Parties that export obligated parties, we are proposing to allowing them to own separated RINs
conventional fuel blended with also add a field to the quarterly RIN that they acquire by blending renewable
renewable fuel must acquire and retire Activity Report on whether a non- fuel into petroleum-based fuel. This
RINs to account for the portion of their obligated party purchased D6 RINs in fourth reform would restrict non-
exported product that is renewable fuel. the quarter. If the non-obligated party obligated parties further by limiting how
These exporters do not necessarily reported purchasing any amount of long they could hold the separated RINs
receive, generate or separate RINs, so separated D6 RINs, it would then have acquired at blending. The concept
they need another way to acquire RINs to report whether a valid reason (e.g., behind this reform is to require non-
in order to comply with the program. invalid RINs, exports, contract with obligated parties to inject their RINs into
Ultimately, we believe that our obligated party) applied. As with the the market soon after acquiring them to
proposal would successfully exclude threshold field, we believe it would be maximize liquidity for obligated parties
from the RIN market those parties that important for parties to certify that they who need the RINs for compliance.
serve no function in the fuels market were in compliance with this proposed Under this reform, we are proposing
and that may enter the RIN market for provision. We are also proposing that a limit on the duration that a non-
speculative or manipulative reasons non-obligated parties would be required obligated party can hold separated D6
only. We seek comment on providing to keep all applicable records related to RINs. Specifically, we are proposing
allowances in this reform, including this restriction, such as actual contracts that a non-obligated party must sell or
whether doing so would create any with obligated parties or evidence of retire as many RINs as it obtained in a
gaming opportunities and, if so, how invalid RINs and make those records quarter by the quarter’s end. For
that could be avoided. For example, a available to their attest engagement example, both a RIN separated on
non-obligated party could create a auditor. The auditor would review the January 1 and a RIN separated on March
contract with an obligated party at a records and confirm that the party made 31 would each need to be offset by a
minimum level as a way to game this the proper calculations and reported RIN sale in the first quarter. The
reform. We seek comment on how we accurately to EPA on compliance with proposed provision would not apply to
could tighten this reform but still allow the proposed provision. We seek potentially invalid D6 RINs that are
enough compliance flexibility for comment on this proposed approach to required to be held and prohibited from
obligated parties with contractual compliance oversight. being sold. This proposed provision
relationships with non-obligated parties. would not apply to obligated parties.
We also seek comment on the d. Alternative Approaches Considered Additional information on calculations
appropriateness of these allowances and In addition to the specific reform we and reporting are discussed in more
on any other limited situations, in are proposing to restrict to certain detail in Section III.E.4.e.
which non-obligated parties should be parties the ability to purchase separated The potential anti-competitive
allowed to purchase separated D6 RINs. D6 RINs, we seek comment on behavior related to non-obligated parties
We recognize that a reform alternatives that also meet the objective holding RINs that would be avoided
amozie on DSK9F9SC42PROD with PROPOSALS2

prohibiting non-obligated parties from of this reform in the President’s with this action is the potential to
certain activities could create strong Directive but in a more simple and accumulate enough RINs to gain market
incentives for non-obligated parties to direct way. We recognize that power and then use that market power
become obligated parties. This can be prohibiting a class of parties from taking to manipulate the price of RINs. We
done relatively easily by importing a an action but then carving out a list of note that such market power is also
small volume of fuel or blending small exceptions to that prohibition has the addressed by the public disclosure
volumes of blendstock to produce fuel. potential to be confusing and unwieldy. reform outlined in Section III.E.1.
This type of gaming could circumvent Instead of the reform that we are However, we are additionally proposing

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00038 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules 10621

to limit the duration that non-obligated done widely and could increase the durations and decided to propose in this
parties can hold separated RINs in this implementation and oversight burden action a 90-day cycle, whereby the
action as an alternative or additional on EPA. We seek comment on the number of separated D6 RINs that a non-
method to address this concern. We implications of such gaming and on any obligated party would be required to sell
seek comment on the value of limiting ideas to prevent it, including imposing or retire in a quarter would be number
the duration that a non-obligated party the duration limit on RINs held by of separated D6 RINs that the party
can hold separated RINs, and importers and blender refiners that are separated or purchased in that same
specifically on whether it adds any in excess of their RVO requirements. quarter. Requiring non-obligated parties
safeguards against manipulative This is similar to the limitations we to sell RINs by the end of the quarter
behavior beyond the public disclosure placed on the ability of these obligated would have the significant benefit of
reform. parties to separate RINs under 40 CFR matching the quarterly RIN retirement
Some obligated parties have 80.1429(b)(9). cycle that would be required of
complained that blenders routinely obligated parties under this Section
withhold separated RINs from the b. Scope
III.E.2 of this action. Coordinating these
market until the price is high enough to We are proposing to limit the scope of two frequencies may help maintain
secure a large profit. We note that such this reform to D6 RINs only. D6 RINs are equilibrium in the RIN market and
actions are not necessarily price the only D-code about which we have create equity among all RIN system
manipulation or evidence of anti- heard concerns related to hoarding and participants. We seek comment on the
competitive behavior. market manipulation. In order to limit appropriateness of this duration and of
any unintended consequences of this any other potential durations. We note
a. Implications and Discussion action, we believe it is sensible to limit that the reform proposed under Section
As described above, this reform the type of RIN it applies to while still III.E.2 would require RIN retirement of
would limit the duration that a non- meeting the objective of the reform. For only 80 percent of the renewable fuel
obligated party could hold a D6 RIN and example, since most D3 RINs are standard, so we seek comment on
would therefore interfere with attempts generated only once a month, we whether the RIN holding duration
at increasing its market power. This believe parties might need more should only apply to 80 percent of RINs
reform could also increase the flexibility on the time between RIN separated or purchased in order to better
availability of D6 RINs on the market for generation and RIN sale than other D- align the two reforms.
obligated parties who want or need to codes. Furthermore, D4 RINs attached to
acquire RINs for quarterly retirement. A biodiesel produced by a small or d. Implementation
final benefit of this reform is that it unknown company may not be well In this action, we are proposing that
provides symmetry to the quarterly RIN received on the market, so a non- a non-obligated party would be required
retirement requirement for obligated obligated party that blends such to count the total number of RINs it
parties as discussed in Section III.E.2; biodiesel into petroleum-based diesel separated or purchased each quarter and
that reform would increase the and separates such D4 RINs might need sell or retire that many total RINs by the
frequency of D6 RIN demand and this time to find a willing buyer. A end of the same quarter. For example, a
reform would increase the frequency of restriction on how long they can hold non-obligated party would count the
D6 RIN supply. such D4 RINs before selling could upset total number of RINs it separated or
This reform could also have harmful the balance in purchase negotiations purchased between January 1 and
consequences for some parties in the and force non-obligated parties to sell March 31 of a given year and then
market. At an even more basic level, a these D4 RINs at significantly would sell or retire that many RINs
fuel blender with separated RINs to sell discounted prices to stay in compliance between January 1 and March 31 of that
may not be able to find a party willing with this proposed regulation. We seek year. This approach would meet the
to buy those RINs at the time of comment on our narrow application of intention of this reform to prevent RIN
blending. Therefore, a duration limit this reform to D6 RINs only and on hoarding and increase liquidity without
that is set too short could take too much concerns of anti-competitive behavior getting stuck needlessly in the details of
flexibility away from non-obligated related to the purchasing of other D- which specific RIN is being sold. It
parties and make it difficult for them to code RINs. would also allow non-obligated parties
participate in the RIN system. As such, We are also proposing that separated the flexibility to hold onto some D6
we have proposed a duration limit of a D6 RINs that are potentially invalid RINs that may be more difficult to sell
quarter that we believe minimizes the would not be accounted for by a non- for a longer period of time, provided
risk of causing harm to parties in the obligated party in its count of D6 RINs they are selling an equal number of D6
RIN system. separated in a quarter. A party would RINs by the established deadline. We
Finally, we note that non-obligated leave those D6 RINs out of the count of are also proposing that, for a non-
parties who want to evade the duration D6 RINs it would have to sell or retire. obligated party, any D6 RINs acquired in
limit for holding separated RINs could The non-obligated party would continue one quarter through a remedial action
easily take the minimal action necessary to be subject to the requirements at 40 with an EPA-generated separation date
to become an obligated party. For CFR 80.1431. in the previous quarter would add the
example, a blender could easily blend a D6 separated RINs to its separated total
small volume of blending stocks to c. Duration for the current quarter.
produce gasoline or diesel or import a Although we did not identify this We also considered a slightly longer
amozie on DSK9F9SC42PROD with PROPOSALS2

small volume of petroleum-based fuel in reform concept in the list of reforms period between RIN separation and sale
order to become an obligated party. As under EPA consideration in the 2019 in which a non-obligated party would
an obligated party, the blender would RVO proposal, several parties be required to count the number of RINs
no longer be subject to a restriction on proactively commented on this concept. it separated each quarter and sell at least
how long it could hold its RINs. While Some commenters suggested a 30-day that many RINs in that quarter and the
such gaming would not directly harm duration, others suggested 60 days, and following quarter. For example, a non-
any party or the RIN market, it could still others suggested 90 days. We obligated party that sold 100 RINs
harm the integrity of the program if considered each of these potential between January 1 and March 31 would

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00039 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
10622 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules

have to sell at least 100 RINs between no exception. For the third reform a. Enhance Data Collection
January 1 and June 30. RINs separated discussed in Section E.III.3, we are Monitoring a commodities market as
on January 1 would need to be sold proposing situations that should be large and complex as the RIN market
within 180 days and RINs separated on excluded from its restriction, namely requires a substantial amount of market
March 31 would need to be sold within situations in which exporters would data. We currently require parties to
90 days. Such a scheme would create need to satisfy export RVOs, non- submit some data under the RFS related
overlapping periods, however, in which obligated parties would need to replace to RIN trades. These data include trade
the same RIN sale could be counted invalid RINs, and non-obligated parties prices, RIN volumes traded, and the
towards two different quarterly would need to satisfy contract terms parties involved in the transaction.
requirements. We ultimately decided to with obligated parties. We believe those These current data collections can be
propose a quarterly requirement, but we exceptions are warranted because they used to assess the RIN market for
seek comment on this alternative either allow parties to meet the RFS manipulative activities, but we
approach. requirements or because they help the recognize that we have an opportunity
We also considered an approach that RFS program run smoothly for obligated in this action to diversify the data we
would initiate a 90-day expiration timer parties. For the reform discussed in this collect to enhance our ability to monitor
for each separated RIN batch on the day section, however, we do not believe that the market. We also recognize the
it is separated by a non-obligated party. any exceptions are necessary. For importance of balancing the benefits of
Under this design, a blender would example, a non-obligated party that additional data with the burden
need to sell each RIN or batch of RINs needs D6 RINs to satisfy a contract with imposed both on the regulated industry
within 90 days of separating it from the an obligated party could still do so and EPA of reporting and handling the
underlying renewable fuel. However, data. Considering these factors, we are
while meeting the holding duration
such an implementation scheme would requesting comment on additional data
limit. We seek comment on whether any
place a large burden on non-obligated collections that would enhance our
exceptions to this reform would be
parties to keep track of multiple ability to monitor the RIN market for
warranted, and if so which exceptions
expiration timers, possibly dozens or instances of manipulation.
hundreds at a time. It would also be and why.
As described in Section III.E.1, we are
very costly, if not infeasible, for EPA to e. Reporting and Recordkeeping proposing that parties would be
update EMTS to track so many required to report to EPA when their
individual expiration deadlines, which In order to maintain compliance
aggregate RIN holdings, including
across the entire system could total in oversight of this RIN holding duration
holdings of corporate affiliates, exceed a
the thousands or millions at any given reform on non-obligated parties, we
specified threshold. In order to provide
time. A slightly more manageable propose in this action to add a field to
meaning to this proposed reform and to
version that we considered but are not the quarterly RIN Activity Report on
enhance our market monitoring
proposing would be to require that an whether the proposed D6 RIN holding
capabilities, we are proposing in this
individual RIN separated in one quarter duration limit was exceeded in the section that auditors would include in
by a blender be sold by that blender by quarter. We are also proposing that the their annual attest engagements
that quarter’s compliance deadline for attest engagement auditor would review submitted to EPA by June 1 following
obligated parties. This approach would the D6 RIN separation and sales the compliance year the names of the
still tag each RIN or RIN batch with an numbers and confirm that the parties party’s corporate and contractual
expiration date, but the same expiration made the proper calculations and affiliates in the compliance year. Parties
date would be applied to all RINs reported accurately to EPA on that meet both definitions would need
generated in the quarter. This approach compliance with the proposed to be identified in both categories.193
would result in a total of four expiration provision. This proposed approach to
dates a year across the whole RIN Given the complexity of contracts and
reporting, recordkeeping, and RIN transactions, it is very challenging
system for EPA to keep track of rather compliance oversight is similar to our
than thousands or millions. However, for EPA to confirm whether parties have
proposals for the first and third reforms common ownership and whether any
we believe that any approach that discussed in this action. We seek
requires EMTS to tag individual RINs or group of corporate affiliates reached a
comment on this proposed approach to level of aggregated D6 RIN holdings in
RIN batches with a specific date would compliance oversight.
be technically infeasible. We seek a compliance year that would trigger the
comment on the proposed approach and 5. Enhancing EPA’s Market Monitoring thresholds established in Section III.E.1
on any other alternative approaches that Capabilities of this action. Therefore, we believe we
commenters recommend. need to collect information on corporate
The approach we are proposing, if In addition to the four reforms affiliates to allow us to properly conduct
finalized, as well as all of the other proposed in this action, we are oversight of the RIN market. We are also
approaches considered, would allow a considering taking additional steps to proposing that this list would contain
non-obligated party to maintain the RIN enhance our market monitoring the names of contractual affiliates so
holdings it would have on the day capabilities in order to better detect that we could maintain some insight
before the effective date of this reform. potential market manipulation. The into any additional market share parties
This aspect of the reform could items listed below represent options we could have control over. We note that
incentivize non-obligated parties to are currently considering, and we this list would include parties that are
amozie on DSK9F9SC42PROD with PROPOSALS2

build up their RIN holdings in advance welcome public input on any aspects not registered with EMTS to hold RINs.
of the final rule effective date, which related to enhancing our data While only registered affiliates are
would be counter to the goal of this collections, enhancing our data systems, included in the threshold equations in
reform. We seek comment on an and/or seeking third-party RIN market
193 For diagrams and examples of different types
approach to addressing this concern. surveillance assistance. We are also
of affiliates, see the memorandum, ‘‘Affiliates and
We are proposing that all non- seeking comment on how these options Groups Definitional Relationship and
obligated parties would be subject to could work in conjunction with the four Requirements,’’ available in the docket for this
this D6 RIN holding duration limit, with reforms outlined in Sections III.E.1–4. action.

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00040 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules 10623

Section III.E.1 for simplicity, we believe better reflection of market prices on a the RIN market. If these anti-competitive
we need a wider picture of affiliations given day. We seek comment on this behaviors were to occur in the RIN
to, for example, monitor for a non- updated reporting requirement. market, then it comes at a cost to both
registered party that has established obligated parties and biofuel producers
b. Third-Party Market Monitoring
contracts with multiple parties to if the prices are artificially inflated or
purchase and own a large number of We are considering whether we deflated. Therefore, if the proposed
aggregated RINs on its behalf. We would should employ third-party monitoring reforms deliver on their intended goal,
treat these lists as CBI and would not of the RIN market. We are aware of other we believe the net benefit of this should
make them publicly available. We environmental commodity markets that help reduce undue costs and lower the
recognize that there may be challenges employ third-party market monitoring risks for both obligated parties and
that we may not be aware of for parties services to conduct analysis of the renewable fuel producers. These
to disclose this information to auditors market, including screening for proposed reforms also provide the
and for auditors to pass it along to EPA, potential anti-competitive behavior or added benefit of increasing transparency
and therefore we are seeking comment market manipulation. For example, the into the RIN market. In general, true
on any potential concerns and how Western Climate Initiative, Inc. provides commodities markets function
these concerns may outweigh the administrative services to the linked cap optimally when all participants have
benefits of adding this data to market and trade programs in Quebec and access to as much information possible,
oversight. California, including managing a without infringing on confidential
We are also proposing amendments to contract with a company that provides business information, and this
40 CFR 80.1452(c)(12) to specify how independent marketing monitoring for information is disseminated or shared
parties report prices of RIN transactions the jurisdictions.194 Quebec and with all parties at the same time. This
to EPA. Currently, some RIN prices California each maintain market helps create a level playing field and
reported are illogical numbers, so we are monitoring capabilities to oversee the minimize any potential advantage one
providing further instruction on how to joint market. In addition, RGGI contracts party may have over the another. The
report the true price correctly. with a third-party to monitor its CO2 net benefit of greater transparency helps
Specifically, we are proposing that a per allowance trading market and produce market participants, such as obligated
gallon RIN price would be required for and publish quarterly and annual parties, plan short- and long-term
a separated RIN transaction and that a reports summarizing their findings.195 strategies to manage their compliance
price of $0.00 would only be allowed for We believe additional RIN market costs.
intracompany and tolling agreement oversight and monitoring from an
transactions. We are also seeking independent third-party could serve as 2. Costs of RIN Market Reform
comment on any other legitimate a deterrent to manipulative behavior As detailed in Sections III.E.1–4, we
reasons for reporting a $0.00 RIN price and increase market transparency, are proposing to require additional
besides the reasons identified above. enabling the market to more easily reporting and recordkeeping for
We are also planning to update function as designed. However, we also obligated parties under the RFS program
business rules in EMTS to require that recognize this added feature would and non-obligated parties that
both parties in a RIN transaction enter come at a cost that may or may not participate in the RIN market. As a
the same RIN price. EMTS already has outweigh the benefits. For example, result, we expect modest costs
a business rule that requires both parties there would be additional financial and associated with these new
in a RIN transaction to enter the same staff time costs to manage the contracts requirements.196 Specifically, we
RIN volume, and this business rule has and system with the third party, anticipate new costs associated with
been very helpful in maintaining high including ensuring proper data security, reporting and recordkeeping
quality volume data that we can reliably transfer, and training that would divert requirements related to RIN holdings,
publish and use for compliance EPA’s already limited resources away affiliated parties, increased compliance
oversight. These and other business from the many high priority areas under frequency, and any other data elements
rules prevent data entry errors and the RFS program. Therefore, we are EPA collects as informed by Section
prompt parties that haven’t properly seeking comment on whether we should III.E.5.a. We also anticipate some costs
followed the instructions in the consider employing third-party associated with prohibiting certain non-
regulations to correct their numbers. By monitoring of the RIN market, including obligated parties from purchasing
adding a similar business rule to EMTS production of market analysis reports separated D6 RINs. Many of these
on prices, we believe we can prevent and how to share findings in these parties have developed business models
reporting errors and improve the quality reports and still protect confidential and enter into contracts that may
and reliability of our price data. business information. require them to leverage the ability to
Finally, we are proposing to update purchase separated D6 RINs on spot
F. RIN Market Reform Economic
the transaction type options at 40 CFR markets. Prohibiting this practice would
Impacts
80.1452(c)(6) to capture whether a RIN require that these parties adjust their
transaction is the result of a spot trade 1. Benefits of RIN Market Reform business models.
or of delivery from a term contract. We The goal of the proposed reforms is to G. Conclusion
believe that collecting this additional discourage or help prevent anti-
information will improve our On October 11, 2018, President
competitive market practices that may
understanding of the RIN price reported Trump issued a White House statement
introduce uncertainty or volatility into
amozie on DSK9F9SC42PROD with PROPOSALS2

because we will know whether the price explaining that EPA was being directed
was established on the transaction date 194 See ‘‘Annual Report 2017 Activities and
to initiate a rulemaking. Consequently,
or sometime prior. With this Accomplishments’’ (May 1, 2018), available at in this action, we are proposing
information in hand, we could filter http://www.wci-inc.org/docs/Attachment%
term contract prices out of the RIN price 206a.%20WCI_Inc_2017_Annual_Report_Final.pdf. 196 For a quantitative breakdown of new
195 See ‘‘Annual Report on the Market for RGGI recordkeeping and reporting burden imposed by
dataset that we publish and analyze CO2 Allowances: 2017’’ (May 2018), available at this action, see ‘‘ICR _Detailed Burden Tables’’ and
internally for compliance oversight. https://www.rggi.org/auctions/market-monitor- ‘‘E15 RVP RIN Market Reform Rule ICR _Supporting
Thus, the published price would be a reports. Statement’’ materials in the docket for this action.

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00041 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
10624 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules

regulatory changes in line with the proposing enhancements to existing prepared has been assigned EPA ICR
President’s Directive that could serve to reporting fields in EMTS to improve our number 2592.01. You can find a copy of
prevent anti-competitive behavior from RIN price data for analysis. the ICR in the docket for this rule, and
potentially taking root in the future. We are seeking comment on all of the it is briefly summarized here.
In Section III.E.1, we are proposing to reform details proposed in this action, This ICR includes all additional RFS
set two thresholds that would work in including the proposed reporting and related information collection activities
tandem to identify parties with recordkeeping requirements. We also resulting from the Modifications to Fuel
separated D6 RIN holdings significantly seek comment on means to reduce the Regulations to Provide Flexibility for
larger than needed for normal business burden of implementation of these E15; Modifications to RFS RIN Market
functions and which may indicate an reforms, including on small entities. We Regulations proposed rulemaking.
attempt to assert inappropriate market are not seeking comment on the many These information collection activities
power. Although we are not proposing elements of the RFS program that are include new recordkeeping and
that exceeding the threshold would be not proposed for amendment in this reporting requirements proposed under
a prohibited act, we are proposing that action, and those program elements and 40 CFR part 80, subpart M.
we would publish on our website the regulatory provisions are outside the Respondents/affected entities: The
names of any parties that reported scope of this action. respondents to this information
exceeding the thresholds. We are also collection fall into the following general
proposing that the RIN holdings of IV. Statutory and Executive Order industry categories: Petroleum
corporate affiliates be included in a Reviews refineries, ethyl alcohol manufacturers,
party’s threshold calculations. In A. Executive Order 12866: Regulatory other basic organic chemical
Section III.E.2, we are proposing to Planning and Review and Executive manufacturing, chemical and allied
establish RIN retirement requirements Order 13563: Improving Regulation and products merchant wholesalers,
for the first three quarters of the Regulatory Review petroleum bulk stations and terminals,
compliance year. Obligated parties petroleum and petroleum products
could use any D-code RINs to do so. This action is a significant regulatory
merchant wholesalers, gasoline service
This reform would not impact the action that was submitted to the Office
stations, and marine service stations.
current annual RVO calculations or of Management and Budget (OMB) for Respondent’s obligation to respond:
compliance. In Section III.E.3, we are review. Any changes made in response Mandatory.
proposing that only obligated parties, to OMB recommendations have been Estimated number of respondents:
exporter, and certain non-obligated documented in the docket. 22,119.
parties be allowed to purchase separated B. Executive Order 13771: Reducing Frequency of response: Quarterly,
D6 RINs. Non-obligated parties would Regulations and Controlling Regulatory annually.
be exempt from this proposed Costs Total estimated burden: 216,891
restriction if they were a corporate or hours (per year). Burden is defined at 5
contractual affiliate to an obligated This action is not expected to be an CFR 1320.3(b).
party. In Section III.E.4, we are Executive Order 13771 regulatory Total estimated cost: $20,445,451 (per
proposing a limit on the duration that a action. Details on the estimated costs of year).
non-obligated party could hold this proposed rule can be found in An agency may not conduct or
separated D6 RINs. Specifically, we are EPA’s analysis of the potential costs and sponsor, and a person is not required to
proposing that a non-obligated party benefits associated with this action. respond to, a collection of information
would be required to sell or retire as C. Paperwork Reduction Act (PRA) unless it displays a currently valid OMB
many RINs as it obtained in a quarter by control number. The OMB control
the end of that quarter. In Section With respect to the E15 1-psi waiver numbers for EPA’s regulations in 40
III.E.5, we outline our consideration of portion of this action, no new CFR are listed in 40 CFR part 9.
taking additional steps to enhance our information collection burden is Submit your comments on the
market monitoring capabilities. We imposed under the PRA. OMB has Agency’s need for this information, the
discuss the possibility of employing a previously approved the information accuracy of the provided burden
third-party market monitor to conduct collection activities contained in the estimates and any suggested methods
analysis of the RIN market, including existing regulations and has assigned for minimizing respondent burden to
screening for potential anti-competitive OMB control number 2060–0675. The EPA using the docket identified at the
behavior. proposed changes to the regulations beginning of this rule. You may also
Overall, we are proposing to amend would remove a small segment of send your ICR-related comments to
existing reports to collect quarterly RIN language on PTDs required to be OMB’s Office of Information and
retirement information and information generated and kept as records by parties Regulatory Affairs via email to OIRA_
on whether the proposed D6 RIN that make and distribute gasoline under submission@omb.eop.gov, Attention:
holding thresholds were exceeded and the regulations at 40 CFR part 80, Desk Officer for EPA. Since OMB is
whether the proposed requirements on subpart N. These proposed changes required to make a decision concerning
purchasing and holding separated D6 would not require any additional the ICR between 30 and 60 days after
RINs were met. We are proposing that information from regulated parties nor receipt, OMB must receive comments no
parties would keep all records related to do we believe that these proposed later than April 22, 2019. EPA will
these reporting requirements and would changes would substantively alter respond to any ICR-related comments in
amozie on DSK9F9SC42PROD with PROPOSALS2

submit them to auditors for the attest practices used by regulated parties to the final rule.
engagement process. In particular, we satisfy the PTD regulatory requirements.
are proposing that each party would The information collection activities D. Regulatory Flexibility Act (RFA)
submit a complete list of its corporate related to the RIN market reform portion I certify that this action will not have
and contractual affiliates to the auditor of this proposed rule have been a significant economic impact on a
for review and that the auditor would submitted for approval to OMB under substantial number of small entities
submit that list to EPA with its attest the PRA. The Information Collection under the RFA. In making this
engagement report. Finally, we are Request (ICR) document that EPA determination, the impact of concern is

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00042 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules 10625

any significant adverse economic G. Executive Order 13175: Consultation V. Statutory Authority
impact on small entities. An agency may and Coordination With Indian Tribal Statutory authority for this action
certify that a rule will not have a Governments comes from section 211 of the Clean Air
significant economic impact on a Act, 42 U.S.C. 7545. Additional support
substantial number of small entities if This action does not have tribal
implications as specified in Executive for the procedural and compliance
the rule relieves regulatory burden, has related aspects of this proposed rule
Order 13175.
no net burden or otherwise has a comes from sections 114, 208, and
positive economic effect on the small H. Executive Order 13045: Protection of 301(a) of the Clean Air Act, 42 U.S.C.
entities subject to the rule. Children From Environmental Health 7414, 7542, and 7601(a).
With respect to the E15 1-psi waiver Risks and Safety Risks
List of Subjects in 40 CFR Part 80
portion of this action, the proposed EPA interprets Executive Order 13045 Environmental protection, Fuel
regulatory changes do not substantively as applying only to those regulatory additives, Gasoline, Labeling, Motor
alter the regulatory requirements on actions that concern environmental vehicle pollution, Penalties, Reporting
parties that make and distribute health or safety risks that EPA has and recordkeeping requirements.
gasoline. Additionally, the proposed reason to believe may Dated: March 12, 2019.
interpretation to allow E15 to receive disproportionately affect children, per
the 1-psi waiver would allow parties Andrew Wheeler,
the definition of ‘‘covered regulatory
that make and distribute E15, including Administrator.
action’’ in section 2–202 of the
small entities, more flexibility in the Executive Order. This action is not For the reasons set forth in the
summer to satisfy market demands. subject to Executive Order 13045 preamble, EPA proposes to amend 40
With respect to the proposed RIN because it does not concern an CFR part 80 as follows:
market reform provisions of this action, environmental health risk or safety risk.
PART 80—REGULATION OF FUEL
we have conducted a screening analysis I. Executive Order 13211: Actions AND FUEL ADDITIVES
to assess whether we should make a Concerning Regulations That
finding that this action will not have a Significantly Affect Energy Supply, ■ 1. The authority citation for part 80
significant economic impact on a Distribution, or Use continues to read as follows:
substantial number of small entities.197 Authority: 42 U.S.C. 7414, 7521, 7542,
As detailed in that analysis, we believe This action is not a ‘‘significant 7545, and 7601(a).
that the existing flexibilities for small energy action’’ because it is not likely to
entities provide sufficient compliance have a significant adverse effect on the Subpart B—Controls and Prohibitions
flexibility and no additional flexibilities supply, distribution or use of energy.
■ 2. Section 80.27 is amended by
are necessary. The flexibility provided to E15 blends
revising paragraph (d)(2) to read as
by this action will enable additional follows:
We have therefore concluded that this
supply of energy but are not expected to
action will have no net regulatory have an immediate significant effect on § 80.27 Controls and prohibitions on
burden for all directly regulated small supply, distribution, or use of energy. gasoline volatility.
entities. The modifications to the RFS * * * * *
E. Unfunded Mandates Reform Act compliance system are not expected to (d) * * *
(UMRA) have a significant effect on supply, (2) In order to qualify for the special
distribution, or use of energy. regulatory treatment specified in
This action does not contain an paragraph (d)(1) of this section, gasoline
unfunded mandate of $100 million or J. National Technology Transfer and must contain denatured, anhydrous
Advancement Act (NTTAA) ethanol. The concentration of the
more as described in UMRA, 2 U.S.C.
1531–1538, and does not significantly or This rulemaking does not involve ethanol, excluding the required
uniquely affect small governments. This technical standards. denaturing agent, must be at least 9%
action implements mandates and no more than 15% (by volume) of
specifically and explicitly set forth in K. Executive Order 12898: Federal the gasoline. The ethanol content of the
CAA sec. 211 and we believe that this Actions To Address Environmental gasoline shall be determined by the use
action represents the least costly, most Justice in Minority Populations and of one of the testing methodologies
Low-Income Populations specified in § 80.47. The maximum
cost-effective approach to achieve the
statutory requirements. ethanol content shall not exceed any
EPA believes that this action does not applicable waiver conditions under
F. Executive Order 13132: Federalism have disproportionately high and section 211(f) of the Clean Air Act.
adverse human health or environmental
effects on minority populations, low * * * * *
This action does not have federalism ■ 3. Section 80.28 is amended by
implications. It will not have substantial income populations, and/or indigenous
revising paragraphs (g)(6)(iii), (g)(8)
direct effects on the states, on the peoples, as specified in Executive Order
introductory text, and (g)(8)(ii) as
relationship between the national 12898 (59 FR 7629, February 16, 1994).
follows:
government and the states, or on the This proposed rule does not affect the
amozie on DSK9F9SC42PROD with PROPOSALS2

distribution of power and level of protection provided to human § 80.28 Liability for violations of gasoline
responsibilities among the various health or the environment by applicable volatility controls and prohibitions.
levels of government. air quality standards. This action does * * * * *
not substantially relax the control (g) * * *
measures on sources regulated by EPA (6) * * *
197 See ‘‘Screening Analysis for the Proposed fuels programs and therefore will not (iii) That the gasoline determined to
Modifications to RFS RIN Market Regulations,’’ cause emissions increases from these be in violation contained no more than
available in the docket for this action. sources. 15% ethanol (by volume) when it was

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00043 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
10626 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules

delivered to the next party in the a corporate affiliate to at least one other Where:
distribution system. party in the group. IRi,q = The installment requirement is the
* * * * * * * * * * number of RINs an obligated party needs
DX RIN means a RIN with a D code to retire for quarter q in compliance
(8) In addition to the defenses period i, in RINs.
provided in paragraphs (g)(1) through of X, where X is the D code of the RFStdRF,i = The Renewable Volume
(g)(6) of this section, in any case in renewable fuel as identified under Obligation for renewable fuel for
which an ethanol blender, distributor, § 80.1425, generated under § 80.1426, compliance period i, determined by EPA
reseller, carrier, retailer, or wholesale and submitted to EMTS under pursuant to § 80.1405, in percent.
purchaser-consumer would be in § 80.1452. For example, a D6 RIN is a GVi,q = The cumulative non-renewable
violation under paragraphs (b), (c), (d), RIN with a D code of 6. gasoline volume, determined in
accordance with § 80.1407(b), (c), and (f),
(e) or (f), of this section, as a result of * * * * * which is produced in or imported into
gasoline which contains between 9 and End of day means 7:00 a.m. the 48 contiguous states or Hawaii by an
15 percent ethanol (by volume) but Coordinated Universal Time (UTC). obligated party in compliance period i
exceeds the applicable standard by more * * * * * through quarter q, in gallons.
than one pound per square inch (1.0 ■ 5. Section 80.1427 is amended by: DVi,q = The cumulative non-renewable diesel
psi), the ethanol blender, distributor, ■ a. Revising paragraph (b)(1) volume, determined in accordance with
reseller, carrier, retailer or wholesale introductory text; § 80.1407(d), (e), and (f), produced in or
purchaser-consumer shall not be ■ b. Redesignating paragraphs (b)(1)(ii)
imported into the 48 contiguous states or
Hawaii by an obligated party in
deemed in violation if such person can through (iv) as paragraphs (b)(1)(iii) compliance period i through quarter q, in
demonstrate, by showing receipt of a through (v); gallons.
certification from the facility from ■ c. Adding new paragraph (b)(1)(ii); i = The compliance period, typically
which the gasoline was received or ■ d. Revising newly redesignated expressed as a calendar year.
other evidence acceptable to the paragraph b(1)(iii); and q = The quarter, as defined in Table 1 to
Administrator, that: ■ e. Adding paragraph (d). § 80.1451, in compliance period i.
* * * * * The revisions and additions read as SHORTi.q = Cumulative shortfall from prior
follows: quarters in compliance period i through
(ii) The ethanol portion of the blend quarter q, which includes the amount of
does not exceed 15 percent (by volume); § 80.1427 How are RINs used to additional RINs an obligated party
and demonstrate compliance? needed to retire to meet the installment
* * * * * * * * * * requirement in the prior quarter(s), in
(b) * * * RINs. For quarter one, this term is zero.
Subpart M—Renewable Fuel Standard OVERi,q = Cumulative overage from the prior
(1) An obligated party that fails to quarter(s) in compliance period i through
meet the requirements of paragraph quarter q, which includes the amount of
■ 4. Section 80.1401 is amended by (a)(1) or (a)(7) of this section for
adding in alphabetical order definitions excess RINs retired more than the
calendar year i or fails to meet the installment requirement in the prior
for ‘‘Contractual affiliate,’’ ‘‘Corporate requirements of paragraph (d)(1) of this quarter(s), in RINs. For quarter one, this
affiliate,’’ ‘‘Corporate affiliate group,’’ section for any quarter in calendar year term is zero.
‘‘DX RIN,’’ and ‘‘End of Day’’ to read as i is permitted to carry a deficit into year
follows: (3) An obligated party must satisfy the
i + 1 under the following conditions: installment in compliance period i as
§ 80.1401 Definitions. * * * * * required by paragraph (d)(2) of this
* * * * * (ii) The party met the requirements of section unless the obligated party
Contractual affiliate means one of the paragraph (d)(1) of this section in each satisfies all installments in compliance
following: quarter in calendar year i¥1 for the period i + 1 or has no RVO in
(1) Two parties are contractual same RVO. compliance period i.
(iii) The party subsequently meets the ■ 6. Section 80.1428 is amended by
affiliates if they have an explicit or
requirements of paragraphs (a)(1) and revising paragraph (b)(2) to read as
implicit agreement in place for one to
(d)(1) of this section for calendar year i follows:
purchase or hold RINs on behalf of the
+ 1 and carries no deficit into year i +
other or to deliver RINs to the other. § 80.1428 General Requirements for RIN
2 for the same RVO.
This other party may or may not be distribution.
registered under the RFS program. * * * * *
* * * * *
(2) Two parties are contractual (d) Installment requirement. (1) In (b) * * *
affiliates if one RIN-owning party addition to the annual demonstration (2) Separated RIN ownership. (i) Any
purchases or holds RINs on behalf of the pursuant to § 80.1451(a)(1) that an person that has registered pursuant to
other. This other party may or may not obligated party has met its Renewable § 80.1450 can own a separated RIN,
be registered under the RFS program. Volume Obligations under §§ 80.1407 except as specified in paragraph
and 80.1430, each obligated party must (b)(2)(ii) of this section.
* * * * * meet an installment requirement by (ii) Only a person that has registered
Corporate affiliate means one of the retiring a sufficient number of RINs for as an obligated party or exporter of
following: the first three quarters of the compliance renewable fuel pursuant to § 80.1450,
(1) Two parties are corporate affiliates year by the reporting deadlines and who must satisfy an RVO, may
amozie on DSK9F9SC42PROD with PROPOSALS2

if one owns or controls ownership of specified in Table 1 to § 80.1451, except purchase a separated D6 RIN, unless the
more than 20 percent of the other. as specified in paragraph (d)(3) of this person meets one of the following
(2) Two parties are corporate affiliates section. conditions:
if one parent company owns or controls (2) Obligated parties must determine (A) The person meets the definition of
ownership of more than 20 percent of their installment requirements as contractual affiliate or corporate affiliate
both. follows: in § 80.1401.
Corporate affiliate group means a IRi,q = [RFStdRF,i * (GVi,q + DVi,q) * 0.80] (B) The person is replacing an invalid
group of parties in which each party is + SHORTi,q¥OVERi,q D6 RIN under this subpart.

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00044 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules 10627

(iii) Any person who owns a holdings-to-market percentage for a HTOPd = The holdings-to-obligation
separated D6 RIN under paragraph corporate affiliate group as follows: percentage is the percentage of separated
(b)(2)(i) of this section and is not an D6 RINs a corporate affiliate group holds
HTMPd = [(èD6RINd)a/(CNV_VOLTOT,i * on calendar day d relative to their
obligated party must either sell or retire 1.25)] * 100 expected separated D6 RIN holdings
at least the total number of D6 RINs based on the corporate affiliate group’s
Where:
separated or purchased in a quarter by conventional RVO for compliance period
the quarterly report deadline specified HTMPd = The holdings-to-market percentage
is the percentage of separated D6 RINs a i-1, in percent.
in Table 1 in § 80.1451. d = A given calendar day.
corporate affiliate group holds on
(iv) Any person who owns a separated calendar day d relative to the total i = The compliance period, typically
D6 RIN to replace an invalid D6 RIN, as expected number of separated D6 RINs expressed as a calendar year.
allowed under paragraph (b)(2)(ii)(B) of in the market in compliance period i, in a = Individual corporate affiliate in a
this section, may not sell the separated percent. corporate affiliate group.
d = A given calendar day. (èD6RINd)a = Sum of the number of separated
or purchased D6 RIN and must retire the
i = The compliance period, typically D6 RINs each individual corporate
separated or purchased D6 RIN within affiliate a holds on calendar day d, in
60 days of the date of separating or expressed as a calendar year.
a = Individual corporate affiliate in a RIN-gallons.
purchasing the RIN pursuant to the (èCNV_RVOi-1)a = Sum of the conventional
corporate affiliate group.
applicable provisions of §§ 80.1431 and (èD6RINd)a = Sum of the number of separated RVOs for each individual corporate
80.1474. D6 RINs each individual corporate affiliate a for compliance period i-1 as
* * * * * affiliate a holds at the end of calendar calculated in paragraph (b)(2)(iii) of this
day d, in RIN-gallons. section, in RIN-gallons.
■ 7. Section 80.1435 is added to read as
CNV_VOLTOT,i = The total expected annual (èCNV_DEFi-1)a = Sum of the conventional
follows: deficits for each individual corporate
volume of conventional renewable fuels
§ 80.1435 How are RIN holdings and RIN for the compliance period i, in gallons. affiliate a as calculated in paragraph
holding thresholds calculated? Unless otherwise specified, this number (b)(2)(iv) of this section for compliance
is 15 billion gallons. period i-1, in RIN-gallons.
(a) RIN holdings calculation. (1) Each (èCNV_DEFi-2)a = Sum of the conventional
party must calculate daily end-of-day (ii) For each day beginning April 1 deficits for each individual corporate
separated D6 RIN holdings by through December 31, calculate the affiliate a as calculated in paragraph
aggregating its end-of-day separated D6 holdings-to-market percentage for a (b)(2)(iv) of this section for compliance
RIN holdings with the end-of-day corporate affiliate group as follows: period i-2, in RIN-gallons.
separated D6 RIN holdings of all HTMPd = [(èD6RINd)a/(CNV_VOLTOT,i)] (ii) For each day beginning April 1
corporate affiliates in a corporate * 100 through December 31, calculate the
affiliate group and use the end-of-day holdings-to-obligation percentage as
separated D6 RIN holdings as specified Where:
HTMPd = The holdings-to-market percentage follows:
in paragraph (b) of this section.
(2) Each party must calculate, as is the percentage of separated D6 RINs a HTOPd = {(èD6RINd)a/[(èCNV_RVOi-1)a
corporate affiliate group holds on + (èCNV_DEFi-1)a]} * 100
applicable, the holdings-to-market calendar day d relative to the total
percentage under paragraph (b)(1) of the expected number of separated D6 RINs Where:
section and the holdings-to-obligation in the market in compliance period i, in HTOPd = The holdings-to-obligation
percentage under paragraph (b)(2) of percent. percentage is the percentage of separated
this section quarterly in accordance d = A given calendar day. D6 RINs a corporate affiliate group holds
with the schedule specified in Table 1 i = The compliance period, typically on calendar day d relative to their
to § 80.1451. expressed as a calendar year. expected separated D6 RIN holdings
(3) Each obligated party that is part of a = Individual corporate affiliate in a based on the corporate affiliate group’s
corporate affiliate group. conventional RVO for compliance period
a corporate affiliate group that has a i-1, in percent.
(èD6RINd)a = Sum of the number of separated
holdings-to-market percentage, as D6 RINs each individual corporate d = A given calendar day.
calculated under paragraph (b)(1) of this affiliate a holds at the end of calendar i = The compliance period, typically
section, greater than 3.00 percent for day d, in RIN-gallons. expressed as a calendar year.
any calendar day in a compliance CNV_VOLTOT,i = The total expected annual a = Individual corporate affiliate in a
period must calculate their holdings-to- volume of conventional renewable fuels corporate affiliate group.
obligation percentage as specified in for compliance period i, in gallons. (èD6RINd)a = Sum of the number of separated
paragraph (b)(2) of this section. Unless otherwise specified, this number D6 RINs each individual corporate
is 15 billion gallons. affiliate a holds on calendar day d, in
(4) Each party must individually keep
RIN gallons.
copies of all calculations and supporting (2) Secondary threshold calculations. For
(èCNV_RVOi-1)a = Sum of the conventional
information for separated D6 RIN each day in a compliance period where a
RVOs for each individual corporate
holding threshold calculations required corporate affiliate group is required to
affiliate a for compliance period i-1 as
under this section as specified in calculate with the secondary threshold
calculated in paragraph (b)(2)(iii) of this
requirement under § 80.1435(a)(4), each
§ 80.1454(u). obligated party must calculate the holdings-
section, in RIN-gallons.
(b) RIN holding thresholds (èCNV_DEFi-1)a = Sum of the conventional
to-obligation percentage for their corporate
calculations.—(1) Primary test deficits for each individual corporate
affiliate group using the methods at
calculations. For each day in a affiliate a as calculated in paragraph
paragraph (b)(2)(i) or (b)(2)(ii) of this section,
(b)(2)(iv) of this section for compliance
amozie on DSK9F9SC42PROD with PROPOSALS2

compliance period, each party that as applicable.


period i-1, in RIN-gallons.
owns RINs must calculate the holdings- (i) For each day beginning January 1
to-market percentage for their corporate through March 31, calculate the holdings-to- (iii) As needed to calculate the
affiliate group using the method obligation percentage as follows: holdings-to-obligation percentage in
specified in paragraph (b)(1)(i) or HTOPd = [(èD6RINd)a/{[(èCNV_RVOi-1)a + paragraphs (b)(2)(i) and (b)(2)(ii) of this
(b)(1)(ii) of this section, as applicable. (èCNV_DEFi-1)a + (èCNV_DEFi-2)a] * section, calculate the conventional RVO
1.25}] * 100
(i) For each day beginning January 1 for an individual corporate affiliate as
through March 31, calculate the Where: follows:

VerDate Sep<11>2014 20:39 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00045 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
10628 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules

CNV_RVOi = {[RFStdRF,i * (GVi + (2) Secondary threshold test. If an in § 80.1435. If the answer is yes, then
DVi)]¥[RFStdAB,i * (GVi + DVi)]} + obligated party or a corporate affiliate EPA may publish the name and EPA-
ERVORF,i group required to calculate a holdings- issued company identification number
Where: to-obligation percentage under of the party.
paragraph (a)(3) of this section has a (vi) For non-obligated parties who
CNV_RVOi = The conventional RVO for an
individual corporate affiliate for holdings-to-obligation percentage purchased separated D6 RINs during the
compliance period i without deficits, in greater than 130.00 percent for any reporting period, the reason(s) for the
RIN-gallons. calendar day in a compliance period, as purchase consistent with
i = The compliance period, typically determined under paragraph (b)(2) of § 80.1428(b)(2)(ii).
expressed as a calendar year. this section, each party in the corporate (vii) Total number of assigned D6
RFStdRF,i = The standard for renewable fuel affiliate group must separately report to RINs separated during the reporting
for compliance period i determined by EPA as specified in § 80.1451(c). period.
EPA pursuant to § 80.1405, in percent. (3) Reporting deadline. Parties (viii) Total number of separated D6
RFStdAB,i = The standard for advanced RINs purchased during the reporting
required to report to EPA under this
biofuel for compliance period i period.
determined by EPA pursuant to section as specified under § 80.1451(c),
must report to EPA by the deadlines (ix) Total number of separated D6
§ 80.1405, in percent.
GVi = The non-renewable gasoline volume, specified in Table 1 to § 80.1451. RINs sold during the reporting period.
determined in accordance with ■ 8. Section 80.1451 is amended by (x) Total number of separated D6 RINs
§ 80.1407(b), (c), and (f), which is revising paragraphs (a)(3) and (c)(2) to retired during the reporting period.
produced in or imported into the 48 read as follows: (xi) For non-obligated parties, total
contiguous states or Hawaii by an number of separated D6 RINs subject to
obligated party for compliance period i, § 80.1451 What are the reporting the requirement in § 80.1428(b)(2)(iii)
in gallons. requirements under the RFS program? held past the stated RIN distribution
DVi = The non-renewable diesel volume, (a) * * * deadline.
determined in accordance with (3) The quarterly RIN activity reports (xii) The volume of renewable fuel (in
§ 80.1407(b), (c), and (f), which is required under paragraph (c)(2) of this gallons) owned at the end of the quarter.
produced in or imported into the 48 (xiii) The total number of assigned
section to also include:
contiguous states or Hawaii by an RINs owned at the end of the quarter.
obligated party for compliance period i,
(i) For obligated parties, all of the
following information: (xiv) Any additional information that
in gallons.
ERVORF,i = The sum of all renewable volume (A) The installment requirement the Administrator may require.
obligations from exporting renewable calculated using the procedures in * * * * *
fuels, as calculated under § 80.1430, by § 80.1427(d) for the applicable quarterly ■ 9. Section 80.1452 is amended by:
an obligated party for compliance period reporting period. ■ a. Revising paragraph (c)(12); and
i, in RIN-gallons. (B) The cumulative shortfall from ■ b. Adding paragraph (c)(15).
prior quarters as calculated in The revision and addition read as
(iv) As needed to calculate the
§ 80.1427(d). follows:
holdings-to-obligation percentage in
paragraphs (b)(2)(i) and (b)(2)(ii) of this (C) The cumulative overage from the § 80.1452 What are the requirements
section, calculate the conventional prior quarters as calculated in related to the EPA Moderated Transaction
deficit for an individual corporate § 80.1427(d). System (EMTS)?
affiliate as follows: (D) The resulting balance after * * * * *
applying total RINs retired for (c) * * *
CNV_DEFi = DRF,i¥DAB,i
compliance as calculated in (12)(i) For RIN buy or sell transaction
Where: § 80.1427(d). types including assigned RINs, the per-
CNV_DEFi = The conventional deficit for an (ii) Any additional information that gallon RIN price or the per-gallon price
individual corporate affiliate for the Administrator may require. of renewable fuel with RINs included.
compliance period i, in RIN-gallons. If a
conventional deficit is less than zero, use
* * * * * (ii) For RIN buy or sell transaction
zero for conventional deficits in (c) * * * types including separated RINs, the per-
paragraphs (b)(2)(i) and (b)(2)(ii) of this (2) Reports related to a person’s RIN gallon RIN price.
section. activity must be submitted to EPA * * * * *
i = The compliance period, typically according to the schedule specified in (15) For buy or sell transactions of
expressed as a calendar year. paragraph (f)(2) of this section. Each separated RINs, the mechanism used to
DRF,i = Deficit carryover from compliance report must summarize RIN activities purchase the RINs (e.g., spot market or
period i for renewable fuel, in RIN- for the reporting period and must fulfilling a term contract).
gallons. include all of the following information:
DAB,i = Deficit carryover from compliance * * * * *
(i) The submitting party’s name. ■ 10. Section 80.1454 is amended by
period i for advanced biofuel, in RIN- (ii) The submitting party’s EPA-issued
gallons. adding paragraphs (i)(1) and (2) and
company identification number. paragraphs (u) through (y) to read as
(c) Exceeding the D6 RIN holding (iii) Primary registration designation
follows:
thresholds. (1) Primary threshold test. If or compliance level for compliance year
a party or corporate affiliate group has (e.g., ‘‘Aggregated Refiner,’’ ‘‘Exporter,’’ § 80.1454 What are the recordkeeping
a holdings-to-market percentage greater ‘‘Renewable Fuel Producer,’’ ‘‘RIN requirements under the RFS program?
amozie on DSK9F9SC42PROD with PROPOSALS2

than three percent for any calendar day Owner Only,’’ etc.). * * * * *
in a compliance period, as determined (iv) Number of prior-year and current- (i) * * *
under paragraph (b)(1) of this section, year separated D3, D4, D5, D6, and D7 (1) For buy or sell transactions of
and the corporate affiliate group does RINs owned at the end of the quarter. separated RINs, parties must retain
not contain an obligated party, each (v) Indicate if the submitting party records substantiating the price reported
party in the corporate affiliate group exceeded the separated D6 RIN holding to EPA under § 80.1452.
must separately submit a report to EPA threshold in the quarter, as determined (2) For buy or sell transactions of
as specified in § 80.1451(c). by the applicable calculation specified separated RINs, parties must retain

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00046 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules 10629

records demonstrating the transaction ■ 11. Section 80.1460 is amended by company ID, company name, corporate
mechanism (e.g., spot market or revising paragraphs (c)(1) and (d) to read address, etc) and any findings to EPA.
fulfilling a term contract). as follows: (4) Quarterly installment requirement
* * * * * for obligated parties. (i) Compare the
§ 80.1460 What acts are prohibited under volumes of products listed in
(u) Requirements for recordkeeping of the RFS program?
RIN holdings for all parties transacting § 80.1407(c) and (e) reported to EPA in
* * * * * the report required under § 80.1451(a)(3)
or owning RINs. (1) Parties must retain
(c) * * * with the volumes, excluding any
records related to end-of-day separated (1) Fail to acquire sufficient RINs, fail
D6 RIN holdings, conventional RVO renewable fuel volumes, contained in
to retire sufficient RINs, or use invalid the inventory reconciliation analysis
calculations, and any associated RINs to meet the person’s RVOs or
calculations recorded in order to meet under § 80.133 and the volume of non-
quarterly compliance requirements renewable diesel produced or imported.
the RIN holdings requirements under § 80.1427.
described in § 80.1435. Such records Verify that the volumes reported to EPA
must include information related to any * * * * * agree with the volumes in the inventory
corporate affiliates and their RIN (d) RIN retention violation. No person reconciliation analysis and the volumes
holdings and calculations. may do any of the following: of non-renewable diesel produced or
(1) Retain RINs in violation of the imported, and report as a finding any
(2) Parties must retain records related
requirements in § 80.1428(a)(5). exception.
to their reports to EPA regarding
(2) Purchase separated RINs in (ii) Compare the calculated
threshold compliance under §§ 80.1435
violation of the requirements in installment requirement for each quarter
and 80.1451.
§ 80.1428(b)(2). using the required steps found in
(v) Requirements for recordkeeping 80.1427(d) with any RINs retired for
for installment requirement. (1) * * * * *
■ 12. Section 80.1464 is amended by: compliance. Verify that any cumulative
Obligated parties must retain records shortfall or cumulative overage is
■ a. Revising paragraph (a)(3)(ii);
related to gasoline and diesel carried through as applicable into any
■ b. Adding paragraphs (a)(4) through
production levels used for RVO subsequent quarter.
calculation in §§ 80.1427 and 80.1451. (5);
■ c. Revising paragraph (b)(3)(ii); (5) RIN holdings. (i) Obtain and read
(2) Obligated parties must retain copies of the RIN holdings calculations
■ d. Adding paragraph (b)(5);
records related to the RVO calculation kept under § 80.1454(u) for the obligated
■ e. Revising paragraph (c)(2)(ii); and
inputs as listed in §§ 80.1427 and ■ f. Adding paragraph (c)(3). party and any corporate affiliates.
80.1451. The revisions and additions read as (ii) Report as a finding any date where
(3) Obligated parties must retain follows: the aggregated calculation exceeded the
records related to any remedial actions RIN holding threshold(s) specified in
submitted after the quarterly § 80.1464 What are the attest engagement § 80.1435. State whether this
compliance deadline. requirements under the RFS program? information agrees with the party’s
(w) Recordkeeping requirements for (a) * * * reports (notification of threshold
parties prohibited from purchasing (3) * * * exceedance) to EPA.
separated D6 RINs. (1) Non-obligated (ii) Obtain the database, spreadsheet, (b) * * *
parties must retain all records or other documentation used to generate (3) * * *
pertaining to why they purchased the information in the RIN activity (ii) Obtain the database, spreadsheet,
separated D6 RINs. This may include, reports; compare the RIN transaction or other documentation used to generate
but is not limited to, legal contracts with samples reviewed under paragraph the information in the RIN activity
obligated parties or documents (a)(2) of this section with the reports; compare the RIN transaction
indicating the need to replace invalid corresponding entries in the database or samples reviewed under paragraph
D6 RINs. spreadsheet and report as a finding any (b)(2) of this section with the
(2) [Reserved] discrepancies; compute the total corresponding entries in the database or
(x) Requirements for recordkeeping of number of current-year and prior-year spreadsheet and report as a finding any
D6 RIN holdings by non-obligated RINs owned at the start and end of each discrepancies; report the total number of
parties. (1) Non-obligated parties must quarter, purchased, separated, sold, each RIN generated during each quarter
retain all records related to the number retired and reinstated, and for parties and compute and report the total
of D6 RINs separated in a given quarter, that reported RIN activity for RINs number of current-year and prior-year
purchased in a given quarter, and sold assigned to a volume of renewable fuel, RINs owned at the start and end of each
in a given quarter to demonstrate the volume and type of renewable fuel quarter, purchased, separated, sold,
compliance with the requirements in (as defined in § 80.1401) owned at the retired and reinstated, and for parties
§ 80.1428. end of each quarter; as represented in that reported RIN activity for RINs
(2) [Reserved] these documents; obtain a list of all assigned to a volume of renewable fuel,
(y) Requirements for recordkeeping of corporate affiliates and a list of all the volume of renewable fuel owned at
contractual and corporate affiliates. (1) contractual affiliates and review the the end of each quarter, as represented
Parties must retain records including, information regarding their documented in these documents; review the
but not limited to, the name, address, relationship to the submitter (e.g., information regarding contractual
business location, contact information, contracts, or other legal documents); affiliates and corporate affiliates (as
amozie on DSK9F9SC42PROD with PROPOSALS2

and description of relationship, for each and identify any contractual affiliates defined in § 80.1401) and their
corporate affiliate. For the corporate that had a contract with the party that documented relationship to the
affiliate group, a relational diagram. did not result in transfer of RINs to the submitter; identify any contractual
(2) Parties must retain records party during the calendar year; report a affiliates that had a contract with the
including, but not limited to, the name, separate list for all corporate affiliates party that did not result in transfer of
address, business location, contact and all contractual affiliates including RINs to the party during the calendar
information, and contract or other identification information for each year; report a separate list for all
agreement for each contractual affiliate. corporate or contractual affiliate (e.g., corporate affiliates and all contractual

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00047 Fmt 4701 Sfmt 4702 E:\FR\FM\21MRP2.SGM 21MRP2
10630 Federal Register / Vol. 84, No. 55 / Thursday, March 21, 2019 / Proposed Rules

affiliates including identification documented relationship to the § 80.1503 What are the product transfer
information for each corporate or submitter (e.g., contract); identify any document requirements for gasoline-
contractual affiliate (e.g., company ID, contractual affiliates that had a contract ethanol blends, gasolines, and conventional
company name, corporate address, etc) with the party that did not result in blendstocks for oxygenate blending subject
to this subpart?
and any findings to EPA. transfer of RINs to the party during the
calendar year; report a separate list for (a) * * *
* * * * *
all corporate affiliates and all (1) * * *
(5) RIN holdings. (i) Obtain and read
contractual affiliates including (vi) * * *
copies of the RIN holdings calculations
identification information for each (B) The conspicuous statement that
for the renewable fuel producers and
corporate or contractual affiliate (e.g., the gasoline being shipped contains
RIN-generating importers and any
company ID, company name, corporate ethanol and the percentage
corporate affiliates.
address, etc) and any findings to EPA. concentration of ethanol as described in
(ii) Report as a finding any date where § 80.27(d)(3).
the aggregated calculation exceeded the (3) RIN holdings. (i) Obtain and read
RIN holding threshold(s) specified in copies of the RIN holdings calculations * * * * *
§ 80.1435. for the renewable fuel producers and (b) * * *
(c) * * * RIN-generating importers and any (1) * * *
corporate affiliates. (vi) * * *
(2) * * *
(ii) Report as a finding any date where (B)(1) For gasoline containing less
(ii) Obtain the database, spreadsheet,
the aggregated calculation exceeded the than 9 volume percent ethanol, the
or other documentation used to generate
RIN holding threshold specified in following statement: ‘‘EX—Contains up
the information in the RIN activity
§ 80.1435. State whether this to X% ethanol. The RVP does not
reports; compare the RIN transaction
information agrees with the party’s exceed [fill in appropriate value] psi.’’
samples reviewed under paragraph
reports (notification of threshold The term X refers to the maximum
(c)(1) of this section with the
exceedance) to EPA. volume percent ethanol present in the
corresponding entries in the database or
gasoline.
spreadsheet and report as a finding any * * * * *
(2) The conspicuous statement that
discrepancies; compute the total
Subpart N—Additional Requirements the gasoline being shipped contains
number of current-year and prior-year
for Gasoline-Ethanol Blends ethanol and the percentage
RINs owned at the start and end of each
concentration of ethanol as described in
quarter, purchased, sold, retired,
■ 13. Section 80.1503 is amended by: § 80.27(d)(3) may be used in lieu of the
separated, and reinstated and for parties
■ a. Revising paragraph (a)(1)(vi)(B); statement required under paragraph
that reported RIN activity for RINs
■ b. Removing and reserving paragraph (b)(1)(vi)(B)(1) of this section.
assigned to a volume of renewable fuel,
the volume of renewable fuel owned at (a)(1)(vi)(C); * * * * *
the end of each quarter, as represented ■ c. Revising paragraph (b)(1)(vi)(B); ■ 14. Section 80.1504 is amended by
in these documents; review the and removing and reserving paragraphs (f)
information regarding corporate ■ d. Removing and reserving paragraphs and (g).
affiliates and contractual affiliates (as (b)(1)(vi)(C) through (E). [FR Doc. 2019–05030 Filed 3–20–19; 8:45 am]
defined in § 80.1401) and their The revisions read as follows: BILLING CODE 6560–50–P
amozie on DSK9F9SC42PROD with PROPOSALS2

VerDate Sep<11>2014 19:43 Mar 20, 2019 Jkt 247001 PO 00000 Frm 00048 Fmt 4701 Sfmt 9990 E:\FR\FM\21MRP2.SGM 21MRP2