[Federal Register Volume 59, Number 58 (Friday, March 25, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7057]


[[Page Unknown]]

[Federal Register: March 25, 1994]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 9 and 86

[AMS-FRL-4854-6]

 

Amended Heavy-Duty Averaging, Banking, and Trading Credit 
Accounting Regulations

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: This final rule makes two changes to the existing Averaging, 
Banking, and Trading (ABT) regulations for manufacturers of heavy-duty 
engines, under EPA's motor vehicle emission control program. Beginning 
with the final reports due in 1993 for the 1992 model year engines, 
heavy-duty engine manufacturers participating in the ABT program are 
required to use credits scheduled to expire in the earliest model year 
before using credits that would expire in later model years. EPA has 
concluded that the benefits intended to be derived from the ABT program 
are more likely to be realized by this credit accounting method than by 
the credit accounting method in the existing regulations. Therefore, 
the intent of this change is to correct an unintended effect in the 
existing regulations. This action also extends the reporting period for 
final reports from 180 days to 270 days after the end of the model 
year. This extension of reporting time will provide manufacturers 
additional time to collect sales data for calculating ABT credits and 
thus improve the accuracy of the credit information submitted to EPA.

EFFECTIVE DATE: This final rule is effective on April 25, 1994.

ADDRESSES: Materials relevant to this rule are contained in Public 
Docket No. A-92-30 at the following address: U.S. Environmental 
Protection Agency, 401 M Street SW., Washington DC 20460. The docket is 
available for public inspection from 8:30 a.m. until 12 noon and from 
1:30 p.m. until 3:30 p.m. Monday through Friday. A reasonable fee may 
be charged for copying docket materials.

FOR FURTHER INFORMATION CONTACT: Ms. Paulina Chen, U.S. EPA, 
Manufacturers Operations Division (6405J), 401 M Street SW., Washington 
DC, 20460, Telephone: (202) 233-9249.

SUPPLEMENTARY INFORMATION:

I. Introduction

    The ABT program was developed to provide flexibility for 
manufacturers to use a mix of emission control technology and minimize 
the costs associated with meeting increasingly stringent emission 
standards. This flexibility in turn creates environmental benefit by 
providing incentive in the form of credits for the earlier introduction 
of cleaner engines into the market. In addition, environmental benefits 
are derived from a 20 percent discount on all banked and traded 
credits. As an additional environmental safeguard, credit life is 
limited to assure adequate in-use overlap between credit-generating and 
credit-using vehicles.
    The Averaging, Banking, and Trading (ABT) program regulations 
promulgated on July 26, 1990 prohibit heavy-duty engine manufacturers 
from banking and withdrawing emission credits from the same averaging 
set in the same model year. See 40 CFR 86.091-15(a)(2)(iii). According 
to the credit accounting method in the regulations, a manufacturer must 
first combine all transactions for an averaging set in a given model 
year. The manufacturer could then bank any excess credits or withdraw 
credits if there is a credit shortfall. This is similar to the last-in-
first-out inventory accounting system (LIFO), because the most recently 
generated credits must be used first to average before older credits 
can be withdrawn from the bank. This provision has been a source of 
confusion for some members of the regulated industry. On May 29, 1992, 
the Engine Manufacturers Association (EMA) met with EPA to explain why 
its members thought that Sec. 86.091-15(a)(2)(iii) allowed them to both 
withdraw previously banked credits and deposit new credits in the same 
model year and averaging set. In addition, EMA suggested that LIFO 
credit accounting removed a certain amount of expected flexibility from 
the ABT program and reduced the incentives for earlier introduction of 
cleaner engine technology. EPA subsequently informed EMA that 
Sec. 86.091-15(a)(2)(iii) clearly provided for LIFO credit accounting, 
but that the Agency would review its previous decision and consider 
implementing a first-in-first-out (FIFO) credit accounting method as 
suggested by EMA.
    After comparing the two credit accounting methods, EPA has 
concluded that the benefits intended to be derived from the ABT program 
are more likely to be realized under the FIFO credit accounting method, 
and that LIFO credit accounting may reduce the program's effectiveness 
in providing these benefits.
    Today's action amends the credit accounting method used in the ABT 
program such that manufacturers must utilize the credits generated in 
the earliest model years before using later credits to cover credit 
needs. EPA believes that this accounting procedure is more likely to 
produce the benefits intended from the ABT program and will avoid the 
unintended reduction in program effectiveness that could occur under 
the current LIFO credit accounting procedure. Forcing manufacturers to 
average first with new credits from cleaner technology engines may 
actually encourage a manufacturer to continue using dirtier technology 
in the years when previously banked credits are still available, to 
avoid the loss of these banked credits through expiration. The current 
LIFO procedures could therefore have the unintended and adverse impact 
of delaying the introduction of cleaner technology until manufacturers 
have depleted their bank of credits. That result would be contrary to 
the goals of the ABT program.
    In addition, today's action extends the time period for submitting 
corrections to end-of-year reports from 180 days after the end of the 
model year to 270 days after the end of the model year. This extension 
will provide manufacturers a more equitable and reasonable time period 
than previously allowed for collecting first delivery information on 
their engines.
    The reasons for these changes to the ABT program are explained in 
greater detail in the preamble to the notice of proposed rulemaking 
(NPRM) published on June 10, 1993 (58 FR 32498).
    EPA proposed these changes to the ABT program in conjunction with 
the NPRM of June 10, 1993 for the Clean Fuels Fleet Emissions 
Standards, Conversions, and General Provisions (CFF). EPA published a 
second notice on July 1, 1993 which indicated that a public hearing on 
that rule would not address the ABT portion of the NPRM, unless 
otherwise requested. No request for a hearing was made, and the comment 
period for the ABT portion closed on August 2, 1993. Finally, EPA also 
split off the ABT portion from the CFF rulemaking in order to expedite 
a final ABT rule. EPA will issue a separate final rulemaking for the 
CFF program.
    This preamble provides a description of today's action and includes 
a summary of the major comments received on relevant portions of the 
NPRM and EPA's responses to those comments.

II. Public Participation

    No public hearing was requested on the proposed ABT changes, and no 
hearing was held. EPA received written comments from the Detroit Diesel 
Corporation (DDC), Engine Manufacturers Association (EMA), 
Manufacturers of Emission Controls Association (MECA), the Natural 
Resources Defense Council (NRDC), the American Lung Association (ALA), 
and Michael Walsh. Comments have been placed in Docket No. A-92-30 (see 
ADDRESSES above). EPA has carefully reviewed all comments, and the 
following discussion addresses all major comments.

III. Analysis of Comments

A. Meaning of 40 CFR 86.091-15(a)(2)(iii)

    40 CFR 86.092-15(a)(2)(iii) states that: Engine families within a 
given averaging set may not both generate and use like emission credits 
in the same model year.
    EMA commented that changes to this provision may not be necessary, 
because, as DDC also noted, Sec. 86.091-15(a)(2)(iii) does not specify 
that LIFO credit accounting must be used. However, EPA believes that 
Sec. 86.091-15(a)(2)(iii) clearly requires LIFO credit accounting. This 
is based on the text of the provision, as well as the preamble 
discussion of this provision in 55 FR 30599 on July 26, 1990. The 
discussion addresses the background and context of the provision and 
very clearly states that credits should not be both withdrawn and used 
from a given averaging set in a given model year. Both EMA and DDC 
noted that the preamble used the term ``rolling banking'' to refer to 
FIFO credit accounting. Although the term ``rolling banking'' does not 
appear in the preamble to the final rule for the ABT program, the term 
``rolling program'' is addressed in the preamble and refers not to FIFO 
credit accounting, but to the three-year credit life, which is entirely 
independent of credit accounting. In any case, both EMA and DDC oppose 
imposition of LIFO accounting procedures. DDC rejected the LIFO 
interpretation on the basis that LIFO is ``illogical and inconsistent 
with the purposes of the ABT program.'' EPA is in agreement with this 
statement and highlights this point as the main reason for this 
rulemaking.

B. Environmental Impact of the Credit Accounting Change Need for 
Further Study

    NRDC, MECA and ALA raised concerns on the environmental impact of 
the proposed credit accounting change, suggesting that EPA withhold 
making any such change until the agency completed a more thorough 
analysis of environmental consequences, including a comprehensive 
evaluation of the impact of the whole ABT program.
    This rulemaking only addresses two aspects of the ABT program--the 
credit accounting procedures and the timing of annual reports. Given 
the limited nature of this rulemaking, EPA does not believe a 
comprehensive evaluation of the entire program is necessary to 
determine the appropriate accounting and reporting requirements.
    In addition, EPA believes that it has adequate information at this 
time to determine the appropriate credit accounting procedure. As 
described above, EPA has sufficient information now to make these 
determinations. Implementation of LIFO credit accounting has 
demonstrated to EPA's satisfaction that LIFO credit accounting does not 
fulfill the intention of the ABT program to provide engine 
manufacturers the flexibility and incentives needed to generate 
environmental benefits. Manufacturers generated credits in MY 1990 
which they anticipated being able to use in MYs 1991-1993. At the same 
time, they have generated credits in MYs 1991 and 1992, which are valid 
to be used through MY 1996. However, because any credit usage that 
occurs in MYs 1991 and 1992 must, according to LIFO credit accounting, 
be offset first by the credits generated in MYs 1991 and 1992, the 
result is that the credits which are valid until 1996 are being 
withdrawn, while older credits, which are scheduled to expire in MY 
1993, are sitting in the bank. Under LIFO credit accounting, if a 
manufacturer wanted to utilize the credits generated in MY 1990, they 
would be required to withdraw all the 1990 credits before generating 
new credits. Thus, there is little incentive to introduce cleaner 
technology until all the credits have been withdrawn. In addition, the 
PM standards are tightening after three model years, and manufacturers 
have little opportunity under LIFO credit accounting to both adjust to 
the 1990 standard and generate credits for the 1994 standard change.
    Finally, a delay in this rulemaking would prolong the disincentives 
associated with LIFO credit accounting.
Environmental Impact
    NRDC and MECA raised various concerns about the environmental 
impact of these changes, many of which were based on serious 
reservations about ABT programs in general. They were concerned that 
credits did not reflect real innovations in pollution control, but 
merely reflected the difference between certification levels and the 
level of the standard. Increased credits therefore provided no net 
benefit to the environment. In that context, they were concerned that 
application of these changes to the 1993 reports on the 1992 model year 
engines would significantly increase the number of credits available to 
engine manufacturers, and therefore ease the burden in complying with 
more stringent emissions standards applicable in model years 1994 
through 1996. This artificial extension of credit life would worsen air 
quality by allowing continued production of older, dirtier engines 
beyond that allowed without the credit accounting change. NRDC claimed 
that the proposal's theoretical arguments for the credit change have a 
weak analytical support, and do not support the suggested rule change.
    As noted earlier, this rulemaking has a limited scope and EPA is 
therefore not revisiting many of the policy and other issues resolved 
in the rulemakings establishing the ABT program. This rulemaking is 
focused on the narrow issue of determining what credit accounting 
procedure best implements the intended goals of the ABT program, with 
the existence of an ABT program as a given. In that context, EPA 
believes that the regulatory changes in this rule are appropriate. A 
FIFO credit accounting provision will better serve the intended goals 
of the ABT program than the current LIFO accounting provision. In 
addition, EPA does not expect an adverse environmental impact from 
these changes, and over time believes the changes should benefit the 
environment.
    First, as was explained in the preamble to the notice of proposed 
rulemaking (58 FR 32498, June 10, 1993), FIFO is preferred over LIFO, 
because LIFO may induce manufacturers to use any credits in the bank 
before generating new credits, for fear of having the previously banked 
credits expire. Thus, LIFO may reduce the incentive for manufacturers 
to pull ahead new technology. On the other hand, FIFO encourages 
manufacturers to put into production new technology in order to 
generate new credits and gain experience on the overall effect of the 
technology on emissions before it is required by standards. This 
experience may lead to improved reliability when new technology is 
implemented on a wider scale. In addition, FIFO has the added 
environmental benefit of having more credits discounted, because 
credits are banked first rather than averaged first, as under LIFO. 
(Averaged credits are not discounted, while banked or traded credits 
are.)
    Second, while MECA, NRDC, and ALA claim that the increase in 
availability of credits in the 1994-1996 model years resulting from the 
switch to FIFO credit accounting is an environmental detriment, EPA 
emphasizes that the credits in question are credits that manufacturers 
have previously generated and therefore represent an emission reduction 
that has already taken place. Furthermore, under FIFO, credits are 
banked more frequently than under LIFO, because LIFO requires averaging 
first. Therefore, FIFO provides the additional environmental benefit of 
a 20% discount to more credits.
    One final commenter, Michael Walsh, questioned EPA's rationale for 
``relaxing'' the ABT requirements when a stated goal of the program was 
to not undercut the purpose of the Clean Air Act to promote the 
achievement of the greatest degree of emissions reductions available 
now and in the future. In support of his argument, Mr. Walsh states 
that the ABT program has actually been used by manufacturers to employ 
engine modifications to meet emission standards rather than employing 
more significant pollution controls (presumably particulate traps). Mr. 
Walsh further bolsters his argument with studies showing the health 
hazards associated with oxides of nitrogen and particulate matter. 
Finally, Mr. Walsh comments that EPA has withheld data from the public 
which has denied the public a reasonable opportunity to comment on the 
proposed rule change.
    EPA has, through rulemaking, set the emission standards for heavy-
duty engines at levels which reflect the greatest degree of emissions 
reductions available now and in the future. The Agency will work hard 
to ensure that overall emissions will not exceed the levels set by 
those standards. Indeed, the environmental safeguards built into the 
ABT program, safeguards which remain in effect today, are intended to 
ensure that overall emissions will not exceed the standards. EPA does 
not believe, however, that it is appropriate to dictate which emission 
control technologies manufacturers must use to meet those standards. A 
principal goal of the ABT program is to provide flexibility to the 
manufacturers to choose the most economically efficient means of 
meeting the emission standards. If manufacturers do employ less 
expensive emission control options to meet the standards, that is their 
prerogative. The overall emission levels set by the standards are not 
exceeded and, theoretically, resources have been allocated more 
efficiently. Until data is provided that overall emissions levels are 
being exceeded, EPA will assume that the ABT program is achieving its 
goals.
    As for Mr. Walsh's claim that EPA is withholding data, EPA asserts 
that it has placed in the docket all accurate data on which it has 
relied to make this decision. The only data which has been withheld is 
confidential business information (CBI) which EPA is statutorily 
prohibited from releasing; even that information, if it was considered 
by EPA in making this decision, has been recharacterized to avoid 
revealing CBI and placed in the docket.

C. Not Allowing Manufacturers To Use Both LIFO and FIFO Credit 
Accounting

    In the NPRM, EPA requested comments on whether or not the Agency 
should consider implementing alternative credit accounting schemes 
which incorporate combinations of both LIFO and FIFO. Both EMA and DDC 
supported the alternative of allowing manufacturers to choose freely 
between LIFO and FIFO (referred to hereafter as LIFO/FIFO).
    First, EMA and DDC claimed that LIFO/FIFO provides the maximum 
credit accounting flexibility, and therefore the engine manufacturers 
prefer this credit accounting system. EPA believes that FIFO, in 
contrast with LIFO, provides the flexibility needed to encourage 
manufacturers to participate fully in the program. In addition, EPA 
believes that LIFO/FIFO would provide marginal additional flexibility 
over FIFO, and this additional flexibility would not be warranted in 
light of the concerns that the Agency has regarding use of this 
accounting system. These concerns are discussed later in this section.
    Second, EMA and DDC commented that the ABT program has a built-in 
discount that is incurred when credits are calculated. Some engine 
families have more than one transient cycle conversion factor, and only 
one, the most environmentally-safe, conversion factor may be used 
during credit calculations. EMA and DDC indicated that this calculation 
results in an estimated 10-20% credit ``discount.'' EPA points out that 
this fact applies to all credit accounting systems and therefore should 
not be considered as a reason to choose a particular accounting system. 
Furthermore, this ``discount'' applies only to those engine families 
containing multiple horsepower ratings.
    Third, EMA and DDC were also concerned that the averaging program 
would no longer exist under FIFO. On the contrary, the averaging 
program could still be used by manufacturers when there are no 
previously banked credits available, such as when a manufacturer either 
has no banked credits going into a model year, or in cases where the 
previously banked credits do not adequately cover credit needs for that 
model year. Under such circumstances, manufacturers may use the credits 
generated in the current model year in averaging and would not be 
required to take a discount on these credits. Credit surpluses 
remaining after averaging has occurred could be banked for future use, 
with the discount taken.
    Fourth, EMA and DDC commented that under LIFO/FIFO, credit life 
cannot be extended, as EPA fears. Although credit life cannot be 
extended without the generation of new credits, EPA believes that the 
credit accounting system used should not allow manufacturers to 
circumvent the environmental safeguards that have been put into the 
program. LIFO and FIFO separately maximize the effects of different 
safeguards, and under LIFO/FIFO a manufacturer can use LIFO in some 
years to avoid credit discounting and FIFO in others to avoid credit 
expiration.\1\
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    \1\See ``Calculating Credits Using LIFO and FIFO Credit 
Accounting Methods,'' Memorandum from Paulina Chen to the docket for 
this rulemaking (May 14, 1993).
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    NRDC, MECA, and ALA commented that EPA should not adopt the other 
proposed credit accounting alternatives and echoed concerns similar to 
those of EPA's regarding the problems associated with allowing 
manufacturers to use both LIFO and FIFO credit accounting. These 
concerns are: (1) The loophole created by LIFO/FIFO which could shield 
the manufacturers from the full impact, and subsequently diminish the 
overall effectiveness, of the environmental safeguards of the ABT 
program, and (2) the substantial increase in the complexity of the ABT 
program, which could also increase the potential for errors in credit 
tracking and affect the ultimate compliance findings.
    In conclusion, EPA does not believe that LIFO/FIFO is more suitable 
than FIFO, because the apparent disadvantages of LIFO/FIFO outweigh any 
potential advantages that have been claimed by commenters.

D. Retroactivity

    The revised regulation changes the credit accounting provision for 
the 1992 model year reports. End-of-year reports are due within 90 days 
after the end of the 1992 model year. Manufacturers can correct these 
90 day reports within 180 days after their submission. Presumably all 
manufacturers submitted their 90 day reports prior to the publication 
of the NPRM. Publication of the NPRM on June 10, 1993 and delays and 
uncertainty about the outcome of this final rule led most manufacturers 
to hold off in submitting their corrections report. EPA believes that 
this is not a retroactive change as it applies to a report that has not 
yet been submitted. Given the questions raised on EPA's authority to 
promulgate a retroactive change to the ABT regulations, and the lack of 
any compelling reason to revise earlier reports, EPA has decided to not 
make any revisions to regulations applicable to 1991 and earlier model 
years.

E. Other Comments Related to Credit Accounting Change

    DDC and EMA requested that EPA expedite this rulemaking to allow 
the use of FIFO for the final report due in 1993 on the 1992 model 
year, because engine manufacturers claim that they had planned their 
production based on the assumption that the system in effect was 
essentially FIFO-based. On the other hand, NRDC commented that changing 
the credit accounting system ``midstream'' for the 1992 model year, 
when some of the 1994 model year engines are already being produced, is 
not acceptable because of the impact on air quality. EPA does not want 
to penalize those manufacturers who pulled ahead technology for the 
purposes of generating credits for the 1994-1996 model years and has 
decided to apply this change of credit accounting at the earliest 
possible time. In addition, these credits represent emission reductions 
that have already occurred and are subject to the environmental 
safeguards of discounting and limited credit life.
    Several comments by NRDC and MECA relate to the ABT program in 
general rather than to the specifics of this rulemaking. For example, 
the concern was raised that credits do not necessarily represent real 
emission reductions, but may reflect the shaving of safety margins. 
Responses to such comments are in the preamble to the final rule for 
ABT (55 FR 30584, 7/26/90).
    MECA also commented on the effects of this credit accounting change 
on the emission control manufacturers, specifically manufacturers of 
oxidation catalysts. MECA summarized the environmental benefits of 
using this particular emission control device and pointed out that lost 
revenues from decreased sales will negatively impact the amount of 
research and development that can be performed by these manufacturers. 
Manufacturers assert that switching to FIFO removes the disincentive to 
pull ahead new technology. Pull ahead provides opportunities to gain 
experience with new technology before having to use the technology more 
widely.

F. Extension for Corrections to End-of-Year Reports

    Although other commenters did not indicate any concerns with the 
reporting period extension for corrections to end-of-year reports, NRDC 
commented that this extension may cause complications when rectifying 
compliance problems, because any problems presumably would not be 
detected until nine months after the end of the model year. However, 
engine manufacturers still must submit their initial end-of-year 
reports within 90 days after the end of the model year, and the 
possibilities of any compliance problems would be most evident in this 
particular report. These compliance problems may be mitigated later 
when all the credit-generating engines have been tracked to points of 
first retail sale by the submittal of this report. EPA will have the 
opportunity to initiate investigations if problems appear in end-of-
year reports. The change here affects only the secondary reports, which 
are due after manufacturers have had more time to track engines to the 
point of first retail sale. Finally, because of the uncertainty for the 
manufacturers of the content and timing of this final rule, EPA will 
permit manufacturers to submit their revisions to the 1992 model year 
end-of-year reports within 15 days after the effective date of this 
rule.

IV. Final Rule Requirements

    As a result of today's action, manufacturers of heavy-duty engines 
participating in the ABT program will be required to use credits 
scheduled to expire in the earliest model year before using credits 
that would expire in later model years, beginning with reports due in 
1993 for the 1992 model year. Furthermore, manufacturers will have an 
additional 90 days beyond the original deadline for submitting 
corrections to their end-of-year reports, totalling to 270 days after 
the end of the year to submit the final reports.

Display of OMB Control Numbers

    EPA is also amending the table of currently approved information 
collection request (ICR) control numbers issued by OMB for various 
regulations. This amendment updates the table to accurately display 
those information requirements contained in this final rule. This 
display of the OMB control number and its subsequent codification in 
the Code of Federal Regulations satisfies the requirements of the 
Paperwork Reduction Act (44 U.S.C. 3501 et seq.) and OMB's implementing 
regulations at 5 CFR 1320.
    The ICR was previously subject to public notice and comment prior 
to OMB approval. As a result, EPA finds that there is ``good cause'' 
under section 553(b)(B) of the Administrative Procedure Act (5 U.S.C. 
553(b)(B)) to amend this table without prior notice and comment. Due to 
the technical nature of the table, further notice and comment would be 
unnecessary. For the same reasons, EPA also finds that there is good 
cause under 5 U.S.C. 553(d)(3).

V. Changes to the Proposed Rule

    No changes were made to the proposed rule.

VI. Environmental Impact

    EPA believes that the ABT program changes implemented today will 
not interfere with the program safeguards which are designed to ensure 
that overall emissions do not increase with the existence of the ABT 
program. These environmental safeguards are: the limit on credit life, 
the restrictions on averaging sets, and the discounting of banked or 
traded credits. This change in credit accounting will result in having 
more credits available for use in MY 1994-1996 than previously 
anticipated under the LIFO credit accounting system.\2\ However, these 
credits represent emission reductions that have in fact occurred, and 
the credits themselves cannot exist longer than their limited credit 
life.
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    \2\For a preliminary estimate of the number of credits affected, 
see ``Industry Aggregate of Credit Availabilities When Comparing the 
Use of LIFO vs. FIFO in MY 1992,'' Memorandum from Paulina Chen to 
the docket for this rulemaking (September 13, 1993).
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    Due to the connection between credit information and confidential 
sales information, EPA regulations on the release of confidential 
business information have restricted the public's opportunity to review 
manufacturers' submissions of credit generation and usage. EPA is 
currently discussing with participating manufacturers the possibility 
of finding and implementing a means of allowing the public to access 
enough information to make general assessments of the effectiveness of 
the program on a regular basis. The Engine Manufacturers Association 
concurs that it is important to provide an ongoing opportunity for the 
public to evaluate the overall progress of the program. EPA and EMA 
expect to finalize an agreement in the near future on the periodic 
release of credit data in a format that would be useful to the public.

VII. Economic Impact

    The changes made today are minor adjustments to the ABT program to 
remove an unintended disincentive that may inhibit manufacturers from 
participating fully in the ABT program. The ABT program is intended to 
provide the flexibility necessary for heavy-duty engine manufacturers 
to use a mix of emission controls in such a way that will minimize the 
cost of meeting the established standards. These changes should help 
manufacturers reduce their costs of compliance with emission standards.

VIII. Administrative Designation and Regulatory Analysis

    Under Executive Order 12866, (58 FR 51735 (October 4, 1993)) the 
Agency must determine whether the regulatory action is ``significant'' 
and therefore subject to OMB review and the requirements of the 
Executive Order. The Order defines ``significant regulatory action'' as 
one that is likely to result in a rule that may: (1) Have an annual 
effect on the economy of $100 million or more or adversely affect in a 
material way the economy, a sector of the economy, productivity, 
competition, jobs, the environment, public health or safety, or State, 
local, or tribal governments or communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    OMB has exempted this regulatory action from Executive Order 12866 
review.

IX. Impact on Small Entities

    The Regulatory Flexibility Act of 1980 requires federal agencies to 
consider potentially adverse impacts of federal regulations upon small 
entities. In instances where significant impacts are possible on a 
substantial number of these entities, agencies are required to perform 
a Regulatory Flexibility Analysis.
    There will not be a significant adverse impact on a substantial 
number of small business entities due to the changes made to the 
Averaging, Banking, and Trading program, because the heavy-duty engine 
manufacturers affected by these regulations are not small business 
entities.
    Therefore, as required under section 605 of the Regulatory 
Flexibility Act, 5 U.S.C. 601 et seq., I certify that this regulation 
does not have a significant adverse impact on a substantial number of 
small entities.

X. Reporting and Recordkeeping Requirements

    The information collection requirements make no changes to those 
currently approved by the Office of Management and Budget (OMB) under 
the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. and have been 
assigned control number 2060-0104.

XI. Statutory Authority

    Authority for actions promulgated in this final rule are granted to 
EPA by sections 202, 206(a)(1), 207, 208, and 301 of the Clean Air Act 
as amended.

XII. Judicial Review

    Under section 307(b) of the Clean Air Act, EPA hereby finds that 
these regulations are of national applicability. Accordingly, judicial 
review of this action is available only by filing a petition for review 
in the United States Court of Appeals for the District of Columbia 
Circuit within 60 days of publication. Under section 307(b)(2) of the 
Act, the requirements which are the subject of today's notice may not 
be challenged later in judicial proceedings brought by EPA to enforce 
these requirements.

List of Subjects in 40 CFR Part 86

    Administrative practice and procedure, Air pollution control, Motor 
vehicle pollution, Reporting and recordkeeping requirements.

    Dated: March 17, 1994.
Carol M. Browner,
Administrator.

                      Appendix.--Table of Changes                       
------------------------------------------------------------------------
       Section                Change                    Reason          
------------------------------------------------------------------------
1a. Part 9 Authority.  None.................  ..........................
1b. Section 9.1......  Addition of new        Incorporate OMB control   
                        entries to table.      numbers.                 
2. Part 86 Authority.  None.................  ..........................
3. Sec. 86.092-15....  Addition of new        Change credit accounting  
                        section Sec. 86.092-   method and period for    
                        15.                    correcting end-of-year   
                                               reports.                 
4. Sec. 86.092-23....  Addition of new        Change period for         
                        section Sec. 86.092-   correcting end-of-year   
                        23.                    reports.                 
5. Sec. 86.094-15....  Amend paragraphs       Change credit accounting  
                        (a)(2)(iii) and        method and period for    
                        (b)(6)(ii).            correcting end-of-year   
                                               reports.                 
6. Sec. 86.094-23....  Amend paragraph        Change period for         
                        (h)(3)(iv).            correcting end-of-year   
                                               reports.                 
7. Sec. 86.095-23....  Amend paragraph        Change period for         
                        (h)(3)(iv).            correcting end-of-year   
                                               reports                  
8. Sec. 86.096-23....  Amend paragraph        Change period for         
                        (h)(3)(iv).            correcting end-of-year   
                                               reports.                 
9. Sec. 86.098-23....  Amend paragraph        Change period for         
                        (h)(3)(iv).            correcting end-of-year   
                                               reports.                 
------------------------------------------------------------------------

    For the reasons set out in the preamble, title 40, chapter I of the 
Code of Federal Regulations is amended as follows:
    1. In Part 9:
    a. The authority citation for part 9 continues to read as follows:

    Authority: 7 U.S.C. 135 et seq., 136-136y; 15 U.S.C. 2001, 2003, 
2005, 2006, 2601-2671; 21 U.S.C. 331j, 346a, 348; 31 U.S.C. 9701; 33 
U.S.C. 1251 et seq., 1311, 1313d, 1314, 1321, 1326, 1330, 1344, 1345 
(d) and (e), 1361; E.O. 11735, 38 FR 21243, 3 CFR, 1971-1975 Comp. 
p. 973; 42 U.S.C. 241, 242b, 243, 246, 300f, 300g, 300g-1, 300g-2, 
300g-3, 300g-4, 300g-5, 300g-6, 300j-1, 300j-2, 300j-3, 300j-4, 
300j-9, 1857 et seq., 6901-6992k, 7401-7671q, 7542, 9601-9657, 
11023, 11048.

    b. Section 9.1 is amended by adding the new entries under the 
indicated heading to the table to read as follows:


Sec. 9.1  OMB approvals under the Paperwork Reduction Act.

* * * * *

------------------------------------------------------------------------
                                                             OMB control
                      40 CFR citation                            No.    
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                                  *****                                 
PART 86--CONTROL OF AIR POLLUTION FROM NEW AND IN-USE MOTOR VEHICLES AND
NEW AND IN-USE MOTOR VEHICLE ENGINES: CERTIFICATION AND TEST PROCEDURES 
                                                                        
                                  *****                                 
86.092-15..................................................    2060-0104
                                                                        
                                  *****                                 
86.092-23..................................................    2060-0104
                                                                        
                                  *****                                 
------------------------------------------------------------------------

PART 86--CONTROL OF AIR POLLUTION FROM NEW AND IN-USE MOTOR 
VEHICLES AND NEW AND IN-USE MOTOR VEHICLE ENGINES: CERTIFICATION 
AND TEST PROCEDURES

    2. The authority citation for part 86 continues to read as follows:

    Authority: Secs. 202, 203, 205, 206, 207, 208, 215, 216, 301(a), 
Clean Air Act as amended (42 U.S.C. 7521, 7522, 7524, 7525, 7541, 
7542, 7549, 7550, and 7601(a)).

Subpart A--[Amended]

    3. A new Sec. 86.092-15 is added to Subpart A to read as follows:


Sec. 86.092-15  NOX and particulate averaging, trading, and 
banking for heavy-duty engines.

    (a)(1) Heavy-duty engines eligible for the NOX and particulate 
averaging, trading, and banking programs are described in the 
applicable emission standards sections in this subpart. Participation 
in these programs is voluntary.
    (2)(i) Engine families with FELs exceeding the applicable standard 
shall obtain emission credits in a mass amount sufficient to address 
the shortfall. Credits may be obtained from averaging, trading, or 
banking, within the averaging set restrictions described in this 
section.
    (ii) Engine families with FELs below the applicable standard will 
have emission credits available to average, trade, bank or a 
combination thereof. Credits may not be used to offset emissions that 
exceed an FEL. Credits may not be used to remedy an in-use 
nonconformity determined by a Selective Enforcement Audit or by recall 
testing. However, credits may be used to allow subsequent production of 
engines for the family in question if the manufacturer elects to 
recertify to a higher FEL.
    (iii) Credits scheduled to expire in the earliest model year shall 
be used, prior to using other available credits, to offset emissions of 
engine families with FELS exceeding the applicable standard.
    (b) Participation in the NOX and/or particulate averaging, 
trading, and banking programs shall be done as follows.
    (1) During certification, the manufacturer shall:
    (i) Declare its intent to include specific engine families in the 
averaging, trading and/or banking programs. Separate declarations are 
required for each program and for each pollutant (i.e., NOX and 
particulate).
    (ii) Declare an FEL for each engine family participating in one or 
more of these three programs.
    (A) The FEL must be to the same level of significant digits as the 
emission standard (one-tenth of a gram per brake horsepower for 
NOX emissions and one-hundredth of a gram per brake horsepower-
hour for particulate emissions).
    (B) In no case may the FEL exceed the upper limit prescribed in the 
section concerning the applicable heavy-duty engine NOX and 
particulate emission standards.
    (iii) Calculate the projected emission credits (+/) based on 
quarterly production projections for each participating family and for 
each pollutant (NOX and particulate), using the equation in 
paragraph (c) of this section and the applicable factors for the 
specific engine family.
    (iv)(A) Determine and state the source of the needed credits 
according to quarterly projected production for engine families 
requiring credits for certification.
    (B) State where the quarterly projected credits will be applied for 
engine families generating credits.
    (C) Credits may be obtained from or applied to only engine families 
within the same averaging set as described in paragraphs (d) and (e) of 
this section. Credits available for averaging, trading, or banking as 
defined in Sec. 86.090-2, may be applied to a given engine famil(y) 
(ies), or reserved as defined in Sec. 86.091-2.
    (2) Based on this information each manufacturer's certification 
application must demonstrate:
    (i) That at the end of model year production, each engine family 
has a net emissions credit balance of zero or more using the 
methodology in paragraph (c) of this section with any credits obtained 
from averaging, trading or banking.
    (ii) The source of the credits to be used to comply with the 
emission standard if the FEL exceeds the standard, or where credits 
will be applied if the FEL is less than the emission standard. In cases 
where credits are being obtained, each engine family involved must 
state specifically the source (manufacturer/engine family) of the 
credits being used. In cases where credits are being generated/
supplied, each engine family involved must state specifically the 
designated use (manufacturer/engine family or reserved) of the credits 
involved. All such reports shall include all credits involved in 
averaging, trading or banking.
    (3) During the model year manufacturers must:
    (i) Monitor projected versus actual production to be certain that 
compliance with the emission standards is achieved at the end of the 
model year.
    (ii) Provide the end of-model year reports required under 
Sec. 86.091-23.
    (iii) Maintain the quarterly records required under Sec. 86.091-
7(c)(8).
    (4) Projected credits based on information supplied in the 
certification application may be used to obtain a certificate of 
conformity. However, any such credits may be revoked based on review of 
end-of-model year reports, follow-up audits, and any other verification 
steps deemed appropriate by the Administrator.
    (5) Compliance under averaging, banking, and trading will be 
determined at the end of the model year. Engine families without an 
adequate amount of actual NOX and/or particulate emission credits 
will violate the conditions of the certificate of conformity. The 
certificates of conformity may be voided ab initio for those engine 
families.
    (6) If EPA or the manufacturer determines that a reporting error 
occurred on an end-of-year report previously submitted to EPA under 
this section, the manufacturer's credits and credit calculations will 
be recalculated. Erroneous positive credits will be void. Erroneous 
negative credit balances may be adjusted by EPA.
    (i) If EPA review of a manufacturer's end-of-year report indicates 
an inadvertent credit shortfall, the manufacturer will be permitted to 
purchase the necessary credits to bring the credit balance for that 
engine family to zero, at the ratio of 1.2 credits purchased for every 
credit needed to bring the balance to zero. If sufficient credits are 
not available to bring the credit balance for the engine family in 
question to zero, EPA may void the certificate for that engine family 
ab initio.
    (ii) If within 180 days of receipt of the manufacturer's end-of-
year report, EPA review determines a reporting error in the 
manufacturer's favor (i.e., resulting in a positive credit balance) or 
if the manufacturer discovers such an error within 180 days of EPA 
receipt of the end-of-year report, the credits will be restored for use 
by the manufacturer. For the 1992 model year, corrections to the end-
of-year reports may be submitted until May 9, 1994.
    (c)(1) For each participating engine family, NOX and 
particulate emission credits (positive or negative) are to be 
calculated according to one of the following equations and rounded, in 
accordance with ASTM E29-67, to the nearest one-tenth of a Megagram 
(Mg). Consistent units are to be used throughout the equation.
    For determining credit need for all engine families and credit 
availability for engine families generating credits for averaging 
programs only:

Emission credits=(StdFEL) x (CF) x (UL) x (Production) x (106)

    For determining credit availability for engine families generating 
credits for trading or banking programs:

Emission credits=(StdFEL) x (CF) x (UL) x (Production) x (106) x (0.8)

Where:
    Std=the current and applicable heavy-duty engine NOX or 
particulate emission standard in grams per brake horsepower hour or 
grams per Megajoule.
    FEL=the NOX or particulate family emission limit for the 
engine family in grams per brake horsepower-hour or grams per 
Megajoule.
    CF=a transient cycle conversion factor in BHP-hr/mi or MJ/mi, as 
given in paragraph (c)(2) of this section.
    UL=the useful life, or alternative life as described in paragraph 
(f) of Sec. 86.090-21, for the given engine family in miles.
    Production=the number of engines produced for U.S. sales within the 
given engine family during the model year. Quarterly production 
projections are used for initial certification. Actual production is 
used for end-of-year compliance determination.
    0.8=a one-time discount applied to all credits to be banked or 
traded within the model year generated. Banked credits traded in a 
subsequent model year will not be subject to an additional discount. 
Banked credits used in a subsequent model year's averaging program will 
not have the discount restored.

    (2) The transient cycle conversion factor is the total (integrated) 
cycle brake horsepower-hour or Megajoules, divided by the equivalent 
mileage of the applicable transient cycle. For Otto-cycle heavy-duty 
engines, the equivalent mileage is 6.3 miles. For diesel heavy-duty 
engines, the equivalent mileage is 6.5 miles. When more than one 
configuration is chosen by EPA to be tested in the certification of an 
engine family (as described in Sec. 86.085-24), the conversion factor 
used is to be based upon the configuration generating the highest 
conversion factor when determining credit need and the lowest 
conversion factor when determining credit availability for banking, 
trading or averaging.
    (d) Averaging sets for NOX emission credits: The averaging and 
trading of NOX emission credits will only be allowed between 
heavy-duty engine families in the same averaging set and in the same 
regional category. Engines produced for sale in California constitute a 
separate regional category than engines produced for sale in the other 
49 states. Banking and trading are not applicable to engines sold in 
California. The averaging sets for the averaging and trading of 
NOX emission credits for heavy-duty engines are defined as 
follows:
    (1) For Otto-cycle heavy-duty engines:
    (i) Otto-cycle heavy-duty engines constitute an averaging set. 
Averaging and trading among all Otto-cycle heavy-duty engine families 
is allowed. There are no subclass restrictions.
    (ii) Gasoline-fueled heavy-duty vehicles certified under the 
provisions of Sec. 86.085-1(b) may not average or trade credits with 
gasoline-fueled heavy-duty Otto-cycle engines, but may average or trade 
credits with light-duty trucks.
    (2) For diesel cycle heavy-duty engines:
    (i) Each of the three primary intended service classes for heavy-
duty diesel engines, as defined in Sec. 86.090-2, constitute an 
averaging set. Averaging and trading among all diesel cycle engine 
families within the same primary service class is allowed.
    (ii) Urban buses are treated as members of the primary intended 
service class where they would otherwise fall.
    (e) Averaging sets for particulate emission credits. The averaging 
and trading of particulate emission credits will only be allowed 
between diesel cycle heavy-duty engine families in the same averaging 
set and in the same regional category. Engines produced for sale in 
California constitute a separate regional category than engines 
produced for sale in the other 49 states. Banking and trading are not 
applicable to engines sold in California. The averaging sets for the 
averaging and trading of particulate emission credits for diesel cycle 
heavy-duty engines are defined as follows:
    (1) Engines intended for use in urban buses constitute a separate 
averaging set from all other heavy-duty engines. Averaging and trading 
among all diesel cycle bus engine families is allowed.
    (2) For heavy-duty engines, exclusive of urban bus engines, each of 
the three primary intended service classes for heavy-duty diesel cycle 
engines, as defined in Sec. 86.090-2, constitute an averaging set. 
Averaging and trading between diesel cycle engine families within the 
same primary service class is allowed.
    (3) Otto-cycle engines may not participate in particulate 
averaging, trading, or banking.
    (f) Banking of NOX and particulate emission credits:
    (1) Credit deposits. (i) Under this phase of the banking program, 
emission credits may be banked from engine families produced during the 
three model years prior to the effective model year of the new HDE 
NOX or particulate emission standard. Credits may not be banked 
from engine families made during any other model years.
    (ii) Manufacturers may bank credits only after the end of the model 
year and after EPA has reviewed their end-of-year report. During the 
model year and before submittal of the end-of-year report, credits 
originally designated in the certification process for banking will be 
considered reserved and may be redesignated for trading or averaging.
    (2) Credit withdrawals. (i) After being generated, banked/reserved 
credits shall be available for use three model years prior to, through 
three model years immediately after the effective date of the new HDE 
NOX or particulate emission standard, as applicable. However, 
credits not used within the period specified above shall be forfeited.
    (ii) Manufacturers withdrawing banked emission credits shall 
indicate so during certification and in their credit reports, as 
described in Sec. 86.091-23.
    (3) Use of banked emission credits. The use of banked credits shall 
be within the averaging set and other restrictions described in 
paragraphs (d) and (e) of this section, and only for the following 
purposes:
    (i) Banked credits may be used in averaging, trading, or in any 
combination thereof, during the certification period. Credits declared 
for banking from the previous model year but unreviewed by EPA may also 
be used. However, they may be revoked at a later time following EPA 
review of the end-of-year report or any subsequent audit actions.
    (ii) Banked credits may not be used for NOX or particulate 
averaging and trading to offset emissions that exceed an FEL. Banked 
credits may not be used to remedy an in-use nonconformity determined by 
a Selective Enforcement Audit or by recall testing. However, banked 
credits may be used for subsequent production of the engine family if 
the manufacturer elects to recertify to a higher FEL.
    (g) (1) For purposes of this paragraph (g), assume NOX and 
particulate nonconformance penalties (NCPs) will be available for the 
1991 and later model year HDEs.
    (2) Engine families paying an NCP for noncompliance of any emission 
standard may not:
    (i) Participate in the averaging program,
    (ii) Generate emission credits for any pollutant under banking and 
trading, and
    (iii) Use emission credits for any pollutant from banking and 
trading.
    (3) If a manufacturer has any engine family to which application of 
NCPs and averaging, banking, and trading credits is desired, that 
family must be separated into two distinct families. One family, whose 
FEL equals the standard, must use NCPs only, while the other, whose FEL 
does not equal the standard, must use emission credits only.
    (4) If a manufacturer has any engine family in a given averaging 
set which is using NOX and/or particulate NCPs, none of that 
manufacturer's engine families in that averaging set may generate 
credits for banking and trading.
    (h) In the event of a negative credit balance in a trading 
situation, both the buyer and the seller would be liable.
    (i) Certification fuel used for credit generation must be of a type 
that is both available in use and expected to be used by the engine 
purchaser. Therefore, upon request by the Administrator, the engine 
manufacturer must provide information acceptable to the Administrator 
that the designated fuel is readily available commercially and would be 
used in customer service.
    4. Section 86.092-23 is added to subpart A to read as follows:


Sec. 86.092-23  Required data.

    (a) The manufacturer shall perform the tests required by the 
applicable test procedures, and submit to the Administrator the 
following information: Provided, however, That if requested by the 
manufacturer, the Administrator may waive any requirement of this 
section for testing of vehicle (or engine) for which emission data are 
available or will be made available under the provisions of 
Sec. 86.091-29.
    (b)(1)(i) Exhaust emission durability data on such light-duty 
vehicles tested in accordance with applicable test procedures and in 
such numbers as specified, which will show the performance of the 
systems installed on or incorporated in the vehicle for extended 
mileage, as well as a record of all pertinent maintenance performed on 
the test vehicles.
    (ii) Exhaust emission deterioration factors for light-duty trucks 
and heavy-duty engines, and all test data that are derived from the 
testing described under Sec. 86.091-21(b)(4)(iii)(A), as well as a 
record of all pertinent maintenance. Such testing shall be designed and 
conducted in accordance with good engineering practice to assure that 
the engines covered by a certificate issued under Sec. 86.091-30 will 
meet the emission standards (or family emission limits, as appropriate) 
in Sec. 86.091-9, Sec. 86.091-10, or Sec. 86.091-11 as appropriate, in 
actual use for the useful life of the engine.
    (2) For light-duty vehicles and light-duty trucks, evaporative 
emission deterioration factors for each evaporative emission family-
evaporative emission control system combination and all test data that 
are derived from testing described under Sec. 86.091-21(b)(4)(i) 
designed and conducted in accordance with good engineering practice to 
assure that the vehicles covered by a certificate issued under 
Sec. 86.091-30 will meet the evaporative emission standards in 
Sec. 86.091-8 or Sec. 86.091-9, as appropriate, for the useful life of 
the vehicle.
    (3) For heavy-duty vehicles equipped with gasoline-fueled or 
methanol-fueled engines, evaporative emission deterioration factors for 
each evaporative emission family-evaporative emission control system 
combination identified in accordance with Sec. 86.091-21(b)(4)(ii). 
Furthermore, a statement that the test procedure(s) used to derive the 
deterioration factors includes, but need not be limited to, a 
consideration of the ambient effects of ozone and temperature 
fluctuations, and the service accumulation effects of vibration, time, 
and vapor saturation and purge cycling. The deterioration factor test 
procedure shall be designed and conducted in accordance with good 
engineering practice to assure that the vehicles covered by a 
certificate issued under Sec. 86.091-30 will meet the evaporative 
emission standards in Sec. 86.091-10 and Sec. 86.091-11 in actual use 
for the useful life of the engine. Furthermore, a statement that a 
description of the test procedure, as well as all data, analyses and 
evaluations, is available to the Administrator upon request.
    (4) (i) For heavy-duty vehicles with a Gross Vehicle Weight Rating 
of up to 26,000 lbs and equipped with gasoline-fueled or methanol-
fueled engines, a written statement to the Administrator certifying 
that the manufacturer's vehicles meet the standards of Sec. 86.091-10 
or Sec. 86.091-11 (as applicable) as determined by the provisions of 
Sec. 86.091-28. Furthermore, a written statement to the Administrator 
that all data, analyses, test procedures, evaluations, and other 
documents, on which the above statement is based, are available to the 
Administrator upon request.
    (ii) For heavy-duty vehicles with a Gross Vehicle Weight Rating of 
greater than 26,000 lbs and equipped with gasoline-fueled or methanol-
fueled engines, a written statement to the Administrator certifying 
that the manufacturer's evaporative emission control systems are 
designed, using good engineering practice, to meet the standards of 
Sec. 86.091-10 or Sec. 86.091-11 (as applicable) as determined by the 
provisions of Sec. 86.091-28. Furthermore, a written statement to the 
Administrator that all data, analyses, test procedures, evaluations, 
and other documents, on which the above statement is based, are 
available to the Administrator upon request.
    (c) Emission data. (1) Emission data, including in the case of 
methanol fuel, methanol, formaldehyde and organic material hydrocarbon 
equivalent on such vehicles tested in accordance with applicable test 
procedures and in such numbers as specified. These data shall include 
zero-mile data, if generated and emission data generated for 
certification as required under Sec. 86.090-26(a)(3)(i) or Sec. 86.090-
26(a)(3)(ii). In lieu of providing emission data on idle CO emissions, 
smoke emissions or particulate emissions from methanol-fueled diesel 
certification vehicles the Administrator may, on request of the 
manufacturer, allow the manufacturer to demonstrate (on the basis of 
previous emission tests, development tests, or other information) that 
the engine will conform with the applicable emission standards of 
Sec. 86.090-8 or Sec. 86.090-9.
    (2) Certification engines. Emission data on such engines tested in 
accordance with applicable emission test procedures of this subpart and 
in such numbers as specified. These data shall include zero-hour data, 
if generated, and emission data generated for certification as required 
under Sec. 86.090-26(c)(4). In lieu of providing emission data on idle 
CO emissions or particulate emissions from methanol-fueled diesel 
certification engines, or on CO emissions from petroleum-fueled or 
methanol-fueled diesel certification engines the Administrator may, on 
request of the manufacturer, allow the manufacturer to demonstrate (on 
the basis of previous emission tests, development tests, or other 
information) that the engine will conform with the applicable emission 
standards of Sec. 86.091-11.
    (d) A statement that the vehicles (or engines) for which 
certification is requested conform to the requirements in Sec. 86.084-
5(b), and that the descriptions of tests performed to ascertain 
compliance with the general standards in Sec. 86.084-5(b), and the data 
derived from such tests, are available to the Administrator upon 
request.
    (e) (1) A statement that the test vehicles (or test engines) with 
respect to which data are submitted to demonstrate compliance with the 
applicable standards (or family emission limits, as appropriate) of 
this subpart are in all material respects as described in the 
manufacturer's application for certification, have been tested in 
accordance with the applicable test procedures utilizing the fuels and 
equipment described in the application for certification and that on 
the basis of such tests the vehicles (or engines) conform to the 
requirements of this part. If such statements cannot be made with 
respect to any vehicle (or engine) tested, the vehicle (or engine) 
shall be identified, and all pertinent data relating thereto shall be 
supplied to the Administrator. If, on the basis of the data supplied 
and any additional data as required by the Administrator, the 
Administrator determines that the test vehicles (or test engine) was 
not as described in the application for certification or was not tested 
in accordance with the applicable test procedures utilizing the fuels 
and equipment as described in the application for certification, the 
Administrator may make the determination that the vehicle (or engine) 
does not meet the applicable standards (or family emission limits, as 
appropriate). The provisions of Sec. 86.091-30(b) shall then be 
followed.
    (2) For evaporative emission durability, or light-duty truck or 
heavy-duty engine exhaust emission durability, a statement of 
compliance with paragraph (b)(1)(ii), (b)(2), or (b)(3) of this 
section, as applicable.
    (f) Additionally, manufacturers participating in the particulate 
averaging program for diesel light-duty vehicles and diesel light-duty 
trucks shall submit:
    (1) In the application for certification, a statement that the 
vehicles for which certification is requested will not, to the best of 
the manufacturer's belief, when included in the manufacturer's 
production-weighted average emission level, cause the applicable 
particulate standard(s) to be exceeded.
    (2) No longer than 90 days after the end of a given model year of 
production of engine families included in one of the diesel particulate 
averaging programs, the number of vehicles produced in each engine 
family at each certified particulate FEL, along with the resulting 
production-weighted average particulate emission level.
    (g) Additionally, manufacturers participating in the NOX 
averaging program for light-duty trucks shall submit:
    (1) In the application for certification, a statement that the 
vehicles for which certification is required will not, to the best of 
the manufacturer's belief, when included in the manufacturer's 
production-weighted average emission level, cause the applicable 
NOX standard(s) to be exceeded.
    (2) No longer than 90 days after the end of a given model year of 
production of engine families included in the NOX averaging 
program, the number of vehicles produced in each engine family at each 
certified NOX emission level.
    (h) Additionally, manufacturers participating in any of the 
NOX and/or particulate averaging, trading, or banking programs for 
heavy-duty engines shall submit for each participating family:
    (1) In the application for certification:
    (i) A statement that the engines for which certification is 
requested will not, to the best of the manufacturer's belief, when 
included in any of the averaging, trading, or banking programs cause 
the applicable NOX or particulate standard(s) to be exceeded.
    (ii) The type (NOX or particulate) and the projected number of 
credits generated/needed for this family, the applicable averaging set, 
the projected U.S. (49-state) production volumes, by quarter, NCPs in 
use on a similar family and the values required to calculate credits as 
given in Sec. 86.091-15. Manufacturers shall also submit how and where 
credit surpluses are to be dispersed and how and through what means 
credit deficits are to be met, as explained in Sec. 86.091-15. The 
application must project that each engine family will be in compliance 
with the applicable NOX and/or particulate emission standards 
based on the engine mass emissions, and credits from averaging, trading 
and banking.
    (2) End-of-year reports for each engine family participating in any 
of the averaging, trading, or banking programs.
    (i) These reports shall be submitted within 90 days of the end of 
the model year to: Director, Manufacturers Operations Division (EN-
6405J), U.S. Environmental Protection Agency, 401 M Street SW., 
Washington, DC 20460.
    (ii) These reports shall indicate the engine family, the averaging 
set, the actual U.S. (49-state) production volume, the values required 
to calculate credits as given in Sec. 86.091-15, the resulting type 
(NOX or particulate) and number of credits generated/required, and 
the NCPs in use on a similar NCP family. Manufacturers shall also 
submit how and where credit surpluses were dispersed (or are to be 
banked) and how and through what means credit deficits were met. Copies 
of contracts related to credit trading must also be included or 
supplied by the broker if applicable. The report shall also include a 
calculation of credit balances to show that net mass emissions balances 
are within those allowed by the emission standards (equal to or greater 
than a zero credit balance). The credit discount factor described in 
Sec. 86.091-15 must be included as required.
    (iii) The 49-state production counts for end-of-year reports shall 
be based on the location of the first point of retail sale (e.g., 
customer, dealer, secondary manufacturer) by the manufacturer.
    (iv) Errors discovered by EPA or the manufacturer in the end-of-
year report, including changes in the 49 state production counts, may 
be corrected up to 180 days subsequent to submission of the end-of-year 
report. Errors discovered by EPA after 180 days shall be corrected if 
credits are reduced. Errors in the manufacturer's favor will not be 
corrected if discovered after the 180 day correction period allowed.
    (i) Failure by a manufacturer participating in the averaging, 
trading, or banking programs to submit any quarterly or end-of-year 
report (as applicable) in the specified time for all vehicles and 
engines that are part of an averaging set is a violation of section 
203(a)(1) of the Clean Air Act for each such vehicle and engine.
    (j) Failure by a manufacturer generating credits for deposit only 
in either the HDE NOX or particulate banking programs to submit 
their end-of-year reports in the applicable specified time period 
(i.e., 90 days after the end of the model year) shall result in the 
credits not being available for use until such reports are received and 
reviewed by EPA. Use of projected credits pending EPA review will not 
be permitted in these circumstances.
    (k) Engine families certified using NCPs are not required to meet 
the requirements outlined above.
    5. Section 86.094-15 of subpart A is amended by revising paragraphs 
(a)(2)(iii) and (b)(6)(ii) to read as follows:


Sec. 86.094-15  NOX and particulate averaging, trading, and 
banking for heavy-duty engines.

    (a) * * *
    (2) * * *
    (iii) Credits scheduled to expire in the earliest model year shall 
be used, prior to using other available credits, to offset emissions of 
engine families with FELs exceeding the applicable standard.
* * * * *
    (b) * * *
    (6) * * *
    (ii) If within 180 days of receipt of the manufacturer's end-of-
year report, EPA review determines a reporting error in the 
manufacturer's favor (i.e. resulting in a positive credit balance) or 
if the manufacturer discovers such an error within 180 days of EPA 
receipt of the end-of-year report, the credits will be restored for use 
by the manufacturer.
* * * * *
    6. Section 86.094-23 of subpart A is amended by revising paragraph 
(h)(3)(iv) to read as follows:


Sec. 86.094-23  Required data.

* * * * *
    (h) * * *
    (3) * * *
    (iv) Errors discovered by EPA or the manufacturer in the end-of-
year report, including changes in the 49 state production counts, may 
be corrected up to 180 days subsequent to submission of the end-of-year 
report. Errors discovered by EPA after 180 days shall be corrected if 
credits are reduced. Errors in the manufacturer's favor will not be 
corrected if discovered after the 180 day correction period allowed.
* * * * *
    7. Section 86.095-23 of subpart A is amended by revising paragraph 
'(h)(3)(iv) to read as follows:


Sec. 86.095-23  Required data.

* * * * *
    (h) * * *
    (3) * * *
    (iv) Errors discovered by EPA or the manufacturer in the end-of-
year report, including changes in the 49 state production counts, may 
be corrected up to 180 days subsequent to submission of the end-of-year 
report. Errors discovered by EPA after 180 days shall be corrected if 
credits are reduced. Errors in the manufacturer's favor will not be 
corrected if discovered after the 180 day correction period allowed.
* * * * *
[FR Doc. 94-6951 Filed 3-24-94; 8:45 am]
BILLING CODE 6560-50-P
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 52

[IL 12-26-5785; FRL-4854-5]

Approval and Promulgation of Implementation Plan; Illinois

AGENCY: Environmental Protection Agency.

ACTION: Final rule.

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SUMMARY: On July 17, 1992, the United States Environmental Protection 
Agency (US EPA) proposed to promulgate Volatile Organic Compound (VOC) 
emission limits for coating operations at the General Motors (GM) 
Electro-Motive Division (EMD) facility in LaGrange (Cook County, 
Illinois), as representing Reasonably Available Control Technology 
(RACT) for EMD's ``topcoat'' and ``final repair coating'' operations. 
At that time, the USEPA also proposed a compliance date of one year 
from the date of final promulgation. In this rule USEPA is promulgating 
the emission limits and compliance date.

EFFECTIVE DATE: This rule is effective April 25, 1994.

ADDRESSES: The docket for this action (Docket No. 5-AR-91-2), which 
contains the public comments, is located for public inspection and 
copying at the following address. We recommend that you contact 
Randolph O. Cano before visiting the Chicago location and Jacqueline 
Brown before visiting the Washington, DC location. A reasonable fee may 
be charged for copying.
    U.S. Environmental Protection Agency, Region 5, Regulation 
Development Branch, Eighteenth Floor, Southeast, 77 West Jackson 
Street, Chicago, Illinois 60604, (312) 886-6036.
    U.S. Environmental Protection Agency, Docket No. 5-AR-91-2, Air 
Docket (LE-131), room M1500, Waterside Mall, 401 M Street, SW, 
Washington, DC 20460, (202) 245-3639.

FOR FURTHER INFORMATION CONTACT: Steve Rosenthal, Regulation 
Development Branch, U.S. Environmental Protection Agency, Region 5, 
(312) 886-6052, at the Chicago address indicated above.

SUPPLEMENTARY INFORMATION:

Background

    On June 29, 1990, the USEPA promulgated Federal stationary source 
VOC control measures representing RACT for emission sources located in 
six northeastern Illinois (Chicago area) counties: Cook, DuPage, Kane, 
Lake, McHenry and Will. 55 FR 26814. The USEPA also took final 
rulemaking action on certain VOC rules previously adopted and submitted 
by the State of Illinois for inclusion in its State Implementation Plan 
(SIP).
    Among the State rules that the USEPA disapproved was title 35 of 
the Illinois Administrative Code (35 IAC) subpart F, Sec. 215.204(m), 
which established VOC limits for ``Existing Diesel-Electric Locomotive 
Coating Lines in Cook County.'' The USEPA based this disapproval on its 
determination that the emission limits prescribed by the State did not 
represent RACT for EMD's locomotive coating operations. In lieu of this 
State rule, the USEPA promulgated more stringent emission limits for 
diesel-electric locomotive coating operations, codified at 40 CFR 
52.741(e)(1)(i)(M). The only source affected by this rule is GM's EMD 
facility in LaGrange, Illinois.
    In response to the USEPA's actions, pursuant to section 307(d)(7) 
of the Clean Air Act (ACT), GM filed a petition for administrative 
reconsideration with the USEPA Regional Administrator for Region 
5.1 GM requested that the USEPA reconsider its decision to subject 
GM to a VOC limit of 3.5 pounds per gallon (lb/gal.) for its topcoat 
and final repair coating operations.2
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    \1\GM also filed a petition for review of the Agency's June 29, 
1990, action in the United States Court of Appeals for the Seventh 
Circuit. General Motors Corporation v. EPA, No. 90-2889. That action 
has been held in abeyance by the Court, pending USEPA action on GM's 
petition for reconsideration.
    \2\ In its petition for reconsideration, GM also requested that 
the USEPA reconsider the rules applicable to EMD's silicone rubber 
priming and electrical insulating varnish operations. These two 
issues are not being addressed in this rulemaking action.
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    On January 4, 1991 (56 FR 480), and May 31, 1991 (56 FR 24722), the 
USEPA announced a stay of the emission limitations and compliance date 
for EMD's topcoat and final repair coating operations until the USEPA 
completed its reconsideration. The USEPA also stated in those rules 
that the stay was to remain in effect until withdrawn by a subsequent 
rule, but only if and as necessary to complete reconsideration. The 
USEPA further indicated that, upon taking final rulemaking, it would 
publish a rule in the Federal Register notifying the public of the 
withdrawal of the stay.
    The USEPA also stated in the May 31, 1991, notice that if the 
reconsideration resulted in emissions limitations and standards that 
were stricter than the applicable (on May 31, 1991) Illinois rules, the 
USEPA would propose a compliance period of one year from the date of 
final action on the reconsideration.
    On July 17, 1992, (57 FR 31678), the USEPA proposed VOC RACT limits 
for EMD topcoat and repair coating operations of 3.5 lb/gal. The 
USEPA's analysis was based in large part on the fact that this limit 
was consistent with both the Control Technique Guidelines (CTG) for 
miscellaneous metal parts and products; and that coatings meeting this 
limit were being used successfully at the General Electric Company's 
(GE) Erie, Pennsylvania locomotive coating operations. For more 
information about the background and substance of these proposed 
limits, please see the July 17, 1992, proposed rule.
    Because the 3.5 lbs./gal. limit is more stringent than the Illinois 
rule in effect on May 31, 1991, the USEPA also proposed on July 17 to 
provide a compliance date of one year from the date of final action on 
reconsideration. This one-year compliance period was the general 
compliance period provided in the June 29, 1990, Federal RACT rules. 
Finally, the USEPA proposed to withdraw the stay pending 
reconsideration.
    In the July 17 notice, the USEPA established an August 17, 1992 
deadline for public comment. At the request of GM, USEPA extended the 
comment period to September 16, 1992, (57 FR 42536).

Comments by General Motors

    On September 15, 1992, GM submitted comments to the USEPA on the 
proposal. In its comments, GM objected to the USEPA's reliance on the 
information concerning the GE facility as ``data which is to a critical 
degree secret and completely beyond scrutiny or verification.'' GM 
further stated that this information was the USEPA's sole basis for its 
proposal. GM added, however, that if the USEPA decides to promulgate 
the 3.5 lb/gallon limits, then it should adopt the proposed compliance 
date of one year from promulgation date. GM stated that this was the 
``minimum period which can reasonably be provided for compliance.'' In 
response to these comments, the USEPA maintains that its reliance on 
the GE data is entirely appropriate. The data relied upon by the USEPA, 
and available in the August 1991 RACT analysis for this rule (which is 
included in the rulemaking docket), include ``Specification and 
Properties'' sheets that indicate coating type and use, and the maximum 
applied VOC content at the GE facilities (3.5 lb/gal. for all primers, 
topcoats and final repair coats). Information in the RACT analysis also 
shows that those coatings are required to pass GE's tests for adhesion, 
gloss, color and other critical properties. While the suppliers of the 
complying coatings used by GE are not identified (because of claims of 
business confidentiality asserted by GE), the availability of these 
coatings is clearly established.
    Although the GE data is compelling, the USEPA also rejects GM's 
claim that this was the USEPA's sole basis of its proposal. The July 
17, 1992 rulemaking notice also cites the following factors as support: 
(1) The CTG for miscellaneous metal parts specifies a VOC limit of 3.5 
lb/gal. as a presumptive RACT level, (2) the
USEPA Region III issued a SIP deficiency letter to Pennsylvania finding 
that its 4.3 lb/gal. limit for locomotive coatings was deficient, and 
needed to be changed to 3.5 lb/gal., (3) Pennsylvania has lowered its 
locomotive and heavy-duty truck topcoat limit to 3.5 lb/gal. based on a 
finding that such coatings are available to the industries involved; 
and (4) GM did not adequately support its technical arguments.

Final Rulemaking Action

    The USEPA has reviewed GM's comments, as well as the information 
identified in the July 17, 1992 proposed rule, and determined that the 
proposed emission limits of 3.5 lb/gal. for EMD's topcoat and final 
repair coating operations constitute RACT. As stated in the USEPA's 
proposed rule, compliance with these limits is required no later than 
one year from the date of today's promulgation. Also as proposed, the 
USEPA is withdrawing the May 31, 1991, stay pending reconsideration.
    Under the Regulatory Flexibility Act, 5 U.S.C. 600 et seq., the 
USEPA must prepare a regulatory flexibility analysis assessing the 
impact of any proposed or final rule on small entities. 5 U.S.C. 603 
and 604. Alternatively, the USEPA may certify that the rule will not 
have a significant impact on a substantial number of small entities. 
Small entities include small businesses, small not-for-profit 
enterprises and government entities with jurisdictions over populations 
of less than 50,000.
    This action involves only one source, EMD. EMD is not a small 
entity. Therefore, the USEPA certifies that this disapproval action 
does not have a significant impact on a substantial number of small 
entities.
    Under Executive Order 12866, this action is not ``Major.'' It has 
been submitted to the Office of Management and Budget for review.

List of Subjects in 40 CFR Part 52

     Environmental protection, Air pollution control, Hydrocarbons, 
Incorporation by reference, Intergovernmental relations, Ozone.

    Dated: March 17, 1994.
Carol M. Browner,
Administrator.
    For the reasons set out in the preamble, part 52, chapter I, title 
40 of the Code of Federal Regulations is amended as follows:

PART 52--[AMENDED]

    1. The authority citation for part 52 continues to read as follows:

    Authority: 42 U.S.C. 7401-7671q.

Subpart O--Illinois

    2. Section 52.741 is amended by revising paragraphs (e)(5) and 
(z)(1) and adding paragraph (e)(7) to read as follows:


Sec. 52.741  Control strategy: Ozone control measures for Cook, DuPage, 
Kane, Lake, McHenry and Will Counties.

* * * * *
    (e) * * *
    (5) Compliance schedule. Except as specified in paragraph (e)(7) of 
this section, every owner or operator of a coating line (of a type 
included within paragraph (e)(1)(i) of this section) shall comply with 
the requirements of paragraph (e)(1),(e)(2) or (e)(3) of this section 
and paragraph (e)(6) of this section in accordance with the appropriate 
compliance schedule as specified in paragraph (e)(5)(i),(ii),(iii) or 
(iv) of this section.
    (i) No owner or operator of a coating line which is exempt from the 
limitations of paragraph (e)(1) of this section because of the criteria 
in paragraph (e)(3)(i) of this section shall operate said coating line 
on or after July 1, 1991, unless the owner or operator has complied 
with, and continues to comply with, paragraph (e)(6)(i) of this 
section. Wood furniture coating lines are not subject to paragraph 
(e)(6)(i) of this section.
    (ii) No owner or operator of a coating line complying by means of 
paragraph (e)(1)(i) of this section shall operate said coating line on 
or after July 1, 1991, unless the owner or operator has complied with, 
and continues to comply with, paragraphs (e)(1)(i) and (e)(6)(ii) of 
this section.
    (iii) No owner or operator of a coating line complying by means of 
paragraph (e)(1)(ii) of this section shall operate said coating line on 
or after July 1, 1991, unless the owner or operator has complied with, 
and continues to comply with, paragraphs (e)(1)(ii) and (e)(6)(iii) of 
this section.
    (iv) No owner or operator of a coating line complying by means of 
paragraph (e)(2) of this section shall operate said coating line on or 
after July 1, 1991, unless the owner or operator has complied with, and 
continues to comply with, paragraphs (e)(2) and (e)(6)(iv) of this 
section.
* * * * *
    (7) Compliance schedule for diesel electric locomotive coatings. 
Notwithstanding any other provision of this subpart, the compliance 
date for the emission limitations and standards for ``topcoat'' and 
``final repair coat'' operations only as applied to General Motors 
Corporation at their diesel electric locomotive coating lines in Cook 
County, Illinois, codified at 40 CFR 52.741(e)(1)(i)(M) (2) and (3) is 
specified in this paragraph (e)(7). Compliance with the requirements of 
paragraph (e)(1), (e)(2) or (e)(3) of this section and paragraph (e)(6) 
of this section must be in accordance with the appropriate compliance 
schedule as specified in paragraph (e)(7)(i),(ii),(iii), or (iv) of 
this section.
    (i) No owner or operator of a coating line which is exempt from the 
limitations of paragraph (e)(1) of this section because of the criteria 
in paragraph (e)(3)(i) of this section shall operate said coating line 
on or after March 25, 1995, unless the owner or operator has complied 
with, and continues to comply with, paragraph (e)(6)(i) of this 
section.
    (ii) No owner or operator of a coating line complying by means of 
paragraph (e)(1)(i) of this section shall operate said coating line on 
or after March 25, 1995, unless the owner or operator has complied 
with, and continues to comply with, paragraph (e)(1)(i) and (e)(6)(ii) 
of this section.
    (iii) No owner or operator of a coating line complying by means of 
paragraph (e)(1)(ii) of this section shall operate said coating line on 
or after March 25, 1995, unless the owner or operator has complied 
with, and continues to comply with, paragraphs (e)(1)(ii) and 
(e)(6)(iii) of this section.
    (iv) No owner or operator of a coating line complying by means of 
paragraph (e)(2) of this section shall operate said coating line on or 
after March 25, 1995, unless the owner or operator has complied with, 
and continues to comply with, paragraphs (e)(2) and (e)(6)(iv) of this 
section.
* * * * *
    (z) Rules stayed. Not withstanding any other provision of this 
subpart, the effectiveness of the following rules is stayed as 
indicated below.
    (1) The following rules are stayed from July 1, 1991, until USEPA 
completes its reconsideration as indicated: (i) 40 CFR 52.741 (u) and 
(v), including 40 CFR 52.741 (u)(4) and (v)(4) only as applied to 
Viskase Corporation's cellulose food casing manufacturing facility in 
Bedford Park, Illinois; and (ii) 40 CFR 54.741(u), including 40 CFR 
52.741(u)(4), only as applied to Allsteel, Incorporated's adhesive 
lines at its metal furniture manufacturing operations in Kane County, 
Illinois.
* * * * *
[FR Doc. 94-7057 Filed 3-24-94; 8:45 am]
BILLING CODE 6560-50-P