[Federal Register Volume 64, Number 92 (Thursday, May 13, 1999)]
[Proposed Rules]
[Pages 26004-26142]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-11384]



[[Page 26003]]

_______________________________________________________________________

Part III





Environmental Protection Agency





_______________________________________________________________________



40 CFR Parts 80, 85 and 86



Air Pollution; Tier 2 Motor Vehicle Emission Standards and Gasoline 
Sulphur Control Requirements; Diesel Fuel Quality Controls; Proposed 
Rules

  Federal Register / Vol. 64, No. 92 / Thursday, May 13, 1999 / 
Proposed Rules  

[[Page 26004]]



ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 80, 85 and 86

[AMS-FRL-6337-3]
RIN 2060-AI23


Control of Air Pollution From New Motor Vehicles: Proposed Tier 2 
Motor Vehicle Emissions Standards and Gasoline Sulfur Control 
Requirements

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: Today's document proposes a major program designed to 
significantly reduce the emissions from new passenger cars and light 
trucks, including pickup trucks, minivans, and sport-utility vehicles. 
These reductions would provide for cleaner air and greater public 
health protection, by reducing ozone and PM pollution. The proposed 
program is a comprehensive regulatory initiative that treats vehicles 
and fuels as a system, combining requirements for much cleaner vehicles 
with requirements for much lower levels of sulfur in gasoline. A list 
of major highlights of the proposed program appears at the beginning of 
SUPPLEMENTARY INFORMATION.
    For the first time, through a phase-in, we propose to apply a 
single average exhaust emission standard that would cover both 
passenger cars and all light trucks operated on any fuel. The proposed 
emission levels (``Tier 2 standards'') are feasible for both types of 
vehicles and are appropriate since the miles traveled in light trucks 
are increasing and the emissions from these vehicles are thus an 
increasing problem. This approach will build on the recent technology 
improvements resulting from the successful National Low-Emission 
Vehicles (NLEV) program and improve the performance of these vehicles 
through lower sulfur gasoline.
    To enable the vehicle technology and generate emission reductions 
from current vehicles we propose to significantly reduce average 
gasoline sulfur levels nationwide. Refiners would generally install 
refining equipment to remove sulfur in their refining processes, while 
importers would be required to market only gasoline meeting the 
proposed sulfur standards. The proposal outlines an averaging, banking, 
and trading program to provide flexibility for refiners and ease 
implementation.
    This program focuses on reducing the passenger car and light truck 
emissions most responsible for causing ozone and particulate matter 
problems. Without today's action, we project that emissions from these 
vehicles will represent 30-40 percent of nitrogen oxides and volatile 
organic compound emissions in some cities, and almost 20 percent 
nationwide, by the year 2020.
    Our proposal would bring about major reductions in annual emissions 
of these pollutants and also reduce the emissions of sulfur compounds 
coming from the sulfur in gasoline. For example, we project a reduction 
in oxides of nitrogen emissions of nearly 800,000 tons per year by 2007 
and 1,200,000 by 2010, the time frame when many states will have to 
demonstrate compliance with air quality standards. Emission reductions 
would continue increasing for many years, reaching almost 2,200,000 
tons per year in 2020. In addition, the proposed program would reduce 
the contribution of vehicles to other serious public health and 
environmental problems, including regional visibility problems, toxic 
air pollutants, acid rain, and nitrogen loading of estuaries.
    Furthermore, we project that these reductions, and their resulting 
environmental benefits, would come at an average cost increase of less 
than $100 per passenger car, less than $200 per light truck, and an 
increase of less than 2 cents per gallon of gasoline (or about $100 
over the life of an average vehicle).

DATES: Comments: We must receive your comments by August 2, 1999.
    Hearings: We will hold four public hearings, on June 9-10, June 11, 
June 15, and June 17, 1999. EPA requests that parties who want to 
testify notify the contact person listed in the ADDRESSES section of 
this document two weeks before the date of the hearing.

ADDRESSES: Comments: You may send written comments in paper form or by 
E-mail. We must receive them by the date indicated under ``DATES'' 
above (August 2, 1999). Send paper copies of written comments (in 
duplicate if possible) to Public Docket No. A-97-10 at the following 
address: U.S. Environmental Protection Agency (EPA), Air Docket (6102), 
Room M-1500, 401 M Street, SW, Washington, DC 20460. If possible, we 
also encourage you to send an electronic copy of your comments (in 
ASCII format) to the docket by e-mail to A-and-R-D[email protected] or on a 
3.5 inch diskette accompanying your paper copy. If you wish, you may 
send your comments by E-mail to the docket at the address listed above 
without the submission of a paper copy, but a paper copy will ensure 
the clarity of your comments.
    Please also send a separate paper copy to the contact person listed 
below. If you send comments by E-mail alone, we ask that you send a 
copy of the E-mail message that contains the comments to the contact 
person listed below.
    EPA's Air Docket makes materials related to this rulemaking 
available for review at the above address (on the ground floor in 
Waterside Mall) from 8:00 a.m. to 5:30 p.m., Monday through Friday, 
except on government holidays. You can reach the Air Docket by 
telephone at (202) 260-7548 and by facsimile at (202) 260-4400. We may 
charge a reasonable fee for copying docket materials, as provided in 40 
CFR part 2.
    Hearings: We will hold four public hearings at the following 
locations:

June 9-10, 1999, Top of the Tower, 1717 Arch Street, 51st Floor, 
Philadelphia, PA 19103, telephone: 215-567-8787, fax: 215-557-5171
June 11, 1999, Renaissance Atlanta Hotel, 590 West Peachtree Street, 
Atlanta, GA, 30308, telephone: 404-881-6000, fax: 404-815-5010
June 15, 1999, Doubletree Hotel, 3203 Quebec Street, Denver, CO, 80207, 
telephone: 303-321-3333, fax: 303-329-5233
June 17, 1999, Holiday Inn Lakeside City Center, 1111 Lakeside Avenue, 
Cleveland, OH 44144, telephone: 216-241-5100, fax: 216-241-7437

    Additional information on the comment procedure and public hearings 
can be found in SUPPLEMENTARY INFORMATION under Section VII, ``Public 
Participation.''

FOR FURTHER INFORMATION CONTACT: Carol Connell, U.S. EPA, National 
Vehicle and Fuels Emission Laboratory, 2000 Traverwood, Ann Arbor MI 
48105; Telephone (734) 214-4349, FAX (734) 214-4816, E-mail 
[email protected].

SUPPLEMENTARY INFORMATION:

Highlights of the Tier 2/ Gasoline Sulfur Proposal

    For cars and light trucks, the proposed program would:
     Through a phase-in, apply for the first time a single 
average exhaust emission standard that would cover both passenger cars 
and all light trucks. The proposed emission levels (``Tier 2 
standards'') are feasible for both types of vehicles and are 
appropriate since the miles traveled in light trucks is increasing and 
the emissions from these vehicles are thus an increasing problem.
     During the phase-in, apply interim standards that match or 
are more

[[Page 26005]]

stringent than current federal and California ``LEV I'' (Low-Emission 
Vehicle, Phase I) standards.
     Apply the same standards to vehicles operated on any fuel.
     Allow auto manufacturers to comply with the very stringent 
proposed new standards in a flexible way while ensuring that the 
expected environmental benefits occur.
     Build on the recent technology improvements resulting from 
the successful National Low-Emission Vehicles (NLEV) program and 
improve the performance of these vehicles through lower sulfur 
gasoline.
     Set more stringent particulate matter standards, primarily 
affecting diesel powered vehicles.
     Set more stringent evaporative emission standards.
    For commercial gasoline, the proposed program would:
     Significantly reduce average gasoline sulfur levels 
nationwide. Refiners would generally install refining equipment to 
remove sulfur in their refining processes. Importers of gasoline would 
be required to import and market only gasoline meeting the proposed 
sulfur limits.
     Provide for flexible implementation by refiners through an 
averaging, banking, and trading program.
     Apply temporary, less stringent gasoline sulfur standards 
to certain small refiners.
     Enable the new Tier 2 vehicles to meet the proposed 
emission standards, since sulfur in gasoline degrades a vehicle's 
emission control performance. Lower sulfur gasoline is also important 
in order to enable the introduction of advanced technologies that 
promise higher fuel economy but are very susceptible to sulfur 
poisoning (for example, gasoline direct injection engines).
     Reduce emissions from NLEV vehicles and other vehicles 
already on the road.

Regulated Entities

    This proposed action would affect you if you produce new motor 
vehicles, alter individual imported motor vehicles to address U.S. 
regulation, or convert motor vehicles to use alternative fuels. It 
would also affect you if you produce, distribute, or sell gasoline 
motor fuel.
    The table below gives some examples of entities that may have to 
follow the proposed regulations. But because these are only examples, 
you should carefully examine the proposed and existing regulations in 
40 CFR parts 80, 85 and 86. If you have questions, call the person 
listed in the FOR FURTHER INFORMATION CONTACT section above.

----------------------------------------------------------------------------------------------------------------
                                                                              Examples of potentially regulated
                  Category                    NAICS Codes a    SIC Codes b                 entities
----------------------------------------------------------------------------------------------------------------
Industry...................................          336111            3711  Motor Vehicle Manufacturers.
                                                     336112  ..............  ...................................
                                                     336120  ..............  ...................................
Industry...................................          336311            3592  Alternative fuel vehicle
                                                                              converters.
                                                     336312            3714  ...................................
                                                     422720            5172  ...................................
                                                     454312            5984  ...................................
                                                     811198            7549  ...................................
                                                     541514            8742  ...................................
                                                     541690            8931  ...................................
Industry...................................          811112            7533  Commercial Importers of Vehicles
                                                                              and Vehicle Components.
                                                     811198            7549  ...................................
                                                     541514            8742  ...................................
Industry...................................          324110            2911  Petroleum Refiners.
Industry...................................          422710            5171  Gasoline Marketers and
                                                                              Distributors.
                                                     422720            5172  ...................................
Industry...................................          484220            4212  Gasoline Carriers.
                                                     484230            4213
----------------------------------------------------------------------------------------------------------------
a North American Industry Classification System (NAICS).
b Standard Industrial Classification (SIC) system code.

Access to Rulemaking Documents Through the Internet

    Today's document is available electronically on the day of 
publication from the Environmental Protection Agency Internet Web site 
listed below. Electronic copies of the preamble, regulatory language, 
Draft Regulatory Impact Analysis, and other documents associated with 
today's proposal are available from the EPA Office of Mobile Sources 
Web site listed below shortly after the rule is signed by the 
Administrator. This service is free of charge, except any cost that you 
already incur for connecting to the Internet.
    Environomental Protection Agency Web Site:

http://www.epa.gov/docs/fedrgstr/epa-air/

(Either select a desired date or use the Search feature.)
    Office of Mobile Sources (OMS) Web Site:

http://www.epa.gov/omswww/

(Look in ``What's New'' or under the ``Automobiles'' topic.)
    Please note that due to differences between the software used to 
develop the document and the software into which the document may be 
downloaded, changes in format, page length, etc. may occur.

Outline of This Preamble

I. Introduction
    A. What Are the Basic Components of Today's Proposal?
    1. Vehicle Emission Standards
    2. Gasoline Sulfur Standards
    B. What Is EPA's Statutory Authority for Proposing Today's 
Action?
    1. Light-Duty Vehicles and Trucks
    2. Gasoline Sulfur Controls
    C. The Tier 2 Study and the Sulfur Staff Paper
II. Proposed Tier 2 Determination
    A. There Is a Substantial Need for Further Emission Reductions 
in Order to Attain and Maintain National Ambient Air Quality 
Standards
    B. More Stringent Standards for Light-Duty Vehicles and Trucks 
Are Technologically Feasible
    C. More Stringent Standards for Light-Duty Vehicles and Trucks 
Are Needed and Cost Effective Compared to Available Alternatives
III. Air Quality Need for and Impact of Today's Proposal
    A. Americans Face Serious Air Quality Problems That Require 
Further Emission Reductions

[[Page 26006]]

    B. Ozone
    1. Ozone Levels Have Declined, but Unhealthy Levels of Ozone 
Persist
    2. Cars and Light-Duty Trucks Are a Big Part of the VOC and 
NOX Inventory, and Today's Proposal Would Reduce This 
Contribution Substantially
    3. Tier 2/Sulfur Ozone Benefits and the Post Tier 2/Sulfur Ozone 
Problem
    C. Particulate Matter
    1. Particulate Matter Presents Substantial Public Health Risks
    2. Reducing Emissions From Cars and Light Trucks Would Reduce 
Ambient Levels
    3. Today's Proposal Would Limit the Potential Health Risks From 
Increased Diesel Engine Use in Cars and Light Trucks
    4. Today's Proposal Would Have Substantial PM Benefits
    D. Other Criteria Pollutants: Carbon Monoxide, Nitrogen Dioxide, 
Sulfur Dioxide
    E. Visibility
    F. Air Toxics
    G. Acid Deposition
    H. Eutrophication/Nitrification
    I. Conclusion: Cleaner Cars and Light Trucks Are Critically 
Important to Improving Air Quality
IV. What Are We Proposing and Why?
    A. Why Are We Proposing Vehicle and Fuel Standards Together?
    1. Feasibility of Stringent Standards for Light-Duty Vehicles 
and Light-Duty Trucks
    a. Gasoline Fueled Vehicles
    b. Diesel Vehicles
    2. Gasoline Sulfur Control Is Needed to Support the Proposed 
Vehicle Standards
    a. How Does Gasoline Sulfur Affect Vehicle Emission Performance?
    b. How Large Is Gasoline Sulfur's Effect on Emissions?
    3. A Comprehensive Vehicle/Fuel Approach Is Therefore Necessary
    B. Our Proposed Program for Vehicles
    1. Overview of the Proposed Vehicle Program
    a. Introduction
    b. Corporate Average NOX Standard
    c. Tier 2 Emission Standard ``Bins''
    d. Schedules for Implementation
    i. Implementation Schedule for LDVs and LLDTs
    ii. Implementation Schedule for HLDTs
    e. LDVs and LDTs Not Covered by Tier 2
    i. Interim Standards for LDV/LLDTs
    ii. Interim Standards for HLDTs
    iii. Interim Programs Would Provide Reductions over Previous 
Standards
    iv. Alternative Approach for Interim Standards
    f. Generating, Banking, and Trading NOX Credits
    2. Why Are We Proposing the Same Set of Standards for Tier 2 
LDVs and LDTs?
    3. Why Are We Proposing the Same Standards for Both Gasoline and 
Diesel Vehicles?
    4. Key Elements of the Proposed Vehicle Program
    a. Basic Exhaust Emission Standards and ``Bin'' Structure
    i. Why Are We Proposing Extra Bins?
    b. The Proposed Program Would Phase in the Tier 2 Vehicle 
Standards over Several Years
    i. Primary Phase-in Schedule
    ii. Alternative Phase-in Schedule
    c. Manufacturers Would Meet a ``Corporate Average'' 
NOX Standard.
    d. Manufacturers Could Generate, Bank, and Trade NOX 
Credits.
    i. General Provisions
    ii. Averaging, Banking and Trading of NOX Credits 
Would Fulfill Several Goals.
    iii. How Manufacturers Would Generate and Use NOX 
Credits.
    iv. Manufacturers Could Earn and Bank Credits for Early 
NOX Reductions.
    v. NOX Credits Would Have Unlimited Life.
    vi. NOX Deficits Could Be Carried Forward.
    e. Interim Standards
    i. Interim Standards for LDV/LLDTs
    ii. Interim Standards for HLDTs
    f. More Stringent Proposed Light-Duty Evaporative Emission 
Standards
    C. Our Proposed Program for Controlling Gasoline Sulfur
    1. Oil Industry Proposal
    2. Why EPA Believes the Gasoline Sulfur Program must Be 
Nationwide
    a. Sulfur's Negative Impact on Tier 2 Catalysts Is Irreversible.
    b. Sulfur Has Negative Impacts on OBD Systems and I/M Programs.
    c. Sulfur Reductions Would Ensure Lower Emissions of Many 
Pollutants.
    d. The Refining Industry Can Control Gasoline Sulfur.
    e. Other Stakeholders Support National Gasoline Sulfur Control.
    3. Proposed Gasoline Sulfur Standards
    a. Standards for Refiners and Importers
    i. Why Begin the Program in 2004?
    ii. How Did We Arrive at the 80 ppm Cap and 30 ppm Average 
Standards?
    iii. Should a Near-Zero Gasoline Sulfur Standard Be Considered?
    iv. Why Are We Proposing Less Stringent Standards for 2004 and 
2005?
    b. Standards for Small Refiners
    i. What Standards Would Small Refiners Have to Meet Under 
Today's Proposal?
    ii. Application for Small Refiner Status
    iii. Application for a Small Refiner Sulfur Baseline
    iv. Volume Limitation on Use of a Small Refinery Standard
    v. Hardship Extensions Beyond 2007 for Small Refiners
    vi. What Alternative Provisions for Small Refiners Are Possible?
    4. Compliance Flexibilities
    a. Sulfur Averaging, Banking, and Trading (ABT) Program
    i. Why Are We Proposing a Sulfur Averaging, Banking, and Trading 
Program?
    ii. How Would Refiners Establish a Sulfur Baseline?
    iii. How Would Refiners Generate Credits?
    iv. How Would Refiners Use Credits?
    v. Could Small Refiners Participate in the ABT Program?
    vi. What Alternative Implementation Approaches Are Possible?
    b. Refinery Air Pollution Permitting Requirements
    i. New Source Review Program
    ii. Title V Operating Permit Program
    iii. EPA Assistance to Explore Permit Streamlining Options and 
Solicitation of Comment
    c. Should Hardship Relief Be Available?
    5. Consideration of Diesel Fuel Control
    D. What Are the Economic Impacts, Cost Effectiveness and 
Monetized Benefits of the Proposal?
    1. What Are the Estimated Costs of the Proposed Vehicle 
Standards?
    2. What Are the Estimated Costs of the Proposed Gasoline Sulfur 
Standards?
    3. What Are the Aggregate Costs of the Tier 2/Gasoline Sulfur 
Proposal?
    4. How Does the Cost-Effectiveness of this Program Compare to 
Other Programs?
    a. What Is the Cost Effectiveness of this Program?
    b. How Does the Cost Effectiveness of this Program Compare with 
Other Means of Obtaining Mobile Source NOX + NMHC 
Reductions?
    c. How Does the Cost Effectiveness of this Proposed Program 
Compare with Other Known Non-Mobile Source Technologies for Reducing 
NOX + NMHC?
    5. Does the Value of the Benefits Outweigh the Cost of the 
Proposed Standards?
    a. What Is the Purpose of this Benefit-Cost Comparison?
    b. What Was Our Overall Approach to the Benefit-Cost Analysis?
    c. What Are the Significant Limitations of the Benefit-Cost 
Analysis?
    d. How Did We Perform the Benefit-Cost Analysis?
    e. What Were the Results of the Benefit-Cost Analysis?
    f. What Additional Efforts Will Be Made Following Proposal?
    E. Other Program Design Options We Have Considered
    1. Corporate Average Standards Based on NMOG or 
NMOG+NOX
    2. More Stringent Tier 2 NOX and Gasoline Sulfur 
Standards
V. Additional Elements of the Proposed Vehicle Program and Areas for 
Comment
    A. Other Vehicle-related Elements of the Proposal
    1. Proposed Tier 2 CO, HCHO and PM Standards
    a. Carbon Monoxide (CO) Standards
    b. Formaldehyde (HCHO) Standards
    c. Particulate Matter (PM) Standards
    2. Useful Life
    a. Mandatory 120,000 Mile Useful Life
    b. 150,000 Mile Useful Life Certification Option
    3. Light Duty Supplemental Federal Test Procedure (SFTP) 
Standards
    4. LDT Test Weight
    5. Test Fuels
    6. Changes to Evaporative Certification Procedures to Address 
Impacts of Alcohol Fuels
    7. Other Test Procedure Issues
    8. Small Volume Manufacturers
    9. Compliance Monitoring and Enforcement
    a. Application of EPA's Compliance Assurance Program, CAP2000
    b. Compliance Monitoring

[[Page 26007]]

    c. Relaxed In-Use Standards for Tier 2 Vehicles Produced During 
the Phase-in Period
    d. Enforcement of the Tier 2 and Interim Corporate Average 
NOX Standards.
    10. Miscellaneous Provisions
    B. Other Areas on Which We Are Seeking Comment
    1. LDV/LDT Program Options
    a. Alternatives to Address Stringency of the Standards
    i. Alternative Standards and Implementation Schedules
    ii. Use of Family Emission Limits (FELs) Rather than Bins
    iii. Use of Different Averaging Sets
    iv. Different Standards for Different Categories of Vehicles
    v. Consideration of Special Provisions for the Largest LDTs and 
Advanced Technology
    vi. Measures to Prevent LDT Migration to Heavy-Duty Vehicle 
Category
    vii. Use of Non-conformance Penalties (NCPs)
    viii. Additional NOX Credits for Vehicles Certifying 
to Low NOX Levels
    ix. Incentives for Manufacturers to Bank Additional Early 
NOX Credits
    x. Flexibilities for Small Volume Manufacturers and Small 
Businesses
    xi. Adverse Effects of System Leaks
    xii. Consideration of Other Corporate Averaging Approaches
    2. Tighter Evaporative Emission Standards
    3. Credits for Innovative VOC, NOX and Ozone 
Reduction Technologies Not Appropriately Credited by EPA's Emission 
Test Procedures
    4. Need for Intermediate Useful Life Tier 2 Standards
VI. Additional Proposed Elements and Areas for Comment: Gasoline 
Program
    A. Other Areas for Comment
    1. Would States Be Preempted from Adopting Their Own Sulfur 
Control Programs?
    2. Potential Changes in Gasoline Distillation Properties
    B. Gasoline Sulfur Program Compliance and Enforcement Provisions
    1. Overview
    2. What Requirements Is EPA Proposing for Foreign Refiners and 
Importers?
    a. What Are the Proposed Requirements for Small Foreign Refiners 
with Individual Refinery Sulfur Standards?
    b. What Are the Proposed Requirements for Truck Importers?
    3. What Standards Would Apply Downstream?
    4. What Are the Proposed Testing and Sampling Methods and 
Requirements?
    a. What Is the Primary Test Method for Gasoline?
    b. What Is the Proposed Test Method for Sulfur in Butane?
    c. Is EPA Proposing a Requirement to Test Every Batch of 
Gasoline Produced or Imported?
    d. What Sampling Methods Are Proposed?
    e. What Are the Proposed Gasoline Sample Retention Requirements?
    5. What Federal Enforcement Provisions Would Exist for 
California and When Could California Test Methods be Used to 
Determine Compliance?
    6. What Are the Proposed Recordkeeping and Reporting 
Requirements?
    a. What Are the Proposed Product Transfer Document Requirements?
    b. What Are the Proposed Recordkeeping Requirements?
    c. What Are the Proposed Reporting Requirements?
    d. What Are the Proposed Attest Requirements?
    7. What Are the Proposed Exemptions for Research, Development 
and Testing?
    8. What Are the Proposed Liability and Penalty Provisions for 
Noncompliance?
    9. How Would Compliance with the Sulfur Standards Be Determined?
VII. Public Participation
    A. Comments and the Public Docket
    B. Public Hearings
VIII. Administrative Requirements
    A. Administrative Designation and Regulatory Analysis
    B. Regulatory Flexibility Act
    1. Potentially Affected Small Businesses
    2. Small Business Advocacy Review Panel and the Evaluation of 
Regulatory Alternatives
    C. Paperwork Reduction Act
    D. Intergovernmental Relations
    1. Unfunded Mandates Reform Act
    2. Executive Order 12875: Enhancing Intergovernmental 
Partnerships
    3. Executive Order 13084: Consultation and Coordination with 
Indian Tribal Governments
    E. National Technology Transfer and Advancement Act
    F. Executive Order 13045: Children's Health Protection
IX. Statutory Provisions and Legal Authority

I. Introduction

    Since the passage of the 1990 Clean Air Act Amendments significant 
progress has been made in reducing emissions from passenger cars and 
light trucks. The National Low-Emission Vehicle (NLEV) and Reformulated 
Gasoline (RFG) programs are important examples of control programs that 
will continue to help reduce car and truck emissions into the near 
future.
    Nonetheless, due to increasing vehicle population and vehicle miles 
traveled, passenger cars and light trucks will be significant 
contributors to air pollution inventories into the indefinite future. 
In fact, the emission contribution of light trucks and sport utility 
vehicles will likely surpass that of passenger cars within the next 
year. (This is occurring because of the combination of growth in miles 
traveled by light trucks and their less stringent emission standards 
compared to passenger cars). The program we describe below builds on 
the NLEV and RFG Phase II programs to develop a strong national program 
to protect public health and the environment well into the next 
century. The program while reducing VOC emissions focuses especially on 
NOX because that is where the largest air quality gains can 
be achieved.
    We have followed several overarching principles in developing this 
proposal:
     Design a strong national program to assist states in every 
region of the country in meeting their air quality objectives.
     View vehicles and fuels as an integrated system. Define a 
program that continues to ensure that car and truck emission reductions 
are part of the solution to our nation's air quality problems.
     Establish a single set of emission standards that apply 
regardless of the fuel used and regardless of whether the vehicle is a 
car or a light truck.
     Provide compliance flexibilities that allow vehicle 
manufacturers and oil refiners to adjust to future market trends and 
honor consumer preferences.
     Encourage the development of advanced low emission, fuel 
efficient technologies such as lean-burn engines.
     Ensure sufficient leadtime for phase-in of the Tier 2 and 
gasoline sulfur program.
    With these principles as background, we turn now to an overview of 
the vehicle and fuel aspects of the proposal. Sections I and II of this 
preamble will give you a brief overview of our proposal and the basics 
of our rationale for proposing it. Subsequent sections will expand on 
the air quality need, the economic impacts, and provide a more detailed 
description of the specifics of the proposal. The final sections deal 
with several subjects, including opportunities for public participation 
that you may wish to take advantage of. You may also want to review our 
Draft Regulatory Impact Analysis (RIA), found in the docket and on the 
Internet, where we present more detailed analyses and discussions of 
many topics raised in this preamble.

A. What Are the Basic Components of Today's Proposal?

    The nation's air quality, while certainly better than in the past, 
will continue to expose tens of millions of Americans to unhealthy 
levels of air pollution well into the future in the absence of 
significant new controls on emissions from motor vehicles. EPA is 
therefore proposing a major, comprehensive program designed to 
significantly reduce emissions from passenger cars and light trucks 
(including sport-utility vehicles, minivans, and pickup trucks) and 
reduce sulfur in gasoline. Under the proposed program, automakers would 
produce vehicles designed to have very low emissions when operated on 
low-sulfur gasoline, and oil refiners would

[[Page 26008]]

provide that cleaner gasoline nationwide. In this preamble, we refer to 
the proposed comprehensive program as the ``Tier 2/Gasoline Sulfur 
Control Program'' or simply as the ``Tier 2 Program.''
1. Vehicle Emission Standards
    Today's action proposes new federal emission standards (``Tier 2 
standards'') for passenger cars and light trucks. The program is 
designed to focus on reducing the emissions most responsible for the 
ozone and particulate matter (PM) impact from these vehicles--nitrogen 
oxides (NOX) and non-methane organic gases (NMOG), 
consisting primarily of hydrocarbons (HC) and contributing to ambient 
volatile organic compounds (VOC). The program would also, for the first 
time, apply the same federal standards to passenger cars and all light 
trucks (``light light-duty trucks'' (or LLDTs), rated at less than 6000 
pounds gross vehicle weight and ``heavy light-duty trucks'' (HLDTs), 
rated at more than 6000 pounds gross vehicle weight).
    The proposed Tier 2 standards would reduce new vehicle 
NOX levels to an average of 0.07 grams per mile (g/mi). For 
new passenger cars and light LDTs, these standards would phase in 
beginning in 2004, with the standards to be fully phased in by 
2007.1 For heavy LDTs, the proposed Tier 2 standards would 
be phased in beginning in 2008, with full compliance in 2009. During 
the phase-in period from 2004-2007, all passenger cars and light LDTs 
not certified to Tier 2 standards would have to meet an interim average 
standard of 0.30 g/mi NOX, equivalent to the current NLEV 
standards for LDVs.2 During the period 2004-2008, heavy LDTs 
not certified to Tier 2 standards would phase in an average standard of 
0.20 
g/mi NOX. Those not covered by the phase-in would be 
required to meet a traditional (non-averaging) standard of 0.60 g/mi 
NOX.
---------------------------------------------------------------------------

    \1\ By comparison, the NOX standards for the National 
Low Emission Vehicle (NLEV) program, which will be in place 
nationally in 2001, range from 0.30 g/mi for passenger cars to 0.50 
g/mi for medium-sized light trucks. For further comparison, the 
standards met by today's Tier 1 vehicles range from 0.60 g/mi to 
1.53 g/mi.
    \2\ There are also NMOG standards associated with both the 
interim and Tier 2 standards. The NMOG standards vary depending on 
which of various individual sets of emission standards manufacturers 
choose to use in complying with the average NOX standard. 
This ``bin'' approach is described more fully in section IV.B.
---------------------------------------------------------------------------

    Manufacturers would be allowed to comply with the very stringent 
proposed new standards in a flexible way, assuring that the average 
emissions of a company's production met the target emission levels 
while allowing the manufacturer to choose from several more- and less-
stringent emission categories for certification. The proposed 
requirements also include more stringent PM standards, which primarily 
affect diesel vehicles, and more stringent hydrocarbon controls 
(exhaust NMOG and evaporative emissions standards).
    We are also proposing stringent particulate matter standards that 
would be especially important if there were substantial future growth 
in diesel sales. Even under an assumed scenario where diesel sales grew 
to represent 50 percent of all light-duty trucks by 2010, the PM 
standards being proposed today would result in a steady decrease in 
total direct PM 2.5 from cars and light trucks. For this 
scenario of a 50 percent share for diesel light trucks, direct PM 
emissions in 2020 with today's proposal would be less than they are at 
present. Therefore, we believe that today's proposal accommodates 
environmental concerns about such vehicles in a way that insures 
positive environmental results.
2. Gasoline Sulfur Standards
    The other major part of today's proposal would significantly reduce 
average gasoline sulfur levels nationwide. These reductions could begin 
to phase in as early as 2000, with full compliance by 2006. Refiners 
would generally install advanced refining equipment to remove sulfur 
during the production of gasoline. Importers of gasoline would be 
required to import and market only gasoline meeting the proposed sulfur 
limits. Temporary, less stringent standards would apply to a few small 
refiners.
    EPA is proposing that gasoline produced by refiners and sold by 
gasoline importers generally meet an average sulfur standard of 30 ppm 
and a cap of 80 ppm in 2004. The proposed program builds upon the 
existing regulations covering gasoline content as it relates to 
emissions performance. It includes provisions for trading of sulfur 
credits, increasing the flexibility available to refiners for complying 
with the new requirements. We intend the proposed credit program to 
ease compliance uncertainties by providing refiners the flexibility to 
phase in early controls in 2000-2003 and use credits gained in these 
years to delay some control to as late as 2006. As proposed, the 
program would achieve expected environmental benefits while providing 
substantial flexibility to refiners. The effect of the credit program 
is that those refiners that participate would have the opportunity for 
more overall leadtime to reach the final sulfur levels.

B. What Is EPA's Statutory Authority for Proposing Today's Action?

1. Light-Duty Vehicles and Trucks
    We are proposing the motor vehicle emission standards under the 
authority of section 202 of the Clean Air Act. Sections 202(a) and (b) 
of the Act provide EPA with general authority to prescribe vehicle 
standards, subject to any specific limitations otherwise included in 
the Act. Sections 202(g) and (h) specify the current standards for LDVs 
and LDTs, which became effective beginning in model year 1994 (``Tier 1 
standards'').
    Section 202(i) of the Act provides specific procedures that EPA 
must follow to determine whether standards more stringent than Tier 1 
standards for LDVs and certain LDTs 3 are appropriate 
beginning in the 2004 model year. 4 Specifically, we are 
required to first issue a study regarding ``whether or not further 
reductions in emissions from light-duty vehicles and light-duty trucks 
should be required * * *'' (the ``Tier 2 study''). This study ``shall 
examine the need for further reductions in emissions in order to attain 
or maintain the national ambient air quality standards.'' It is also to 
consider (1) the availability of technology to meet more stringent 
standards, taking cost, lead time, safety, and energy impacts into 
consideration, and, (2) the need for, and cost effectiveness of, such 
standards, including consideration of alternative methods of attaining 
or maintaining the national ambient air quality standards. A certain 
set of ``default'' emission standards for these vehicle classes is 
among those options for new standards that EPA is to consider.
---------------------------------------------------------------------------

    \3\ LDTs with a loaded vehicle weight less than or equal to 3750 
pounds.
    \4\ Section 202(b)(1)(C) forbids EPA from promulgating mandatory 
standards more stringent than Tier 1 standards until the 2004 model 
year.
---------------------------------------------------------------------------

    After the study is completed and the results are reported to 
Congress, EPA is required to determine by rulemaking whether (1) there 
is a need for further emission reductions; (2) the technology for more 
stringent emission standards from the affected classes is available; 
and (3) such standards are needed and cost-effective, taking into 
account alternatives. If EPA answers ``yes'' to these questions, then 
the Agency is to promulgate new, more stringent motor vehicle standards 
(``Tier 2 standards'').
    EPA submitted its report to Congress on July 31, 1998. Today's 
proposal considers and proposes affirmative responses to the three 
questions above (see section II below) and sets forth new proposed 
standards that are more

[[Page 26009]]

stringent than the default standards in the Act.
    EPA is also proposing standards for larger light-duty trucks under 
the general authority of section 202(a)(1) and under section 202(a)(3) 
of the Act, which requires that standards applicable to emissions of 
hydrocarbons, NOX, CO and PM from heavy-duty vehicles 
5 reflect the greatest degree of emission reduction 
available for the model year to which such standards apply, giving 
appropriate consideration to cost, energy, and safety.
---------------------------------------------------------------------------

    \5\ LDTs that have gross vehicle weight ratings above 6000 
pounds are considered heavy-duty vehicles under the Act. See section 
202(b)(3). For regulatory purposes, we refer to these LDTs as 
``heavy light-duty trucks'' made up of LDT3s and LDT4s.
---------------------------------------------------------------------------

2. Gasoline Sulfur Controls
    We are proposing gasoline sulfur controls pursuant to our authority 
under section 211(c)(1) of the Clean Air Act.6 Under section 
211(c)(1), EPA may adopt a fuel control if at least one of the 
following two criteria is met: (1) the emission products of the fuel 
cause or contribute to air pollution which may reasonably be 
anticipated to endanger public health or welfare, or (2) the emission 
products of the fuel will significantly impair emissions control 
systems in general use or which would be in general use were the fuel 
control to be adopted.
---------------------------------------------------------------------------

    \6\ We currently have regulatory requirements for conventional 
and reformulated gasoline adopted under sections 211(c) and 211(k) 
of the Act, in addition to the ``substantially similar'' 
requirements for fuel additives of section 211(f). These 
requirements directly or indirectly control sulfur levels in 
gasoline. See the Draft RIA for more details.
---------------------------------------------------------------------------

    We are proposing to control sulfur levels in gasoline based on both 
of these criteria. Under the first criterion, we believe that emissions 
products of sulfur in gasoline used in Tier 1 and LEV technology 
vehicles contribute to ozone pollution, air toxics, and PM. Under the 
second criterion, we believe that gasoline sulfur in fuel that will be 
used in Tier 2 technology vehicles will significantly impair the 
emissions control systems expected to be used in such vehicles. Please 
refer to section IV.C. below and to the Draft Regulatory Impact 
Analysis (RIA) for more details of our analysis and findings. The Draft 
RIA includes a more detailed discussion of EPA's authority to set 
gasoline sulfur standards, including a discussion of our proposed 
conclusions relating to the factors required to be considered under 
section 211(c).

C. The Tier 2 Study and the Sulfur Staff Paper

    On July 31, 1998, EPA submitted its report to Congress containing 
the results of the Tier 2 study.7 The study indicated that 
in the 2004 and later time frame, there will be a need for emission 
reductions to aid in meeting and maintaining the National Ambient Air 
Quality Standards (NAAQS) for both ozone and PM. Air quality modeling 
showed that in the 2007-2010 time frame, when Tier 2 standards would 
become fully effective, a number of areas would still be in 
nonattainment for ozone and PM even after the implementation of 
existing emission controls. EPA also found ample evidence that 
technologies would be available to meet more stringent Tier 2 
standards. In addition, the study provided evidence that such standards 
could be implemented at a similar cost per ton of reduced pollutants as 
other programs aimed at similar air quality problems. Finally, the 
study identified several additional issues in need of further 
examination, including the relative stringency of car and light truck 
emission standards, the appropriateness of identical versus separate 
standards for gasoline and diesel vehicles, and the effects of sulfur 
in gasoline on catalyst efficiency.
---------------------------------------------------------------------------

    \7\ On April 28, 1998, EPA published a notice of availability 
announcing the release of a draft of the Tier 2 study and requesting 
comments on the draft. The final report to Congress included a 
summary and analysis of the comments EPA received.
---------------------------------------------------------------------------

    In addition, on May 1, 1998, EPA released a staff paper presenting 
EPA's understanding of the impact of gasoline sulfur on emissions from 
motor vehicles and exploring what gasoline producers and automobile 
manufacturers could do to reduce sulfur's impact on emissions. The 
staff paper noted that gasoline sulfur is a catalyst poison and that 
high sulfur levels in commercial gasoline could affect the ability of 
future automobiles to meet more stringent standards in use. It also 
pointed out that sulfur control would provide additional benefits by 
lowering emissions from the current fleet of vehicles.

II. Proposed Tier 2 Determination

    Based on the statutory requirements described above and the 
evidence provided in the Tier 2 Study, as updated in this document, EPA 
proposes its determination that new, more stringent emission standards 
are indeed needed, technologically feasible, and cost effective.

A. There Is a Substantial Need for Further Emission Reductions in Order 
To Attain and Maintain National Ambient Air Quality Standards

    We believe that there is a clear air quality need for new emission 
standards, based on the continuing air quality problems predicted to 
exist in future years. As the discussion in section III.B. illustrates, 
our modeling shows that in 2007 approximately 80 million Americans will 
be living in areas that are in nonattainment for the 8-hour ozone 
NAAQS, even with all other expected controls in place. Another 49 
million people will live in attainment areas that are within 15% of 
being reclassified as nonattainment areas. This is a total of nearly 
130 million people, which represents about 48 percent of the population 
of the United States.
    In addition to these ozone concerns, our models indicate that by 
2010, 45 areas, with 18 million people, will be in nonattainment for 
the original PM10 NAAQS and 11 areas with 10 million people 
will be in nonattainment for the revised PM10 NAAQS. While 
not a specific driving factor in today's findings, our models also 
project that 102 areas with about 55 million people will be in 
nonattainment with the new PM2.5 NAAQS by 2010. We also must 
recognize that nonattainment areas remain for other criteria pollutants 
(e.g., CO) and that non-criteria pollution (e.g., air toxics and 
regional haze) also contributes to environmental and health concerns.
    Clearly there is a critical need for reductions in the emissions 
being projected for future years. Furthermore, mobile sources are 
important contributors to the emission problem. As we will explain more 
fully later in this preamble, in the year 2007, the cars and light 
trucks that are the subject of today's proposal are projected to 
contribute nearly 40 percent of the total NOX and VOC 
inventory in some cities, and 20 percent of nationwide NOX 
and VOC emissions. This situation would have been considerably worse 
without the NLEV program created by vehicle manufacturers, EPA, the 
Northeastern states, and others. We therefore believe that reductions 
in these source categories are an essential part of the reductions 
needed to attain and maintain the NAAQS. As we explain below, we 
propose to find that major reductions in future emissions from light-
duty vehicles and trucks are both feasible and cost effective compared 
to available alternatives.

[[Page 26010]]

B. More Stringent Standards for Light-Duty Vehicles and Trucks Are 
Technologically Feasible

    We believe that emission standards more stringent than current Tier 
1 and National Low Emission Vehicle (NLEV) levels are technologically 
feasible. We believe this to be true both for the LDVs and LDTs 
specifically covered in section 202(i) and for the heavier LDTs also 
included in today's proposal. Manufacturers are currently producing 
NLEV vehicles that meet more stringent standards than similar Tier 1 
models. Our analysis shows that mainly through improvements in engine 
control software and catalytic converter technology, manufacturers can 
and are building durable vehicles and trucks, including heavy light-
duty trucks, which have very low emission levels.8
---------------------------------------------------------------------------

    \8\ The Draft RIA contains an extended analysis, Section IV.A. 
below has more discussion of the technological feasibility of our 
proposed standards including detailed discussions of the various 
technology options that we believe manufacturers may use to meet 
these standards.
---------------------------------------------------------------------------

    For light duty vehicles, certified NOX levels for 1999 
reveal that NOX levels representing full-life, deteriorated 
emissions in the 0.01 to 0.10 g/mi range are already being seen on some 
production vehicles. Similarly, light-duty trucks up to 8500 lbs. GVWR, 
also included in today's proposal, have some very low 1999 
certification levels for NOX, with NOX levels of 
as low as 0.04 g/mi for some of the largest LDTs. These levels are well 
below Tier 1 and NLEV standards. Manufacturers have also certified LDVs 
and LDTs to NMOG and CO levels as much as 80 percent below Tier 1 
standards.
    As discussed in more detail below and in the Draft RIA, we believe 
that, by the 2004-2009 time frame proposed for the Tier 2 standards, 
manufacturers would be fully able to comply with the proposed new 
standard levels. In addition, to facilitate manufacturers' efforts to 
meet these new standards, the Tier 2 regulations would include a 
corporate fleet average, which would allow manufacturers to optimize 
the deployment of technology across their product lines. Our analysis 
of the available technology improvements and the very low emission 
levels already being realized on these vehicles leads us to propose a 
finding that today's proposed standards are fully feasible for LDVs and 
LDTs.

C. More Stringent Standards for Light-Duty Vehicles and Trucks Are 
Needed and Cost Effective Compared to Available Alternatives

    In this document, we propose that Tier 2 motor vehicle standards 
are both necessary and cost effective. We have already described our 
belief that substantial further reductions in emissions are needed to 
help reduce the levels of unhealthy air pollution that millions of 
people are being exposed to. (We describe this further below and in the 
Draft RIA.) In its analyses supporting the new ozone and PM NAAQS, the 
Agency identified those methods that were reasonably cost effective, 
and showed that substantial progress toward attainment could be made. 
However, we also concluded that methods beyond those that could be 
identified as cost effective at the time were needed and we assumed 
they would be identified in the future.
    We believe that the Tier 2/gasoline sulfur proposal is one of those 
methods. This proposal would reduce annual NOX emissions by 
about 2.2 million tons per year in 2020 and 2.8 million tons per year 
in 2030 after the program is fully implemented. By way of comparison, 
if all of the controls identified for the NAAQS analysis costing less 
than $10,000/ton (the limit on cost effectiveness used in that 
analysis) were implemented nationwide, they would produce 
NOX emission reductions of about 2.9 million tons per year. 
That is, to achieve significant further reductions using control 
approaches other than the proposed Tier 2/Gasoline Sulfur program could 
mean adopting measures costing well beyond $10,000 per ton.
    Further emission reductions are needed. Without Tier 2 and gasoline 
sulfur controls, we project that in 2007 at least 8 metropolitan areas 
and 2 rural counties with a combined population of 39 million will 
exceed the 1-hour ozone NAAQS and 28 metropolitan areas and 4 rural 
counties with a combined population of 80 million will exceed the 8-
hour ozone NAAQS. We project that cars and light trucks will contribute 
17 percent of the nationwide NOX inventory by 2007 and 20 to 
40 percent in some cities with air quality problems. The NOX 
reductions from today's proposal range from 19 to 48 percent of the 
reductions we estimate are needed for areas to achieve attainment. We 
believe that the proposed program, as well as the technologies assumed 
for the NAAQS analysis mentioned above, are clearly cost effective 
approaches for attaining and maintaining the NAAQS.
    The magnitude of emission reductions that can be achieved by a 
comprehensive national Tier 2/gasoline sulfur program would be 
difficult to achieve from any other source category. Given the 
contribution that light-duty mobile source emissions make to the 
national emissions inventory and the range of control programs ozone-
affected areas already have in place or would be expected to implement, 
we believe it will be very difficult, if not impossible, to attain and 
maintain the ozone NAAQS in a cost-effective manner without reducing 
emissions from LDVs and LDTs. In addition, we project that the Tier 2/
gasoline sulfur program would reduce direct and secondary particulate 
matter coming from LDVs and LDTs by over 70 percent, providing 
reductions of almost 240,000 tons annually by 2010.
    We believe, then, that today's proposal is a major and attractive 
source of ozone and PM precursor emission reductions when compared to 
other available options. It would represent a degree of emission 
reduction beyond those programs identified in the NAAQS analysis that 
we believe is currently unavailable from any other reasonable program. 
We also believe that it would be a cost effective program, costing 
approximately $2,000 per ton of NOX plus hydrocarbon reduced 
according to our estimates, which is quite attractive compared to other 
alternatives. The discussion of cost and cost effectiveness later in 
this preamble explains the derivation of these numbers and compares 
them to other alternatives. That discussion indicates that today's 
proposal would be as cost effective as both the Tier 1 and NLEV 
standards and cost effective when compared to non-mobile source 
programs as well.

III. Air Quality Need for and Impact of Today's Proposal

    In the absence of significant new controls on emissions, tens of 
millions of Americans would continue to be exposed to unhealthy levels 
of air pollution. Emissions from passenger cars and light trucks are a 
significant contributor to a number of air pollution problems. Today's 
proposal would significantly reduce emissions from cars and light 
trucks and hence would significantly reduce the health risks posed by 
air pollution. This section summarizes the results of the analyses we 
performed to arrive at our proposed determination that continuing air 
quality problems are likely to exist, that these air quality problems 
would be in part due to emissions from cars and light trucks, and that 
the new standards being proposed today would improve air quality and 
mitigate other environmental problems.

[[Page 26011]]

A. Americans Face Serious Air Quality Problems That Require Further 
Emission Reductions

    Air quality in the United States continues to improve. Nationally, 
the 1997 air quality levels were the best on record for all six 
criteria pollutants.9 In fact, the 1990s have shown a steady 
trend of improvement, due to reductions in emissions from most sources 
of air pollution, from factories to motor vehicles. Despite these 
continued improvements in air quality, however, tens of millions of 
Americans are still exposed to unhealthy levels of ozone and PM. 
Moreover, unless there are reductions in overall emissions beyond those 
that are scheduled to be achieved by already committed controls, many 
of these Americans will continue to be so exposed.
---------------------------------------------------------------------------

    \9\ National Air Quality and Emissions Trend Report, 1997, Air 
Quality Trends Analysis Group, Office of Air Quality Planning and 
Standards, U.S. Environmental Protection Agency, Research Triangle 
Park, N.C., December 1998 (available on the World Wide Web at http:/
/www.epa.gov/oar/aqtrnd97/).
---------------------------------------------------------------------------

    Ambient ozone is formed in the atmosphere through a complex 
interaction of VOC and NOX emissions. Cars and light trucks 
emit a substantial fraction of these emissions. Ambient PM is emitted 
directly from cars and light trucks; it also forms in the atmosphere 
from NOX, sulfur oxides (SOX) and VOC, all of 
which are emitted by motor vehicles. When ozone exceeds the air quality 
standards, otherwise healthy people often have reduced lung function 
and chest pain, and hospital admissions for people with respiratory 
ailments like asthma increase; for longer exposures, permanent lung 
damage can occur. Similarly, particles can penetrate deep into the 
lungs and are linked with premature death, increased hospital 
admissions, increased respiratory symptoms, and changes in lung tissue. 
When either ozone or PM air quality problems are present, those hardest 
hit tend to be children, the elderly, and people who already have 
health problems.
    The health effects of high ozone and PM levels are not the only 
reason for concern about continuing air pollution. Ozone and PM also 
harm plants and damage materials. PM reduces visibility and contributes 
to significant visibility impairment in our national parks and 
monuments and in many urban areas. In addition, air pollution from 
motor vehicles contributes to cancer and other health risks, 
acidification of lakes and streams, eutrophication of coastal and 
inland waters, and elevated drinking water nitrate levels. These 
problems impose a substantial burden on public health, our economy, and 
our ecosystems.
    In recognition of this burden, Congress has passed and subsequently 
amended the Clean Air Act. The Clean Air Act requires each state to 
have an approved State Implementation Plan (SIP) that shows how an area 
plans to meet its air quality obligations, including achieving and then 
maintaining attainment of all of the National Ambient Air Quality 
Standards (NAAQS), such as those for ozone and PM.
    Under EPA's proposed policy for implementing the new 8-hour ozone, 
revised PM10, and new PM2.5 ambient standards (63 
FR 65593, November 27, 1998), states must prepare and submit SIP 
revisions to demonstrate attainment of the 8-hour ozone standard 
between 2000 and 2003, depending on ozone classification under the 8-
hour standard. The earlier submittal date applies to ``transitional'' 
areas, which are areas that are in attainment with the 1-hour standard 
and can attain the 8-hour standard through local measures adopted prior 
to classification (under the 8-hour standard) and the regional emission 
reductions to be achieved under the Regional Ozone Transport Rule (63 
FR 57356, October 27, 1998). In general, EPA expects these areas to 
demonstrate attainment by 2007. Other 8-hour nonattainment areas will 
be classified as ``traditional'' under the 8-hour standard, and we 
believe that these areas will have attainment dates of 2007, 2009, or 
2010 depending on their 1-hour classification status and 1-hour 
attainment date.
    Because it takes three ``clean'' years to qualify an area to be 
redesignated as attainment for the ozone standard, the deadline for 
each area to achieve the VOC and NOX emission reductions 
needed to meet the ozone standard generally should be two years earlier 
than its attainment date. For example, 8-hour ozone nonattainment areas 
for which we would establish an attainment date of 2009 would need to 
implement emission reductions by the start of the 2007 ozone season in 
order to have three ``clean'' years by their 8-hour attainment deadline 
of 2009.
    The SIP revisions to demonstrate attainment with the revised 
PM10 standard must be prepared by 2002, with attainment by 
2006, unless this date is not practicable. As discussed below, EPA has 
also finalized regulations that regions and states implement plans for 
protecting and improving visibility in the 156 mandatory Federal Class 
I areas as defined in section 162(a) of the Clean Air Act. These areas 
are primarily national parks and wilderness areas.
    To accomplish the goal of full attainment in all areas according to 
the schedules for the various NAAQS and the visibility program, the 
federal government must assist the states by reducing emissions from 
sources that are not as practical to control at the state level as at 
the federal level. Vehicles and fuels move freely among the states, and 
they are produced by national or global scale industries. Most 
individual states are not in a position to regulate these industries 
effectively and efficiently. The Clean Air Act therefore gives EPA 
primary authority to regulate emissions from the various types of 
highway vehicles and their fuels. Our actions to reduce emissions from 
these and other national sources are a crucial and essential complement 
to actions by states to reduce emissions from more localized sources.
    If we do not adopt new standards to reduce emissions from cars and 
light trucks, emissions from these vehicles would remain a large 
portion of the emissions burden that causes elevated ozone and 
continued nonattainment with the ozone NAAQS, which in turn affects 
tens of millions of Americans. Without new standards, steady annual 
increases in fleet size and miles of travel will outstrip the benefits 
of current emission controls, and will cause ozone-forming emissions 
from cars and trucks to grow each year starting about 2014. The 
contribution of these vehicles to PM exposure and PM nonattainment 
would also remain significant, and could increase considerably if 
diesel engines are used in more cars or light trucks. For ozone in 
particular, the contribution of cars and light trucks--in terms of both 
local emissions and transported pollution--will be so significant to 
those areas expected to be in nonattainment in the 2007 to 2010 time 
frame, and the expected emission reduction shortfall in these areas 
will be so large, that further reductions from cars and light trucks 
are an inescapable element of any attainment strategy.
    The standards we are proposing would cut the contribution of ozone 
and PM precursors from cars and light trucks greatly. Even with this 
cut, many areas will likely still find it necessary to obtain 
additional reductions from other sources in order to fully attain the 
ozone and PM NAAQS. However, their task would be easier and the 
economic impact on their industries and citizens would be lighter as a 
result of the actions proposed today. This would be a critical benefit 
of today's proposal. Following implementation of the Regional Ozone 
Transport Rule, states

[[Page 26012]]

will have already adopted emission reduction requirements for nearly 
all large sources of VOC and NOX for which cost-effective 
control technologies are known. Those that remain in nonattainment will 
therefore have to consider their other alternatives. In fact, however, 
many of the alternatives states will have to consider are very costly, 
with a small impact from each additional category subjected to new 
emission controls. The emission reductions from today's proposed 
standards for gasoline, cars, and light trucks would ease the need for 
states to find first-time reductions from the mostly smaller sources 
that have not yet been controlled, including area sources that are 
closely connected with individual and small business activities. They 
would also reduce the need for states to seek even deeper reductions 
from large and small sources already subject to emission controls.
    In our meetings and correspondence with state and local officials, 
they asked us to reduce the emissions from cars and trucks, so that 
their charge of protecting the public against air pollution is one they 
can accomplish on schedule and without adverse economic impacts. We 
heard from the Northeast States for Coordinated Air Use Management, the 
Ozone Transport Commission, the State and Territorial Air Program 
Administrators, and the Association of Local Air Pollution Control 
Officers. They consistently told us that it would be very difficult and 
costly for the states to obtain comparable reductions from other 
sources as substitutes for reductions from cars and light trucks, 
especially on top of the additional reductions needed to reach ozone 
attainment even with the reductions from today's proposal.
    We project that today's proposal would also have important benefits 
for regional visibility, acid rain, and coastal water quality.
    For these and other reasons discussed in this document, we are 
proposing to determine that significant emission reductions will still 
be needed by the middle of the next decade and beyond to achieve and 
maintain further improvements in air quality in many, geographically 
dispersed areas. We also believe that a significant portion of these 
emission reductions can be obtained by reducing emissions from cars and 
light trucks. We believe that such reductions are in fact necessary 
(since cars and light trucks are such large contributors to current and 
projected ozone problems) and reasonable (since these reductions could 
be achieved at a reasonable cost compared to other alternative 
reductions).
    The remainder of this section describes the health and 
environmental problems that today's proposal would help mitigate and 
the expected health and environmental benefits of this proposal. Ozone 
is discussed first, followed by PM, other criteria pollutants, 
visibility, air toxics, and other environmental impacts. The emission 
inventories and air quality analyses are explained more fully in the 
Draft Regulatory Impact Analysis for today's proposal.

B. Ozone

1. Ozone Levels Have Declined, but Unhealthy Levels of Ozone Persist
    Ground-level ozone is the main harmful ingredient in 
smog.10 It is produced by complex chemical reactions when 
its precursors, VOC and NOX, react in the presence of 
sunlight. The chemical reactions that create ozone take place while the 
wind is carrying the pollutants, which means that ozone can be more 
severe many miles away from the source of ozone-forming emissions than 
it is at the source. The movement of ozone and its precursors is called 
``ozone transport'' and suggests two complementary approaches to reduce 
ozone levels in areas affected by ozone transport:
---------------------------------------------------------------------------

    \10\ Ozone also occurs naturally in the stratosphere and 
provides a protective layer high above the earth.
---------------------------------------------------------------------------

    (1) Reduce ozone precursor emissions in the area itself.
    (2) Reduce ozone precursor emissions in upwind areas to reduce 
incoming ozone and ozone precursor levels.
    Within a nonattainment area itself, both VOC and NOX 
reductions are generally beneficial. Especially in the eastern portion 
of the U.S., the second approach of controlling upwind emissions can 
play an important part in efforts to reduce ozone levels in 
nonattainment areas. Because individual states cannot control upwind 
sources of air pollution that lie outside their borders, EPA has a 
special role in managing transport impacts. Vehicle and fuel standards 
should play a part in doing so.
    Since NOX affects downwind ozone levels in the eastern 
U.S. over greater distances than VOC does, reductions in upwind 
NOX emissions are particularly important in reducing ozone 
levels downwind. Modeling conducted by the Ozone Transport Assessment 
Group, discussed below, indicates that VOC reductions substantially 
upwind from nonattainment areas have little benefit in those 
nonattainment areas across the eastern region of the U.S. By contrast, 
VOC reductions in or near nonattainment areas do provide air quality 
benefits. Since cars and light trucks meeting today's proposed 
standards would operate everywhere, today's proposal would reduce VOC 
and NOX emissions in both nonattainment areas and in upwind 
areas.
    The new standards being proposed today would have their largest 
effect on NOX emissions. Sulfur in gasoline has been found 
to increase NOX emissions more than VOC emissions, and 
reducing sulfur would therefore yield larger NOX reductions 
than VOC reductions. Similarly, the vehicle standards proposed today 
represent a greater reduction from current NOX standards 
than is the case for VOC. We have taken this approach because air 
quality modeling conducted for OTAG, and subsequent modeling we have 
conducted, indicates that NOX reductions would have larger 
ozone benefits than would VOC reductions. In addition, we believe that 
individual nonattainment areas have a wider range of alternative 
control opportunities for VOC than they have for NOX.
    Ozone levels have decreased significantly over the past 20 years as 
VOC and NOX emissions have been reduced. However, ozone 
levels in much of the country remain a major concern. Outside of 
California, the 1990 census showed 72 million people living in areas 
that were formally designated as non-attainment for the 1-hour standard 
as of August 10, 1998. Measured ozone design values from 1995 to 1997 
in the region analyzed by the Ozone Transport Assessment Group (OTAG) 
11 indicate that in this region alone, 26 metropolitan areas 
and 8 rural counties together containing 75 million people experienced 
ozone levels in excess of the 1-hour ozone standard.
---------------------------------------------------------------------------

    \11\ OTAG evaluated a region that included all or part of the 
easternmost 37 states.
---------------------------------------------------------------------------

    The 8-hour ozone standard is more stringent and protective than the 
1-hour standard, and more areas have exceeded it in the recent past. In 
1995 to 1997, at least one county in each of 81 metropolitan areas and 
an additional 30 rural counties together containing 110 million people 
had ozone values in excess of the 8-hour ozone standard. Additional 
areas in the OTAG region had ozone levels within 15 percent of the 8-
hour standard and hence faced potentially significant maintenance 
challenges: 52 metropolitan areas and 44 rural counties together 
containing 26 million people.
    For several reasons, we expect to see substantial additional 
progress in

[[Page 26013]]

reducing ozone levels over the next ten years despite continued growth 
in electric power generation, industrial output, nonroad activity 
levels, and vehicle miles traveled. NOX and VOC emissions 
from mobile sources will continue to decline as older, higher-emitting 
vehicles and nonroad engines are retired from service and replaced with 
newer vehicles and nonroad engines that must meet more stringent 
federal emission standards. Other federal regulations that will reduce 
ozone precursor emissions will take effect, such as regulations that 
will reduce VOC emissions from paints and other architectural coatings. 
Beginning in 2000, areas of the country participating in the federal 
reformulated gasoline program will receive lower-emitting Phase 2 
reformulated gasoline. States are expected to implement additional 
measures to reduce NOX and VOC emissions in 1-hour ozone 
nonattainment areas. In addition, the final Regional Ozone Transport 
Rule (ROTR) (63 FR 57356, October 27, 1998) requires the District of 
Columbia and 22 states in the eastern U.S. to reduce their 
NOX emissions substantially by 2003 to reduce ozone levels 
in downwind states.
    Using the most recent improvements to the OTAG emission inventories 
and the OTAG ozone model, we project that in the OTAG region, these 
combined emission reductions will bring 18 of the aforementioned 26 
metropolitan areas and 6 of the 8 rural counties, with 36 million 
residents, into attainment with the 1-hour ozone standard by 2007. The 
same emission reductions are projected to bring ozone design values 
below the 8-hour standard in 53 out of 81 metropolitan areas and 26 out 
of 30 rural counties, with a combined 1990 population of 30 million 
people.12
---------------------------------------------------------------------------

    \12\ The design value is the calculated ozone level, based on 
ozone measurements in the area, that is compared to the NAAQS to 
determine compliance with the standard.
---------------------------------------------------------------------------

    However, we still project many areas in the OTAG region to have 
ozone design values in 2007 in excess of the 1-hour and 8-hour 
standards. Eight metropolitan areas and two counties with a combined 
1990 population of 39 million are projected to experience ozone design 
values in excess of the 1-hour ozone standard in 2007.13 
Twenty-eight areas and 4 rural counties, with a combined 1990 
population of 80 million, are projected to experience ozone design 
values at levels in excess of the 8-hour standard in 2007.
---------------------------------------------------------------------------

    \13\ Various states have submitted SIPs to meet a requirement 
that they demonstrate attainment with the 1-hour ozone standard by 
2005 or 2007 (the exact date is state-specific, depending on the 
severity of their violation of the 1-hour standard). These plans 
were submitted to EPA in the first half of 1998, and we are still 
reviewing them for their completeness and approvability. We have not 
fully evaluated the impact of the measures contained in these plans 
on future ozone levels. As a result, they are not included in the 
baseline emission inventory.
---------------------------------------------------------------------------

    Additional areas outside the OTAG modeling region may also 
experience high ozone levels, even with the additional emission 
controls that will be implemented by 2007. The most recent assessment 
for these areas was made in the Regulatory Impact Analysis for the 
revised NAAQS (NAAQS RIA).14 That assessment predicted that 
many areas in California will require substantial additional reductions 
to attain the 1-hour and 8-hour ozone standards. Although the vehicle 
and fuel standards being proposed today would not apply to vehicles and 
fuel sold in California, we project that today's proposals would lead 
to emission reductions within California. According to the State of 
California, about 7 to 10 percent of all car and light truck travel in 
California takes place in vehicles originally sold outside California. 
These vehicles operate in California during visits and after relocation 
of households from other states. Today's proposal would cause those 
vehicles to be cleaner, assisting California's nonattainment areas to 
meet the ozone standards. In addition, this proposal requires that 
gasoline in all states (except California, which has its own low-sulfur 
gasoline program) have a low sulfur content, in order to maintain 
catalyst effectiveness. This would ensure that vehicles belonging to 
California residents get clean gasoline when they travel outside of 
California, so that they return to California with fully functioning 
catalysts.
---------------------------------------------------------------------------

    \14\ ``Regulatory Impact Analyses for the Particulate Matter and 
Ozone National Ambient Air Quality Standards and Proposed Regional 
Haze Rule,'' Innovative Strategies and Economics Group, Office of 
Air Quality Planning and Standards, U.S. Environmental Protection 
Agency, Research Triangle Park, NC, July 17, 1997.
---------------------------------------------------------------------------

    Outside of California and the OTAG region, the NAAQS RIA modeling 
indicated that all areas would attain the 1-hour standard by 2010. One 
area (Phoenix, AZ) was projected not to attain the 8-hour standard. 
Eleven other areas were projected to have ozone levels within 15 
percent of the 8-hour standard and hence face potential challenges in 
maintaining their attainment status.
    Furthermore, even an area now in attainment or that reaches 
attainment by 2007 can be at risk of becoming nonattainment in the face 
of continued growth in its population, economy, vehicle traffic, and 
nonroad equipment activity levels. Also, an area that we have estimated 
will reach attainment in 2007 may fail to do so if growth is higher 
than we project, if emission controls are less effective, or if the 
modeling is otherwise in error. Our modeling for the OTAG region has 
estimated that of the 1-hour nonattainment areas projected to reach 
attainment by 2007 with the benefits of the Regional Ozone Transport 
Rule (ROTR) and other already committed measures, 17 metropolitan areas 
and 5 rural counties, with a combined 1990 population of 35 million 
people, will remain within 15 percent of the 1-hour standard. These 
areas would benefit from additional reductions to help ensure that they 
will attain.
    With respect to the 8-hour standard, we estimate that 80 
metropolitan areas and 39 rural counties with a 1990 population of 49 
million people will have design values within 15 percent of the 8-hour 
standard. These areas have some risk of not actually being in 
attainment in 2007, and will face potentially significant challenges 
maintaining their attainment status in future years. Today's proposed 
standards would help ensure these areas do attain, and help these areas 
accommodate continued population and economic growth while staying in 
attainment with the 8-hour ozone standard by further reducing levels of 
ozone precursors.
    EPA's best ozone projections at the current time for the OTAG 
region are summarized in Tables III-1 and III-2, where ``ROTR'' refers 
to the Regional Ozone Transport Rule. It should be noted that the 
results for the OTAG regions discussed above and summarized in the 
following tables apply to only a portion of the area that would benefit 
from today's proposal.

 Table III-1.--Extent of Potential 1-Hour Ozone Problem Areas in 2007 in
                            the OTAG Region.a
------------------------------------------------------------------------
                                                               2007
                                                            projections
                                                             with ROTR
------------------------------------------------------------------------
    Design values in excess of the 1-Hour NAAQS (125 ppb)
------------------------------------------------------------------------
Number of Metropolitan Areas............................               8
Number of Rural Counties................................               2
1990 Population of Metropolitan Areas and Rural Counties             39
 (millions).............................................
------------------------------------------------------------------------
a Additional potential problem areas in California.


[[Page 26014]]


 Table III-2.--Extent of Potential 8-Hour Ozone Problem Areas in 2007 in
                            the OTAG Region a
------------------------------------------------------------------------
                                                               2007
                                                            projections
                                                             with ROTR
------------------------------------------------------------------------
     Design values in excess of the 8-Hour NAAQS (85 ppb)
------------------------------------------------------------------------
Number of Metropolitan Areas............................              28
Number of Rural Counties................................               4
1990 Population of Metropolitan Areas and Rural Counties              80
 (millions).............................................
------------------------------------------------------------------------
     Design values within 15 percent of the 8-Hour NAAQS (72-84 ppb)
------------------------------------------------------------------------
Number of Metropolitan Areas............................              80
Number of Rural Counties................................              39
1990 Population of Metropolitan Areas and Rural Counties              49
 (millions).............................................
------------------------------------------------------------------------
a Phoenix, Arizona and multiple areas in California are also potential
  problem areas.

    It should be noted that the areas included in Table III-2 have not 
been designated to be in nonattainment with the 8-hour ozone NAAQS. 
Such designations will not be made by EPA until 2000, and these 
designations will be based on the data that are most recently available 
at that time.15 Instead, the areas included in Table III-2 
have been projected to have design values that would place them in 
nonattainment in 2007, using an approach described in the Draft 
RIA.16 This approach enabled EPA to estimate the extent of 
the 8-hour nonattainment problem after implementing the reductions set 
forth in the Regional Ozone Transport Rule and the measures states have 
adopted or are specifically required by the Clean Air Act to adopt for 
their existing 1-hour nonattainment areas. (The modeling did not 
consider the impact of additional measures that may appear in the SIP 
revisions submitted by some states in the first half of 1998.)
---------------------------------------------------------------------------

    \15\ It should also be noted that the number and 1990 population 
of metropolitan areas projected to be near or above the 8-hour ozone 
standard in Table III-2 are based on the boundaries of ozone 
nonattainment areas as currently defined under the 1-hour ozone 
standard. These boundaries will be reevaluated as 8-hour ozone 
nonattainment areas are designated and may change from those used 
above, affecting the count and population of the potential problem 
areas.
    \16\ The approach uses a combination of ambient monitoring data 
and regional ozone photochemical grid modeling for specific ozone 
episodes to develop statistical correlations between modeled ozone 
levels and projected future monitoring results. The approach does 
not reflect any further emission reductions that may have been 
included in revisions to State Implementation Plans (SIPs) for ozone 
that EPA received from some states in the first half of 1998. These 
SIP revisions are still under review by EPA for completeness and 
approvability.
---------------------------------------------------------------------------

    We believe the large reductions called for in today's action would 
substantially reduce ozone levels nationwide and would therefore reduce 
ozone levels and design values in the areas projected to otherwise 
exceed the 8-hour standard as well as in those areas facing potentially 
significant maintenance challenges.
2. Cars and Light-Duty Trucks Are a Big Part of the NOX and 
VOC Inventory, and Today's Proposal Would Reduce This Contribution 
Substantially
    Emissions of VOCs and NOX come from a variety of 
sources, both natural and from human activity. Natural sources, 
including emissions that have been traced to vegetation, account for a 
substantial portion of total VOC emissions in rural areas. The 
remainder of this section focuses on the contribution of motor vehicles 
to emissions from human sources. Human-caused VOCs are released as 
byproducts of incomplete combustion as well as evaporation of solvents 
and fuels. For gasoline-fueled cars and light trucks, approximately 
half of the VOC emissions come from the vehicle exhaust and half come 
from the evaporation of gasoline from the fuel system. NOX 
emissions are dominated by human sources, most notably high-temperature 
combustion processes such as those occurring in automobiles and power 
plants. Emissions from cars and light trucks are currently, and will 
remain, a major part of nationwide VOC and NOX emissions. In 
1996, cars and light trucks comprised 25 percent of the VOC emissions 
and 21 percent of the NOX emissions from human sources in 
the U.S.17 The contribution in metropolitan areas was 
generally larger.
---------------------------------------------------------------------------

    \17\ Emission Trend Report, 1997.
---------------------------------------------------------------------------

    Motor vehicle emission controls have led to significant 
improvements in emission levels in the air (the ``emission inventory'') 
and will continue to do so in the near term. As a result of the 
introduction of cleaner reformulated gasoline in 2000, the introduction 
of National Low Emission Vehicles (NLEVs) and vehicles complying with 
the Enhanced Evaporative Test Procedure and Supplemental Federal Test 
Procedures, and the continuing removal of older, higher-emitting 
vehicles from the in-use vehicle fleet, total emissions from the car 
and light truck fleet are projected to continue to decline through the 
next decade, reaching a low point for NOX in 2013 (Figure 
III-1) and for VOC in 2015.18 On a per mile basis, average 
VOC and NOX emissions from cars and light trucks combined 
will continue to decline well beyond 2015, reflecting the continuing 
effect of existing emission control programs. However, projected 
increases in vehicle miles traveled (VMT) will cause total emissions 
from these vehicles to increase. With this increase in travel and 
without additional controls, we project that combined NOX 
and VOC emissions for cars and light trucks will increase starting in 
2013 and 2015, respectively, so that by 2030 they will have returned to 
levels nearly the same as they will be in 2000. In cities experiencing 
rapid growth, such as Charlotte, North Carolina, the near-term trend 
toward lower emissions tends to reverse sooner.
---------------------------------------------------------------------------

    \18\ The auto manufacturer and northeastern state commitments to 
the NLEV program are scheduled to end in 2004 without further EPA 
action on Tier 2 standards, although continued voluntary compliance 
by automobile manufacturers and the affected states is a 
possibility. Our analysis of emission trends and the emission 
benefits expected from today's proposal assumes for the base 
scenario a continuation of the NLEV program past 2004. It also 
includes all other control measures assumed to be implemented for 
the purposes of the proposed state-level NOX budgets in 
the Regional Ozone Transport Rule, such as reformulated gasoline in 
all required and opt-in areas and enhanced I/M where required.
---------------------------------------------------------------------------

    Figure III-1 illustrates this expected trend in car and light truck 
NOX emissions in the absence of today's proposed standards 
for vehicles and gasoline. The figure also allows the contribution of 
cars to be distinguished from that of light trucks. The figure clearly 
shows the impact of steady growth in light truck sales and travel on 
overall light-duty NOX emissions; the decrease in overall 
light-duty emission levels is due solely to reductions in LDV 
emissions. In 2000, we project that trucks will produce about 50 
percent of combined car and light truck NOX emissions. We 
project that truck emissions will actually increase after 2000, and 
over the next 30 years, trucks will grow to dominate light-duty 
NOX emissions. By 2007, we project trucks will make up two-
thirds of light-duty NOX emissions; by 2020, nearly three-
quarters of all light-duty NOX emissions will be produced by 
trucks.

BILLING CODE 6560-50-P

[[Page 26015]]

[GRAPHIC] [TIFF OMITTED] TP13MY99.000



BILLING CODE 6560-50-C

[[Page 26016]]

    Today's action would significantly decrease NOX and VOC 
emissions from cars and light trucks, and would delay the date by which 
NOX and VOC emissions would begin to increase due to 
continued VMT growth. With Tier 2/Sulfur control, light-duty vehicle 
NOX and VOC emissions are projected to continue their 
downward trend past 2020. Table III-3 shows the annual tons of 
NOX that we project would be reduced if today's proposal 
were adopted.19 These projections include the benefits of 
low sulfur fuel and the introduction of Tier 2 car and light truck 
standards.
---------------------------------------------------------------------------

    \19\ Today's proposed standards for both vehicles and fuels 
would apply in 49 states and the U.S. territories, excluding only 
California. If today's proposal is adopted, there would also be 
emissions reductions in California from vehicles that relocate or 
visit from other states. However, much of the emissions inventory 
analysis for this proposal was made for a 47-state region that 
excludes California, Alaska, and Hawaii, since these states were not 
included in the scope of ozone modeling.

Table III-3.--NOX Emissions From Cars and Light Trucks as Percent of Total Emissions, and Reductions Due to Tier
                                               2/Sulfur Control a
----------------------------------------------------------------------------------------------------------------
                                                                                    Light-duty
                                                                    Light-duty      percent of      Light-duty
                              Year                                 tons without    total without   tons reduced
                                                                      tier 2          tier 2        by tier 2 b
                                                                                     (percent)
----------------------------------------------------------------------------------------------------------------
2007............................................................       3,218,530              17         795,734
2010............................................................       3,041,639              17       1,182,323
2015............................................................       3,020,806              17       1,778,881
2020............................................................       3,221,151              18       2,198,113
----------------------------------------------------------------------------------------------------------------
a Estimates exclude California, Alaska, and Hawaii, although reductions would occur in all three. For all cases,
  this table reflects implementation of ROTR and other measures assumed in the ROTR. For the ``Without Tier 2''
  case, the estimates reflect continuation of NLEV beyond 2004.
b Does not include emission reductions from heavy-duty gasoline vehicles.

    The lower sulfur levels proposed today would produce large emission 
reductions on pre-Tier 2 vehicles as soon as low-sulfur gasoline is 
introduced, in addition to enabling Tier 2 vehicles to achieve lower 
emission levels. Among the pre-Tier 2 vehicles, the largest per vehicle 
emission reductions from lower sulfur in gasoline would be achieved 
from vehicles that automobile manufacturers will have sold under the 
voluntary National Low Emission Vehicle program. These vehicles are 
capable of substantially lower emissions when operated on low sulfur 
fuel. Older technology vehicles experience a smaller but significant 
effect.
    In 2007, when all gasoline would meet the new sulfur limit and when 
large numbers of 2004 and newer vehicles meeting the proposed standards 
would be in use, the combined NOX emission reduction from 
vehicles and fuels would be nearly 800,000 tons per year. After 2007, 
emissions would be reduced further as the fleet turned over to Tier 2 
vehicles operating on low sulfur fuel. By 2020, NOX 
emissions would be reduced by two-thirds from the levels that would 
occur if today's proposal were not adopted. This reduction equals the 
NOX emissions from over 166 million pre-Tier 2/Sulfur cars 
and light trucks. This reduction would represent a 12 percent 
NOX reduction in emissions from all manmade sources.
    VOC emissions would also be reduced by today's proposal, with 
reductions increasing as the fleet turns over. The reductions as a 
percent of emissions from cars and light trucks would be 5 percent in 
2007 and grow to 16 percent in 2020.
    As discussed earlier, in California, smaller but still substantial 
reductions in both NOX and VOC would be achieved because 
vehicles visiting and relocating to California would be designed to 
meet today's proposed standards. Also, vehicles from California 
visiting other states would not be exposed to high sulfur fuel.
    These estimates of emission reductions reflect a mixture of urban, 
suburban, and rural areas. As we noted in the Tier 2 Study, however, 
cars and light trucks generally make up a larger fraction of the 
emission inventory for urban and suburban areas, where human population 
and personal vehicle travel is more concentrated than emissions from 
other sources such as heavy-duty highway vehicles, power plants, and 
industrial boilers. We have estimated emission inventories for three 
cities using the same methods as were used to project the nationwide 
inventories, and we present the results for 2007 below in Table III-4. 
Inventory shares in 2010 are about the same.
    These results confirm that light-duty vehicles make up a greater 
share of the NOX emission inventories in urban areas than 
they do in the nationwide inventory. While these vehicles' share of 
national NOX emissions in 2007 is about 17 percent, it is 
estimated to be about 38 percent in the Atlanta area. There is also a 
range in VOC contributions, with Atlanta again being the area with the 
largest car and light truck contribution at 33 percent. In metropolitan 
areas with high car and light truck contributions, today's proposal 
would represent a larger step toward attainment since it would have a 
larger effect on total emissions.

 Table III-4.--Proportion of the Total Urban Area NOX and VOC Inventory
              in 2007 Attributable to Light-Duty Vehicles a
------------------------------------------------------------------------
                                                       NOX        VOC
                      Region                        (percent)  (percent)
------------------------------------------------------------------------
Nationwide a......................................         17         18
New York urban area...............................         29         15
Atlanta urban area................................         38         33
Charlotte urban area..............................         18         15
------------------------------------------------------------------------
a For all cases, this table reflects implementation of ROTR and other
  measures assumed in the ROTR. The estimates reflect continuation of
  NLEV beyond 2004.

    Another useful perspective from which to view the magnitude of the 
emission reductions from today's proposal is in terms of the additional 
emission reductions from all human sources that areas will need to 
attain the 8-hour ozone standard. For this analysis, we included the 
implementation of the Regional Ozone Transport Rule but assumed that 
today's proposal was not implemented. In the previously referenced 
NAAQS RIA we estimated additional NOX emission reductions 
that, along with specific accompanying VOC reductions, would bring each 
residual nonattainment area into attainment with the 8-hour ozone

[[Page 26017]]

standard by 2010. We have used these estimated reductions as the basis 
for Table III-5, which shows the NOX reductions needed to 
reach attainment in 2007 for six metropolitan areas.20 These 
are areas for which both the NAAQS RIA and the ozone modeling for this 
proposal forecasted continued 8-hour nonattainment in that year, even 
with the emission reductions from the Regional Ozone Transport Rule.
---------------------------------------------------------------------------

    \20\ We calculated the estimated reductions needed for 
attainment in 2007 by adding the reductions due to NLEV vehicles 
entering the fleet between 2007 and 2010 to the estimated reductions 
needed for attainment in 2010.
---------------------------------------------------------------------------

    Table III-5 also shows the NOX emission reductions in 
those same six areas that we project would result if today's proposal 
were implemented. Although the two analyses differ in some emission 
modeling estimates, the comparison is valid as a general indication of 
the contribution today's proposal can make to attainment. Cars and 
light trucks contribute about 20 to 40 percent of the NOX 
inventory in these six areas. The NOX reductions estimated 
for today's proposal range from 19 to 50 percent of the reductions that 
are estimated to be needed for attainment. These figures show that 
today's proposal would make a very substantial contribution to these 
cities' attainment programs, but that there will still be a need for 
additional reductions from other sources. The emission reductions from 
today's proposal would clearly not exceed the reductions needed from an 
air quality perspective for these areas; as described in the next 
section, we project that about 20 other areas in the eastern U.S. would 
also need reductions beyond those of today's proposed program to attain 
the NAAQS for NOX.

  Table III-5.--Comparison of Tier 2/Sulfur NOX Reductions to NOX Reductions Estimated to Produce 8-Hour Ozone
                                               Attainment in 2007
----------------------------------------------------------------------------------------------------------------
                                                                                                   Tier 2/sulfur
                                                                  NOX reductions  NOX reductions  NOX reductions
                                                                   estimated to    from proposed   as percent of
                           Metro area                                 produce     tier  2/sulfur   reductions to
                                                                    attainment       standards        produce
                                                                    (tons/year)     (tons/year)     attainment
----------------------------------------------------------------------------------------------------------------
Atlanta.........................................................          69,802          17,271              25
Dallas..........................................................          41,283          14,761              36
Memphis.........................................................           7,343           3,683              50
NY-NJ-CT........................................................         186,880          35,906              19
Philadelphia....................................................          63,456          19,942              31
Washington, DC-Baltimore........................................          62,519          22,673              36
----------------------------------------------------------------------------------------------------------------

3. Tier 2/Sulfur Ozone Benefits and the Post-Tier 2/Sulfur Ozone 
Problem
    By reducing ozone precursor emissions from cars and light trucks in 
areas where ozone levels are near or above the ozone standard, today's 
proposal would reduce local ozone levels. And by reducing ozone 
precursor emissions in upwind areas, today's proposal would reduce 
ozone and ozone precursor levels in the air flowing into areas where 
ozone levels are high. EPA's analysis of the ozone impact of today's 
proposal suggests that it would yield large reductions in ozone, 
particularly in areas where ozone transport plays a significant role in 
local nonattainment problems. There are uncertainties associated with 
the modeling we have used to estimate these reductions, but we are 
certain that the emission reductions would be large.
    Ozone levels in a few locations in the centers of large 
metropolitan areas are VOC-limited; that is, the atmospheric chemistry 
is such that ozone levels tend to respond to VOC reductions rather than 
to NOX reductions. Some of these areas may experience 
essentially no change or a slight ozone increase on some days, if one 
considers only the isolated effect of the emission reductions due to 
today's proposal. However, it has long been recognized that 
metropolitan areas containing such locations will need to implement 
additional VOC reductions from local sources to reach attainment. If 
these reductions and the reductions from today's proposal were 
combined, the net effect would be a progressive drop in ozone levels 
until attainment is reached.
    To examine the impact of today's proposal on ozone levels, we 
estimated the ozone effects of the emission reductions that would occur 
in 2007 and 2010 for the area covered by the OTAG ozone model. The 1-
hour ozone reductions in 2007 are relevant to the several 1-hour 
nonattainment areas required to reach attainment in that year. The 8-
hour reductions in 2007 and 2010 are of great relevance to the efforts 
of states to achieve attainment with the 8-hour ozone standard, since 
for many areas these dates bracket the three ``clean'' years required 
to show attainment by their actual deadline.
    The estimated emission reductions from our proposal in 2007 and 
2010 would be substantial due to the effect of low sulfur fuel on the 
entire in-use fleet of gasoline vehicles and trucks of all sizes, 
especially those designed to meet NLEV standards, and due to the fact 
that many cleaner 2004 and newer vehicles would be on the road. Table 
III-6 provides a summary of the 1-hour ozone results for the OTAG 
modeling area for 2007. Table III-7 provides a summary of the 2007 and 
2010 results for the 8-hour standard. According to our best modeling, 
the reductions in 2007 would make the difference between nonattainment 
and attainment for four metropolitan areas with a combined 1990 
population of 15 million people. In 2010, we estimate that the Tier2/
Sulfur reductions would be enough by themselves to bring eight 
metropolitan areas with 13 million people into attainment with the 8-
hour standard.
    Tables III-6 and III-7 indicate that we project that some areas 
would not attain with only the emission reductions from the Tier 2/
Sulfur proposal. However, we do project that those areas would 
experience reductions in ozone levels. These reductions would mean that 
even the areas that are not brought all the way to attainment would not 
need to reduce emissions from other sources as much as would be 
required without today's proposal, as previously explained. Of the 18 
areas that we projected would not be brought to attainment with the 8-
hour standard in 2010, we project that 10 areas would

[[Page 26018]]

have design values within 5 percent of the standard.
    Today's proposal would also benefit ozone nonattainment areas 
outside of the OTAG modeling region, including the one area (Phoenix, 
Arizona) projected to be in nonattainment for ozone in 2010 in the 
absence of Tier 2/Sulfur controls. The Tier 2/Sulfur controls being 
proposed today would help Phoenix attain the ozone standard, 
particularly since cars and light trucks are a relatively large part of 
the Phoenix emission inventory. These controls also would help the 11 
areas projected to face potential maintenance challenges stay in 
attainment as their economies and populations grow. And as already 
mentioned, because about 7 to 10 percent of travel in California is by 
non-California vehicles, there would be a substantial benefit in that 
state also.

 Table III-6.--Projected Tier 2/Sulfur Impact on Potential 1-Hour Ozone Problem Areas in the OTAG Region in 2007
                                                        a
----------------------------------------------------------------------------------------------------------------
                                                                   2007 without   2007 with tier   Change due to
                                                                   tier 2/sulfur     2/sulfur      tier 2/sulfur
----------------------------------------------------------------------------------------------------------------
                Design values projected to be in excess of the 1-Hour NAAQS (125 ppb)
----------------------------------------------------------------------------------------------------------------
Number of Metropolitan Areas....................................               8               4              -4
Number of Rural Counties........................................               2               2               0
1990 Population of Metropolitan Areas and Rural Counties                      39              24             -15
 (millions).....................................................
----------------------------------------------------------------------------------------------------------------
a For all cases, this table reflects implementation of ROTR and other measures assumed in the ROTR. For the
  ``Without Tier 2/Sulfur'' case, the estimates reflect continuation of NLEV beyond 2004.


 Table III-7.--Projected Tier 2/Sulfur Impact on Potential 8-Hour Ozone Problem Areas in the OTAG Region in 2007
                                                   and 2010 a
----------------------------------------------------------------------------------------------------------------
                                                                  Without tier 2/  With tier 2/    Change due to
                                                                      sulfur          sulfur       tier 2/sulfur
----------------------------------------------------------------------------------------------------------------
             Design values projected to be in excess of the 8-Hour NAAQS (85 ppb) in 2007
----------------------------------------------------------------------------------------------------------------
Number of Metropolitan Areas....................................              28              25              -3
Number of Rural Counties........................................               4               3              -1
1990 Population of Metropolitan Areas and Rural Counties                      80              72              -8
 (millions).....................................................
----------------------------------------------------------------------------------------------------------------
             Design values projected to be in excess of the 8-Hour NAAQS (85 ppb) in 2010
----------------------------------------------------------------------------------------------------------------
Number of Metropolitan Areas....................................              26            b 18              -8
Number of Rural Counties........................................               3               3               0
1990 Population of Metropolitan Areas and Rural Counties                      78              65             -13
 (millions).....................................................
----------------------------------------------------------------------------------------------------------------
a For all cases, this table reflects implementation of ROTR and other measures assumed in the ROTR. For the
  ``Without Tier 2/Sulfur'' case, the estimates reflect continuation of NLEV beyond 2004.
b Of these 18 areas predicted to remain nonattainment, 10 would be within 5 percent of the 8-hour ozone
  standard.

    Much larger VOC and NOX emission reductions would occur 
in 2020, when the vehicle fleet would be almost fully turned over to 
Tier 2 vehicles. The 2020 scenario is designed to help evaluate the 
long-term impact of today's proposal on ozone levels, when the majority 
of the vehicle fleet would consist of vehicles that meet the standards 
being proposed today.
    We present three indicators of the benefits of today's proposed 
program in 2020. First, as shown in Table III-3, that today's proposal 
would reduce NOX emissions in 2020 by over 2,000,000 tons 
per year, not counting reductions in California, Hawaii, and Alaska. 
The reduction in each nonattainment area would also be very 
substantial. Second, we have estimated how much design values in 2020 
would change due to today's proposal. For all counties projected to 
need emission reductions beyond the ROTR, the average reduction in 2020 
design value was 6 ppb, or almost 8 percent of the 8-hour standard 
itself. The range of design value reductions was 3 to 12 ppb. These 
results included only the region covered by the OTAG ozone model. 
Third, when we analyzed the 2020 scenario to take into account the 
duration, severity, and geographic extent of high ozone levels, we 
found that projected excessive 8-hour ozone levels, defined as grid 
cell-days above 85 ppm ozone, were reduced by 43 percent.
    The baseline scenario against which the ozone effects of today's 
proposed standards in 2020 were compared assumes that no emission 
control efforts beyond those assumed in the ROTR are implemented. We 
believe this approximation is reasonable because our inventory modeling 
shows that in 2020, total human-caused emissions in the absence of 
today's proposed program change very little from their 2007 levels. We 
subtracted the emission benefits of today's proposed program in 2020 
from those baseline emissions to approximate the emissions that would 
result in 2020.
    We expect the requirement to achieve attainment with the 8-hour 
standard will cause states with residual nonattainment areas to adopt 
additional controls in pursuit of their attainment obligations. The 
increasingly large emission reductions from today's proposal that would 
occur over time would be of great value to those areas since these 
areas would not need to implement as extensive or stringent additional 
controls as would otherwise be the case. Furthermore, once an area 
reaches attainment, it must adopt a SIP revision containing a strategy 
to maintain the standard thereafter. The reductions from today's 
proposal would help such areas overcome any loss of reductions due to 
less-than-expected effectiveness from other controls, provide a safety 
margin against the chance of new ozone violations, provide room for 
population and economic growth to cause increases in emissions

[[Page 26019]]

from other sources with less need for the maintenance plan to increase 
the stringency of controls on those other sources, and possibly even 
allow selective relaxation of other control programs.
    Because the ozone modeling for 2020 did not account for the 
additional measures that states will adopt to attain and maintain the 
ozone standard, an attainment vs. nonattainment distinction does not 
apply in 2020. Instead, the changes that today's proposal would achieve 
in 2020 precursor emissions and in predicted ozone concentrations are 
more appropriate indicators of the benefits of the Tier2/Sulfur program 
than would be a count of the areas that have design values move from 
above to below the ozone standard.
    These ozone results for 2007, 2010, and 2020 represent the best 
modeling currently available to us, but should be considered 
approximate. The Regulatory Impact Analysis documents all the methods 
and assumptions used. The results presented are estimates of the future 
that only apply to the OTAG region rather than the entire area that 
would be subject to today's proposal. As previously mentioned, there 
would also be ozone benefits outside this region, particularly for 
nonattainment areas in California and for Phoenix, Arizona. We expect 
to revise our ozone effects estimates prior to the final rule to 
reflect further improvements in estimates of emissions from both mobile 
and stationary sources.
    In addition to the emission-reduction and ozone-reduction benefits 
discussed above that we expect will result from the proposed rule, we 
have done a separate analysis of economic benefits (and costs) 
associated with the expected ozone reductions from today's proposed 
program (see Section IV.D.5. below and the RIA).

C. Particulate Matter

1. Particulate Matter Presents Substantial Public Health Risks
    Particulate matter (PM) is produced as a direct result of human 
activity and natural processes, and it is also formed through chemical 
and physical processes in the atmosphere. Natural sources include 
windblown dust, salt from dried sea spray, fires, and volcanoes, as 
well as so-called secondary particles formed from the transformation of 
natural emissions of SOX, NOX, and VOCs. Human 
sources include industrial activities, agriculture, road dust, and 
soot, as well as secondary particles produced from gases such as 
SOX, NOX, and VOCs that are emitted primarily 
from combustion processes. PM includes fine particles with a diameter 
smaller than 2.5 microns (also called PM2.5) and coarse 
particles with larger diameters. Coarse particles are predominantly 
from non-combustion sources and are dominated by soil dust and sea 
salt. They remain in the atmosphere a relatively short period of time. 
Fine particulate includes carbon-based particles emitted directly from 
combustion processes but consists predominantly of secondary particles, 
such as sulfate-based particles (produced from SOX), 
nitrate-based particles (produced from NOX), and carbon-
based particles created through transformation of VOC emissions. Mobile 
sources can reasonably be estimated to contribute to ambient secondary 
nitrate, sulfate and carbonaceous PM in proportion to their 
contribution to total NOX, SO, and VOC emissions.
    In 1997, 8 million Americans were living in 13 counties that 
exceeded the recently revised PM10 standard, and 
PM10 problems are projected to persist in the absence of 
further actions to control PM10 levels. Table III-8 presents 
estimates of the extent of PM10 and PM2.5 
nonattainment in the future. In the NAAQS RIA, we projected that in 
2010, eleven counties with a combined 1990 population of about 10 
million people would not be in attainment with the revised 
PM10 standards.21 About half of the affected 
population lives outside of California. In the same analysis, 102 
counties were projected to violate the new PM2.5 NAAQS, with 
a combined 1990 population of about 55 million people. About 75 percent 
of the affected population lives outside of California. (More 
information about this analysis and its uncertainties may be found in 
the NAAQS RIA and the Tier 2 Report to Congress.) Ambient PM reductions 
from more stringent motor vehicle or fuel standards would primarily 
affect areas outside of California, because California has its own 
motor vehicle emission control program. California areas would also 
benefit, however, through the temporary travel and permanent migration 
of out-of-state vehicles into California, as discussed above.
---------------------------------------------------------------------------

    \21\ The methods used to project PM concentrations in 2010 from 
1990 emissions and ambient concentration data introduce several 
sources of uncertainty. Also, the PM2.5 values are 
predicted from a regression model and hence are subject to the 
uncertainty associated with this model. Other uncertainties exist 
regarding emission inventory estimates from human and natural 
sources, monitoring data, and the models used to account for 
physical and chemical processes in the atmosphere. Even with the 
anticipated delivery of more comprehensive modeling techniques, the 
scarcity of speciated ambient PM data in both urban and rural areas 
to evaluate model behavior will continue to compromise the certainty 
of the best model-derived conclusions.

   Table III-8.--Projected 2010 PM10/PM2.5 Nonattainment Counties and
                               Populations
------------------------------------------------------------------------
                                                  Outside
                                                 California   California
------------------------------------------------------------------------
                      Violating Original PM10 NAAQS
------------------------------------------------------------------------
Number of Counties............................           33           12
1990 Population (millions)....................           11            7
------------------------------------------------------------------------
                      Violating Revised PM10 NAAQS
------------------------------------------------------------------------
Number of Counties............................            5            6
1990 Population (millions)....................            5            5
------------------------------------------------------------------------
                        Violating New PM2.5 NAAQS
------------------------------------------------------------------------
Number of Counties............................           92           10
1990 Population (millions)....................           42           13
------------------------------------------------------------------------

    A significant number of areas are projected to exceed the 
PM10 NAAQS in 2010 with existing emission controls, 
indicating that further PM and PM-precursor emission reductions will be 
needed. Because the bulk of PM emissions from motor vehicles are fine 
particles, any reduction in particulate emissions from motor vehicles 
aimed at reducing PM10 levels would also reduce ambient 
levels of PM2.5. As mentioned above, the number of counties 
projected to violate the new PM2.5 NAAQS is much larger than 
that for the revised PM10 standards. Tier 2/Sulfur standards 
that reduce particulate emissions for the purposes of facilitating 
attainment with the PM10 NAAQS could also benefit areas with 
elevated PM2.5 levels.
2. Reducing Emissions From Cars and Light Trucks Would Reduce Ambient 
Levels
    Today's proposal would reduce PM levels by reducing direct PM 
emissions from cars and light trucks, and by reducing emissions of 
sulfur and nitrogen oxides that are converted to PM in the atmosphere. 
Direct PM emissions would be reduced in two ways. First, reductions in 
gasoline sulfur levels would reduce PM emissions from gasoline 
vehicles. Second, the more stringent PM standard included in today's 
proposal would reduce PM emissions from cars and light trucks equipped 
with diesel engines. Diesel engines are used in a small fraction of 
current cars and light trucks, but this

[[Page 26020]]

fraction could grow as discussed in III.C.3. below.
    With no growth in diesel sales, we project today's action would 
reduce direct PM emissions from cars and light trucks mainly due to the 
introduction of low-sulfur gasoline. Sulfur-based particles account for 
a substantial portion of the particulate matter emitted by gasoline-
powered vehicles. More stringent PM emission standards are not 
anticipated to alter PM emissions from gasoline vehicles but would 
result in reductions in diesel PM emissions. The overall effect of 
today's proposal under this assumption would be to reduce direct 
exhaust PM emissions from cars and light trucks by 60 percent in 2007 
and by 62-63 percent in 2015 and beyond. Tables III-9 and III-10 show 
the contribution of cars and light trucks to total PM10 and 
PM2.5 emissions, and the reductions that would be obtained 
from today's proposal. The contribution of cars and light trucks to 
either PM inventory will generally be higher in urban areas than on a 
nationwide basis, and will vary from area to area. In 2007, for 
example, cars and light trucks contribute 1.3 percent to the nationwide 
PM10 inventory (excluding natural sources and fugitive 
dust). For comparison, this percentage is estimated to be 4.4 percent 
in Atlanta and 1.9 percent in the New York City metropolitan area.
    Later in this section we discuss the possibility that sales of 
diesel-powered vehicles might increase from current levels, making the 
effect of the more stringent PM standard in this proposal larger.

    Table III-9.--Direct exhaust PM10 Emissions From Cars and Light Trucks as Percent of Total Emissions, and
                                   Reductions Due to Tier 2/Sulfur Controla,b
----------------------------------------------------------------------------------------------------------------
                                                                                    Light-duty
                                                                    Light-duty      percent of      Light-duty
                              Year                                 tons without    total without   tons reduced
                                                                      tier 2          tier 2         by tier 2
----------------------------------------------------------------------------------------------------------------
2007............................................................          39,209             1.3          23,379
2010............................................................          41,412             1.4          25,239
2015............................................................          46,064             1.4          28,674
2020............................................................          51,102             1.5          32,031
----------------------------------------------------------------------------------------------------------------
a For all cases, this table reflects continuation of current diesel engine usage in the light truck fleet and
  implementation of ROTR and other measures assumed in the ROTR.
b The emission estimates shown exclude natural sources of PM and fugitive dust. They also do not include
  California (which has its own vehicle and fuel standards), Alaska, or Hawaii. Today's proposal would have
  additional emission benefits in these states.


   Table III-10.--Direct exhaust PM2.5 Emissions From Cars and Light Trucks As Percent of Total Emissions, and
                                   Reductions Due to Tier 2/Sulfur Control a,b
----------------------------------------------------------------------------------------------------------------
                                                                                    Light-duty
                                                                    Light-duty      percent of      Light-duty
                              Year                                 tons without    total without   tons reduced
                                                                      tier 2          tier 2         by tier 2
----------------------------------------------------------------------------------------------------------------
2007............................................................          36,365             1.7          21,687
2010............................................................          38,409             1.8          23,410
2015............................................................          42,724             1.9          26,595
2020............................................................          47,397             2.0          29,707
----------------------------------------------------------------------------------------------------------------
a For all cases, this table reflects continuation of current diesel engine usage in the light truck fleet and
  implementation of ROTR and other measures assumed in the ROTR.
b The emission estimates shown exclude natural sources of PM and fugitive dust. They also do not include
  California (which has its own vehicle and fuel standards), Alaska, or Hawaii. Today's proposal would have
  additional emission benefits in these states.

    Even larger PM reductions would result from the reductions in the 
sulfur oxides (SOX), NOX, and VOC emissions that 
give rise to secondary PM that would result from today's proposal. The 
reduction in ambient PM levels that would come from the proposed 
reductions in these precursor emissions is about 6 to 7 times as large 
as the reduction from lower emissions of direct PM. Essentially all 
secondary PM is fine PM and hence is included in estimates of both 
PM10 and PM2.5.
    We described the effect of today's proposal on VOC and 
NOX emissions above in Section III.B. Today's proposal also 
would reduce SOX emissions from cars and light trucks by 
dramatically lowering the level of sulfur in gasoline, since gaseous 
SOX emissions are dependent entirely on fuel sulfur level. 
In the absence of today's proposal, we project that SOX 
emissions from cars and light trucks will increase steadily in 
conjunction with VMT growth, from approximately 216,000 tons in 2005 to 
300,000 tons in 2020--an increase of almost 40 percent (total 
nationwide SOX emissions from all sources was 20,000,000 
tons in 1997). Today's proposal would reduce SOX emissions 
from all gasoline-powered engines, including cars, light trucks, heavy-
duty gasoline vehicles, and gasoline-powered nonroad engines, in any 
year by 90 percent, once all gasoline meets the proposed sulfur limit. 
The same percentage reductions in SOX emissions would occur 
in subsequent years. The absolute emission reduction increases with 
time, however, due to growth in VMT and nonroad engine use. Table III-
11 shows the impact of today's proposal on SOX emissions.

[[Page 26021]]



  Table III-11.--SOx Emissions From Cars and Light Trucks as Percent of Total Emissions, and Reductions Due to
                                             Tier 2/Sulfur control a
----------------------------------------------------------------------------------------------------------------
                                                                                    Light-duty
                                                                    Light-duty      percent of      Light-duty
                              Year                                 tons without    total without   tons reduced
                                                                      tier 2          tier 2         by tier 2
----------------------------------------------------------------------------------------------------------------
2007............................................................         225,673             1.2         202,748
2010............................................................         240,694             1.3         216,437
2015............................................................         270,174             1.4         242,964
2020............................................................         299,959             1.6         269,756
----------------------------------------------------------------------------------------------------------------
a The emission estimates shown do not include California (which has its own vehicle and fuel standards), Alaska,
  or Hawaii. Today's proposal would have additional emission benefits in these states.

3. Today's Proposal Would Limit the Potential Health Risks From 
Increased Diesel Engine Use in Cars and Light Trucks
    Of particular concern from a PM perspective is the possibility that 
diesels will become more prevalent in the light-duty truck fleet. This 
development is a reasonable possibility since vehicle and engine 
manufacturers have indicated their intent to sell more diesel-powered 
light-duty trucks and in some cases have made capital investments to 
implement these plans. The Partnership for a New Generation of Vehicles 
(PNGV), a public-private research and development effort that has been 
pursuing several promising technologies for greatly improved vehicle 
fuel economy combined with low emissions, has identified improved 
diesel engines as a technology likely to be able to deliver large fuel 
economy improvements in the near future, by about 2004. In order to 
assess the potential impact of increased diesel sales penetration on 
PM2.5 emissions, we analyzed benefits from our proposed Tier 
2 PM standards under a scenario in which the use of diesel engines in 
light trucks increases rapidly, by five percentage points per year from 
2001 through 2010, when diesels would account for 50 percent of light-
duty truck sales; beyond 2010, diesel sales were assumed to be stable 
at 50 percent of the light-truck market. Table III-12 presents the 
results of our analysis of this scenario.
    This scenario of increased diesels would result in dramatic 
increases in direct PM2.5 emissions from cars and light 
trucks, if there is no change in the PM standards for light trucks. The 
increase in diesel exhaust PM2.5 emissions would more than 
overcome the reduction in direct PM2.5 attributable to the 
sulfur reduction in gasoline. Assuming no change in the existing PM 
standards for light trucks, our analysis of this scenario shows that 
direct PM2.5 emissions in 2020 would be approximately 
140,000 tons, nearly three times the 47,000 tons projected in the base 
diesel sales case from Table III-10. The portion of the 
PM2.5 inventory attributable to cars and light trucks would 
climb steadily, reaching almost 6 percent in 2020 instead of the 2 
percent shown in Table III-10 for a scenario where diesel engines do 
not increase their presence in the light truck fleet. In some cities 
with relatively high vehicle use and lower industrial emissions, the 
car and truck contribution would be even higher.
    This increase would be accompanied by increases in the mortality 
and morbidity associated with PM2.5 exposure. Fortunately, 
the standards being proposed today would result in a steady decrease in 
total direct PM2.5 from cars and light trucks despite a 
possible increase in diesel engines in light trucks. Direct PM 
emissions in 2020 with today's proposal would be about 25,000 tons per 
year, less than at present.
    If this scenario for increased diesel engines in light trucks were 
to occur, today's proposal would reduce diesel PM2.5 by over 
90 percent in 2020. Stated differently, by 2020 today's proposal would 
reduce over 113,000 tons of the potential increase in PM emissions from 
passenger cars and light trucks. The result would be less direct 
PM2.5 than is emitted today, because the increase in diesel 
PM would be more than offset by the reduction in gasoline PM.

   Table III-12.--Direct Exhaust PM2.5 Emissions From Light Duty Vehicles and Reductions Due to Tier 2/Sulfur
                                  Control, With Greater Diesel Engine Sales a,b
----------------------------------------------------------------------------------------------------------------
                                                                    Light-duty      Light-duty
                              Year                                 exhaust tons    exhaust tons     Light-duty
                                                                  without tier 2    with tier 2    tons reduced
----------------------------------------------------------------------------------------------------------------
2007............................................................          52,907          22,478          30,429
2010............................................................          72,626          22,542          50,084
2015............................................................         109,622          23,275          86,347
2020............................................................         138,177          24,754         113,424
----------------------------------------------------------------------------------------------------------------
a For all cases, this table reflects implementation of ROTR and other measures assumed in the ROTR and an
  increase in diesel-powered light truck market share from 5 percent of light truck sales in 2001 to 50 percent
  in 2010 and beyond.
b The emission estimates shown exclude natural sources of PM and fugitive dust. They also do not include
  California (which has its own vehicle and fuel standards), Alaska, or Hawaii. Today's proposal would have
  additional emission benefits in these states.

4. Today's Proposal Would Have Substantial PM Benefits
    In general, we project that today's proposal would reduce both 
direct and secondary PM from cars and light trucks substantially, 
regardless of the future market share for diesel engines in the light-
duty fleet. The larger part of the reduction is due to large reductions 
in VOC, NOX, and SOX emissions, with 
corresponding reductions in secondary PM formation.
    Low sulfur fuel would greatly reduce direct PM emissions and 
sulfate-based secondary PM formation from SOX emissions from 
gasoline vehicles, while tailpipe PM standards are projected to 
mitigate excess PM emissions from diesel vehicles, even at very 
aggressive rates of diesel vehicle sales growth. Substantial reductions 
in NOX

[[Page 26022]]

emissions would carry over to reductions in indirect PM. These 
reductions would help reduce the number of areas with PM10 
and PM2.5 levels in excess of national standards, reduce the 
severity of PM nonattainment in other areas, and help areas facing PM 
maintenance challenges stay in attainment.
    The magnitude of the PM reductions from today's proposal in a given 
area depends on conditions such as the contribution of light-duty 
vehicles to the local PM, SOX, NOX, and VOC 
inventory; the contribution of light-duty vehicles to the PM, 
SOX, NOX, and VOC inventories in upwind areas; 
local and upwind ammonia inventories (involved in secondary PM 
formation); control measures being implemented on both local and upwind 
sources of PM and its precursors, and local meteorology. We have 
incorporated these factors into the air quality modeling used to 
develop the benefit/cost analysis presented in Section IV.D.5., which 
includes the economic benefits of the direct and secondary PM 
reductions expected to result from today's proposal.
    The PM modeling results from that analysis suggest that if all cars 
and trucks used in 2010 met the emission standards being proposed 
today, significant PM reductions would result in urban and substantial 
PM reductions would result in much of the continental U.S. The annual 
average level of both PM10 and PM2.5 was 
projected to decline by 0.25 to 0.64 micrograms per cubic meter 
(/m3) in many cities; average levels were projected 
to decline by 0.1 to 0.25 /m3 throughout most of 
the country east of the Great Plains, Nebraska, and parts of Colorado, 
Arizona, and other western states. Similarly, daily maximum PM levels 
22 were projected to decline substantially, with many cities 
projected to see declines of 0.75 to 4.5 /m3 and 
over half the continental U.S. projected to experience declines of 0.25 
to 0.75 /m3. Note that this analysis assumed no 
growth in sales of diesel-powered light trucks. It also did not account 
for the direct PM reductions that would be achieved when the small 
number of diesel-powered trucks already being sold now will reduce 
their PM emissions to meet the lower proposed PM standard.
---------------------------------------------------------------------------

    \22\ Daily maximum PM levels are the PM levels (averaged over 24 
hours) for days that are projected to be in the 98th or 99th 
percentile when ranked by their PM2.5 and PM10 
levels, respectively.
---------------------------------------------------------------------------

D. Other Criteria Pollutants: Carbon Monoxide, Nitrogen Dioxide, Sulfur 
Dioxide

    This proposal would help reduce levels of three other pollutants 
for which NAAQS have been established: carbon monoxide (CO), nitrogen 
dioxide (NO2), and sulfur dioxide (SO2). The 
extent of nonattainment for these three pollutants is small, so the 
primary effect of today's proposal would be to provide areas concerned 
with maintaining their attainment status a greater margin of safety. As 
of 1998, every area in the United States has been designated to be in 
attainment with the NO2 NAAQS. As of 1997, only one area 
(Buchanan County, Missouri) did not meet the primary SO2 
short-term standard, due to emissions from the local power plant. In 
1997, only 6 of 537 monitoring sites reported ambient CO levels in 
excess of the CO NAAQS; all six sites were located in California, which 
has established its own vehicle and fuel emission standards.
    The reductions in SO2 precursor emissions from today's 
proposal are essentially equal to the SOX reductions 
described in Section III.B. and III.C., respectively. The impact of 
today's proposal on NO2 emissions depends on the specific 
emission control technologies used to meet the standards being proposed 
today. However, essentially all of the NOX emitted by cars 
and light trucks converts to NO2 in the atmosphere; 
therefore, it is reasonable to assume that today's proposal would 
substantially reduce ambient NO2 levels by the same 
proportion. Today's proposal also would require light trucks to meet 
more stringent CO standards; we will evaluate the impact of these 
standards more fully before publishing our final rule. The analysis of 
economic benefits and costs found in Section IV.D.-5. does not account 
for the economic benefits of the CO reductions expected to result from 
today's proposal.

E. Visibility

    Visibility impairment occurs as a result of the scattering and 
absorption of light by particles and gases in the atmosphere. It is 
most simply described as the haze that obscures the clarity, color, 
texture, and form of what we see. The principal cause of visibility 
reduction is fine particles between 0.1 and 1 m in size. Of 
the pollutant gases, only NO2 absorbs significant amounts of 
light; it is partly responsible for the brownish cast of polluted 
skies. While the contribution of NO2 to visibility 
impairment varies from area to area, it is generally responsible for 
less than ten percent of visibility reduction.
    The CAA requires EPA to protect visibility, or visual air quality, 
through a number of programs. These programs include the national 
visibility program under Sections 169a and 169b of the Act, the 
Prevention of Significant Deterioration program for the review of 
potential impacts from new and modified sources, and the secondary 
NAAQS for PM10 and PM2.5. The national visibility 
program established in 1980 requires the protection of visibility in 
156 mandatory federal Class I areas across the country (primarily 
national parks and wilderness areas). More than 65 million visitors 
travel each year to these parks and wilderness areas. The CAA 
established as a national visibility goal, ``the prevention of any 
future, and the remedying of any existing, impairment of visibility in 
mandatory federal Class I areas in which impairment results from 
manmade air pollution.'' The Act also calls for state programs to make 
``reasonable progress'' toward the national goal. In addition, a recent 
national opinion poll on the state of the national parks found that 
more than 80 percent of Americans believe air pollution affecting these 
parks should be cleaned up for the benefit of future 
generations.23
---------------------------------------------------------------------------

    \23\ ``National Parks and the American Public: A National Pubic 
Opinion Survey on the National Park System,'' Summary Report, 
National Parks and Conservation Association, June 1998.
---------------------------------------------------------------------------

    There has been improvement in visibility in the western part of the 
country over the last ten years. However, visibility impairment remains 
a serious problem in Class I areas. Visibility in the East does not 
seem to have improved. As one part of addressing this national problem, 
EPA has proposed that states be required to adopt and implement 
effective plans for protecting and improving visibility in Class I 
federal areas (including 156 major national parks and wilderness 
areas), integrated with plans to achieve the revised ozone and PM 
standards.
    Today's proposal should result in visibility improvements due to 
the reduction in local and upwind PM and PM precursor emissions. Since 
mobile source emissions contribute to the formation of visibility-
reducing PM, control programs that reduce the mobile source emissions 
of direct and secondary PM would have the effect of improving 
visibility. The Grand Canyon Visibility Transport Commission's final 
recommendations report 24 found that

[[Page 26023]]

reducing total mobile source emissions is an essential part of any 
program to protect visibility in the Western U.S. The Commission found 
that motor vehicle exhaust is responsible for about 14 percent of 
human-caused visibility reduction (excluding road dust). A substantial 
portion of motor vehicle exhaust comes from cars and light trucks. In 
light of that impact, the Commission's recommendations in 1996 
supported federal Tier 2/Sulfur standards, as EPA is proposing today. 
More recently, a number of Western Governors noted the importance of 
controlling mobile sources as part of efforts to improve visibility in 
their comments on the Regional Haze Rule and on the need to protect the 
16 Class I areas on the Colorado Plateau. In their joint letter dated 
June 29, 1998, they stated that, ``* * * the federal government must do 
its part in regulating emissions from mobile sources that contribute to 
regional haze in these areas. * * *'' and called on EPA to make a 
``binding commitment * * * to fully consider the Commission's 
recommendations related to the * * * federal national mobile source 
emission control strategies.'' These recommendations included Tier 2 
vehicle standards and reductions in gasoline sulfur levels.
---------------------------------------------------------------------------

    \24\ ``Recommendations for Improving Western Vistas,'' Report of 
the Grand Canyon Visibility Transport Commission to the United 
States Environmental Protection Agency, June 10, 1996.
---------------------------------------------------------------------------

    As an indication of how important car and light truck emissions can 
be to fine PM and visibility, the recent Northern Front Range Air 
Quality Study has reported findings that indicate that cars and light 
trucks are responsible for 39 percent of fine PM at a site within the 
metropolitan Denver area, and for 40 percent at a downwind rural site. 
This contribution includes both direct PM and indirect PM formed from 
sulfur dioxide and NOX from these vehicles.
    The analysis of economic benefits and costs found in Section 
IV.D.5. accounts for the economic benefits of the visibility 
improvements expected to result from today's proposal.

F. Air Toxics

    Emissions from cars and light trucks include a number of air 
pollutants that are known or suspected human or animal carcinogens such 
as benzene, formaldehyde, acetaldehyde, 1,3-butadiene, and diesel 
particulate matter, or that are known or suspected to have other, non-
cancer health impacts. For several of these pollutants, motor vehicle 
emissions are believed to account for a significant proportion of total 
nation-wide emissions. All of these compounds are present in exhaust 
emissions; benzene is also found in evaporative emissions from 
gasoline-fueled vehicles.
    The health effects of diesel particulate are of particular 
relevance to this rulemaking, because of the possibility for increased 
diesel-powered truck sales and our proposal for a more stringent PM 
standard that would apply to these trucks. While we have not finalized 
our decision about the carcinogenicity of diesel exhaust particulate, 
we are in the process of addressing this question. Several other 
agencies and international organizations have already made such a 
determination, including the California Air Resources Board (ARB). Our 
own quantitative risk assessment for diesel particulate is still in 
draft form,25 and is presently being revised to address the 
comments of a peer review panel of the Clean Air Science Advisory 
Committee.
---------------------------------------------------------------------------

    \25\ EPA's diesel health assessment (Health Assessment Document 
for Diesel Emissions, SAB Review Draft, U.S. Environmental 
Protection Agency, Washington, DC. EPA/600/8-90/057C, February 
1998.) can be found at the following EPA website: http://
www.epa.gov/ncea/diesel.htm. The Clean Air Science Advisory 
Committee's review of that assessment (CASAC Review of the Draft 
Diesel Health Assessment Document, U.S. Environmental Protection 
Agency Science Advisory Board, Washington, DC EPA-SAB-CASC-99-001.) 
can be found at the following SAB website: http://www.epa.gov/sab/.
---------------------------------------------------------------------------

    Because our assessment for diesel particulate is not complete, we 
are not presenting absolute estimates of how potential cancer risks 
from diesel particular could be affected by today's proposal. However, 
we can give a qualitative or relative discussion. Diesel engines are 
used in a very small portion of the cars and light-duty trucks in 
service today. By far, heavy duty highway and nonroad diesel engines 
are the larger source of diesel PM. Engine and vehicle manufacturers 
have projected that diesel engines are likely to be used in an 
increasing share of light trucks, and some manufacturers have announced 
capital investments to build such engines.
    If these projections are valid and the proportion of light-duty 
trucks powered by diesel engines increases, the potential health risks 
from diesel PM could increase substantially. Light trucks could become 
a larger source of diesel PM than heavy-duty diesel trucks. We estimate 
that if the percentage of light duty diesel truck sales were to 
increase to 50 percent of light-duty truck sales by 2010, the increased 
presence of light duty diesel trucks on the nation's roads could 
increase the potential cancer risks associated with PM emissions from 
all diesel-powered highway vehicles (including heavy-duty diesel 
trucks, diesel buses, and light-duty diesel vehicles) by approximately 
130 percent as of 2020, under the current light-duty diesel PM 
standards. Though the actual levels of diesel engine use may be 
considerably different than the projections used in both analyses, the 
analyses are useful in illustrating the potential impact of increased 
diesel engine use in light trucks.
    Today's proposal would limit the increase in the potential cancer 
risks from cars and light trucks associated with any potential increase 
in light-duty diesel sales. We have estimated that in 2020, today's 
proposal would limit the increase in total highway diesel PM emissions 
due to growth in light truck diesels to 24 percent, in contrast to the 
more than doubling that would occur without our proposal for a tighter 
PM standard for light trucks. The comparison in terms of potential 
cancer risk from car and light truck diesel PM likely would closely 
follow this emissions comparison.
    The VOC emission reductions resulting from today's proposal would 
further reduce the potential cancer risk posed by air pollutants other 
than diesel PM emitted by cars and light trucks, since many of these 
pollutants are themselves VOCs. The analysis of economic benefits and 
costs found in Section IV.D.5. does not account for the economic 
benefits of the reduction in cancer risk from air toxics that could 
result from today's proposal, because we have not yet completed our 
study of this issue or engaged in a peer-reviewed assessment of the 
baseline air toxics risks (including a final quantitative risk 
assessment of the diesel particulate risks) or of the reductions that 
would be achieved by today's proposal. Therefore, the estimates 
included in the Draft RIA should be considered preliminary. A peer-
reviewed assessment is planned and may be completed in time to be 
available for incorporation into the impact analysis for the final 
rule. EPA will place this document in the docket as soon as it is 
available for public review.
    Section 202(l)(2) of the Clean Air Act requires EPA to establish 
regulations for the control of hazardous air pollutants, or air toxics, 
from motor vehicles. The regulations may address vehicle emissions or 
fuel properties that influence emissions, or both. We will issue a 
proposal to address this requirement in September of this year, and a 
final rule in July 2000.

G. Acid Deposition 26

    Acid deposition, or acid rain as it is commonly known, occurs when 
SO2

[[Page 26024]]

and NOX react in the atmosphere with water, oxygen, and 
oxidants to form various acidic compounds that later fall to earth in 
the form of precipitation or dry deposition of acidic particles. It 
contributes to damage of trees at high elevations and in extreme cases 
may cause lakes and streams to become so acidic that they cannot 
support aquatic life. In addition, acid deposition accelerates the 
decay of building materials and paints, including irreplaceable 
buildings, statues, and sculptures that are part of our nation's 
cultural heritage. To reduce damage to automotive paint caused by acid 
rain and acidic dry deposition, some manufacturers use acid-resistant 
paints, at an average cost of $5 per vehicle--a total of $61 million 
per year if applied to all new cars and trucks sold in the U.S. The 
general economic and environmental effects of acid rain are discussed 
at length in the Draft RIA.
---------------------------------------------------------------------------

    \26\ Much of the information in this section was excerpted from 
the EPA document, Human Health Benefits from Sulfate Reduction, 
written under Title IV of the 1990 Clean Air Act. Amendments, U.S. 
EPA, Office of Air and Radiation, Acid Rain Division, Washington, DC 
20460, November 1995.
---------------------------------------------------------------------------

    Acid deposition primarily affects bodies of water that rest atop 
soil with a limited ability to neutralize acidic compounds. The 
National Surface Water Survey (NSWS) investigated the effects of acidic 
deposition in over 1,000 lakes larger than 10 acres and in thousands of 
miles of streams. It found that acid deposition was the primary cause 
of acidity in 75 percent of the acidic lakes and about 50 percent of 
the acidic streams, and that the areas most sensitive to acid rain were 
the Adirondacks, the mid-Appalachian highlands, the upper Midwest and 
the high elevation West. The NSWS found that approximately 580 streams 
in the Mid-Atlantic Coastal Plain are acidic primarily due to acidic 
deposition. Hundreds of the lakes in the Adirondacks surveyed in the 
NSWS have acidity levels incompatible with the survival of sensitive 
fish species. Many of the over 1,350 acidic streams in the Mid-Atlantic 
Highlands (mid-Appalachia) region have already experienced trout losses 
due to increased stream acidity. Emissions from U.S. sources contribute 
to acidic deposition in eastern Canada, where the Canadian government 
has estimated that 14,000 lakes are acidic. Acid deposition also has 
been implicated in contributing to degradation of high-elevation spruce 
forests that populate the ridges of the Appalachian Mountains from 
Maine to Georgia. This area includes national parks such as the 
Shenandoah and Great Smoky Mountain National Parks.
    The SOX and NOX reductions from today's 
proposal would help reduce acid rain and acid deposition, thereby 
helping to reduce acidity levels in lakes and streams throughout the 
U.S. These reductions would help accelerate the recovery of acidified 
lakes and streams and the revival of ecosystems adversely affected by 
acid deposition. Reduced acid deposition levels would also help reduce 
stress on forests, thereby accelerating reforestation efforts and 
improving timber production. Deterioration of our historic buildings 
and monuments, and of buildings, vehicles, and other structures exposed 
to acid rain and dry acid deposition, also would be reduced, and the 
costs borne to prevent acid-related damage may also decline.
    While the reduction in sulfur and nitrogen acid deposition would be 
roughly proportional to the reduction in SOX and 
NOX emissions, respectively, the precise impact of today's 
proposal would differ across different areas. Each area is affected by 
emissions from different source regions, and the mobile source 
contribution to the total SOX and NOX emission 
inventory will differ across different source regions. Nonetheless, the 
projected impact of today's proposal on SOX and 
NOX emission inventories provides a rough indicator of the 
likely effect of today's proposal on acid deposition. As discussed in 
Section III.D. above, today's proposal would reduce SOx emissions by 
1.6 percent and NOX emissions by 12.5 percent in 2020.
    The analysis of economic benefits and costs found in Section 
IV.D.5. was not able to account for the economic benefits of the 
reduction in acid deposition expected to result from today's proposal.

H. Eutrophication/Nitrification

    Nitrogen deposition into bodies of water can cause problems beyond 
those associated with acid rain. Elevated levels of nitrate in drinking 
water pose significant health risks, especially to infants. The 
Ecological Society of America has included discussion of the 
contribution of air emissions to increasing nitrogen levels in surface 
waters in a recent major review of causes and consequences of human 
alteration of the global nitrogen cycle in its Issues in Ecology 
series.27 Long-term monitoring in the United States, Europe, 
and other developed regions of the world shows a substantial rise of 
nitrogen levels in surface waters, which are highly correlated with 
human-generated inputs of nitrogen to their watersheds. These nitrogen 
inputs are dominated by fertilizers and atmospheric deposition.
---------------------------------------------------------------------------

    \27\ Vitousek, Peter M., John Aber, Robert W. Howarth, Gene E. 
Likens, et al. 1997. Human Alteration of Global Nitrogen Cycle: 
Causes and Consequences. Issues in Ecology. Published by Ecological 
Society of America, Number 1, Spring 1997.
---------------------------------------------------------------------------

    Human activity can increase the flow of nutrients into those waters 
and result in excess algae and plant growth. This increased growth can 
cause numerous adverse ecological effects and economic impacts, 
including nuisance algal blooms, dieback of underwater plants due to 
reduced light penetration, and toxic plankton blooms. Algal and 
plankton blooms can also reduce the level of dissolved oxygen, which 
can also adversely affect fish and shellfish populations. This problem 
is of particular concern in coastal areas with poor or stratified 
circulation patterns, such as the Chesapeake Bay, Long Island Sound, or 
the Gulf of Mexico. In such areas, the ``overproduced'' algae tends to 
sink to the bottom and decay, using all or most of the available oxygen 
and thereby reducing or eliminating populations of bottom-feeder fish 
and shellfish, distorting the normal population balance between 
different aquatic organisms, and in extreme cases causing dramatic fish 
kills.
    Collectively, these effects are referred to as eutrophication, 
which the National Research Council recently identified as the most 
serious pollution problem facing the estuarine waters of the United 
States (NRC, 1993). Nitrogen is the primary cause of eutrophication in 
most coastal waters and estuaries.28 On the New England 
coast, for example, the number of red and brown tides and shellfish 
problems from nuisance and toxic plankton blooms have increased over 
the past two decades, a development thought to be linked to increased 
nitrogen loadings in coastal waters. Airborne NOX 
contributes from 12 to 44 percent of the total nitrogen loadings to 
United States coastal water bodies. For example, approximately one-
quarter of the nitrogen in the Chesapeake Bay comes from atmospheric 
deposition.
---------------------------------------------------------------------------

    \28\ Much of this information was taken from the following EPA 
document: Deposition of Air Pollutants to the Great Waters-Second 
Report to Congress, Office of Air Quality Planning and Standards, 
June 1997, EPA-453/R-97-011.
---------------------------------------------------------------------------

    Excessive fertilization with nitrogen-containing compounds can also 
affect terrestrial ecosystems. 29 Research suggests that 
nitrogen fertilization can alter growth patterns and change the balance 
of species in an ecosystem. In

[[Page 26025]]

extreme cases, this process can result in nitrogen saturation when 
additions of nitrogen to soil over time exceed the capacity of the 
plants and microorganisms to utilize and retain the nitrogen. This 
phenomenon has already occurred in some areas of the U.S.
---------------------------------------------------------------------------

    \29\ Terrestrial nitrogen deposition can act as a fertilizer. In 
some agricultural area, this effect can be beneficial.
---------------------------------------------------------------------------

    Deposition of nitrogen from cars and light trucks contributes to 
these problems. As discussed in Section III.B. above, today's proposal 
would reduce total NOX emissions by 12.5 percent in 2020. 
These reductions should reduce drinking water nitrate levels by 
reducing the amount of nitrate deposited from the atmosphere onto 
drinking water sources or onto the watersheds of drinking water sources 
by similar amounts. The NOX reductions would also reduce the 
eutrophication problems associated with atmospheric deposition of 
nitrogen into watersheds and onto bodies of water, particularly in 
aquatic systems where atmospheric deposition of nitrogen represents a 
significant portion of total nitrogen loadings. Since air deposition 
accounts for 12-44 percent of total nitrogen loadings in coastal 
waters, the 12.5 percent reduction in NOX from today's 
proposal are projected to reduce nitrogen loadings by 1.5-5.5 percent. 
To put these reductions in perspective, the reductions expected in the 
Chesapeake Bay area would amount to about 6 percent of the total 
reduction in nitrogen loading needed to maintain the reduction in 
nutrient loads agreed to by the signatory states in the Chesapeake Bay 
Agreement (40 percent of ``controllable by the year 2000).
    The analysis of economic benefits and costs found in Section 
IV.D.5. does not account for the economic benefits of reduced drinking 
water nitrate levels and reduced terrestrial nitrogen deposition 
expected to result from today's proposal, if implemented. The analysis 
does, however, account for the economic benefits of reduced 
eutrophication.

I. Conclusion: Cleaner Cars and Light Trucks Are Critically Important 
to Improving Air Quality

    Despite continued progress in reducing emissions from cars and 
light trucks, these vehicles will continue to contribute a substantial 
share of the ozone and PM precursors in current and projected 
nonattainment areas, and in upwind areas whose emissions contribute to 
downwind nonattainment, unless additional measures are taken to reduce 
their emissions. These vehicles will also continue to contribute to the 
ambient PM that affects visibility in Class I federal areas and some 
urban areas. Emissions from cars and light trucks also play a 
significant role in a wide range of health and environmental problems, 
including known and potential cancer risks from inhalation of air 
pollutants (a problem that could become more significant if sales of 
diesel-powered cars and light trucks were to increase), health risks 
from elevated drinking water nitrate levels, acidification of lakes and 
streams, and eutrophication of inland and coastal waters.
    Today's proposal would reduce NOX, VOC, CO, PM, and 
SOX emissions from these vehicles substantially. These 
reductions would help reduce ozone levels nationwide and reduce the 
extent and severity of violations of both the 1-hour and 8-hour ozone 
standards. These reductions would also help reduce PM levels, both by 
reducing direct PM emissions and by reducing emissions that give rise 
to secondary PM. The NOX and SOX reductions would 
help reduce acidification problems, and the NOX reductions 
would help reduce eutrophication problems and drinking water nitrate 
levels. The PM standards proposed today would help improve visibility 
and would help mitigate the adverse health effects due to possible 
increases in light-duty diesel engine sales.
    Section IV.D.5. of this preamble describes the comprehensive 
analysis EPA has made of the net economic benefit of the requirements 
we are proposing today. In that analysis, we have quantified many of 
the public health and environmental benefits of the actions on an 
annual, national scale. Estimates of the economic value of these 
effects have been made for as many of the effects as possible, and 
compared to the cost of compliance. This rulemaking is the first 
instance in which EPA has conducted such a cost-benefit analysis for a 
set of proposed vehicle emission standards.

IV. What Are We Proposing and Why?

    In the previous section, we showed why many states need as much 
emission reduction as is reasonably possible from LDVs and LDTs--plus 
reductions from other sources--if they are to reach and maintain 
compliance with the 1-hour and 8-hour ozone NAAQS. We also pointed out 
that these reductions would also be important in addressing PM and 
other air quality and environmental problems in every major region of 
the country.
    In this section, we describe the comprehensive vehicle/fuel program 
we are proposing to respond to these serious air quality needs. 
Specifically, we discuss:
     Our reasons for proposing a comprehensive vehicle and fuel 
program, including why stringent LDV and LDT standards are feasible in 
conjunction with low sulfur gasoline.
     Our proposed vehicle-related requirements and our 
rationales for proposing them.
     Our proposed fuel-related requirements and our rationales.
     Our projections of the economic impacts, cost 
effectiveness, and monetized environmental and health benefits of the 
proposed program.
     Other program design options we have considered.

A. Why Are We Proposing Vehicle and Fuel Standards Together?

1. Feasibility of Stringent Standards for Light-Duty Vehicles and 
Light-Duty Trucks.
    a. Gasoline Fueled Vehicles. We believe that the standards being 
proposed today for gasoline-fueled vehicles are well within the reach 
of existing control technology. Our proposed determination of 
feasibility is based on the use of catalyst-based strategies that are 
already in use and are well proven on the existing fleet of vehicles. 
In fact, as you will see below, many current engine families are 
already certified to levels at or below the proposed new Tier 2 
requirements. All of the certification and research testing discussed 
below was performed on low-sulfur test fuel (nominally 30 ppm).
    Certainly, larger vehicles and trucks, which are heavier and have 
larger frontal areas, will face the biggest challenges. However, 
conventional technology will be sufficient for even these vehicles, 
especially in light of the extra leadtime we have provided before LDT3s 
and LDT4s have to meet Tier 2 levels. We are also proposing to change 
the test conditions for these trucks from ``adjusted loaded vehicle 
weight'' to ``loaded vehicle weight.'' Adjusted loaded vehicle weight, 
suitable for commercial truck operation, loads the truck to half of its 
full payload. Loaded vehicle weight, on the other hand, represents curb 
weight plus 300 pounds. The proposed change more accurately reflects 
how these vehicles are used and makes heavy LDT testing consistent with 
passenger car and light LDT testing. This change will make it 
substantially easier for the heavier trucks to meet our proposed 
standards.
    Emission control technology has evolved rapidly in recent years. 
Emission standards applicable to 1990 model year vehicles required 
roughly 90% reductions in exhaust HC and CO

[[Page 26026]]

emissions and a 75% reduction in NOX emissions compared to 
uncontrolled emissions. Today, some vehicles currently in production 
are well below these levels, showing overall emissions reductions of 
all three of these pollutants. These vehicles' emissions are well below 
those necessary to meet the current federal Tier 1 and even California 
Low-Emission Vehicle (LEV) standards. The reductions have been brought 
about by ongoing improvements in engine air-fuel management hardware 
and software plus improvements in catalyst designs, all of which are 
described fully in the Draft RIA.
    The types of changes being seen on current vehicles have not yet 
reached their technological limits and continuing improvement will 
allow both LDVs and LDTs to meet the proposed standards. The Draft RIA 
describes a range of specific techniques that we believe could be used. 
These range from improved computer software and engine air-fuel 
controls to increases in precious metal loading and other exhaust 
system/catalyst system improvements. All of these technologies are 
currently used on one or more production vehicle models. There is no 
need to invent new approaches or technologies. The focus of the effort 
is primarily development, application, and optimization of these 
existing technologies.
    We can gain significant insight into the difficulty of meeting the 
proposed new standards by looking at current full-life certification 
data. There are at least 48 engine family-control systems combinations 
certified in 1999 at levels below the Tier 2 NOX standard of 
0.07 g/mi. Of these, 35 also have hydrocarbon levels of 0.09 g/mi or 
below. Looking at a somewhat higher threshold to identify vehicles 
certified near the proposed standard, there are an additional 113 car 
and light truck families certified at levels between 0.07 g/mi and 0.10 
g/mi NOX.
    All of the above vehicles are already able, or close to being able, 
to certify to our proposed standards. The further reductions needed are 
those to provide an ample safety margin, or cushion, between the 
certified level and the emission standard. The degree of compliance 
margin required is a function of a variety of factors designed to 
provide the manufacturer a high confidence that production vehicles 
will meet the standards in-use over their useful life. Historically, 
these determinations are manufacturer specific, with cushions generally 
growing smaller as standards decline (reflecting more precision and 
repeatability in vehicle performance as more sophisticated controls are 
developed). The 1999 certification data reflects compliance cushions 
from as little as 20 percent below the standard to as high as 80 
percent below the standard.
    The cushion to be expected for Tier 2 vehicles is difficult to 
establish, although some manufacturers claim a cushion of 50 percent 
below the standard would be needed. We believe that manufacturers would 
strive to use the smallest cushions possible in order to minimize the 
impacts of the standards on their vehicles. Looking at 1999 
certification data from this perspective and using a threshold of 0.04 
g/mi NOX, there are fully 22 engine family-control system 
configurations at or below the 0.04 g/mi level (one of which is a 
LDT4). Thus, even at such low levels, current technology is already 
demonstrating the performance that would be necessary to meet the 
proposed standards.
    Since the most difficult compliance effort would be faced by the 
larger LDTs, we have undertaken a technology demonstration program 
aimed at lowering the emissions of a large 1999 LDT3 vehicle. This 
vehicle has a high horsepower engine, four wheel drive, and a curb 
weight of 4,500 pounds (GVWR 30 of 6,100 lbs). The exhaust 
system of the vehicle was modified to incorporate two close-coupled and 
two underfloor catalytic converters. The catalytic converters were aged 
to full useful life conditions using the accelerated aging methods 
described by Theiss.31 For further details of the 
modifications to this vehicle, please refer to the draft RIA.
---------------------------------------------------------------------------

    \30\ Gross Vehicle Weight Rating. The curb weight of the vehicle 
plus its maximum recommended load of passengers and cargo.
    \31\ Theiss, J.R., ``Catalytic Converter Diagnosis Using the 
Catalyst Exotherm,'' SAE Technical Paper Series, Paper No. 942058, 
SAE Fuels and Lubricants Meeting and Exposition, Baltimore, MD, 
October 17-20, 1994.
---------------------------------------------------------------------------

    In our initial work we made no attempts to alter the calibration of 
the electronic engine controls. In this configuration, the vehicle 
achieved emissions levels of 0.060  0.002 g/mi 
NOX and 0.09  0.01 g/mi NMHC. Thus, by these 
straightforward modifications to the catalyst system based upon 
existing catalyst hardware, this vehicle was able to reach the proposed 
Tier 2 levels. In order to achieve additional reductions in the test 
vehicle's emissions, we are planning further work consisting largely of 
elimination of fuel cut-offs during decelerations, slight increases in 
EGR, and a minor degree of air injection during cold-start. However, 
given the amount of leadtime before any of the proposed Tier 2 
standards would begin, we believe that the work already done clearly 
shows the feasibility of our proposal, even for large light-duty 
trucks.
    Figure IV.A.-1 shows the results of our testing in comparison to 
the California LEV-1 standards applicable to this vehicle, and the 
proposed Tier 2 standards.

BILLING CODE 6560-50-P

[[Page 26027]]

[GRAPHIC] [TIFF OMITTED] TP13MY99.001



BILLING CODE 6560-50-C

[[Page 26028]]

    One of the challenges facing larger truck catalyst systems is 
overtemperature protection. Because of this, our work on this vehicle 
included temperature evaluation of the catalyst under maximum load 
conditions. We found that the original fuel calibration for the truck 
provided sufficient enrichment under wide-open-throttle conditions to 
prevent exceeding the catalyst bed temperature limits (950 
to 1000 deg.C) specified by the manufacturer of the catalytic 
converters. We conducted chassis dynamometer testing over the 
aggressive US06 cycle with the dynamometer inertia greatly increased to 
simulate full GVWR load conditions (6,100 lbs) for the pickup. Catalyst 
bed temperatures did not exceed 850 deg.C at any point during the 
testing.
    In addition to the EPA work, others have conducted several test 
programs recently that help demonstrate the feasibility of our proposed 
levels. The Coordinating Research Council (CRC), automobile 
manufacturers, and the American Petroleum Institute (API) all tested a 
number of light-duty vehicles capable of complying with the California 
LEV or ULEV standards as part of an evaluation of the effects of sulfur 
levels on emissions. Of the vehicles tested, seven met or nearly met 
the Tier 2 design targets, and all were below the proposed 0.07 g/mi 
NOX and 0.09 g/mi NMOG standards.
    Another program sponsored by MECA took two LDVs (a Crown Victoria 
and a Buick LeSabre) and one LDT2 (a Toyota T100) certified to the 
federal Tier 1 standards and replaced the original catalytic converters 
with more advanced catalytic converters, thermally aged to roughly 
50,000 miles. With these systems and some related emission control 
modifications, all three vehicles' emissions were well below our 
proposed 50,000 mile standards (0.05 g/mi NOX, 0.075 g/mi 
NMOG), and the Buick and the Toyota LDT2 met our estimated design 
targets for those standards.
    Finally, the California Air Resources Board (ARB) tested six 
different production LEV light-duty vehicle models. Two of the six 
models met the proposed Tier 2 design targets for NMOG and 
NOX. After installing low mileage advanced catalytic 
converters and making some minor adjustments, all of the vehicles had 
emission levels well below the proposed Tier 2 NMOG and NOX 
design targets. ARB also tested several Ford Expeditions (LDT4) 
equipped with advanced catalytic converters. By adjusting several 
parameters, they were able to reduce NOX emissions to 0.06 
g/mi and NMOG to 0.07 g/mi with a catalyst aged to 50,000 miles of use.
    Neither the MECA nor the ARB test programs modified the basic 
engine calibrations of the vehicles tested. It is very likely that such 
recalibration could reduce emissions even further. Therefore, we 
consider these actual test results to be a conservative estimate of the 
capability of these advanced catalytic converters. This is especially 
true for the Ford Expedition testing by ARB, where the engine software 
appeared to modify its own calibration with the new catalyst, 
counteracting some of the advantages of the new catalyst.
    A more expanded analysis of the feasibility of the proposed 
standards for gasoline fueled vehicles can be found in the Draft RIA, 
considering the types of changes that will allow manufacturers to 
extend effective new controls to the entire fleet of affected vehicles. 
That analysis includes discussion of gasoline direct-injection engines, 
as well as the feasibility of the proposed CO, formaldehyde and 
evaporative emission standards. The conclusion of all of our analyses 
is that the proposed standards would be feasible for gasoline-fueled 
vehicles operated on low-sulfur gasoline. As gasoline-fueled vehicles 
represent the overwhelming majority of the light-duty vehicle and truck 
population, EPA proposes to find that the proposed standards would be 
feasible overall for LDVs and LDTs.
    b. Diesel Vehicles. As outlined above, we have decided to propose 
standards that are intended to be ``fuel neutral.'' In today's 
document, we propose to find that the Tier 2 standards are 
technologically feasible and cost-effective for light-duty vehicles and 
light-duty trucks overall, based on the discussion in Section IV.A.1.a. 
above. Under the principal of fuel neutrality, all cars and light 
trucks, including those using diesel engines, would be required to meet 
the proposed Tier 2 standards. EPA believes that the proposed program, 
including the phase-in periods, would facilitate the advancement of 
clean diesel engine technologies. EPA further believes that in the long 
term the standards would be within reach for diesel-fueled vehicles in 
combination with appropriate changes to diesel fuel to facilitate 
aftertreatment technologies.
    As with gasoline engines, manufacturers of diesels have made 
abundant progress over the past 10 years in reducing engine-out 
emissions from diesel engines. In heavy trucks and buses, PM emission 
standards, which were projected to require the use of exhaust 
aftertreatment devices, were actually met with only engine 
modifications. NOX emissions from heavy trucks and buses 
sold starting in 2002 will also reflect deep reductions from emission 
levels typical of engines produced in the mid-1980's. Indeed, emissions 
and performance of lighter diesel engines are rapidly approaching the 
characteristics of gasoline engines, while retaining the durability and 
fuel economy advantages that diesels enjoy. Against this background of 
continuing progress, we believe that the technological improvements 
that would be needed could be made in the time that would be available 
before diesels would have to meet the new Tier 2 
standards.32
---------------------------------------------------------------------------

    \32\ We generally expect that manufacturers would take advantage 
of the flexibilities in today's proposal to delay the need for 
diesel vehicles to meet the final Tier 2 levels until late in the 
phase-in period. Because diesel vehicles represent a very small 
percentage of the LDV/LDT market, diesels would not fall under the 
final Tier 2 standards until 2009, giving manufacturers a relatively 
large amount of leadtime. As discussed below, we are issuing an 
Advance Notice of Proposed Rulemaking intended to solicit comment on 
the need for reduced sulfur in diesel fuel in order to meet these 
standards. We also believe that the proposed interim standards would 
be feasible for diesels by 2004, with or without the fuel change, 
given the flexibilities associated with those standards.
---------------------------------------------------------------------------

    While reductions in ``engine-out'' emissions, including 
incorporation of EGR strategies, will continue to be made, increasing 
emphasis is being placed on various aftertreatment devices for diesels. 
This is because further reductions in engine-out emissions will be 
unlikely, by themselves, to allow diesels to comply with the proposed 
Tier 2 standards for NOX and PM. Rather, diesels would 
require the use of highly effective aftertreatment devices.
    For NOX emissions, potential aftertreatment technologies 
include lean NOX catalysts, NOX adsorbers and 
selective catalytic reduction (SCR). Lean NOX catalysts are 
still under development, but generally appear capable of reducing 
NOX emissions by about 15-30%. This efficiency is not likely 
to be sufficient to enable compliance with the proposed Tier 2 
standards, but it could be used to meet the interim standards that 
would begin in 2004.
    NOX adsorbers appear to be up to 90% efficient at 
removing NOX from the exhaust. Efficiency in this range is 
likely to be sufficient to enable compliance with the proposed Tier 2 
standards. NOX adsorbers temporarily store the 
NOX and thus the engine must be run periodically for a brief 
time with excess fuel, so that the stored NOX can be 
released and converted to nitrogen and oxygen using a conventional 
three-way

[[Page 26029]]

catalyst, like that used on current gasoline vehicles.
    There is currently a substantial amount of development work being 
directed at NOX adsorber technology. While there are 
technical hurdles to be overcome, progress is continuing and it is our 
judgement that the technology should still be available by the time it 
would be needed for the proposed Tier 2 standards.
    One serious concern with current NOX adsorbers is that 
they are quickly poisoned by sulfur in the fuel. Some manufacturers 
have strongly emphasized their belief that, in order to meet the Tier 2 
levels, low sulfur diesel fuel would also be required to mitigate or 
prevent this poisoning problem. One solution would be to reduce sulfur 
to very low levels. Another solution would be to reduce sulfur 
somewhere below current levels and develop a way to periodically remove 
the sulfur from the adsorber. In any event, this technique, if used, 
would also require low sulfur diesel fuel.
    SCR has been demonstrated commercially on stationary diesel engines 
and can reduce NOX emissions by 80-90%. This efficiency 
would be sufficient to enable compliance with the proposed Tier 2 
standards. However, SCR requires that the chemical urea be injected 
into the exhaust before the catalyst to assist in the destruction of 
NOX. The urea must be injected at very precise rates, which 
is difficult to achieve with an on-highway engine, because of widely 
varying engine operating conditions. Otherwise, emissions of ammonia, 
which have a very objectionable odor, can occur. Substantial amounts of 
urea are required, meaning that vehicle owners would have to replenish 
their vehicles' supply of urea frequently. As the engine and vehicle 
will operate satisfactorily without the urea (only NOX 
emissions would be affected), some mechanism would be needed to ensure 
that vehicle owners maintained their supply of urea. Otherwise, little 
NOX emission reduction would be expected in-use.
    Regarding PM, applicable aftertreatment devices tend to fall into 
two categories: oxidation catalysts and traps. Diesel oxidation 
catalysts can reduce total PM emissions by roughly 15-30%. They would 
need to be used in conjunction with further reductions in PM engine-out 
emissions in order to meet the proposed Tier 2 standards. Diesel 
particulate traps, on the other hand, can eliminate up to 90% of diesel 
PM emissions. However, some of the means of accomplishing the 
regeneration of particulate traps involve catalytic processes that also 
convert sulfur dioxide in the exhaust to sulfate. These techniques, if 
used, would also require a low sulfur fuel.
    Since we have noted that some of the options for diesel 
aftertreatment may require lower sulfur diesel fuel than is currently 
available, the question of diesel fuel quality improvement arises. 
Manufacturers have argued that low sulfur diesel fuel will be required 
to permit diesels to meet the proposed new standards. While we believe 
that low sulfur diesel fuel would likely be required to enable diesel 
engines to meet the proposed Tier 2 standards, this proposal does not 
include provisions for such fuel. We need additional information about 
the specific aftertreatment solutions that could be used to meet the 
standards, the effectiveness of these approaches in reducing PM and 
NOX emissions and their sensitivity to diesel sulfur, and 
improvements or alternatives that might reduce the impacts of fuel 
sulfur.
    To deal more thoroughly with this matter, we are issuing an 
Advanced Notice of Proposed Rulemaking on a parallel path with today's 
Tier 2 proposal. As a part of that process, EPA will assess the effect 
of low-sulfur fuel on the ability of diesels to meet Tier 2 standards 
for LDVs and LDTs. It will also consider the issue of the relation of 
diesel fuel quality to future standards for heavy-duty on-highway 
diesel engines and nonroad diesel engines. Our plans for this Advanced 
Notice are discussed further in section IV.C. below. In any case, we 
believe that the standards proposed today are appropriate and feasible 
overall for LDVs and LDTs.
2. Gasoline Sulfur Control Is Needed To Support the Proposed Vehicle 
Standards
    As we discussed in the previous section, we believe that the 
stringent standards we propose are needed to meet air quality goals are 
feasible for LDVs and LDTs. At the same time, we believe that for these 
standards to be feasible for gasoline LDVs and LDTs, low sulfur 
gasoline must be made available. The following paragraphs explain why 
we think gasoline sulfur control must accompany Tier 2 vehicle 
standards.
    Catalyst manufacturers generally use low sulfur gasoline in the 
development of their catalyst designs. Vehicle manufacturers then equip 
their vehicles with these catalysts and EPA certifies them to the 
exhaust emission standards, usually based on testing the manufacturer 
does using low sulfur gasoline. However, fundamental chemical and 
physical characteristics of exhaust catalytic converter technology 
generally result in a significant degradation of emission performance 
when these vehicles use gasoline with sulfur levels common in most of 
the country today. This sensitivity of catalytic converters to gasoline 
sulfur varies somewhat depending on a number of factors, some better 
understood than others. Clearly, however, as we discuss in the 
following paragraphs, gasoline sulfur's impact is large, especially in 
vehicles designed to meet very low emission standards like those 
proposed today.
    This is the reason EPA has decided to propose a comprehensive 
approach to addressing emissions from cars and light trucks, including 
provisions to get low sulfur gasoline into the field in the same time 
frame needed for Tier 2 vehicles. (We discuss the related fact that the 
sulfur impact on catalyst performance is not fully reversible in 
Section IV.C. below, in the context of EPA's preference for a 
nationwide versus a regional gasoline sulfur control program, and in 
the Draft RIA.)
    a. How Does Gasoline Sulfur Affect Vehicle Emission Performance? We 
know that gasoline sulfur has a negative impact on vehicle emission 
controls. Vehicles depend on the catalytic converter to reduce 
emissions of HC, CO, and NOX. Sulfur and sulfur compounds 
attach or ``adsorb'' to the precious metal catalysts that are required 
to convert these emissions. Sulfur also blocks sites on the catalyst 
designed to store oxygen that are necessary to optimize NOX 
emissions conversions. While the amount of sulfur contamination can 
vary depending on the metals used in the catalyst and other aspects of 
the design and operation of the vehicle, some level of sulfur 
contamination will occur in any catalyst.
    Sulfur sensitivity is impacted not only by the catalyst formulation 
(the types and amounts of precious metals used in the catalyst) but 
also by factors including the following:
     the materials used to provide oxygen storage capacity in 
the catalyst, as well as the general design of the catalyst,
     the location of the catalyst relative to the engine, which 
impacts the temperatures inside the catalyst,
     the mix of air and fuel entering the engine over the 
course of operation, which is varied by the engine's computer in 
response to the driving situation and affects the mix of gases entering 
the catalyst from the engine, and
     the speeds the car is driven at and the load the vehicle 
is carrying, which

[[Page 26030]]

also impact the temperatures experienced by the catalyst.
    Since these factors vary for every vehicle, the sulfur impact 
varies for every vehicle to some degree. There is no single factor that 
guarantees that a vehicle will be very sensitive or very insensitive to 
sulfur. We now believe that there are not (and will not be in the 
foreseeable future) emission control devices available for gasoline-
powered vehicles that can meet the proposed Tier 2 emission standards 
that would not be significantly impaired by gasoline with sulfur levels 
common today.
    b. How Large Is Gasoline Sulfur's Effect on Emissions? High sulfur 
levels have been shown to significantly impair the emission control 
systems of cleaner, later technology vehicles. The California LEV 
standards and Federal NLEV standards, as well as California's new LEV-
II standards and our proposed Tier 2 standards, require catalysts to be 
extremely efficient to adequately reduce emissions over the full useful 
life of the vehicle. Recent test programs conducted by the automotive 
and oil industries show that LEV and ULEV vehicles can experience, on 
average, a 40% increase in NMHC and 134% increase in NOX 
emissions when operated on 330 ppm sulfur fuel (approximately the 
current national average sulfur level) compared to 30 ppm sulfur fuel.
    This level of emissions increase is significant enough on its own 
to potentially cause a vehicle to exceed the proposed full useful life 
emission standards when operated on sulfur levels that are 
substantially higher than the levels proposed today, even with the 
margin of safety that auto manufacturers generally include. Average 
sulfur levels in the U.S. are currently high enough to significantly 
impair the emissions control systems in new technology vehicles, and to 
potentially cause these vehicles to fail emission standards required 
for vehicles up through 100,000 miles (or more) of operation.
    For older vehicles designed to meet Tier 0 and Tier 1 emission 
standards, the effect of sulfur contamination is somewhat less. Still, 
testing shows that gasoline sulfur increases emissions of NMHC and 
NOX by almost 17% when one of these vehicles is operated on 
gasoline containing 330 ppm sulfur compared to operation on gasoline 
with 30 ppm sulfur. Thus, Tier 0 and Tier 1 vehicles can also have 
higher emissions when they are exposed to sulfur levels substantially 
higher than the proposed sulfur standard. This increase is generally 
not enough to cause a vehicle to exceed the full useful life emission 
standards in practice, but it can result in in-use emissions increases 
since the vehicle could emit at levels higher than it would if it 
operated consistently on 30 ppm sulfur gasoline.
    Gasoline sulfur control to 30 ppm would achieve about 700,000 tons 
of NOX reductions per year from LDVs and LDTs by 2020. This 
represents about a third of the national NOX emission 
reductions otherwise available from these vehicles. Without these 
potential emission reductions, many states would face the potentially 
unmeetable challenge of finding enough other cost-effective sources of 
NOX emission reductions to address their ozone nonattainment 
and maintenance problems.
    Other implications of continued use of high-sulfur gasoline include 
the following:
     Other important potential air quality benefits would not 
be realized throughout the country, including reduction in direct 
emissions of sulfur dioxide, secondary formation of nitrate PM from 
NOX emissions, reductions in regional haze, reductions in 
air toxics emissions and other pollution problems described in Section 
III above.
     The immediate and very significant improvements that lower 
sulfur gasoline would bring in the emissions performance of vehicles 
already on the road would not occur.
     Advanced emission control technologies now being 
developed, all of which appear equally or even more sensitive to 
gasoline sulfur levels than current technologies, would not be 
available to the U.S. vehicle market (for example, very fuel efficient 
technologies like gasoline direct injection technology and fuel cells).
     Finally, any interference with onboard emission control 
system diagnostic (OBD) systems that high-sulfur gasoline causes would 
remain in the absence of a low-sulfur gasoline program.
3. A Comprehensive Vehicle/Fuel Approach Is Therefore Necessary
    Based on this information, we have concluded that sulfur levels in 
gasoline must be reduced to enable these catalysts to operate properly 
and for the needed air quality benefits of this program to be achieved. 
In today's action, therefore, we are proposing a comprehensive, 
integrated program of stringent vehicle emission standards in 
combination with stringent gasoline sulfur standards. The proposal is 
carefully designed to address the need for refiners to make low-sulfur 
gasoline available at very nearly the same time as auto makers begin 
selling large numbers of Tier 2 vehicles. We have tried to take into 
account all potential areas of interaction between the vehicle and 
gasoline sulfur parts of the proposal, and as a result we believe that 
the overall proposed program would achieve the expected environmental 
goals while minimizing the economic and administrative burdens on the 
affected industries. We encourage all commenters to consider and 
discuss the interrelationships among the elements of the program when 
they comment on individual provisions.

B. Our Proposed Program for Vehicles

    We have held a series of meetings with the various stakeholders 
impacted by this action. We have seriously considered their input in 
developing our proposal and believe the program laid out below and the 
areas upon which we are seeking comment are responsive to their 
concerns. One part of this input was provided by a broad representation 
of the LDV/LDT manufacturing industry, represented by the Alliance of 
Automobile Manufacturers, and offered constructive recommendations on a 
number of elements of a vehicle emission control program. We have 
considered many of their ideas and issues in the design of the proposed 
program and we are seeking comment on a number of others. The 
``Alliance'' proposal is documented in the docket in a letter to EPA 
dated March 26, 1999.
    The next sections of the preamble describe our proposal in detail.
1. Overview of the Proposed Vehicle Program
    The vehicle-related part of today's proposal covers a wide range of 
standards, concepts, and provisions that affect how vehicle 
manufacturers would develop, certify, produce, and market Tier 2 
vehicles. This Overview subsection provides readers with a broad 
summary of the major vehicle-related aspects of the proposal. Readers 
for whom this Overview is sufficient may want to move on to the 
discussion of the key gasoline sulfur control provisions (Section 
IV.C.). Readers wishing a more detailed understanding of the proposed 
vehicle provisions can continue beyond the Overview to deeper 
discussions of key issues and provisions (Sections IV.B.-2, 3, and 4) 
as well as discussions of additional provisions (Section V.A.). Readers 
should refer to the regulatory language found at the end of this 
preamble for a complete compilation of the proposed requirements.
    a. Introduction. Today's proposal for Tier 2 vehicle standards 
incorporates concepts from the federal NLEV program. The program takes 
the

[[Page 26031]]

corporate averaging concept and other provisions from NLEV but changes 
the focus from NMOG to NOX. The emission standard ``bins'' 
used for this average calculation are different in several respects 
from those of the California LEV II program, yet we have designed them 
to allow harmonization of federal and California vehicle technology. As 
discussed below, the Tier 2 corporate average NOX level to 
be met through these requirements ultimately applies to all of a 
manufacturer's LDVs and LDTs (subject to two different phase-in 
schedules) regardless of what fuel is used.
    In the discussions below, we propose different Tier 2 phase-in 
schedules for two different groups of vehicles as well as two different 
sets of interim standards for 2004 and later model year vehicles not 
yet phased-in to the Tier 2 standards. To understand how the program 
would work, it is necessary first to understand EPA's classification 
system for light-duty vehicles and trucks.
    The light duty category of motor vehicles includes all vehicles and 
trucks under 8500 pounds gross vehicle weight rating, or GVWR (i.e., 
vehicle weight plus rated cargo capacity). Table IV.B.-1 shows the 
various light duty categories. In the discussion below, we make 
frequent reference to two separate groups of light vehicles: (1) LDV/
LLDTs, which include all LDVs and all LDT1s and LDT2s; and (2) HLDTs, 
which include LDT3s and LDT4s.

Table IV.B.-1.--Light Duty Vehicles and Trucks; Category Characteristics
------------------------------------------------------------------------
                                                 Characteristics
------------------------------------------------------------------------
LDV....................................  A passenger car or passenger
                                          car derivative seating 12
                                          passengers or less.
Light LDT (LLDT).......................  Any LDT rated at up through
                                          6,000 lbs GVWR. Includes LDT1
                                          and LDT2.
Heavy LDT (HLDT).......................  Any LDT rated at greater than
                                          6,000 lbs GVWR, but not more
                                          than 8,500 lbs GVWR. Includes
                                          LDT3 and LDT4.
------------------------------------------------------------------------

    As discussed below, the Tier 2 program would take effect in 2004, 
with full phase in occurring by 2007 for LDV/LLDTs and 2009 for HLDTs. 
During the phase-in years of 2004-2008, vehicles not certified to Tier 
2 requirements would meet interim requirements that would also employ a 
bins system, but with less stringent corporate average NOX 
standards.

References to California LEV II Program

    Throughout this preamble, we make reference to California's LEV II 
program and its requirements. The LEV II program was approved by the 
California ARB at a hearing of November 5, 1998. Numerous draft 
documents were prepared by ARB staff in advance of that hearing and 
made available to the public. Some of those documents have now been 
modified as a result of changes to the proposed program made at the 
hearing and due to comments received after the hearing.
    However, when this NPRM was assembled for signature, the documents 
related to the LEV II program had still not been finalized. In fact, a 
15 day public review of the program was scheduled for April 15-30, 
1999. After that review, ARB expected to be able to formally adopt the 
program and issue final documents without significant change.
    We have placed copies of the latest available documents, some of 
which we used in the preparation of this NPRM, in the docket. You may 
also obtain these documents and other information about California's 
LEV II program from ARB's web site: (www.arb.ca.gov/regact/levii/
levii.htm).
    In the regulatory text that follows this preamble, we propose to 
incorporate by reference a number of documents related to LEVII and 
California test procedures under LEVII. ARB expects to finalize the LEV 
II program without significant changes before we issue a final rule. We 
will review any changes to the final version of the LEV II program and 
its supporting documents and consider them for inclusion in the federal 
program when we prepare our final rule.
    b. Corporate Average NOX Standard. The program we are 
proposing today would ultimately require each manufacturer's average 
NOX emissions over all of its Tier 2 vehicles each model 
year to meet a NOX standard of 0.07 g/mi. Manufacturers 
would have the flexibility to certify Tier 2 vehicles to different sets 
of exhaust standards that we refer to as ``bins,'' but would have to 
choose the bins so that their corporate sales weighted average 
NOX level for their Tier 2 vehicles was no more than the 
0.07 g/mi. (We discuss the bins in the next subsection.)
    The value of a corporate average standard is that the program's air 
quality goals would be met while allowing manufacturers the flexibility 
to certify some models above and some models below the standard. Each 
manufacturer would determine its year-end corporate average 
NOX level by computing a sales-weighted average of the 
NOX standards from the various bins to which it certified 
any Tier 2 vehicles. The manufacturer would be in compliance with the 
standard if its corporate average NOX emissions for its Tier 
2 vehicles met the 0.07 g/mi level.
    c. Tier 2 Emission Standard ``Bins''. We are proposing seven 
emission standard bins, each one a set of standards to which 
manufacturers could certify their vehicles. (Table IV.B.-2. in Section 
IV.B.-4.a. below shows all the standards associated with each bin.) 
Several bins have the same values as the California LEV II program. 
Further, we added three bins that are not a part of the California 
program to increase the flexibility of the program for manufacturers. 
As further discussed in Section IV.B.4. below, we believe these extra 
bins would help provide incentives for manufacturers to produce 
vehicles with emissions below 0.07 g/mi NOX.
    The corporate average concept using the seven bins would provide a 
program that gets the same emission reductions we would expect from a 
straight 0.07 g/mi standard for all vehicles because all NOX 
emissions from Tier 2 vehicles in bins above 0.07 g/mi would need to be 
offset by NOX emissions from Tier 2 vehicles in bins below 
0.07 g/mile. This focus on NOX allows NMOG emissions to 
``float'' in that the fleet NMOG emission rate depends on the mix of 
bins used to meet the NOX standard. However, you can see by 
examining the bins we are proposing, that any combination of vehicles 
meeting the 0.07 g/mi average NOX standard would have 
average NMOG levels at or below 0.09 g/mi. In addition, there will be 
overall improvements in NMOG since Tier 2 incorporates HLDTs, which are 
not covered by the NLEV program.
    d. Schedules for Implementation. We recognize that the Tier 2 
standards pose greater technological challenges for larger light duty 
trucks than for LDVs and smaller trucks. We believe that additional 
leadtime is appropriate for HLDTs. HLDTs have historically been subject 
to the least stringent vehicle-based standards. Also, HLDTs were not 
subject to the voluntary emission reductions implemented for LDVs, 
LDT1s and LDT2s in the NLEV program. Consequently we have designed 
separate phase-in programs for the two groups. Our phase-in approach 
would provide HLDTs with extra time before they would need to begin 
phase-in to the Tier 2 standards and also provide two additional years 
for them to fully comply. Figure IV.B-1 provides a graphical 
representation of how the phase-in of the Tier 2 program would work for 
all vehicles. This figure shows several aspects of the proposed 
program:
     Phase-in/phase-out requirements of the interim programs;

[[Page 26032]]

     Phase-in requirements of new evaporative standards;
     Years that could be included in alternative phase-in 
schedules;
     Years in which manufacturers could bank NOX 
credits through ``early banking''; and
     ``Boundaries'' on averaging sets in the Tier 2 and interim 
programs.
    We discuss each of these topics in detail below and make numerous 
references to Figure IV.B-1.

BILLING CODE 6560-50-P
      

[[Page 26033]]

[GRAPHIC] [TIFF OMITTED] TP13MY99.002



BILLING CODE 6560-50-C

[[Page 26034]]

i. Implementation Schedule for LDVs and LLDTs

    We are proposing that the Tier 2 standards take effect beginning 
with the 2004 model year for light duty vehicles and trucks at or below 
6000 pounds GVWR (LDV/LLDTs). We are proposing that manufacturers would 
phase their vehicles into the Tier 2 program beginning with 25 percent 
of LDV/LLDT sales that year, 50 percent in 2005, 75 percent in 2006, 
and 100 percent in 2007. Manufacturers would be free to choose which 
vehicles were phased-in each year. However, in each year during (and 
after) the phase-in, the manufacturer's average NOX for its 
Tier 2 vehicles would have to meet the 0.07 g/mi corporate average 
standard. This phase-in schedule would provide between five and eight 
years of leadtime for the manufacturers to bring all of their LDV/LLDT 
production into compliance. These vehicles constitute nearly 90 percent 
of the light duty fleet.
    To increase manufacturer flexibility and provide incentives for 
early introduction of Tier 2 vehicles, we are proposing that 
manufacturers could use alternative phase-in schedules that would 
require 100 percent phase-in by 2007, but would recognize the benefits 
of early introduction of Tier 2 vehicles, and allow manufacturers to 
adjust their phase-in to better fit their own production plans.

ii. Implementation Schedule for HLDTs

    To provide greater leadtime for HLDTs we are proposing that the 
Tier 2 phase-in schedule would start later and end later than that for 
LDVs and LLDTs. In our proposal 50 percent of each manufacturer's HLDTs 
would be required to meet Tier 2 standards in 2008, and 100 percent 
would have to meet Tier 2 standards in 2009. As with the LDV/LLDTs, the 
Tier 2 HLDTs would have to meet a corporate average NOX 
standard of 0.07 g/mi. This delayed phase-in schedule would provide 
manufacturers with nine years of lead time before they would need to 
bring any HLDTs into compliance with Tier 2 standards. As for the LDV/
LLDTs above, to encourage early introduction of Tier 2 HLDTs and to 
provide manufacturers with greater flexibility, we are proposing that 
manufacturers could use alternative phase-in schedules that would still 
result in 100% phase-in by 2009.
    We request comment on the appropriateness of this separate schedule 
for HLDTs.
    e. LDVs and LDTs Not Covered by Tier 2. The two groups of vehicles 
(LDV/LLDTs and HLDTs) will be approaching the Tier 2 standards from 
quite different emission ``backgrounds.'' LDV/LLDTs will be at NLEV 
levels, which require NOX emissions of either 0.3 or 0.5g/mi 
on average 33, while HLDTs will be at Tier 1 levels facing 
NOX standards of either 0.98 or 1.53 g/mi, depending on 
truck size. These Tier 1 NOX levels for HLDTs are very high 
relative to our 0.07 g/mi Tier 2 NOX average. To address the 
disparity in emission ``backgrounds'' while gaining air quality 
benefits from vehicles during the phase-in period, we are proposing 
separate sets of interim standards for the two vehicle groups during 
the phase-in period. The provisions described below would apply in 2004 
for all LDVs and LDTs not certified to Tier 2 standards. The 
relationship of the interim programs to the final Tier 2 standards is 
shown in Figure IV.B-1.
---------------------------------------------------------------------------

    \33\ The NLEV program imposes NMOG average standards that would 
lead to full useful life NOX levels of about 0.3 g/mi for 
LDV/LDT1s and 0.5 g/mi for LDT2s.
---------------------------------------------------------------------------

i. Interim Standards for LDV/LLDTs

    Beginning with the 2004 model year, all new LDVs and LLDTs not 
incorporated under the Tier 2 phase-in would be subject to an interim 
corporate average NOX standard of 0.30 g/mi. This is the 
nominal LEV NOX emission standard for LDVs and LDT1s under 
the NLEV program. This interim program would hold LDVs and LLDTs not 
covered by the Tier 2 standards during the phase-in to NLEV levels and 
bring about NOX emission reductions from LDT2s . By 
implementing these interim standards for LDVs and LLDTs we will ensure 
that the accomplishments of the NLEV programs are continued. Because 
the Tier 2 standards are phased-in beginning in the 2004 model year, 
the interim standards for LDVs and LLDTs apply to fewer vehicles each 
year, i.e., they are ``phase-out'' standards. Figure IV.B-1 shows the 
maximum percentage of LDVs and LLDTs that would normally be subject to 
the interim standards each year.
    As the interim program for LDV/LLDTs is designed to hold these 
vehicles to NLEV levels, it employs bins derived from the NLEV program. 
These bins are shown in Tables IV.B.-6 and -7.

ii. Interim Standards for HLDTs.

    Our interim standards for HLDTs would begin in 2004. The Interim 
Program for HLDTs would set a corporate average NOX standard 
of 0.20 g/mi that would be phased in between 2004 and 2007. The interim 
HLDT standards, like those for LDV/LLDTs would be built around a set of 
bins (See Tables IV.B.-8 and -9).
    As shown in Figure IV.B.-1, the phase-in would be 25 percent in the 
2004 model year, 50 percent in 2005, 75 percent in 2006, and 100 
percent in 2007. The program would remain in effect through 2008 to 
cover those HLDTs not yet phased into the Tier 2 standards (a maximum 
of 50%). Vehicles not subject to the interim corporate average 
NOX standard during the 2004-2006 phase-in years would be 
subject to the least stringent bin (Bin 5) so their NOX 
emissions would be effectively capped at 0.60 g/mi. These vehicles 
would be excluded from the calculation to determine compliance with the 
interim 0.20 g/mi average NOX standard.
    This proposed approach would implement standards significantly 
lower than the Tier 1 NOX standards currently applicable to 
these vehicles. While manufacturers already certify many HLDTs at or 
below these levels, we believe these interim standards represent a 
reasonable step toward the Tier 2 standards and would provide 
meaningful control in the near term relative to current levels and Tier 
1. This approach would allow more time for manufacturers to bring the 
more difficult HLDTs to Tier 2 levels while achieving real reductions 
from those HLDTs that may present less of a challenge.

iii. Interim Programs Would Provide Reductions over Previous Standards

    As was the case with the primary Tier 2 bin structure, the bin 
structure for the interim programs would focus on NOX and 
yet should provide further reductions in NMOG beyond the NLEV program 
(See Tables IV.B.-6,7,8 and 9). This is because the interim programs 
would reduce emissions from LDT2s and HLDTs compared to their previous 
standards. Without the interim standards, HLDTs could be certified as 
high as 0.46 g/mi or 0.56 g/mi, the Tier 1 NMHC levels. With the 
interim standards, however, exhaust NMOG should average approximately 
0.09 g/mi for all non-Tier 2 LDV/LLDTs. and 0.25 g/mi or less for 
HLDTs.

iv. Alternative Approach for Interim Standards

    An alternative flexible approach for reducing the emissions from 
vehicles and trucks prior to their phase-in to Tier 2 standards would 
be to employ a declining NOX average, or perhaps separate 
declining NOX averages for LDV/LLDTs and HLDTs. In this 
approach, manufacturers would certify vehicles to their choice of bins, 
but

[[Page 26035]]

would have to meet an average NOX standard (or standards) 
that became lower each year. Manufacturers could bank NOX 
credits in early years of such a program for use in later years when 
the standard tightened. We request comment on the benefits, 
implications and drawbacks of such an approach. Commenters should 
address the issues of (1) what added flexibility does this approach 
provide beyond that provided by the bins and phase-in approach proposed 
above, (2) how to handle potential windfall credits that could arise in 
the early years under such an approach, (3) how a standard that changes 
each year would impact technology phase-in and phase-out, and (4) 
whether such an approach would require the implementation of declining 
average standards for the other exhaust pollutants.
    f. Generating, Banking, and Trading NOX Credits. As 
described above, we are proposing that manufacturers average the 
NOX emissions of their Tier 2 vehicles and comply with a 
corporate average NOX standard. In addition, we are 
proposing that when a manufacturer's average NOX emissions 
fall below the corporate average NOX standard, it could 
generate NOX credits that it could save for later use 
(banking) or sell to another manufacturer (trading). NOX 
credits would be available under the Tier 2 standards, the interim 
standards for LDVs and LLDTs, and the interim standards for HLDTs. 
These NOX credit provisions would facilitate compliance with 
the fleet average NOX standards and would be very similar to 
those currently in place for NMOG emissions under California and 
federal NLEV regulations.
    A manufacturer with an average NOX level for its Tier 2 
vehicles in a given model year below the 0.07 gram per mile corporate 
average standard would generate Tier 2 NOX credits that it 
could use in a future model year when its average NOX might 
exceed the 0.07 standard. Manufacturers would calculate their corporate 
average NOX emissions and then compute credits based on how 
far below 0.07 g/mi the corporate average fell.
    Manufacturers would be free to retain any credits they generate for 
future use or to trade (sell) those credits to other manufacturers. 
Credits retained or purchased could be used by manufacturers with 
corporate average Tier 2 NOX levels above 0.07 g/mi. 
Manufacturers could certify LDVs and LLDTs to Tier 2 standards as early 
as the 2001 model year and receive NOX credits for their 
efforts. They could use credits generated under these ``early banking'' 
provisions after the Tier 2 phase-in begins in 2004 (2008 for HLDTs).
    Banking and trading of NOX credits under the interim 
non-Tier 2 standards would be similar, except that a manufacturer would 
determine its credits based upon the 0.30 or 0.20 gram per mile 
corporate average NOX standard applicable to vehicles in the 
interim programs. There would be no provisions for early banking under 
the interim standards and manufacturers would not be allowed to use 
interim credits to address the Tier 2 NOX average standard. 
Interim credits from LDVs/LLDTs and interim credits from HLDTs could 
not be used interchangeably due to the differences in the interim 
corporate average NOX standards. We seek comment on allowing 
exchanges of credits between the LDV/LLDT interim program and the HLDT 
interim program.
    Banking and trading of NOX credits and related issues 
are discussed in greater detail in Section IV.B.-4.d. below.
2. Why Are We Proposing the Same Set of Standards for Tier 2 LDVs and 
LDTs?
    Before we provide a more detailed description of the proposed 
vehicle program, two overarching principles of today's proposal are 
worth explaining in some detail. The first of these is our proposal to 
bring all LDVs and LDTs under the same set of emission standards. 
Historically, LDTs--and especially the heavier trucks in the LDT3 and 
LDT4 categories--have been subject to less stringent emission standards 
than LDVs (passenger cars). In recent years the proportion of light 
truck sales has grown to approximately 50 percent. Many of these LDTs 
are minivans, passenger vans, sport utility vehicles and pick-up trucks 
that are used primarily or solely for personal transportation; i.e., 
they are used like passenger cars and there are more annual vehicle 
miles of travel as a result.
    As vehicle preferences have increasingly shifted from passenger 
cars to light trucks there has been an accompanying increase in 
emissions over what otherwise would have occurred, because of the 
increase in miles traveled and the less stringent standards for LDTs as 
compared to LDVs. As Section III. above makes clear, reductions in 
these excess emissions (and in other mobile and stationary source 
emissions) are seriously needed. Since both LDVs and LDTs are within 
technological reach of the standards in the proposed Tier 2 bin 
structure, we are proposing to equalize the regulatory useful life 
periods for LDVs and LDTs and to apply the same Tier 2 exhaust emission 
standard bins to all of them.
    Once the phase in periods end for all vehicles in 2009, 
manufacturers would include all LDVs and LDTs together in calculating 
their corporate average NOX levels.34 As 
mentioned above and described in more detail in Section IV.B.-4. below, 
manufacturers could choose the emission bin for any test group of 
vehicles provided that on a sales weighted average basis, the 
manufacturer met the average NOX standard of 0.07 g/mi for 
its Tier 2 vehicles that year.
---------------------------------------------------------------------------

    \34\ Because of the different phase-in percentages and phase in 
schedules for the two groups, we are proposing that during the 
duration of the phase-in (through 2008) manufacturers would average 
Tier 2 LDV/LLDTs separately from HLDTs.
---------------------------------------------------------------------------

    Some have suggested that a program with different requirements 
would be needed for heavy LDTs. Recognizing that compliance will be 
most challenging for HLDTs, the delay in the start of the phase-in and 
the additional phase-in years for those vehicles would allow 
manufacturers to delay the initial impact of the Tier 2 standards until 
the 2008 model year. This represents four additional model years of 
leadtime beyond the time when passenger cars and LDT1s and LDT2s would 
have achieved Tier 2 standards in substantial numbers. We believe this 
phase-in and other provisions of this proposal respond to these 
concerns. However, we request comments on the need for different 
standards for these vehicles. Specifically, we request comment on 
different levels for NMOG standards for these vehicles, including how 
NMOG standards less stringent than our proposed standards might affect 
the technological challenges presented by the proposed NOX 
standards.

Considerations for a 2004 Technology Review

    EPA is seeking comment on whether it should conduct a technology 
review of the Tier 2 standards in the future. As part of the input 
received from stakeholders while developing this proposal, the Alliance 
of Automobile Manufacturers suggested that the proposal include 
consideration of a technology review, principally designed to assess 
the status of Tier 2 technology development. As discussed above, we 
recognize that HLDTs will face the greatest technological challenge in 
complying with our proposed standards. Some manufacturers have 
suggested that the approach of applying the same standard to cars and 
light-duty trucks presents sufficient challenge as to raise serious 
uncertainty about compliance for the larger vehicles, even in the 2008

[[Page 26036]]

time frame. In addition to the concerns expressed regarding the time 
frame for implementation of the more stringent standards for HLDTs in 
2008, manufacturers have indicated that there are questions of 
feasibility for introduction of advanced technologies for improved fuel 
economy, such as lean burn, fuel cell, and hybrid electric technology.
    The review could assess the feasibility of the standards relative 
to the state of technology development for HLDTs. Further, the review 
could consider gasoline and diesel fuel quality and its impact on the 
effectiveness of aftertreatment, and whether lower sulfur levels are 
necessary for HLDTs to meet the Tier 2 standards. We may also examine 
the feasibility of the standards for vehicles using technologies to 
advance fuel economy. In addition, the review could consider whether 
additional air quality improvements are necessary and the feasibility 
of additional reductions of vehicle emissions to achieve such air 
quality improvements. EPA believes that serious consideration of this 
concept is warranted and if it determines such a review to be 
appropriate, the best time to conduct such a review may be in the 2004 
time frame, before the final Tier 2 standards go into effect for HLDTs.
    EPA could conduct such a review to assess the feasibility, timing 
and stringency of the standards relative to the state of technology 
development. In doing so, EPA would determine whether or not there was 
a need to formally consider a change in the final Tier 2 standards. If 
such a change were determined to be necessary, EPA would conduct a 
formal rulemaking, including conducting public hearings.
    As part of the technology review, EPA would seek advice from all 
appropriate stakeholders and could engage a peer review process. In 
addition, such a process, if undertaken, could include public notice 
and opportunity for comment on the review, including the holding of 
public hearings by EPA. One way to structure the process would include 
the establishment of an advisory panel under the Clean Air Act Advisory 
Committee to provide assessment of the state of technology and the 
feasibility of the standards. The Committee could recommend appropriate 
action for the Administrator based on their findings. The Administrator 
would then determine if any changes were needed to adjust the Tier 2 
standards for HLDTs, advanced technologies, or the fuel parameters. We 
request comment on the need for a technology review, scope of the 
review and on the design of the process and its timing.
3. Why Are We Proposing the Same Standards for Both Gasoline and Diesel 
Vehicles?
    The second overarching principle of our vehicle proposal is to 
apply the same Tier 2 standards to all light vehicles, regardless of 
the fuel they are designed to use. The same exhaust emission standards 
and useful life periods we are proposing today would apply whether the 
vehicle is built to operate on gasoline or diesel fuel or on an 
alternative fuel such as methanol or natural gas. Diesel engines used 
in LDVs and LDTs tend to be used in the same applications as their 
gasoline counterparts, and thus we believe they should meet the same or 
very similar standards.
    Manufacturers have expressed concerns that diesel-fueled vehicles 
would have difficulty meeting NOX and particulate matter 
levels like those contained in today's proposal. Clearly, these 
standards would be challenging. As discussed in Section IV.A.-1. above, 
we expect that the proposed Tier 2 NOX and NMOG standards 
would be challenging for gasoline vehicles, but that major 
technological innovations would not be required. For diesels, however, 
the proposed NOX and PM standards would likely require 
applications of new types of aftertreatment with, perhaps, changes in 
diesel fuel. We anticipate that manufacturers that chose to build 
diesel vehicles would adopt aftertreatment technologies such as 
NOX storage catalysts and continuously regenerating 
particulate traps to meet Tier 2 requirements.
    Today, diesels comprise less than one-half of one percent of all 
LDV/LDT sales. While this is a small fraction, the potential exists for 
diesels to gain a considerable market share in the future. All one need 
do is review the dramatic increase in recent years of diesel engine use 
in the lightest category of heavy duty vehicles (8500-10,000 pounds 
GVWR) to see the potential for significant diesel engine use in LDTs, 
and perhaps LDVs, in the future. Just ten ago years diesels made up 
less than 10 percent of this class of vehicles. In 1998, this fraction 
approached 50 percent.
    The potential impact of large-scale diesel use in the light-duty 
fleet underscores the need for the same standards to apply to diesels 
as for other vehicles. Given the health concerns associated with diesel 
PM emissions (see Section III. above), we believe that it is prudent to 
address PM emissions from diesel LDVs and LDTs while their numbers are 
relatively small. In this way the program can minimize the PM impact 
that would accompany significant growth in this market segment while 
allowing manufacturers to incorporate low-emission technology into new 
light-duty diesel engine designs.
4. Key Elements of the Proposed Vehicle Program
    The previous subsections IV.B.-1., 2., and 3. provided an overview 
of today's proposed vehicle program and the two overarching principles 
that it is built on. This subsection elaborates on the major vehicle-
related elements of today's proposal. Later in this preamble, Section 
V.A. discusses the rest of the proposed vehicle provisions.
    a. Basic Exhaust Emission Standards and ``Bin'' Structure. The 
program we are proposing today contains a basic requirement that each 
manufacturer meet, on average, a full useful life NOX 
standard of 0.07 g/mi for all its Tier 2 LDVs and LDTs. Manufacturers 
would have the flexibility to choose the set of standards that a 
particular test group 35 of vehicles must meet. For a given 
test group of LDVs or LDTs, manufacturers would select a set of full 
useful life 36 standards from the same row (``emission bin'' 
or simply ``bin'') in Table IV.B.-1. below. Each bin contains a set of 
individual NMOG, CO, HCHO, NOX, and PM standards. The 
vehicles would have to comply with each of those standards and would 
also be subject to the corresponding bin of intermediate useful life 
standards, if applicable, found in Table IV.B-2. For technology 
harmonization purposes, our proposed

[[Page 26037]]

emission bins include all of those adopted in California's LEV II 
program.37
---------------------------------------------------------------------------

    \35\ A ``test group'' is the basic classification unit proposed 
for certification of light-duty vehicles and trucks under EPA 
certification procedures for the CAP2000 program. This preamble 
assumes that manufacturers will be certifying under the provisions 
of the CAP2000 program. ``Test group'' is a broader classification 
unit than ``engine family'' used prior to the implementation of the 
CAP2000 program. We discuss the CAP2000 program in more detail in 
section V.A.9. of this preamble.
    \36\ The regulatory ``useful life'' value for Tier 2 vehicles is 
specifically addressed in Section V.A.2. of this preamble. Full 
useful life is proposed to be 10 years or 120,000 miles for all 
vehicles except LDT3s and LDT4s, for which it is 11 years or 120,000 
miles. Intermediate useful life, where standards are applicable, is 
5 years or 50,000 miles.
    \37\  EPA's current standards for Clean Fuel Vehicles are less 
stringent than the proposed Tier 2 standards. See 40 CFR 88.104-94. 
The Tier 2 standards would supercede the current CFV standards, and, 
if EPA adopts the standards proposed today, the Agency intends to 
undertake a rulemaking to revise the CFV standards accordingly.

          Table IV.B.-2.--Tier 2 Light-Duty Full Useful Life (120,000 mile) Exhaust Emission Standards
                                                [Grams per mile]
----------------------------------------------------------------------------------------------------------------
             Bin No.                    NOX            NMOG             CO             HCHO             PM
----------------------------------------------------------------------------------------------------------------
7...............................            0.20           0.125             4.2           0.018            0.02
6...............................            0.15           0.090             4.2           0.018            0.02
5...............................            0.07           0.090             4.2           0.018            0.01
4...............................            0.07           0.055             2.1           0.011            0.01
3...............................            0.04           0.070             2.1           0.011            0.01
2...............................            0.02           0.010             2.1           0.004            0.01
1...............................            0.00           0.000             0.0           0.000            0.00
----------------------------------------------------------------------------------------------------------------


          Table IV.B.-3.--Light-Duty Intermediate Useful Life (50,000 mile) Exhaust Emission Standards
                                                [Grams per mile]
----------------------------------------------------------------------------------------------------------------
            Bin No.                    NOX            NMOG             CO              HCHO             PM
----------------------------------------------------------------------------------------------------------------
7..............................            0.14           0.100             3.4           0.015   ..............
6..............................            0.11           0.075             3.4           0.015   ..............
5..............................            0.05           0.075             3.4           0.015   ..............
4..............................            0.05           0.040             1.7           0.008
----------------------------------------------------------------------------------------------------------------

    Under a ``bins'' approach, a manufacturer may select a set of 
emission standards (a bin) to comply with, and a test group must meet 
all standards within that bin. Ultimately, the manufacturer must also 
ensure that the emissions of a targeted pollutant-- NOX in 
this case--from all of its vehicles taken together meet a ``corporate 
average'' emission standard. This corporate average emission standard 
ensures that a manufacturer's production yields the required overall 
emission reductions. (See Section IV.B.-4.c. below for more discussion 
of the corporate average NOX standard.)
    In addition to the Tier 2 standards described above, we are also 
proposing interim standards derived from the LDV/LDT1 NLEV standards to 
cover all non-Tier 2 LDVs and LLDTs during the Tier 2 phase-in. We are 
proposing separate interim standards for HLDTs. (We describe the 
interim standards in detail in Section IV.B.4.e. below.)

i. Why Are We Proposing Extra Bins?

    Compared to the CalLEV II program, our Tier 2 proposal includes 
additional bins. The California program contains no bins that would 
allow NOX levels above the 0.07 g/mi level of LEVs. 
Therefore, under the California program, no engine family can be 
certified above LEV levels, even with the application of offsetting 
credits. We propose to add two bins above the LEV bin (Bins 6 and 7) 
and another below the LEV bin (Bin 3) to provide manufacturers with 
additional flexibility to reduce costs and to account for greater 
technological challenges faced in getting certain vehicles to levels of 
0.07 g/mi NOX or less.
    During the Tier 2 phase-in years (through 2006 for LDV/LLDTs and 
2008 for HLDTs), we are also proposing that the bins from the 
applicable interim program would be available. Vehicles certified to 
these levels could, at the manufacturer's option, be included in 
calculating the Tier 2 corporate average NOX level. This 
would enhance the flexibility of the program by providing manufacturers 
with three additional bins having NOX standards above 0.07 
g/mi. Since a manufacturer could elect these bins under the interim 
program anyway, there would be no impact on air quality. The interim 
program and the interim bins for non-Tier 2 vehicles are described in 
detail in section IV.B.4.e.
    The additional bins would also provide an incentive for 
manufacturers to produce vehicles below 0.07 g/mi of NOX. We 
believe this incentive would exist because manufacturers would have 
some vehicles (especially larger LDTs) that they might find more cost 
effective to certify to levels above the 0.07 g/mi average standard. 
However, to do this they would have to offset those vehicles in our 
NOX averaging system with vehicles certified below 0.07 g/
mi, and the 0.04 g/mi bin would provide greater opportunity to do this. 
Thus, the extra bins would serve two purposes; they would provide 
additional flexibility to manufacturers to address technological 
differences and costs, and they would provide those manufacturers with 
incentives to produce cleaner vehicles and thus advance emission 
control technology.
    We are proposing a bins approach and the proposed bins because we 
believe they would provide adequate and appropriate emission reductions 
and manufacturer flexibility. In addition, this structure will help to 
accelerate technological innovation. We request comment on the 
appropriateness of the proposed bin structure and whether the levels 
proposed are appropriate. Also, we request comment on whether we should 
include up to two additional bins between bin 5 (NOX = 0.07) 
and bin 6 (NOX = 0.15). Our proposed bin structure is 
intended to assure that nearly all vehicles comply with a 
NOX standard of 0.07 g/mi. These additional bins would 
provide greater flexibility for manufacturers who may find it more 
cost-effective to produce some vehicles slightly above 0.07 but would 
have difficulties meeting a 0.07 g/mi average NOX standard 
if they had to certify them to a NOX level of 0.15 g/mi. We 
request specific comment on whether we should

[[Page 26038]]

establish these bins and if so what standards for each pollutant we 
should include. As we indicated above, we believe that the existence of 
bins above 0.07 g/mi NOX provide an incentive for 
technological advancement. We request comment as to whether these 
additional bins would limit this incentive in any way.
    On the other hand, Bin 7 is intended primarily to aid manufacturers 
during the transition to Tier 2 standards. We request comment on 
whether this bin should be eliminated when the Tier 2 phase-in is 
completed (after 2007 for LDV/LLDTs and after 2009 for HLDTs).
b. The Proposed Program Would Phase in the Tier 2 Vehicle Standards 
over Several Years

i. Primary Phase-In Schedule

    We are proposing to phase in the Tier 2 standards for LDVs/LLDTs 
over a four year period beginning in 2004 and we are proposing a 
delayed two year phase-in beginning in 2008 for HLDTs. These phase-in 
schedules are shown in Tables IV.B.-2 and are also shown separately in 
Tables IV.B.-4 and 5. We believe the flexibility of this dual phase-in 
approach is appropriate because the proposed Tier 2 program would 
encompass all light-duty vehicles and trucks and would result in 
widespread applications of upgraded and improved technology across the 
fleet. The program would require research, development, proveout, and 
certification of all light-duty models, and manufacturers would need 
longer lead time for some vehicles, especially HLDTs. Also, 
manufacturers might wish to time compliance with the Tier 2 standards 
to coincide with other changes such as the roll out of new engines or 
new models. In order to begin the introduction of very clean vehicles 
as soon as possible while avoiding imposing unnecessary inefficiencies 
on vehicle manufacturers, we believe a practical but aggressive phase-
in schedule like the one we are proposing effectively balances air 
quality, technology, and cost considerations.
    In each year, manufacturers would have to ensure that the specified 
fraction of their U.S. sales 38 met Tier 2 standards for 
evaporative emissions (discussed in Section IV.B.-4.f. below) and 
exhaust emissions, including Supplemental Federal Test Procedure (SFTP) 
standards (discussed in Section V.A.-3. below), as well as the 
corporate average Tier 2 NOX standard. Manufacturers would 
have to meet the Tier 2 exhaust requirements (i.e., all the standards 
of a particular bin plus the SFTP standards) using the same vehicles. 
Vehicles not covered by the Tier 2 standards during the phase-in years 
(2004-2008) would have to meet interim standards described in Section 
IV.B.-.4.e. below and the existing evaporative emission as well as the 
applicable SFTP standards.
---------------------------------------------------------------------------

    \38\ For Tier 2 vehicles (and for interim vehicles), the term 
``U.S. sales'' means, for a given model year, those sales in states 
other than California and any states that have adopted the 
California program.
---------------------------------------------------------------------------

    Manufacturers could elect to meet the percentage phase-in 
requirements for evaporative and exhaust emissions using two different 
sets of vehicles. We believe that because of interactions between 
evaporative and exhaust control strategies, manufacturers would 
generally address the Tier 2 evaporative phase-in with the same 
vehicles that they used to meet the exhaust phase-in. However, the 
primary focus of today's proposal is on exhaust emissions, and the 
flexibility for manufacturers to use different sets of vehicles in 
complying with the phase-in schedule for evaporative standards and for 
the exhaust standards would have no environmental down side that we are 
aware of. It is possible that some exhaust emission improvements might 
even occur sooner than they otherwise would if a manufacturer were able 
to move ahead with the roll-out of a model with cleaner exhaust 
emissions without having to wait for the development of suitable 
evaporative controls to be completed for that model.

 Table IV.B.-4.--Primary Phase-in Schedule for Sales of Tier 2 LDVs and
                                  LLDTs
------------------------------------------------------------------------
                                                             Required
                                                           percentage of
                                                            light-duty
                       Model year                          vehicles and
                                                           light light-
                                                            duty trucks
------------------------------------------------------------------------
2004....................................................              25
2005....................................................              50
2006....................................................              75
2007....................................................             100
------------------------------------------------------------------------


   Table IV.B.-5.--Primary Phase-in Schedule for Sales of Tier 2 HLDTs
------------------------------------------------------------------------
                                                             Required
                                                           percentage of
                       Model year                          heavy light-
                                                            duty trucks
------------------------------------------------------------------------
2008....................................................              50
2009....................................................             100
------------------------------------------------------------------------

    According to the proposed phase-in approach, vehicle sales would be 
determined according to the ``point of first sale'' method outlined in 
the NLEV rule. Vehicles with points of first sale in California or a 
state that had adopted the California LEV II program would be excluded 
from the calculation. The ``point of first sale'' method recognizes 
that most vehicle sales will be to dealers and that the dealers' sales 
will generally be to customers in the same geographic area. While some 
sales to California residents (or residents of states that adopt 
California standards) may occur from other states and vice-versa, we 
believe these sales will be far too small to have any significant 
impact on the air quality benefits of the Tier 2 program.

ii. Alternative Phase-In Schedule

    While our primary proposal is based upon a phase-in of 25%, 50%, 
75% and 100% of sales over the 2004, 2005, 2006 and 2007 model years, 
respectively (or 50% and 100% in 2008 and 2009 for HLDTs), we are 
proposing to permit alternative phase-in schedules as an option to 
provide additional flexibility to manufacturers. The alternative phase-
in schedule provisions are structured to provide incentive to 
manufacturers to introduce Tier 2 vehicles before 2004 (or 2008 for 
HLDTs).
    Under this alternative, manufacturers that introduced vehicles 
earlier than required could earn the flexibility to make offsetting 
adjustments, on a one-for-one basis, to the phase-in percentages in 
later years. However, they would still need to reach 100% of sales in 
the 2007 model year (2009 for HLDTs). Manufacturers would have the 
option to use this alternative to meet phase-in requirements for LDV/
LLDTs and/or HLDTs. They could use separate alternative phase-in 
schedules for exhaust and evaporative emissions, or an alternative 
phase-in schedule for one set of standards and the primary (25/50/75/
100%) schedule for the other.
    An alternative phase-in schedule would be acceptable if it passed a 
specific mathematical test. We have designed the test to provide 
manufacturers benefit from certifying to the Tier 2 standards early 
while ensuring that significant numbers of Tier 2 vehicles would be 
introduced during each year of the alternative phase-in schedule. To 
test an alternative schedule, a manufacturer would sum its yearly 
percentages of Tier 2 vehicles beginning with model year 2001 and 
compare the resulting sum to the sum that results from the primary 
phase-in schedule. If an alternative schedule scored as high or higher 
than the base

[[Page 26039]]

option, then the alternative schedule would be acceptable.
    For LDV/LLDTs, the final sum of percentages would have to equal or 
exceed 250--the sum that results from a 25/50/75/100 percent phase-in. 
For example, a 10/25/50/65/100 percent phase-in that began in 2003 
would have a sum of 250 percent and would be acceptable. In this 
example, each Tier 2 vehicle sold early (i.e. in 2003) would permit the 
manufacturer to sell one less Tier 2 vehicle in the last phase-in year 
(2006). A 10/20/40/70/100 percent phase-in that began the same year 
would have a sum of 240 percent and would not be acceptable. For HLDTs, 
the sum would have to equal or exceed 150 percent.
    To ensure that significant numbers of Tier 2 vehicles are 
introduced in the 2004 time frame, manufacturers would not be permitted 
to use alternative phase-in schedules that delayed the implementation 
of the Tier 2 LDV/LLDT requirements, even if the sum of the phase-in 
percentages met or exceeded 250. Such a situation could occur if a 
manufacturer delayed implementation of its Tier 2 production until 2005 
and began a 75/85/100 percent phase-in that year. To protect against 
this possibility, we are proposing that in any alternate phase-in 
schedule, a manufacturer's phase-in percentages from the 2004 and 
earlier model years sum to at least 25%.
    The mathematical technique to evaluate alternative phase-in schemes 
is somewhat similar to that used in our NLEV rule and in California 
rules. We request comment on its appropriateness for this application. 
We also request comment on other approaches that might serve to provide 
incentive to manufacturers to introduce Tier 2 vehicles early, and to 
provide additional flexibility, while at the same time assuring that 
environmental gains equivalent to or greater than those of the primary 
phase-in option are produced. We have considered whether it would be 
appropriate to provide a ``multiplier'' that would serve to increase 
the value of the percentage of vehicles introduced before 2004 (2008 
for HLDTs) in the mathematical test described above. Such a multiplier 
might start at 1 for 2004-2007 vehicles and increase for each year 
prior to 2004 (2008 for HLDTs). We request comment as to whether such a 
multiplier would be appropriate and whether it would produce real 
environmental gains by speeding the introduction of Tier 2 vehicles 
into the fleet.
    All of the discussion on alternative phase-in schedules to this 
point has been premised on 100% compliance in 2007 (2009 for HLDTs). We 
request comment as to whether alternative phase-in schedules should be 
structured in such a way that, if a manufacturer introduced Tier 2 
vehicles in excess of the minimum required during the phase-in years, 
that manufacturer could extend its phase-in beyond 2007 or 2009. 
Commenters should address the time period beyond 2007 or 2009 that 
would be appropriate as well as how EPA would determine the fraction of 
vehicles that could be delayed until that time.
    Phase-in schedules, in general, add little flexibility for 
manufacturers with limited product offerings. A manufacturer with only 
one or two test groups can not take full advantage of a 25/50/75/100 
percent or similar phase-in. However for manufacturers that meet EPA's 
definition of ``small volume manufacturer,'' we are proposing elsewhere 
in this preamble that those manufacturers be exempt from the phase-in 
schedules and would simply have to comply with the final 100% 
compliance requirement. Still, we request comment on how alternative 
phase-in schedules might be structured to provide flexibility and 
incentive for early introduction to smaller manufacturers.
    Later in this preamble (in Section V) we request specific comment 
on whether we should include a scheme to provide extra NOX 
credits for manufacturers that introduce Tier 2 vehicles early. 
Commenters to the above discussion on alternate phase-in schedules 
should address whether a provision for extra NOX credits 
might be a more appropriate way to provide inducements to smaller 
manufacturers to introduce Tier 2 vehicles early. Commenters should 
consider the interactions such extra credits might have with alternate 
phase-in schedules, particularly in situations where a ``multiplier,'' 
as described above, might be applied.
    c. Manufacturers Would Meet a ``Corporate Average'' NOX 
Standard. While the manufacturer would be free to certify a test group 
to any bin of standards in Table IV.B.-2, it would have to ensure that 
the sales-weighted average of NOX standards from all of its 
test groups of Tier 2 vehicles met a full useful life standard of 0.07 
g/mi. Using a calculation similar to that for the NMOG corporate 
average standard in the California and NLEV programs, manufacturers 
would determine their compliance with the corporate average 
NOX standard at the end of the model year by computing a 
sales weighted average of the full useful life NOX standards 
from each bin. Manufacturers would use the following formula:

    Corporate Average NOX = (Tier 2 NOX 
std for each bin)  x (sales for each bin) total Tier 2 sales

Manufacturers would exclude vehicles sold in California or states 
adopting California LEV II standards from the calculation. As indicated 
above, manufacturers would compute separate NOX averages for 
LDV/LLDTs and HLDTs through the year 2008.
    The corporate average NOX standards of the primary Tier 
2 program and the interim programs for LDVs/LLDTs and HLDTs would 
ensure that expected fleet-wide emission reductions are achieved. At 
the same time, the corporate average standards allow us to permit the 
sale of some vehicles above the levels of the average standards to 
address the greater technological challenges some vehicles face and to 
reduce the overall costs of the program. We discuss how manufacturers 
could generate, use, and buy or sell NOX credits under the 
proposed program in the next subsection.
    Given the corporate average NOX standards, we do not 
believe a corporate average NMOG standard as used by California is 
essential because meeting the corporate average NOX standard 
would automatically bring the NMOG fleet average to approximately LEV 
levels. However, we request comment on the need for such a corporate 
average NMOG standard, as well as suggestions and rationales for what 
that standard, if any, should be. Commenters are encouraged to address 
any interactions with the bin structure, if appropriate.
    d. Manufacturers Could Generate, Bank, and Trade NOX 
Credits.

i. General Provisions

    As mentioned in the Overview above, we are proposing that 
manufacturers with year-end corporate average NOX emissions 
for their Tier 2 vehicles below 0.07 g/mi could generate Tier 2 
NOX credits. Credits could be saved (banked) for use in a 
future model year or for trading (sale) to another manufacturer. 
Manufacturers would consume credits if their corporate average 
NOX emissions were above 0.07 g/mi.
    We are proposing the Tier 2 standards to apply regardless of the 
fuel the vehicle is designed for, and there would be no restrictions on 
averaging, banking or trading of credits across vehicles of different 
fuel types. Consequently, a gasoline fueled LDV might help a 
manufacturer generate NOX credits in one year that could be 
banked for the next year when they could be used to average against 
NOX emissions of a diesel fueled LDT.
    Because of the split phase-in and the different interim programs we 
are

[[Page 26040]]

proposing for the two different groups of vehicles (LDV/LLDTs and 
HLDTs), we are also proposing to require that manufacturers compute 
their corporate Tier 2 NOX averages separately for LDV/LLDTs 
and HLDTs through 2008. Credit exchanges between LDVs/LLDTs and HLDTs 
would not be allowed nor would credit exchanges across the interim 
program and Tier 2 program be allowed. These restrictions would end 
with the 2009 model year at which time both phase-ins and all interim 
standards will have ended and the program would permit free averaging 
across all Tier 2 vehicles. In the context of the whole program we are 
proposing, we are concerned that allowing cross-trading between interim 
and Tier 2 vehicles would reduce the expected benefits of the program 
and delay fleet turnover to Tier 2 emission levels. For this reason we 
are not proposing to allow such exchanges. We seek comment on this 
issue.

ii. Averaging, Banking, and Trading of NOX Credits Would 
Fulfill Several Goals

    There are several reasons why we believe the proposed provisions 
for averaging, banking, and trading of NOX credits (ABT) 
would be valuable.
     ABT allows us to consider a more stringent emission 
standard than might otherwise be appropriate under the CAA, since ABT 
reduces the cost and improves the technological feasibility of 
achieving the standard.
     ABT enhances the technological feasibility and cost 
effectiveness of the proposed standard, helping to ensure that the 
standard would be attainable earlier than would otherwise be possible.
     ABT would provide manufacturers with additional product 
planning flexibility and the opportunity for a more cost effective 
introduction of product lines meeting the new standard.
     ABT would create an incentive for early introduction of 
new technology, allowing certain engine families to act as trail 
blazers for new technology. This could help provide valuable 
information to manufacturers on the technology prior to manufacturers 
needing to apply the technology throughout their product line. The 
early introduction of new technology would also further improve the 
feasibility of achieving the standard and could also provide valuable 
information for use in other regulatory programs that may benefit from 
similar technologies (e.g., heavy-duty vehicle standards).
    EPA views the proposed ABT provisions as environmentally neutral 
because the use of credits by some vehicles would be offset by the 
generation of an equal number of credits generated by other vehicles. 
However, when coupled with the new standards, ABT could have 
environmental benefits because it could allow the new standards to be 
implemented earlier than would otherwise be appropriate under the Act.

iii. How Manufacturers Would Generate and Use NOX Credits

    As described in the previous subsection, and subject to the phase-
in restrictions described in that subsection, manufacturers would 
determine their year-end corporate average NOX emission 
level by computing a sales-weighted average of the NOX 
standard from each bin to which the manufacturer certified any LDVs or 
LDTs. The manufacturer would round this average to one more decimal 
place than in the corporate average NOX standard. Tier 2 
NOX credits would be generated when a manufacturer's average 
was below the 0.07 gram per mile corporate average NOX 
standard, according to this formula:

    NOX Credits = (0.07 g/mi--Corporate Average 
NOX)  x  Sales

    The manufacturer could then use these NOX credits in 
future years when its corporate NOX average was above 0.07, 
or it could trade (sell) the credits to other manufacturers. The use of 
NOX credits would not be permitted to address Selective 
Enforcement Auditing or in-use testing failures.
    The enforcement of the NOX averaging standard would 
occur through the vehicle's certificate of conformity. A manufacturer's 
certificate of conformity would be conditioned upon compliance with the 
averaging provisions. The certificate would be void ab initio if a 
manufacturer failed to meet the corporate average NOX 
standard and did not obtain appropriate credits to cover their 
shortfalls in that model year or in the subsequent model year (see 
proposed deficit carryforward provision below). Manufacturers would 
need to track their certification levels and sales unless they produced 
only vehicles certified to bins containing NOX levels of 
0.07 g/mi or below and did not plan to bank NOX credits.

iv. Manufacturers Could Earn and Bank Credits for Early NOX 
Reductions

    To provide manufacturers with greater flexibility and with 
incentives to certify, produce and sell Tier 2 vehicles as early as 
possible, we are proposing that manufacturers could utilize alternative 
phase in schedules. (See IV.B.4.b.ii above.) Under such schedules, a 
manufacturer could certify vehicles to bins having NOX 
standards of 0.07 g/mi or below in years prior to the first required 
phase-in year and then phase its remaining vehicles in over a more 
gradual phase-in schedule that would still lead to 100% compliance by 
2007 (2009 for HLDTs). To the extent that a manufacturer's corporate 
average NOX level of its ``early Tier 2'' vehicles was below 
0.07 g/mi, the manufacturer could bank NOX credits for later 
use. Manufacturers would compute these early credits by calculating a 
sales-weighted corporate average NOX emission level of their 
Tier 2 vehicles, as in the basic Tier 2 program described above.
    These credits would have all the same properties as credits 
generated by vehicles subject to the primary phase-in schedule. These 
credits could not be used in the NLEV, Tier 1 or interim program for 
non-Tier 2 vehicles in any way. However, the NMOG emissions of these 
vehicles (LDVs and LLDTs only) could be used in the calculation of the 
manufacturer's corporate average NMOG emissions under NLEV through 
2003.
    To provide manufacturers with maximum flexibility in the period 
prior to 2004, when LDV/LLDT useful lives will still be at 100,000 
miles, we are proposing that manufacturers could choose between the 
Tier 2 120,000 mile useful life or the current 100,000 mile useful life 
requirement for early Tier 2 LDV/LLDTs. (HLDTs already have a 120,000 
mile useful life.) Early LDV/LLDT NOX credits for 100,000 
mile useful life vehicles would have to be prorated by 100,000/120,000 
(5/6) so that they could be properly applied to 120,000 mile Tier 2 
vehicles in 2004 or later.
    We are proposing that early banking of HLDT NOX credits 
could not begin until the 2004 model year. This provides a four year 
period during which early credits could be generated for use in the 
2008/2009 HLDT Tier 2 phase-in. We are concerned that allowing 
generation of early HLDT credits in years prior to 2004 could result in 
credits that are largely windfall credits. Still, we recognize that 
vehicles that meet the Tier 2 standards early represent an 
environmental benefit and we request comment on the need for and 
appropriateness of allowing early banking of HLDT credits before the 
2004 model year.
    We recognize that vehicles generating early NOX credits 
may be doing so without the emissions benefit of low sulfur fuel, and 
thus these vehicles may not achieve the full in-use emission reduction 
for which they received credit. When these credits are used to

[[Page 26041]]

permit the sale of higher-emitting vehicles, there may be a net 
increase in emissions. We believe that the benefits of early 
introduction of Tier 2 technology described above are significant 
enough that they are worth the risk of some emission losses that might 
occur if and when the early credits are used. Also, we believe that 
some fuel sulfur reductions will occur prior to 2004 as refiners 
upgrade their refineries or bring new refining capacity on stream in 
anticipation of the 2004 requirements and take advantage of the phase-
in proposed in the gasoline sulfur ABT program (described in Section 
IV.C. below). We request comment on all aspects of early introduction 
of Tier 2 vehicles and the proposed provisions for early NOX 
credits.

v. NOX Credits Would Have Unlimited Life

    We are not proposing to apply the California schedule of 
discounting unused credits that was adopted for NMOG credits in the 
NLEV program. This schedule serves to limit credit life throughout the 
program by reducing unused credits to 50, 25 and 0 percent of their 
original number at the end of the second, third and fourth year, 
respectively, following the year in which they were generated. Because 
of the declining corporate average NMOG standards in that program, 
California has decided, and we agree, that it is prudent to limit the 
lives of credits to prevent manufacturers from being able to accumulate 
credits and then apply them in such a way as to delay the impact of 
declining standards. But in this proposed federal program, once the 
proposed phase-in period ends in model year 2009, all light duty 
vehicles and trucks would comply on average with a fixed Tier 2 
NOX standard.
    Credits would allow manufacturers a way to address unexpected 
shifts in their sales mix and yet would prevent the program from being 
abused to allow emission increases by design, since emissions would be 
capped by the levels in the least stringent bin. The NOX 
emission standards in the Tier 2 and interim programs are quite 
stringent and do not present easy opportunities to generate credits. 
The degree to which manufacturers invest the resources to achieve extra 
NOX reductions provides true value to the manufacturer and 
the environment. We do not want to take measures to reduce the 
incentive for manufacturers to bank credits nor do we want to take 
measures to encourage unnecessary credit use. Consequently we are 
proposing that Tier 2 NOX credits would have unlimited 
lives. We request comment on the need for discounting of credits or 
limits on credit life and what those discount rates or limits, if any, 
should be.

vi. NOX Deficits Could Be Carried Forward

    When a manufacturer has a NOX deficit at the end of a 
model year--that is, its corporate average NOX level is 
above the required corporate average NOX standard--we are 
proposing that the manufacturer be allowed to carry that deficit 
forward into the next model year. Such a carry-forward could only occur 
after the manufacturer used any banked credits. If the deficit still 
existed and the manufacturer chose not to or was unable to purchase 
credits, the deficit could be carried over. At the end of that next 
model year, the deficit would need to be covered with an appropriate 
number of NOX credits that the manufacturer generated or 
purchased. Any remaining deficit would be subject to an enforcement 
action.
    To prevent deficits from being carried forward indefinitely, the 
manufacturer would not be permitted to run a deficit for two years in a 
row.39 We believe that it is reasonable to provide this 
flexibility to carry a deficit for one year given the uncertainties 
that light duty vehicle and truck manufacturers face with changing 
market forces and consumer preferences, especially during the 
introduction of new technologies. These uncertainties can make it hard 
for manufacturers to accurately predict sales trends of different 
vehicle models. We request comment on this provision.
---------------------------------------------------------------------------

    \39\ Because of the limited duration of the interim programs, we 
are proposing that a manufacturer could carry a credit deficit in 
the interim program forward until the 2006 model year (2008 for 
HLDTs). The interim program, in its entirety, lasts only five years 
and therefore we see little risk of prolonged deficits.
---------------------------------------------------------------------------

    e. Interim Standards.

i. Interim Standards for LDV/LLDTs

    The NLEV program referenced throughout this discussion is a 
voluntary program in which all major manufacturers have opted to 
produce LDVs and LLDTs to tighter standards than those required by 
EPA's Tier 1 regulations. Under the NLEV program, manufacturers must 
meet an NMOG average outside of California that is equivalent to 
California's current intermediate-life LEV requirement--0.075 g/mi for 
LDVs and LDT1s (0.10 g/mi for LDT2s). Currently, NLEV requirements 
apply only to LDVs and LLDTs, not to HLDTs.
    The NLEV program is effective beginning in the northeastern states 
in 1999 and in the remaining states in 2001, except that the program 
does not apply to vehicles sold in California or in states that adopted 
California's LEV program. The program runs at least through 2003 and 
can run through model year 2005.
    Given the Tier 2 phase-in we are proposing, not all LDV/LLDTs 
covered under NLEV will be subject to Tier 2 standards in the 2004 to 
2006 period. Unless EPA adopts a program for full Tier 2 compliance in 
2004 (i.e., without a phase-in), these vehicles could revert to Tier 1 
standards. The NLEV program, moreover, is a voluntary program that 
contains several provisions that restrict EPA's flexibility and that 
could lead to a manufacturer or a covered Northeastern state leaving 
the program in or prior to 2004. To resolve these concerns we are 
proposing interim standards for all non-Tier 2 LDV/LLDTs for the 2004-
2006 model years. Our interim standards would replace the NLEV program, 
which would then terminate at the end of 2003. The transition from NLEV 
to Tier 2 should be smooth because the interim standards are derived 
from the NLEV standards for LDVs and LDT1s and would ensure that all 
LDVs, LDT1s and LDT2s that are not certified to Tier 2 levels during 
the 2004-2006 phase-in period remain at levels at least as stringent as 
NLEV levels. The standards would also arguments prebring the emission 
standards for LDT2s into line with those for the LDVs and LDT1s. We 
propose to align the useful life periods for interim standards with 
those of the Tier 2 standards (full useful life of 120,000 miles, 
intermediate useful life of 50,000 miles, as discussed in Section V.A.-
2 below)
    Tables IV.B.-6 and IV.B.-7 below present interim standards we are 
proposing for LDVs and LLDTs not covered by Tier 2 standards during the 
phase in period.

[[Page 26042]]



        Table IV.B.-6.--Full Useful Life (120,000 mile) Interim Exhaust Emission Standards for LDV/LLDTs
                                                [Grams per mile]
----------------------------------------------------------------------------------------------------------------
             Bin No.                    NOX            NMOG             CO             HCHO             PM
----------------------------------------------------------------------------------------------------------------
5...............................            0.60           0.156             4.2           0.018            0.06
4...............................            0.30           0.090             4.2           0.018            0.06
3...............................            0.30           0.055             2.1           0.011            0.04
2...............................            0.07           0.090             4.2           0.018            0.01
1...............................            0.00            0.00             0.0           0.000             0.0
----------------------------------------------------------------------------------------------------------------


     Table IV.B.-7.--Intermediate Useful Life (50,000 mile) Interim Exhaust Emission Standards for LDV/LLDTs
                                                [Grams per mile]
----------------------------------------------------------------------------------------------------------------
             Bin No.                    NOX            NMOG             CO             HCHO             PM
----------------------------------------------------------------------------------------------------------------
5...............................            0.40           0.125             3.4           0.015  ..............
4...............................            0.20           0.075             3.4           0.015  ..............
3...............................            0.20           0.040             1.7           0.008  ..............
2...............................            0.05           0.075             3.4           0.015  ..............
----------------------------------------------------------------------------------------------------------------

    We are proposing a corporate average full useful life 
NOX standard of 0.30 g/mi for this interim program. LDV/
LLDTs, which will already be at NLEV levels, should readily be able to 
meet this average NOX standard. Although we have not shown 
it in the tables of interim standards above, we are also proposing that 
all of the bins shown for the Tier 2 program (see Tables IV.B.-2 and -
3) could be used in the interim program. Thus if a manufacturer had 
vehicles certified to Tier 2 bins that it did not need to comply with 
the Tier 2 NOX average standard and phase in percentage, it 
would have the additional option to use them in the interim program. We 
request comment as to whether the number of bins provided in the 
interim program and their emission levels are appropriate.
    The 0.30 g/mi corporate average NOX standard (and the 
bins of standards in the above two tables) would apply only to non-Tier 
2 LDV/LLDTs and only for the 2004-2006 model years. Manufacturers would 
compute, bank, average, trade, account for, and report NOX 
credits via the same processes and equations described in this preamble 
for Tier 2 vehicles, substituting the 0.30 g/mi corporate average 
standard for the 0.07 g/mi corporate average standard in the basic 
program. Also, EPA would condition the certificates of conformity on 
compliance with the corporate average standard, as described for Tier 2 
vehicles. These NOX credits would be good only for the 2004-
2006 model years and would only apply to the interim non-Tier 2 LDV/
LLDTs. Credits would not be subject to any discounts, and credit 
deficits from the 2004 and 2005 model year could be carried forward, 
provided they were covered with appropriate credits by the end of the 
2006 model year. NMOG credits from the NLEV program could not be used 
in this interim program in any way. Credits generated under this 
interim program would not be applicable to the Tier 2 NOX 
average standard of 0.07 g/mi because of our concern that a windfall 
credit situation could occur. This could happen because credits are 
relatively easy to generate under a 0.30 g/mi standard compared to 
generating credits under a 0.07 g/mi standard. The application of 
credits earned under the interim standard to the Tier 2 standards could 
significantly delay the fleet turnover to Tier 2 vehicles. The 
requirements of the interim program would be monitored and enforced in 
the same fashion as for Tier 2 vehicles.
    For the reasons cited above, we believe it is appropriate to extend 
interim, NLEV-like standards beyond 2003 as a mandatory program and to 
bring all LDVs and LLDTs within its scope. Manufacturers have already 
demonstrated their ability to make LDVs and LLDTs that comply at levels 
well below these standards, and, as the interim standards for LDV/LLDTs 
are essentially ``phase-out'' standards, we are not proposing any 
alternative phase-in schedules or early banking provisions for 
NOX credits from the interim LDV/LLDTs.
    We request comment on all aspects of the interim standards for LDVs 
and LLDTs.
    ii. Interim Standards for HLDTs.
    We are also proposing interim standards to begin in 2004 for HLDTs. 
These vehicles are not included in the NLEV program and will be subject 
only to the Tier 1 standards prior to model year 2004. Tier 1 standards 
permit NOX emissions of 0.98 g/mi for LDT3s and 1.53 g/mi 
for LDT4s.
    The interim standards for HLDTs would apply beginning in the 2004 
model year and would phase-in through the 2007 model year, as shown in 
Figure IV.B.-1. The proposed interim program is based on a corporate 
average full-life NOX standard of 0.20 g/mi. Manufacturers 
would comply with the corporate average HLDT NOX standard by 
certifying their interim HLDTs to any of the full useful life bins 
shown in Table IV.B.-8. Where applicable, manufacturers would also 
comply with the intermediate useful life standards shown in Table 
IV.B.-9. Interim HLDTs not needed to meet the phase-in percentages 
during model years 2004-2006 would have to be certified to the 
standards of one of the bins in Table IV.B.-8 (and -9), but would not 
be included in the calculation to demonstrate compliance with the 0.20 
g/mi average. Thus, the emissions of all interim HLDTs would be capped 
at a NOX value of 0.60 g/mi.
    As with LDV/LLDTs, manufacturers would also have the flexibility to 
use any of the Tier 2 bins shown in Tables IV.B.-2 and IV.B.-3 as 
additional bins for interim HLDTs. At the end of each model year, 
manufacturers would determine their compliance with the 0.20 
NOX standard by calculating a sales weighted average of all 
the bins to which they certified any interim HLDTs, excluding those not 
needed to meet the phase-in requirements during 2004-2006.
    We believe these interim standards are necessary and reasonable for 
HLDTs. While these trucks make up a fairly small portion of the light-
duty fleet (about 11%), their current standards under Tier 1 are far 
less stringent than the NLEV standards that apply to current model year 
LDVs and LLDTs.

[[Page 26043]]

Given the delayed phase-in we are proposing for HLDTs, we believe it is 
appropriate to bring about some interim reductions from these vehicles. 
Further, manufacturers have already demonstrated their ability to meet 
these interim standards with HLDTs. These standards are a reasonable 
first step toward the Tier 2 program and would provide meaningful 
reductions in the near term relative to current certification levels 
under the Tier 1 emission standards.

                              Table IV.B.-8.--Full Useful Life (120,000 mile) Interim Exhaust Emission Standards for HLDTs
                                                                    [Grams per mile]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                       Bin No.                                NOX                NMOG                 CO                 HCHO                 PM
--------------------------------------------------------------------------------------------------------------------------------------------------------
5...................................................               0.60                0.230               4.2                 0.018               0.06
4...................................................               0.30                0.180               4.2                 0.018               0.06
3...................................................               0.20                0.156               4.2                 0.018               0.02
2...................................................               0.07                0.090               4.2                 0.018               0.01
1...................................................               0.0                 0.0                00.0                 0.000               0.0
--------------------------------------------------------------------------------------------------------------------------------------------------------


       Table IV.B.-9.--Intermediate Useful Life (50,000 mile) Interim Exhaust Emission Standards for HLDTs
                                                [Grams per mile]
----------------------------------------------------------------------------------------------------------------
             Bin No.                    NOX            NMOG             CO             HCHO             PM
----------------------------------------------------------------------------------------------------------------
5...............................            0.40           0.160             3.4           0.015  ..............
4...............................            0.20           0.140             3.4           0.015  ..............
3...............................            0.14           0.125             3.4           0.015  ..............
2...............................            0.05           0.075             3.4           0.015  ..............
----------------------------------------------------------------------------------------------------------------

    Given that the interim HLDT standards are ``phase-in'' standards 
through 2007 (as opposed to the interim LDV/LLDT standards, which are 
``phase-out'' standards), we are proposing that manufacturers could 
employ alternative phase-in schedules as proposed for the Tier 2 
standards and described in detail in section IV.B.4.b.ii. of this 
preamble. These schedules provide manufacturers with greater 
flexibility and we believe they also provide incentive for 
manufacturers to introduce advanced emission control technology at an 
earlier date. Alternative phase-in schedules would have to provide 100% 
phase-in by the same year as the primary phase-in schedule (2007). 
Because we are concerned about the possibility of windfall credits from 
some vehicles that might easily meet the 0.20 corporate average 
NOX standard, we are not proposing to permit the generation 
of credits from interim HLDTs prior to the 2004 model year, although we 
request comment on this issue.
    f. More Stringent Proposed Light-Duty Evaporative Emission 
Standards. We are proposing to adopt a set of more stringent 
evaporative emission standards for all Tier 2 light-duty vehicles and 
light-duty trucks. The standards we are proposing in Table IV.B.-10 
represent, for most vehicles, more than a 50% reduction in diurnal plus 
hot soak standards from those that will be in effect in the years 
immediately preceding Tier 2 implementation. The higher standards for 
HLDTs provide allowance for greater non-fuel emissions related to 
larger vehicle size.

   Table IV.B.-10.--Proposed Evaporative Emission Standards [Grams per
                                  test]
------------------------------------------------------------------------
                                                            Supplemental
                                                  3 day         2 day
                Vehicle class                   diurnal +     diurnal +
                                                 hot soak     hot soak
------------------------------------------------------------------------
LDVs and LLDTs...............................         0.95           1.2
HLDTs........................................          1.2           1.5
------------------------------------------------------------------------

    Evaporative emissions from light-duty vehicles and trucks represent 
nearly half of the light duty VOC inventory projected for the 2007-2010 
time frame, according to MOBILE5 projections. We are proposing today to 
reduce the light-duty evaporative emission standards applicable to 
diurnal and hot soak emissions by more than 50 percent for most 
vehicles. Manufacturers are currently certifying to levels that are, on 
average, about half of the current standards, and in many cases, much 
less than half the standards. Thus, meeting these proposed standards 
appears readily feasible. Even though manufacturers are already 
certifying at levels much below the current standard, we believe that 
reducing the standards will result in emission reductions as all 
manufacturers seek to certify with adequate margins to allow for in-use 
deterioration. Further, we believe that tighter standards will prevent 
``backsliding'' toward the current standards as manufacturers pursue 
cost reductions.
    As mentioned in section IV.B.-4.b above, we are proposing to phase 
in the Tier 2 evaporative standards by the same mechanism as the Tier 2 
exhaust standards; e.g., 25/50/75/100 percent beginning in 2004 for 
LDV/LLDTs and 50/100 percent beginning in 2008 for HLDTs. (as shown in 
Figure IV.B.-1) As for the proposed exhaust standards, alternative 
phase-in plans would also be available.
    The evaporative emissions standards we are proposing are the same 
as those that manufacturers' associations proposed during the 
development of California's LEV II proposal; California ultimately did 
not adopt these standards. We request comment on all aspects of these 
proposed evaporative standards and their likely impact on in-use 
evaporative emission levels. We also request comment on adopting the 
evaporative emissions standards and phase-in schedule that California 
adopted (representing about a 75 percent reduction from the standards 
that will otherwise be in place).

C. Our Proposed Program for Controlling Gasoline Sulfur

    When we discussed gasoline sulfur control with the American 
Petroleum Institute, the National Petrochemical and Refiners 
Association, and other representatives of the oil industry, they laid 
out several major points for us to consider in development of our 
proposal:

[[Page 26044]]

     A regional approach to gasoline sulfur control would be 
more appropriate than a nationwide program. Gasoline sulfur control 
should be targeted primarily at the areas of greatest environmental 
need.
     Within the regions, gasoline sulfur standards should be 
uniform. State fuel initiatives different from any federal regional 
standards could result in supply disruption and price volatility and 
should be avoided.
     Adequate lead time would be critical to a successful 
implementation. Implementing gasoline sulfur control over the next few 
years involves a number of demands and uncertainties. For example, the 
technology that is the lowest cost and more cost effective requires 
sufficient time to develop.
     Permitting and construction of all of these refineries in 
just four years would be a major challenge. Therefore, streamlining of 
the permitting process could help address lead time concerns.
     If sulfur levels in diesel fuel were also going to be 
reduced (or any other changes to gasoline or diesel fuel required) 
industry would need to know soon so investment discussions could be 
coordinated.
    We have seriously considered the oil industry's input in developing 
our proposal. While we are not proposing a regionally-based program, as 
discussed below, we believe the nationwide program we are proposing 
would provide flexibility in response to many of these concerns about 
uncertainty and would provide uniformity on a national basis.
    The next section of the preamble describes in more detail the 
industry proposal and our response to their approach, including the 
concepts of national versus regional scope and the level of the 
standard. We recognize that refineries face many uncertainties and 
constraints, including potential future regulation of diesel sulfur 
that would affect the timing of their ability to meet the proposed 
gasoline sulfur levels. Consequently, also in this section we propose 
and request comment on two provisions, a sulfur averaging, banking and 
trading program and permit streamlining, designed to provide 
flexibility, to increase lead time, and to ease concern about how other 
uncertainties would affect decision making concerning gasoline sulfur 
control.
1. Oil Industry Proposal
    During the development of this proposal, a large part of the oil 
refining industry, represented by the American Petroleum Institute 
(API) and the National Petrochemical and Refiners Association (NPRA), 
offered a series of constructive recommendations for the design of a 
gasoline sulfur control program. These proposals, which have 
progressively addressed more and more of the concerns we had raised 
about such a program, have a key element in common--the suggestion that 
different levels of gasoline sulfur control be applied to different 
regions of the country. These industry representatives observe that 
some areas of the country need the emission reductions to be achieved 
from Tier 2 LDVs and LDTs more than others, and that the gasoline 
distribution system can supply different gasolines to different 
geographical regions.
    The most recent proposal from these members of the oil industry 
would provide gasoline meeting an average sulfur level of 150 ppm 
(capped at 300 ppm) to a large region of the U.S. This proposal would 
cover all states east of the Mississippi river, plus Missouri, 
Louisiana, and the eastern half of Texas (and any RFG areas in the 
West), and would begin in 2004.40, 41 The 
remainder of the country (excluding California) would receive gasoline 
meeting a 300 ppm average (450 ppm cap). Further reductions in sulfur 
levels in eastern states, to a 30 ppm average/80 ppm cap, would be 
required starting in 2010, unless a study performed in 2004-06 
demonstrated no air quality need for further sulfur reductions. If this 
study found an air quality need for additional reductions, EPA would 
make recommendations about the appropriate sulfur levels (if different 
from the proposed 30/80 ppm levels) and the area to receive this lower 
sulfur gasoline (if different from the region receiving the 150 ppm 
average in 2004). The industry representatives thus characterized the 
2010 standards as ``rebuttable,'' standards because EPA could have to 
initiate additional regulatory actions to implement the final 2010 
standards.
---------------------------------------------------------------------------

    \40\ The industry representatives offered to meet these 
standards earlier if Tier 2 vehicles were introduced before 2004.
    \41\ While a majority of oil companies have approved this 
proposal, not every U.S. refiner supports all of the provisions 
summarized here.
---------------------------------------------------------------------------

    The arguments presented by the members of the oil industry for why 
this regional program would be reasonable include a consideration of 
the technical needs of the vehicles and the ability of refining 
industry to meet the requirements. Based on testing and analyses 
performed by oil companies and their trade associations, they 
concluded:
     Automakers can select from a range of design factors to 
reduce sulfur sensitivity, including engine design, catalyst size, 
catalyst location, control of air/fuel mixtures, the types and amounts 
of precious metals used in the catalyst;
     Vehicles can be designed to fully reverse the sulfur 
effect while meeting both Tier 2 and SFTP emission standards, even if 
operated for a long time (1,000 miles) on high sulfur fuel;
     This division of the country into two sulfur regions 
``matches cost to consumers with benefits,'' since the areas with the 
greatest air quality need would get the lower sulfur gasoline, while 
consumers and refiners located in areas without substantial air quality 
need would not have to pay the higher costs resulting from the lower 
levels; and
     The regions, as defined, would optimize gasoline 
distribution based on the existing distribution system, thus reducing 
the potential for supply shortfalls or other difficulties.
    Following the same methodology we used to estimate the future 
emissions and emissions reductions that would result from our combined 
Tier 2/gasoline sulfur proposal (presented above in Section III), we 
estimated the emissions that would occur from a program that combined 
our proposed Tier 2 vehicle standards with the gasoline sulfur program 
proposed by the oil industry.42 As explained below, we 
believe vehicles meeting the proposed Tier 2 standards that 
consistently use the higher sulfur gasoline would emit at higher levels 
than those that consistently use 30 ppm sulfur gasoline, and that 
vehicles that travel between the East and West (as defined by the oil 
industry proposal) would experience an irreversible (permanent) loss in 
as much as 50 percent of the emissions performance after being exposed 
to high sulfur levels. As a result, our analysis shows somewhat higher 
total emissions for the program incorporating the oil industry's 
proposal than would occur if this sulfur effect did not occur. Since 
the ``rebuttable standard'' leaves open the possibility that the 
eastern region will not receive 30 ppm sulfur levels in 2010 and beyond 
(upon a finding of no air quality need for further reductions), we 
analyzed that scenario as well. Table IV.C.-1 shows the NOX 
emissions we

[[Page 26045]]

calculated for select years for these two scenarios, compared to our 
proposal.
---------------------------------------------------------------------------

    \42\ As explained in this section, because of sulfur's effect on 
emissions, we do not believe we could finalize the proposed Tier 2 
vehicle standards with sulfur levels averaging significantly above 
30 ppm. However, for the purposes of this analysis we did not change 
the modeled Tier 2 vehicle standards.

Table IV.C.-1.--Nationwide NOX Emissions from Tier 2 Standards and Oil Industry Proposed Gasoline Sulfur Program
----------------------------------------------------------------------------------------------------------------
                                                                                  Total NOX tons
                                                                 -----------------------------------------------
                                                                                                   Oil industry
                                                                                   Oil industry   proposal, 2010
                              Year                                                proposal 2004:     standard
                                                                   EPA proposal      150/300 a    rebutted 2004:
                                                                                   2010: 30/300      150/300 a
                                                                                                   2010: 150/300
----------------------------------------------------------------------------------------------------------------
2007............................................................       2,423,000       2,821,000       2,821,000
2010............................................................       1,859,000       2,021,000       2,292,000
2015............................................................       1,242,000       1,424,000       1,701,000
2020............................................................       1,023,000       1,221,000       1,508,000
----------------------------------------------------------------------------------------------------------------
a Sulfur average in East/sulfur average in West.

    The industry's proposals have been valuable in helping EPA and all 
the major stakeholders focus on key issues of the design of gasoline 
sulfur control options. We have seriously considered these proposals as 
well as the responses of others to the proposals. We have paid 
particularly close attention to the issue of the reversibility of 
gasoline sulfur's emissions impacts, since the environmental benefits 
to be gained from a regional sulfur program in combination with 
national Tier 2 vehicle standards hinge on the degree to which the 
negative impact of high sulfur levels can be reversed when a vehicle is 
operated later on low sulfur gasoline. We encourage comments on the 
appropriateness and feasibility of a regional gasoline sulfur program 
such as the one recommended by the oil industry (in combination with 
national Tier 2 vehicle standards as proposed today). We are 
particularly interested in analyses of the environmental and economic 
consequences of such a proposal.
    In addition, others have raised the idea of an alternative 
temporary regional gasoline sulfur control program. Under this program, 
which would last from 2004 through 2008, gasoline refined in PADD IV 
(generally covering the Rocky Mountain states and representing about 5 
percent of U.S. gasoline production) would meet an average sulfur 
standard of 150 ppm with a 300 ppm cap while the remainder of the 
country would meet a 30 ppm average beginning in 2004. Gasoline refined 
in PADD IV would have to comply with the 30 ppm average/80 ppm cap 
beginning in 2009.
    This approach would provide the smaller refineries in this region 
with additional time to make the significant capital investments to 
desulfurize gasoline. In part because of the smaller scale of the PADD 
IV refineries, we estimate that the cost of desulfurization would be 
larger for these refineries than the estimated average cost of meeting 
a 30 ppm standard.
    While the Rocky Mountain region's air quality problems are 
generally less severe than those in many other parts of the country, we 
believe that the emission reductions provided by today's proposed 
program would still be important, for several reasons.
     The Denver and Salt Lake City areas will have ozone levels 
in the 2007 time frame within 15 percent of the national ambient 
standards and would benefit from the lowest possible gasoline sulfur 
levels to assist their efforts to maintain their ozone attainment 
status.
     Other benefits of the proposed program would also be 
forgone during the interim period, as discussed above, including the 
lower secondary PM emissions, improved visibility, and reduced toxic 
emissions.
     Irreversible damage to vehicle emission control systems in 
those vehicles that have been fueled in this region at any time during 
their life would occur.
     PADD IV gasoline is marketed outside the borders of PADD 
IV.
     The vehicle emission standards would be more difficult to 
enforce if there were an extended period when vehicles were exposed to 
gasolines of more than one sulfur level.

We seek comment on the appropriateness of this approach, including 
consideration of the cost, air quality, and public health impacts as 
compared to our proposal.
    As discussed below, however, we are not proposing a gasoline sulfur 
control program that incorporates a regional element. We have not been 
able to satisfy our concerns with the irreversibility of the sulfur 
effect, since it is not clear that vehicle or catalyst design changes 
will solve the problem and since we do not believe that the effect is 
negligible. Without a national low sulfur gasoline program, the air 
quality benefits of our program would be reduced, particularly in the 
initial years when the emissions reductions will be most required to 
help many states achieve attainment with the National Ambient Air 
Quality Standards. A national program providing low sulfur gasoline 
everywhere could ensure that the vehicles designed to meet the proposed 
Tier 2 standards achieved the desired emissions performance, that the 
investments made by car buyers in cleaner technology would be 
justified, and that the needed emissions reductions occurred beginning 
as early as 2004.
2. Why EPA Believes Gasoline Sulfur Program Must be Nationwide
    As explained in Section IV.C.3. below, we are proposing that our 
gasoline sulfur control program apply throughout the country, rather 
than in a more limited geographic area along the lines of what the oil 
industry has proposed. In determining the appropriate geographic scope 
for our proposed program, we considered the implications for the 
emission control hardware of Tier 2 vehicles, based on the degree to 
which the sulfur impact on catalysts may be reversible. We considered 
the degree to which sulfur will impact advanced technology engines and 
aftertreatment systems. We weighed the impact that sulfur has on 
onboard diagnostic systems, and what that may mean for state inspection 
and maintenance programs. We evaluated the environmental implications 
beyond the ozone benefits to be realized. We also considered the 
ability of the entire refining industry to control gasoline

[[Page 26046]]

sulfur at essentially the same time. After review of all of these 
issues, it is our judgement that a national program is appropriate and 
reasonable. The following sections explore these issues in more detail.
    a. Sulfur's Negative Impact on Tier 2 Catalysts Is Irreversible. We 
have reviewed data from several test programs designed to characterize 
both the effect of high sulfur levels on vehicle emissions and the ease 
and completeness with which this effect was eliminated or ``reversed'' 
once the vehicle was operated on low sulfur gasoline. These test 
programs were performed by auto manufacturers, oil companies, emission 
control equipment manufacturers and their various associations. All of 
the vehicles included in these test programs met either EPA Tier 1 or 
California LEV emission standards and were not designed to comply with 
either EPA or California supplemental federal test procedure (SFTP) 
standards. The SFTP standards are intended to better address and 
control emissions under driving conditions not captured when compliance 
with our FTP-based exhaust emissions standards is demonstrated, such as 
operation with the air conditioning turned on or driving at very high 
rates of acceleration and vehicle speeds (hereafter referred to simply 
as aggressive driving). This is an important factor in assessing sulfur 
reversibility, because in contrast to the vehicles that have been 
tested to date, Tier 2 vehicles would have to meet more stringent 
exhaust emission standards and would have to meet these standards over 
the wider variety of operating conditions included in the SFTP 
provisions. Hence, they would have to be designed to meet the emission 
standards under all such operating conditions; these design changes may 
influence the ease with which the sulfur effect is reversed, as 
explained below.
    The vehicles tested exhibited a wide range of reversibility, for 
reasons that are not fully understood. The LEVs tested in these 
programs showed, on average, that the effect of operation on high 
sulfur fuel was reversed after operation on low sulfur fuel if 
aggressive driving conditions occurred once the vehicle was switched to 
low sulfur fuel. Roughly 85% of the increase in NMOG and NOX 
emissions resulting from high sulfur levels was reversible after 
operation on low sulfur fuel coupled with more moderate urban driving. 
(CO emissions were somewhat less reversible under these conditions.) 
Individual vehicles showed a wide range of responses, however. For 
example, many vehicles showed substantial irreversibility for one 
pollutant (NOX or NMOG) while very high reversibility for 
the other. In some cases, only half of the initial emission increase 
due to high sulfur could be removed by driving on low sulfur fuel. 
Catalyst temperature, the mixture of air and fuel in the engine and the 
design of the catalyst are all believed to be important factors that 
affect the reversibility of the sulfur impact. However, to date, no one 
has been able to demonstrate the specific contributions of these 
various factors. Also, no one has been able to design a catalyst with 
both high conversion efficiencies and no or very low sensitivity to 
sulfur.
    These data indicate that the effect of high sulfur levels on 
emissions from current LEV models driven over a wide variety of 
operating conditions appears to be partially reversible, particularly 
if the vehicle is periodically driven aggressively. However, were these 
vehicles required to meet the SFTP standards, we believe that the 
degree of reversibility would have been substantially worse.
    Studies of the adsorption and removal of sulfur on catalysts have 
demonstrated that wide variations in the mixture of air and fuel 
entering the engine (alternating between having a shortage to having an 
excess of oxygen) directionally help to remove sulfur from the 
catalytic surface. When driven aggressively, the mixture of air and 
fuel in the engines of most current vehicles (those not certified to 
SFTP standards) is quite variable, because precise control of the 
mixture of air and fuel is primarily done to control emissions. Meeting 
the SFTP standards will ensure that manufacturers carefully control the 
mixture of air and fuel over essentially all in-use driving conditions. 
This absence of widely varying mixtures of air and fuel could therefore 
inhibit the removal of sulfur from the catalyst once operation on high 
sulfur fuel ceased. Thus, we project that the sulfur effect on vehicles 
meeting both the LEV and SFTP standards (vehicles sold after 2000) and 
vehicles meeting the Tier 2 standards (which will include low exhaust 
emissions and low SFTP emission standards, too) will be less reversible 
than the effect shown on the vehicles included in the test programs 
discussed here.
    Another factor that may substantially influence sulfur 
reversibility is the amount of time the catalyst is exposed to high 
sulfur fuel. With only a few exceptions, the vehicles in the test 
programs mentioned above were only driven on high sulfur fuel for a few 
miles (well under 100) before low sulfur fuel was reintroduced. This 
appears to limit the extent to which sulfur could permanently disable 
the effectiveness of the catalyst. However, one vehicle was tested with 
an aged catalyst system (to simulate a vehicle near the end of the 
useful life of 100,000+ miles) and driven for extended mileage (more 
than 1,000 miles) on high sulfur fuel before being retested on low 
sulfur fuel. (As with the other vehicles, this test vehicle was not 
designed to be SFTP-compliant; SFTP compliance could further complicate 
the ability of a vehicle to reverse the sulfur effect.) For this 
vehicle, only 50% of the NOX emission effect of high sulfur 
fuel was reversed upon operation on low sulfur fuel. This is much less 
than the 85-100% reversibility found with short term exposure to 
sulfur. Thus, we project that in-use emissions performance of Tier 2 
vehicles operated for some time on high sulfur fuel (as would occur if 
a regional sulfur control program permitted high sulfur levels in a 
large geographic area) might be substantially compromised. For example, 
in-use emissions of passenger cars designed to meet the 0.07 g/mi 
NOX standard and operate on 30 ppm gasoline would actually 
be increased by about 50 percent if they were operated on 300 ppm 
gasoline at any point in their life. Such vehicles might only recover 
half of the emissions performance otherwise expected, perhaps even less 
once SFTP compliant designs are incorporated. Furthermore, we believe 
this effect would be essentially permanent; continued operation with 
low sulfur gasoline would be unlikely to improve the emissions 
performance.
    The Draft RIA presents our complete evaluation of sulfur 
irreversibility, based on the data we have obtained to date. We 
encourage comments on this analysis. Furthermore, we are seeking 
comment on and will be considering the studies described in Appendix B 
of the Draft RIA, plus any new information developed or received before 
a final decision. We welcome any additional data characterizing the 
irreversibility of the sulfur effect, including what vehicle or 
catalyst design factors may make exposure to sulfur more or less 
reversible.
    The preceding discussion focused on the irreversibility of the 
sulfur impact on emissions from current gasoline engine technologies. 
There are new technologies under development, which could be sold in 
the U.S. in the middle of the next decade (the same time that Tier 2 
vehicles are being introduced), which also appear to be very sensitive 
to sulfur and largely unable to reverse this sulfur impact. One of 
these

[[Page 26047]]

technologies is the direct injection gasoline (GDI) engine. These 
engines utilize much more air than is needed to burn the fuel, unlike 
conventional gasoline engines that operate under conditions where only 
just enough air to completely burn the fuel is introduced into the 
engine. This GDI technology allows these engines to be up to 25% more 
fuel efficient than current gasoline engines and to emit up to 20% less 
carbon dioxide. GDI engines are currently being introduced in both 
Japan and Europe (which have or will soon require low sulfur 
gasolines). Because of the significant operating differences with GDI 
engines, these vehicles will likely require emission control technology 
substantially different from that used on conventional gasoline 
engines. For example, a GDI engine may require a NOX 
adsorber to meet the proposed Tier 2 NOX standard. High fuel 
sulfur levels quickly and permanently degrade the performance of these 
NOX adsorbers. Thus, to enable the sale of advanced, high 
efficiency GDI engines in the U.S. under the Tier 2 standards, it 
appears that low sulfur gasoline would have to be available nationwide 
by the time this technology becomes available.
    The fuel cell is another promising propulsion system that is being 
developed for possible introduction to consumers early in the next 
century. Fuel cells are being designed to operate on a variety of 
fuels, including gasoline and diesel fuel. The basic fuel cell 
technology is highly sensitive to sulfur. Almost any level of sulfur in 
the fuel will disable the fuel cell. One possible solution is to 
install a technology that essentially filters out the sulfur before it 
enters the fuel cell. However, such sulfur ``guards'' are costly and 
could not practically be used like a disposable filter (requiring the 
vehicle owner to change the sulfur guard frequently, much like changing 
an oil filter) in situations where constant exposure to high sulfur 
levels occurs. (Even exposure to relatively low sulfur levels will 
likely require periodic replacement of the sulfur guard to ensure 
adequate protection for the fuel cell.) Therefore, the amount of sulfur 
in the fuel must be limited to that which can be removed by one or at 
most two sulfur guards over the life of the vehicle. Thus, in order for 
fuel cells operating on gasoline to be feasible in the U.S., low sulfur 
fuels would have to be available nationwide by the time this technology 
becomes available.
    b. Sulfur Has Negative Impacts on OBD Systems and I/M Programs. As 
discussed in more detail in the RIA, EPA believes that sulfur in 
gasoline can adversely impact the onboard diagnostic (OBD) systems of 
current vehicles as well as vehicles meeting the proposed Tier 2 
standards. This is an important factor supporting the need for a 
national sulfur control program. EPA's onboard diagnostics (OBD) 
regulations require that all vehicles be equipped with a system that 
monitors, among other things, the performance of the catalyst and warns 
the owner if the catalyst is not functioning properly. The OBD catalyst 
monitor is designed to identify those catalysts with pollutant 
conversion efficiencies that have been reduced to the extent that 
tailpipe emissions would exceed a specified multiple of the applicable 
hydrocarbon emissions standard. For California LEV and federal NLEV 
vehicles, that multiple is 1.75 times the applicable hydrocarbon 
emissions standard; for federal Tier 1 vehicles, that multiple is 1.5 
times the applicable hydrocarbon standard added to the 4,000 mile 
emission level.
    We want to ensure that OBD systems operate correctly, and thus the 
possibility that gasoline sulfur may interfere with these systems was 
another consideration when evaluating the need for a national sulfur 
program. Our evaluation of sulfur's effect on OBD systems was 
summarized in a staff paper in 1997.43 We concluded that 
sulfur can affect the decisions made by the OBD systems. Sulfur appears 
to affect the oxygen sensor downstream of the catalyst, which is used 
in the OBD systems, and it is not clear that the conditions that seem 
to reverse sulfur's effect on the catalyst will also reverse any sulfur 
impact on the downstream oxygen sensors. Indirectly, sulfur impacts OBD 
systems because it can impair a catalyst that would otherwise be 
operating satisfactorily, thereby triggering the OBD warning lights. 
While this would be indicate a properly operating OBD system, auto 
manufacturers have expressed the concern that consumers using high 
sulfur fuel may experience OBD warnings much more frequently than they 
would if operating on low sulfur gasoline, and that this could lead to 
a loss of consumer confidence in or support for OBD systems. Consumers 
may then ignore the OBD warning system and drive a potentially high 
emitting vehicle (which may have nothing to do with exposure to 
sulfur), contributing even more to air quality problems. Another 
possible scenario is that the OBD system may be impaired by sulfur in 
such a way that it does not register an improperly functioning 
catalyst, even if the catalyst is impaired for reasons unrelated to 
exposure to sulfur. This would defeat the purpose of OBD systems.
---------------------------------------------------------------------------

    \43\ U.S. EPA, ``OBD & Sulfur Status Report: Sulfur's Effect on 
the OBD Catalyst Monitor on Low Emission Vehicles,'' March 1997, 
updated September 1997.
---------------------------------------------------------------------------

    The NLEV program provides manufacturers the opportunity to request 
extra preconditioning of vehicles that they believe may be negatively 
impacted by high sulfur levels, when such vehicles may be included in 
in-use testing by EPA. We consider such requests on a case-by-case 
basis. One manufacturer has already requested, and received approval 
for, a special preconditioning cycle to remove any sulfur from the 
catalyst of a specific vehicle model, should that vehicle model be 
included in any in-use testing. We are concerned that a regional 
gasoline sulfur program would increase the likelihood that 
manufacturers would be compelled to request special preconditioning 
cycles for test programs, and believe that the one request we have 
granted already is indicative of the potential problems that would 
arise under a regional gasoline sulfur program. While the use of a 
special preconditioning cycle can protect the manufacturer from 
liability for high in-use emissions resulting purely from exposure to 
high sulfur, the in-use emissions from these vehicles would still be 
higher than expected based on the certified design.
    To the extent that future catalysts are more sensitive to sulfur as 
emission standards become more stringent, the impact of sulfur on 
catalysts and catalyst monitors becomes proportionately more critical. 
The more stringent the Tier 2 vehicle emission standards are, the more 
stringent the OBD malfunction thresholds will be, because those 
thresholds are expressed as multiples of the applicable hydrocarbon 
emission standard. Therefore, even if the sulfur effect on future 
technology vehicles were equivalent in absolute terms to the effect on 
current technology vehicles, would become more significant in relative 
terms on those future technology vehicles. Because of this (and our 
concern about how reversible the effect of sulfur may be), we are 
concerned that a regional sulfur program could create widespread 
problems with OBD catalyst monitors for vehicles traveling outside of 
the low sulfur region. A regional sulfur program would likely result in 
higher emissions from Tier 2 vehicles in high sulfur regions, and may 
also result in more OBD-identified catalyst failures in those areas. We 
are not aware of a technical solution to this problem.

[[Page 26048]]

    The geographic scope of a sulfur control program also has 
implications for inspection and maintenance (I/M) programs. A regional 
sulfur control program could affect I/M programs located outside of the 
sulfur control region. The emissions measured in these I/M programs 
would likely be higher than those measured in the low sulfur region, 
possibly necessitating the use of unique emission cut points for Tier 2 
vehicles registered in the higher sulfur region. I/M programs located 
outside of the sulfur control area would need to consider the 
possibility that the presence of OBD failure codes may be caused 
primarily by the use of high sulfur fuels, and may have to provide for 
a catalyst regeneration procedure to try to reverse the sulfur buildup 
to get a reading of how the catalyst is operating. This could lead to 
unequal treatment of vehicles located in different regions of the 
country based solely on their exposure to sulfur, unnecessarily 
complicating I/M programs. Furthermore, many I/M areas intend to rely 
heavily on OBD checks rather than emission checks in the future, making 
the correlation of OBD checks to the emissions from the vehicles very 
important. Therefore, the potential scenario of increased emissions 
without OBD detections (due to sulfur-fouled catalyst monitors) would 
make OBD a less attractive I/M tool in areas with high sulfur fuel. A 
national program, even one providing limited, temporary exemptions for 
small refiners, would avoid many of these concerns.
    c. Sulfur Reductions Would Ensure Lower Emissions of Many 
Pollutants. One of the major arguments supporting a regional program is 
that such a program could be targeted at the majority of areas needing 
ozone controls by getting the NOX and VOC reductions in the 
areas with the greatest ozone pollution problems. However, as our 
estimates of the total emission reductions to be achieved through the 
combined Tier 2/gasoline sulfur program show (presented above in 
Section III), there are substantial NOX and VOC reductions 
to be attained nationwide with our proposal. In Table IV.C.-1 above, we 
estimated that our national sulfur control proposal would result in 9-
22% fewer NOX emissions compared to the regional sulfur 
program proposed by the oil industry, presuming that we implemented 
Tier 2 vehicle standards consistent with today's proposal and depending 
on the year in which the emissions reduction is evaluated. The higher 
emissions from a regional program would be due to the reduced emissions 
performance of vehicles (Tier 2 and others) located in the West where 
higher sulfur levels would be permitted and the loss of emissions 
performance for vehicles located in the East that travel to the West 
(or are relocated from the West) and are expected to suffer 
irreversible catalyst damage due to the higher sulfur levels in the 
West. Even in 2010 and beyond, when the oil industry's proposed program 
would result in sulfur levels consistent with our proposal in the East, 
Tier 2 vehicles located in the West or traveling from West to East 
would see substantial reductions in emissions performance. Furthermore, 
if the oil industry's proposed 2010 standard were not implemented (on 
the basis of the findings of the study they propose for 2004-06), the 
difference in emissions reductions between our proposal and the oil 
industry proposal climbs to 16-47% fewer NOX emissions. 
Hence, the ozone benefits of this proposal would be somewhat smaller if 
a regional gasoline sulfur program were adopted.44
---------------------------------------------------------------------------

    \44\ See the Draft RIA for information on the evaluation of this 
and other alternatives.
---------------------------------------------------------------------------

    While the benefits of reducing ozone precursors through gasoline 
sulfur reductions are generally limited to a nonattainment area (as 
well as areas trying to maintain their attainment status, including 
those within 15% of the NAAQS standard and upwind locations that 
contribute transported ozone precursors into those areas), reductions 
in emissions of other pollutants have broader geographic benefits, as 
discussed in Section III. For example, sulfur reductions would help 
reduce emissions of particulate matter, providing some benefit to PM 
nonattainment areas (which may or may not coincide with ozone 
nonattainment areas) as well as areas with visibility problems. Sulfur 
reductions will also have benefits for areas across the country with 
acid deposition problems. Furthermore, sulfur reduction, by enabling 
tighter Tier 2 standards and by improving the emissions performance of 
the vehicles already on the road, will lead to fewer NMOG emissions, 
since, as explained in the Draft RIA, NMOG emissions are also impacted 
by gasoline sulfur (although to a lesser extent than NOX 
emissions). Some of the NMOG emissions reduced are air toxics. As 
described in Section III above, air toxics, also known as hazardous air 
pollutants, or HAPs, contribute to a variety of human health problems. 
Thus, a national sulfur reduction program would achieve larger benefits 
than a regional program, and people living in the region with higher-
sulfur gasoline would not get the full benefits of reduced air toxics 
emissions and could suffer adverse health consequences.
    d. The Refining Industry Can Control Gasoline Sulfur. While 
evaluating the merits of a national gasoline sulfur program, in 
addition to considering the technical requirements for vehicles to meet 
the proposed Tier 2 standards and the potential air quality benefits 
that could be realized, we also considered the ability of refiners to 
reduce gasoline sulfur in essentially every gallon of gasoline by 2004. 
Based on this evaluation, we believe it is technically feasible for 
refiners to meet the proposed standards and that it is possible for 
them to do so in the proposed time frame. A summary of our analysis is 
presented here; we refer the reader to the Draft RIA for more details.
    Technologies that enable refiners to significantly reduce the level 
of sulfur in gasoline have been available for many years. California 
began requiring low sulfur gasoline (30 ppm average/80 ppm cap) in 
1996.45 Refiners in California are currently producing 
gasoline that averages around 20 ppm sulfur. In addition, low sulfur 
gasoline standards similar to our proposal are, or soon will be, 
implemented by countries in Asia and Europe, and by Canada. These 
programs provide additional evidence that desulfurization technologies 
are available to meet a low sulfur gasoline standard, and that the 
majority of refiners in the industry can reasonably be expected to 
install and operate these technologies if given a reasonable amount of 
lead time.
---------------------------------------------------------------------------

    \45\ Prior to that date, gasoline in California was capped at 
300 ppm sulfur.
---------------------------------------------------------------------------

    When considering the implications of a sulfur standard, U.S. 
refiners can be grouped into two major groups: those already producing 
gasoline that meets, or nearly meets, the proposed requirements, and 
those that would have to make processing changes to comply. The 
majority of refiners currently producing relatively low sulfur gasoline 
today (roughly 15 percent of domestic production) could meet the 
proposed gasoline sulfur standard with no or very little additional 
capital investment, and at most a small increase in operating cost. 
These refiners have achieved their current sulfur levels using 
traditional sulfur removal technologies, or, in some cases, with 
refinery configurations that can accommodate very low sulfur crude 
oils.
    Two examples of these traditional technologies are hydrotreating or 
hydrocracking the feed to the fluidized catalytic cracker unit (FCC), 
the unit in

[[Page 26049]]

the refinery that produces the largest fraction of gasoline blendstock. 
These processes are capital intensive and demand large amounts of 
hydrogen and other utilities, resulting in high operating expenses. 
Another example is desulfurization of the gasoline stream coming from 
the FCC unit. Treating the FCC gasoline stream has the advantage of 
lower capital and operating costs than treating the FCC feed. The major 
concern with this approach is that the octane value of this gasoline 
blendstock is reduced at the same time that sulfur is reduced, 
particularly when the sulfur is being reduced to low levels. This lost 
octane must be made up by increasing the production of high-octane 
blendstocks from other units of the refinery, or by the addition of 
oxygenates. Making up this octane loss adds significantly to the cost 
of desulfurizing FCC gasoline. We seek comment on any implications of 
this proposal of recent activities in California relating to the 
oxygenate MTBE, and of refiners' possible use of oxygenates other than 
MTBE to make up any octane loss.
    Based on current sulfur levels, we believe the majority of U.S. 
refiners would have to install at least one desulfurization processing 
unit to lower gasoline sulfur to the proposed levels. Since 
installation of traditional desulfurization technologies could be quite 
costly for most refiners, we have been very encouraged to see the 
recent development of several improved desulfurization processes that 
are now available at reduced capital investment and operating costs 
(and which avoid the octane loss that increases the costs of 
traditional technologies). Examples of these technologies are CDHydro 
and CDHDS (licensed by the company CDTECH) and OCTGAIN 220 (licensed by 
Mobil Oil).46 These technologies use conventional refining 
processes combined in new ways, with improved catalysts and other 
design changes that minimize the undesirable impacts (such as the 
substantial loss in octane) and maximize the effectiveness of the 
desulfurization approach. Since these processes provide less costly 
ways to reduce gasoline sulfur, we presume that they would be used by 
most refiners to meet the proposed gasoline sulfur standard, and have 
based our economic assessment (summarized in Section IV.D. below) on 
that presumption.
---------------------------------------------------------------------------

    \46\ In addition to these technologies, other companies have 
told us that they are working on developing their own 
desulfurization technologies. Furthermore, there have been recent 
advances in an approach called biodesulfurization, which employs 
bacteria that selectively desulfurizes petroleum. We believe 
refiners will have an increasing number of technology options to 
meet our proposed standards.
---------------------------------------------------------------------------

    Some in the refining industry have told us that since there have 
not been long-term commercial demonstrations of these newer 
technologies, they would not consider these technologies to be viable 
and, if faced with our proposed requirements in 2004, they might select 
the more traditional sulfur reduction processes, resulting in a higher 
cost to produce low sulfur gasoline. While we understand the hesitation 
on the part of some in the oil industry to invest in these improved 
sulfur reduction technologies, we believe many, if not all, of their 
concerns would be addressed in the next few years. The industry would 
have four years to prepare to meet our proposed gasoline sulfur 
requirements. Refiners have been provided a similar amount of time to 
comply with fuel programs in the past (highway diesel fuel sulfur 
control, reformulated gasoline under the complex model) and some have 
told us that three to four years is adequate to allow them to meet 
gasoline sulfur standards similar to those proposed today. Refiners 
would have time to grow more comfortable with the improved processes 
after they have obtained additional data and information from the 
vendors that license these technologies. Refiners would be able to have 
their FCC gasolines tested in vendors' pilot plant facilities, which 
would provide each refiner with more specific information on how the 
process would function in their particular refineries. Furthermore, we 
have been informed that there will soon be demonstrations of at least 
two of the improved desulfurization technologies in existing 
refineries; the entire industry will benefit from these efforts.
    We have heard concerns that small refiners, particularly those in 
the Rocky Mountain region, would bear proportionately higher economic 
burdens if they were required to produce gasoline meeting the same 
sulfur levels as larger refineries located in the Gulf Coast and East. 
The severity of these economic impacts could result in unreasonably 
high gasoline prices, potential refinery closures, and supply 
shortages, according to those raising the concerns. Our analysis, 
presented here and in the Draft RIA, leads us to conclude that these 
severe events would not occur. Furthermore, we have recently received a 
study that suggests that, in fact, small refiners in the Rocky Mountain 
region will incur costs only slightly higher than the national 
average.47 This study concludes that the potential for 
refinery closures in this region in response to a gasoline sulfur 
regulation is small, and that even if ten percent of gasoline were 
negatively impacted there would not be a significant supply shortfall 
in the region. We have not yet reviewed this study in detail, and we 
encourage comments on the analysis presented in it. However, having 
considered the concerns raised about small refiners in general, 
including those in the Rocky Mountain region, we are proposing special 
provisions for small refiners to address their unique challenges.
---------------------------------------------------------------------------

    \47\ MathPro, Inc., ``Likely Effects on Gasoline Supply in PADD 
4 of a National Standard for Gasoline Sulfur Content,'' Prepared for 
Association of International Automobile Manufacturers, 
DaimlerChrysler Corporation, Ford Motor Company, and General Motors 
Corporation, March 19, 1999.
---------------------------------------------------------------------------

    The advent of the improved desulfurization technologies creates an 
opportunity for a stringent, nationwide, and yet relatively low-cost, 
sulfur control program. Such a program would still likely be 
challenging for many if not most refiners. In the program proposed 
today, we have built in a number of flexibilities that would ease the 
task of compliance for refiners while maintaining the level of air 
quality improvements of a less flexible program. In particular, Section 
IV.C.-3 below presents a sulfur averaging, banking, and trading program 
that effectively extends the final compliance date by two years. In 
consideration of all these factors, we believe that under the proposed 
program, all refiners nationwide should be able to produce very low 
sulfur gasoline without suffering severe financial consequences.
    e. Other Stakeholders Support National Gasoline Sulfur Control. In 
addition to our technical arguments for concluding that gasoline sulfur 
should be controlled nationwide, we have considered the positions of 
other parties. Many stakeholders to our decision have expressed to us 
their support for a national sulfur control program. Automakers, 
represented by the American Automobile Manufacturers Association (AAMA) 
and the Association of International Automotive Manufacturers (AIAM), 
have petitioned the Agency to implement a national, low sulfur gasoline 
program ``as soon as possible.'' State organizations such as STAPPA/
ALAPCO and the Ozone Transport Commission (OTC) have made similar 
resolutions, and many individual states have also voiced support for a 
national program. Environmental organizations, such as the American 
Lung Association

[[Page 26050]]

and the American Council for an Energy Efficient Economy, favor a 
national sulfur control program, as well. The arguments for a national 
program presented by these parties include:
     High sulfur levels significantly impair the performance of 
today's emission control technologies, reducing the emissions benefits 
of current and advanced vehicles,
     Gasoline sulfur contributes to air quality problems not 
directly benefitted by vehicle emission standards (PM, SOX, 
hazardous air pollutants),
     The sulfur impact on emission controls is largely 
irreversible, and
     If sulfur levels are not controlled, new, more fuel-
efficient vehicle technologies that are as or more sulfur-sensitive 
than today's vehicles will not be introduced in the U.S.
3. Proposed Gasoline Sulfur Standards
    We are proposing to require substantial reductions in gasoline 
sulfur levels nationwide. Not only would these standards enable the 
stringent tailpipe emission standards we're proposing for Tier 2 
vehicles and ensure that these low emission levels would be realized 
throughout the life of the vehicle, but they would also help to reduce 
emissions of pollutants that endanger public health and welfare from 
vehicles already on the road, including NLEV vehicles. The following 
sections summarize the proposed requirements for gasoline refiners and 
importers, special provisions for small refiners, and possible changes 
to construction permitting requirements that would enable refiners to 
install gasoline desulfurization technology in a timely manner. We also 
raise the potential need for changes to diesel fuel to enable diesel 
technologies to meet the proposed Tier 2 standards. Section VI. 
provides additional information about the compliance and enforcement 
provisions that would accompany these proposed requirements. More 
detailed information in support of the conclusions presented in this 
section of the proposal is found in the draft Regulatory Impact 
Analysis.
    a. Standards for Refiners and Importers. Our proposed gasoline 
sulfur program balances the goal of enabling Tier 2 emission control 
technologies with the goal of lowering sulfur as early as the refining 
industry can practically achieve the required levels. To accomplish 
both of these goals, we are proposing a set of standards combined with 
a sulfur averaging, banking, and trading (ABT) program. This proposed 
overall program would achieve the desired sulfur levels, on average, 
beginning in 2004--the first year Tier 2 vehicles will be sold--while 
proposing to allow the use of credits towards compliance with refinery 
average standards indefinitely (within the limits of per-gallon caps). 
These requirements would apply to all gasoline sold in the 
U.S.,48 based on our belief that emissions must be reduced 
nationwide to adequately protect public health and the environment and 
that Tier 2 vehicles operated everywhere in the U.S. require protection 
from the harmful impacts of gasoline sulfur.
---------------------------------------------------------------------------

    \48\ Gasoline sold in California that meets California's 
standards would be exempt from meeting the proposed standards, due 
to our belief tht California gasoline already meets or exceeds these 
requirements. See Section VI.B.
---------------------------------------------------------------------------

    Table IV.C.-2. presents the proposed standards for gasoline 
refiners and importers. The proposal would require all gasoline 
refiners and importers to produce gasoline that meets an average 
standard of 30 ppm sulfur at the refinery gate on an annual basis, 
beginning in 2004. These requirements would apply to all gasoline, 
reformulated as well as conventional. In 2004 and beyond this standard 
could be met through the use of credits generated as early as 2000 by 
refiners who substantially reduce sulfur levels from current (1997-
1998) levels, under the provisions of the proposed sulfur ABT program 
discussed below in Section IV.C.3.c. Hence, the actual average sulfur 
levels for gasoline in use could be somewhat higher than 30 ppm. 
However, to ensure that sulfur levels are being reduced significantly 
(for the benefit of Tier 2 vehicles and to achieve the other emissions 
benefits of reducing gasoline sulfur), these in-use sulfur levels would 
be constrained by maximum corporate pool average standards of 120 ppm 
in 2004 and 90 ppm in 2005. These standards would represent the maximum 
allowable average sulfur levels for each refiner, measured across all 
refineries owned and operated by that refiner, rather than at each 
refinery. In 2006 and beyond, there would be no corporate pool average 
standard. Every refinery would have to meet the 30 ppm average refinery 
gate standard, although refiners could use any banked/purchased credits 
to meet this standard (as explained in the ABT discussion below). Thus, 
in 2006 and beyond, the majority of gasoline would average 30 ppm, 
although some individual refineries could average slightly more or 
less.

    Table IV.C.-2.--Proposed Gasoline Sulfur Standards for Refiners and Importers [Excluding small refiners]
----------------------------------------------------------------------------------------------------------------
                                               January 1,      January 1,
             Compliance as of:                    2004            2005                 January 1, 2006+
----------------------------------------------------------------------------------------------------------------
Refinery Average, ppm......................             a30             a30  a30
Corporate Pool Average, ppm................             120              90  not applicable
Per-Gallon Cap, ppm........................            b300             180  80
----------------------------------------------------------------------------------------------------------------
a This standard can be met through the use of credits as long as the applicable corporate pool average and per-
  gallon caps are not exceeded, as explained in the text.
b This initial per-gallon cap standard begins October 1, 2003.

    To ensure that, even as average sulfur levels are reduced in 2004-
2006, gasoline sulfur levels do not exceed a maximum level that we 
believe is particularly harmful to Tier 2 vehicles, we are also 
proposing ``caps'' on the sulfur content of every batch of gasoline 
produced or imported into the country. As shown in Table IV.C.-2, these 
caps decline over time, ultimately resulting in a per-gallon limit of 
80 ppm in 2006 and beyond. Since Tier 2 vehicles would be sold prior to 
the start of calendar year 2004, the actual date when the initial 
sulfur cap standard would take effect at the refinery is October 1, 
2003. We are also proposing caps on the sulfur content of gasoline sold 
at the retail level or otherwise distributed downstream of the 
refinery, as explained in Section VI.B.
    For purposes of compliance, we propose that a joint venture, in 
which two or more refiners own and operate one or more refineries, be 
treated as separate refining corporations under the proposed gasoline 
sulfur requirements.

[[Page 26051]]

Hence, a refinery owned by a joint venture would be included in the 
corporate pool calculations of the joint venture, and would not be 
allowed to be included with other refineries owned by one of the 
parties to the joint venture in the corporate pool calculations for 
that party. Given the large number of joint ventures that have been 
announced recently in the oil industry, we believe this would be an 
equitable way to handle compliance for joint venture refineries. 
Furthermore, this approach would increase the number of companies that 
can generate and trade sulfur credits; a more limited number of multi-
refinery companies would tend to bank and trade credits within rather 
than across corporations. We welcome comments on alternatives to this 
approach, such as requiring the majority owner in a joint venture to 
include the jointly owned refinery in his compliance calculations. If 
you recommend such an approach, please discuss how joint ventures that 
have (nearly) equal ownership among the parties should be treated for 
compliance and aggregation purposes.
    i. Why Begin the Program In 2004?
    The primary reason for our proposal to begin the gasoline sulfur 
standards in 2004 is that this is the first year that Tier 2 vehicles 
would be required to be sold, and these lower sulfur levels would be 
needed to avoid significant impairment of the Tier 2 emissions control 
technology. Furthermore, vehicles already in the fleet would benefit 
and we would like to maximize that benefit by starting the program as 
soon as is reasonable. States need the emission reductions that sulfur 
control would bring as soon as possible due to their SIP requirements 
in 2007 and 2010. This is reinforced by the fact that several states 
have already taken the initiative to develop state gasoline sulfur 
standards. In fact, since model year 2004 vehicles will likely be on 
the market in the fall of 2003, we are proposing to implement the caps 
on sulfur levels beginning October 1, 2003. This would help to ensure 
that sulfur levels are reduced coincidentally with the sale of Tier 2 
vehicles, and would also ensure that sulfur levels throughout the 
gasoline distribution system have been reduced by the start of 2004.
    We request comment on the feasibility of the compliance dates 
summarized in Table IV.C.-2. If these dates are not feasible, what 
date(s) would be more appropriate, given that Tier 2 vehicles will be 
introduced no later than model year 2004 and our conclusion that 
gasoline sulfur reductions must coincide with the introduction of these 
vehicles? For example, we request comment on the implications of 
implementing the 30 ppm average standard beginning later than 2004, 
including potential implication on cost, air quality, and 
implementation of the proposed Tier 2 vehicle standards. What other 
factors should we consider if you believe that the proposed 
implementation dates are not feasible and should be postponed?
    We also seek comment on the implications of implementing an average 
sulfur standard different than the proposed 30 ppm average standard, 
including levels higher and lower than 30 ppm. Specifically, commenters 
should address the feasibility of different standards they support, the 
time frame in which different average standards could be implemented 
(i.e., in 2003, 2004, or 2005), the potential air quality impacts of 
such standards, and how such standards would affect the implementation 
of the proposed Tier 2 vehicle standards.
    ii. How Did We Arrive At the 80 ppm Cap and 30 ppm Average 
Standards?
    We believe a 30 ppm averaging standard is important and necessary 
to enable the emission reductions needed from Tier 2 vehicles. The test 
data we have reviewed, referenced in previous sections of this notice 
and in the Draft RIA, show that even very low levels of sulfur have 
some negative impact on catalyst performance. Most of the data 
available to us were generated through testing with minimum sulfur 
levels near 30 ppm. We have used this data to conclude that sulfur 
levels need to be reduced, and to assess, as part of our analysis, the 
technical feasibility of the proposed Tier 2 vehicle standards. The 
non-linear relationship between sulfur level and emissions impact (the 
lower the sulfur level, the greater the incremental increase in 
emissions) suggests that emission reductions would be ensured by sulfur 
levels at or near 30 ppm. We believe that requiring the 30 ppm average 
standard would be necessary to ensure that vehicles regularly use 
gasoline containing very low amounts of sulfur, regardless of where the 
vehicles were driven, what time of year it was, or how gasoline 
production varied from batch-to-batch in a given refinery.
    We also believe that an 80 ppm cap standard would be required to 
provide appropriate insurance for maintaining Tier 2 standards in use 
and to give automakers an indication of the maximum sulfur levels for 
which they would need to design their vehicles. The test data we have 
reviewed show that the greatest increase in emissions comes as the 
sulfur level is increased from the lowest levels (i.e., 30 ppm). At 
higher sulfur levels (i.e., above 100 ppm), the catalyst performance is 
impaired to the extent that an additional increase in sulfur content 
has a smaller additional impact on emissions. Since the factors that 
influence sulfur sensitivity vary from vehicle to vehicle, different 
vehicles will experience different impacts from exposure to specific 
sulfur levels. None of the data that we have reviewed indicates that a 
vehicle can be designed to be completely insensitive to sulfur for all 
types of emissions. Furthermore, as discussed in Section IV.C.2., our 
concern that roughly half of the sulfur impact on the catalyst would be 
irreversible for Tier 2 vehicles (with other vehicles being negatively 
affected as well) provides additional arguments for trying to keep the 
sulfur cap as close to the average as possible. Hence, to ensure that 
Tier 2 vehicles maintain the designed emission performance over the 
life of the vehicle, we believe a cap on gasoline sulfur levels would 
be necessary, and that 80 ppm would be the appropriate level for this 
cap.
    Setting a cap also would enhance enforcement of sulfur standards by 
setting a maximum level of sulfur that could be checked at all points 
in the gasoline distribution process. A sulfur cap significantly lower 
than 80 ppm could have the unintended consequence of forcing a sulfur 
average lower than the 30 ppm standard, increasing the overall costs of 
the program. The proposed level of 80 ppm sulfur for the cap reflects 
our balancing of several factors, including the potential air quality 
benefits, economic impacts, compliance flexibility, and the 
irreversibility of the effects of gasoline sulfur on vehicle emission 
controls.
    As explained in Section IV.D. below, we believe that the 
combination of our proposed gasoline sulfur standards and the proposed 
Tier 2 standards would be cost-effective. This judgement about cost-
effectiveness reflects what we believe would be an appropriate balance 
between the costs to be borne by the affected industries and the 
emissions reductions to be gained. Even though few refiners currently 
produce gasoline at or near these levels, as explained in Section 
IV.C.2 above there appear to be no significant obstacles to refiners 
achieving this level of sulfur control by 2004 (or 2006 if they were to 
take advantage of the sulfur ABT program). Unless a substantially 
higher average sulfur standard were set or a substantially smaller 
fraction of gasoline were affected by our regulations, refiners would 
have to make a significant investment in technology to desulfurize 
gasoline. Hence the cost to

[[Page 26052]]

refiners would not be substantially reduced if we selected a less 
stringent average standard. Furthermore, we believe that a lesser 
reduction in gasoline sulfur levels could require us to reduce the 
stringency of the proposed Tier 2 standards. A higher average sulfur 
level would require less stringent standards or more vehicle hardware 
costs; either would reduce the effectiveness of our proposed combined 
program.
    At the same time, we recognize the need to provide some 
flexibilities to refiners in meeting our proposed standards, to ensure 
that the program is implemented in an orderly manner, without severe 
consequences in the initial months (for example, supply shortages or 
substantial spikes). Hence, we have proposed to allow less stringent 
caps in 2004 and 2005 (through 2007 under the small refiner provisions 
discussed below) to balance the needs of the technology with the 
regulatory burden, economic impact, and ability of the refining 
industry to reduce sulfur levels in this time frame. Given that Tier 2 
vehicles would be phased in over several years and that the vast 
majority of gasoline would be capped at 80 ppm by 2006 (when 75% of new 
LDV, LDT1, and LDT2 sales would be required to meet the proposed Tier 2 
standards), we believe that the potential damage to Tier 2 catalysts 
would be minimized. Furthermore, since the gasoline distribution system 
is fungible (i.e., gasoline from multiple refiners may be mixed 
together, and gasoline produced at one company's refinery may be sold 
at another company's retail station), any gasoline that approached the 
higher caps in 2004 and 2005 would be highly likely to be diluted by 
lower sulfur gasoline, further limiting the potential negative impact 
on Tier 2 vehicles.
    We have also proposed to permit compliance with the 30 ppm refinery 
average with the use of credits indefinitely, not just in the years 
during which the corporate average is reduced, as long as the 
applicable per-gallon caps are not exceeded. We would like comments on 
whether this provision should end, and if so, what date would be 
appropriate to require every refinery to meet the 30 ppm standard with 
actual production. We also encourage comments on whether corporate 
averaging (aggregation of refineries owned by a single entity) should 
be allowed for compliance with the 30 ppm standard, in 2004 and 2005 
(in addition to corporate averaging to the pool standard) and/or 
beginning in 2006.
    In light of our technical conclusions about the need for these 
standards, and our concerns about the irreversibility of the sulfur 
effect, we believe the 30 ppm average/80 ppm cap is the appropriate 
sulfur level to enable vehicles to meet the proposed Tier 2 standards 
and to maximize the emissions reductions to be achieved from this 
program in a cost-effective way. We welcome comments on these 
conclusions. We are also interested in any information on the 
reversibility of the sulfur impact on NLEV and Tier 2 catalysts that 
may supplement our understanding of how reversibility may differ with 
exposure to different sulfur levels and how this difference would 
impact our selection of the 30/80 standards. We also solicit 
information about what, if any engine or catalyst design modifications 
could minimize the irreversibility of the sulfur impact and about how 
compliance with the SFTP standards could impact irreversibility (for 
either NLEV or Tier 2 vehicles).
    iii. Should a Near-Zero Gasoline Sulfur Standard Be Considered?
    The auto industry, represented by the Alliance of Automobile 
Manufacturers, have supported a gasoline sulfur control program that 
would require 30 ppm gasoline in 2004 with a further reduction to 
``near-zero'' levels (less than 5 ppm) by 2007. They believe that near-
zero sulfur levels would enable the emission control technology that 
would ultimately be necessary to meet standards similar to those we are 
proposing today. They also believe that very low sulfur gasoline would 
significantly increase the emission reductions of the program as 
compared to a 30 ppm sulfur program.
    We are also aware of concerns that advanced emission control and 
fuel efficient technologies, such as gasoline direct injection engines 
and automotive fuel cells, may require zero or near-zero sulfur levels 
to achieve Tier 2 emission levels over their full useful life (or in 
some cases, even to operate for a significant length of time). At the 
same time, we're aware that there may be technological solutions to 
these problems that may allow these technologies to operate on gasoline 
averaging 30 ppm sulfur. For example, it may be possible to regenerate 
(remove the sulfur from) the emission control technologies used by 
gasoline direct injection engines on an ongoing basis. Similarly, it 
may be possible to prevent sulfur from entering a fuel cell through the 
use of a sulfur ``guard'' made, for example, of zinc oxide, that might 
need to be replaced periodically.
    We believe at this time that our proposed Tier 2 standards could be 
met with conventional technology if gasoline averaging 30 ppm is 
available. Nonetheless, for the reasons put forward by the auto 
industry and others, we also believe that it may be desirable in the 
long term for all gasoline in the U.S. to average substantially below 
30 ppm sulfur. We encourage you to comment on the question of requiring 
gasoline sulfur levels under 5 ppm in the 2007 and later time frame. If 
you are commenting on this issue, we encourage you to take a broad view 
and to discuss all of the following questions in your comments:
     What technological options would be opened to 
manufacturers of vehicles and emission control hardware if near-zero 
sulfur fuel were available?
     What additional air quality benefits would be achieved?
     What changes in vehicle engines and emission control 
technology would be needed to achieve these emission benefits, absent 
reductions in gasoline sulfur levels beyond our proposed 30 ppm 
standard? What would these changes cost?
     What is the maximum sulfur level that advanced 
technologies, including gasoline direct injection and automotive fuel 
cells, could be designed to withstand if they are to be commercialized 
under the proposed Tier 2 standards? In what time frame might 
substantial commercialization of these technologies occur?
     How feasible is production of near-zero sulfur gasoline 
for the refining industry? What technologies would be required? How 
would this vary from refinery to refinery? What additional costs, 
beyond those expected for a 30 ppm sulfur program, would be incurred? 
How would the timing of a near-zero sulfur requirement affect refining 
costs?
     Would equipment used to make 30 ppm have to be modified or 
replaced to make near-zero sulfur gasoline? If so, how would this 
affect the time frame in which a near-zero sulfur level in gasoline 
could be achieved? Would the time frame for achieving these levels be 
different if refiners were not required to meet a 30 ppm standard? Is 
there another sulfur concentration that could be easily achieved as an 
intermediate level before achieving near-zero levels?
     What other issues should we consider in evaluation of 
further reductions in gasoline sulfur levels?
    iv. Why Are We Proposing Less Stringent Standards for 2004 and 
2005?
    We are proposing to permit corporate average sulfur levels to be 
somewhat higher than 30 ppm, and maximum sulfur levels to be higher 
than 80 ppm, under the ABT program in 2004 and 2005. This proposal is 
meant to provide greater flexibility for refiners to meet

[[Page 26053]]

our ultimate goal of the 30 ppm standard in an orderly fashion, while 
limiting the negative environmental consequences. The temporary nature 
of the ABT program would ensure that any negative consequences for Tier 
2 vehicles of these higher sulfur levels (120 ppm average in 2004, 90 
ppm in 2005) would be minimal. By the time that the majority of new 
vehicles sales would be required to meet the Tier 2 standards (2006 and 
beyond), average sulfur levels in gasoline would meet the 30 ppm annual 
average standard.
    We are interested in comment on the corporate pool average values, 
and their associated caps. A higher pool average would obviously ease 
implementation (e.g., 150 ppm average with an appropriate cap in 2004, 
for example), but we have not proposed a higher average because of our 
concerns that higher in-use sulfur levels after 2004 are undesirable 
for emissions from Tier 2 vehicles. We request that commenters 
supporting higher corporate pool average values discuss how such higher 
values would affect in-use emission levels of Tier 2 vehicles, as well 
as NLEV and Tier 1 vehicles.
    We also ask for comment on an alternative approach that would 
implement the corporate average requirement for 2004 (120 ppm) but not 
require compliance with the 30 ppm standard (with or without credit 
use) until 2005. The 120 ppm corporate pool average would continue in 
2005 and the 90 ppm corporate pool average would be implemented in 
2006, with the requirement to meet the 30 ppm standard (with or without 
credits) beginning in 2005 and extending indefinitely, consistent with 
the proposed program.
    Finally, we request comment on whether refiners should be allowed 
to comply with the corporate average standards through the use of 
sulfur credits generated under the ABT program (within the limits of 
the proposed caps). This would likely render the refinery-specific 
standards in 2004 and 2005 unnecessary, and thus refiners would only 
have to comply with the per-gallon caps and corporate averages in 2004 
and 2005. However, in 2006 and beyond refiners would have to meet the 
30 ppm average at every refinery (with limited use of sulfur credits, 
to the extent that the 80 ppm cap permits).
    We have proposed per-gallon caps of 300 ppm in 2004 and 180 ppm in 
2005 at the refinery gate, with slightly higher caps imposed downstream 
(as explained in Section VI.B below). We believe that downstream caps 
would be necessary to ensure compliance and protect Tier 2 vehicles. At 
the same time, we believe caps at the refinery gate would be necessary 
to guarantee that the environmental goals of this program were met; the 
corporate and refinery averages alone wouldn't provide the full 
emissions reductions and environmental benefits we have estimated 
because, by themselves, they could allow gasoline with high sulfur 
levels in the system as long as the refiner offset any such high sulfur 
batches with very low sulfur gasoline. However, there are some 
arguments for eliminating the per-gallon standard at the refinery gate 
and simply enforcing a per-gallon cap at the retail level (or some 
intermediate point downstream). This approach would give refiners and 
blenders greater flexibility in blending occasional batches of gasoline 
that exceed the proposed cap standards. These refiners/blenders could 
sell and transport these high sulfur batches to another party who would 
blend down the sulfur level to make gasoline meeting the downstream 
caps. One shortcoming of such an approach (removing the per-gallon cap 
at the refinery) is that not all gasoline passes through multiple 
parties before ending up at the retail level; some refiners ship part 
or all of their production directly from refinery to retail outlet. We 
welcome comment on whether caps at both the refinery gate and 
downstream are appropriate. We also encourage your input on whether the 
caps we have proposed to coincide with the corporate average standards 
are appropriate. Keep in mind that we need some limitation on sulfur 
levels to protect the first Tier 2 vehicles that would begin entering 
the marketplace as early as the fall of 2003.
    b. Proposed Standards for Small Refiners. As explained in the 
regulatory flexibility analysis discussion in Section VIII.B. of this 
document, we have considered the impacts of these proposed regulations 
on small businesses. As part of this process, we convened a Small 
Business Advocacy Review Panel for this proposed rulemaking, as 
required under the Small Business Regulatory Enforcement Fairness Act 
of 1996 (SBREFA). The Panel was charged with reporting on the comments 
of small business representatives regarding the likely implications of 
possible control programs, and to make findings on a number of issues, 
including:
     A description and estimate of the number of small entities 
to which the proposed rule would apply;
     A description of the projected reporting, recordkeeping, 
and other compliance requirements of the proposed rule;
     An identification of other relevant federal rules that may 
duplicate, overlap, or conflict with the proposed rule; and
     A description of any significant alternatives to the 
proposed rule that accomplish the objectives of the proposal and that 
may minimize any significant economic impact of the proposed rule on 
small entities.
    The final report of the Panel is available in the docket. The Panel 
concluded that small refiners were the group most likely to be 
negatively impacted by the proposed program. (The Panel noted that 
small gasoline marketers would also have to comply with some portions 
of a gasoline sulfur program, but did not recommend any regulatory 
relief for this group of small businesses.) Many of the small refiners 
the Panel met with indicated their belief that their businesses may 
close if relief were not considered due to the substantial capital and 
other costs required to reduce sulfur levels to the 30/80 standard. The 
Panel recommended that EPA solicit comments on a number of options to 
provide relief to small refiners, which include some or all of these 
provisions:
     Providing small refiners a four-to six-year period during 
which less stringent gasoline sulfur requirements would apply; comment 
was also recommended on extending this period for up to a total of 10 
years.
     Basing each small refinery's gasoline sulfur limit on its 
individual average sulfur level based on the most recent report(s) to 
EPA; and
     Granting temporary hardship relief on a case-by-case 
basis, following the four-to six-year period of relief common to all 
small refiners, based on a showing of economic need.
    The Panel stated its belief that additional time would allow 
sulfur-reduction technologies to be proven out by larger refiners, 
thereby reducing the risks to be incurred by small refiners who choose 
to incorporate these technologies. The added time would likely allow 
for costs of these desulfurization units to drop, thereby limiting the 
economic consequences for small refiners. Nationally, giving small 
refiners more time to comply would help ensure that cross-industry 
engineering and construction resources would be available. Finally, 
extending the compliance deadlines would provide small refiners with 
additional time to raise capital for infrastructure changes.
    i. What Standards Would Small Refiners Have to Meet Under Today's 
Proposal?

[[Page 26054]]

    Upon evaluating the impacts of our proposed gasoline sulfur 
requirements on small refiners and careful review of the Panel's 
recommendations, we have determined that regulatory relief in the form 
of delayed compliance dates is appropriate to allow small refiners to 
comply without disproportionate burdens. We propose that, for a period 
of four years after other refiners must start meeting the standards 
proposed in Table IV.C-2, refiners meeting clearly defined company size 
criteria be allowed to comply with somewhat less stringent requirements 
than those just described for refiners and gasoline importers. We 
propose to define a small refiner as any company employing no more than 
1,500 employees throughout the corporation, including any subsidiaries, 
regardless of the number of individual gasoline-producing refineries 
owned by the company or the number of employees at any one refinery. 
This number is based on the Small Business Administration definition of 
a small refiner for the purposes of regulation.49 The 
proposed annual average small refiner standards beginning with 2004 are 
shown in Table IV.C-3 below, although the cap standards begin October 
1, 2003.
---------------------------------------------------------------------------

    \49\ SBA uses a different definition of small refiner for the 
purposes of federal procurements of petroleum products, and EPA in 
the past has used criteria based on the processing capacity of the 
individual refinery and of all refineries owned by one company.

Table IV.C-3.--Proposed Temporary Gasoline Sulfur Requirements for Small
                          Refiners in 2004-2007
------------------------------------------------------------------------
                                            Temporary sulfur standards
  Refinery baseline sulfur level (ppm)                (ppm)
------------------------------------------------------------------------
0 to 30................................  Average: 30.
                                         Cap: 80.a
31 to 80...............................  Average: no requirement.
                                         Cap: 80.a
81 to 200..............................  Average: baseline level. Cap:
                                          Factor of 2 above the
                                          baseline.a
201 and above..........................  Average: 200 ppm minimum, or
                                          50% of baseline, whichever is
                                          higher, but in no event
                                          greater than 300 ppm.
                                         Cap: Factor of 1.5 above
                                          baseline level.a
------------------------------------------------------------------------
a The cap standard takes effect at the refinery gate October 1, 2003.

    We also propose to apply these provisions to any foreign refiner 
that can establish that they meet this same definition of small. Since 
few if any foreign refiners send all of their gasoline production to 
the U.S., allowing eligible small foreign refiners to meet these less 
restrictive standards, even on a temporary basis, would be a less 
restrictive requirement than it will be for small domestic gasoline 
producers since they may be able to send lower sulfur gasoline to the 
U.S. without having to incur capital expenses. Furthermore, in many 
cases foreign refiners are not subject to the same stringent permitting 
and other regulatory requirements that domestic refiners face. At the 
same time, we believe many foreign refiners will be installing gasoline 
desulfurization equipment because of the various international 
requirements that have been proposed and/or finalized (for example, in 
Europe, Canada, Japan) that require gasoline sulfur levels to be 
reduced to levels similar to our proposed standards and thus these 
companies will not avoid all of these costs. In addition, in most cases 
we expect importers to be the party responsible for the sulfur level of 
imported gasoline, and importers are not eligible for the less 
stringent standards applied to small refiners. Hence, the number of 
foreign refiners who could benefit (financially and otherwise) from 
gaining small refiner status is likely to be very small. However, we 
welcome comments on the competitive and other marketplace implications 
of this proposal.
    We believe that these proposed small refiner standards are 
reasonable and that they would not conflict with our overall goals of 
reducing gasoline sulfur levels nationwide as soon as possible and of 
reducing gasoline sulfur levels sufficiently to enable and protect the 
emissions performance of Tier 2 vehicles. Our conclusions are based in 
part on the fact that only a very small volume of gasoline will be 
eligible for these lesser standards. We have estimated that small 
refiners produce approximately 2.5 percent of all gasoline in the U.S. 
Furthermore, of the 17 refineries that we have identified as meeting 
SBA's definition of small business, nine already have gasoline sulfur 
levels less than 90 ppm. Hence, only a very small fraction of the 
gasoline sold in the U.S. would take advantage of the higher small 
refiner standards through 2007. By the time that a large number of Tier 
2 vehicles could have been impacted by residing in or traveling to 
areas where higher sulfur fuel is sold, the temporary exemptions for 
small refiners would have expired. Furthermore, in most cases, gasoline 
produced by small refiners is mixed with substantial amounts of other 
gasoline prior to retail distribution (due to the functioning of the 
gasoline distribution system), likely resulting in only marginal 
increases in overall sulfur levels. Thus, the sulfur level of gasoline 
actually used by Tier 2 vehicles should generally be much lower than 
that produced by individual small refineries who receive unique 
compliance standards through 2007.
    As explained above, we are proposing that compliance under the 
proposed standards be based on a refiner's being able to show that it 
meets specific criteria. If a refiner were able to qualify as a small 
refiner under our definition, it would need to then establish a sulfur 
baseline for each participating refinery. For small refiners, 
compliance with the proposed sulfur regulations would be determined on 
the basis of the sulfur baseline for each refinery owned by that 
company. The following sections explain these proposed requirements in 
more detail, to supplement the information be presented above. We also 
explain how small refiners could obtain an additional two-year 
exemption upon establishing a hardship case, as well as how small 
foreign refiners could establish eligibility for compliance under the 
small refiner provisions.
    ii. Application for Small Refiner Status.
    We are proposing that refiners seeking small refiner status under 
our gasoline sulfur program would have to apply to us in writing no 
later than June 1, 2002, requesting this status. In this application, 
the refiner must demonstrate that as of January 1, 1999, the business 
and any subsidiaries, including all refining, distribution, and 
marketing activities, as well as any other activities worldwide, 
employed 1,500 or fewer employees. We are proposing that in the case of 
refineries owned by joint ventures, the total employment of both (all) 
companies would be considered in determining whether the 1,500 employee 
limit is reached. If a refiner that is not small as of January 1, 1999 
subsequently sells part of its business and as a result has fewer than 
1500 employees, it would not be eligible for a small refiner status. 
These provisions would provide stability to the regulated and 
regulatory parties and ensure that no ``gaming'' of the program occurs. 
However, we are also proposing that any new refinery built between 
January 1, 1999 and January 1, 2001, or a refinery that was not 
operational as of January 1, 1999, owned by a refiner that meets our 
proposed definition, could apply for small refiner status no later than 
June 1, 2002. In this case, we would consider carefully the history of 
the refinery and

[[Page 26055]]

the company in determining whether it is appropriate to grant this 
refiner small refiner status.
    We are also proposing that if a refiner with approved small refiner 
status later exceeds the 1,500 employee threshold without merger or 
acquisition, its refineries could keep their individual refinery 
standards. This is to avoid stifling normal company growth and is 
subject to our finding that the refiner did not apply for and receive 
the small refiner status in bad faith. An example of an inappropriate 
application for small refiner status would be a refiner that 
temporarily reduced its workforce from 1,600 employees to 1,495 
employees prior to January 1, 1999, and then rehired employees after 
the cutoff date. This would be a bad faith attempt to avoid the intent 
of the rule. We are requesting comment on this provision.
    At any time after June 1, 2002, a refiner with approved small 
refiner status could elect to cease complying with the small refiner 
standards and, in the next calendar year, begin complying with the 
standards specified in Table IV.C-2 and related provisions. However, 
this decision would apply to all refineries owned by that refiner and 
once a refiner dropped its small refiner status, it would not be 
eligible to be reinstated as a small refiner at some later date.
    iii. Application for a Small Refiner Sulfur Baseline.
    A qualifying small refiner could apply for an individual sulfur 
baseline by June 1, 2002 for any refinery owned by the company by 
providing a calculation of its sulfur baseline using its average 
gasoline sulfur level based on 1997 and 1998 production data, and the 
average volume of gasoline produced in these two years. The proposed 
regulations specify the information to be submitted to support the 
baseline application. The baseline calculations should include any 
oxygen added to the gasoline at the refinery. This application would be 
submitted at the same time that the refiner applied for small business 
status; confirmation of small business status would not be required to 
apply to EPA for an individual sulfur baseline. If the baseline were 
approved, we would assign standards to each of the company's refineries 
in accordance with Table IV.C.-2.
    Blenders would not be eligible for the small refiner individual 
baselines and standards because they would not have the burden of 
capital costs to install desulfurization equipment, which is the 
primary reason for allowing small refiners to have a relaxed compliance 
schedule.
    iv. Volume Limitation on Use of a Small Refinery Standard.
    We are proposing that the volume of gasoline subject to the small 
refinery's individual standards would be limited to the volume of 
gasoline the refinery produced from crude oil, excluding the volume of 
gasoline produced using blendstocks produced at another 
refinery.50
---------------------------------------------------------------------------

    \50\ In addition to gasoline produced from crude oil, a small 
refinery's baseline volume would include gasoline produced from 
purchased blendstocks where the blendstocks are substantially 
transformed using a refinery processing unit.
---------------------------------------------------------------------------

    Under this approach, the baseline volume for a small refinery would 
reflect only the volume of gasoline produced from crude oil during the 
baseline years. In addition, use of the refinery's individual baseline 
sulfur level during each calendar year averaging period (beginning with 
2004) would be limited to the volume of gasoline that is the lesser of: 
(1) 105% of the baseline volume, or (2) the volume of gasoline produced 
during the year from crude oil. Any volume of gasoline produced during 
an averaging period in excess of this limitation would be subject to 
the standards applicable to refiners not subject to a small refiner 
standard. In this case, the small refiner's annual average standard 
would be adjusted based on the excess volume in a manner similar to the 
compliance baseline equation for conventional gasoline under Section 
80.101(f) of Part 40 of the Code of Federal Regulations. However, the 
small refiner's per-gallon cap standard would not be adjusted.
    This limitation would assure that small refiners receive relief 
only for gasoline produced from crude oil, the portion of the refinery 
operation requiring capital investment to meet lower sulfur standards. 
We are requesting comment on this provision and whether an alternative 
approach may be more appropriate for the stated purpose.
    v. Hardship Extensions Beyond 2007 for Small Refiners.
    Beginning January 1, 2008, all small companies' refineries would 
have to meet the permanent national sulfur standard of 30 ppm on 
average and the 80 ppm cap, except small refineries that apply for and 
receive a hardship extension. A hardship extension would provide the 
small refiner an additional two years to comply with these national 
standards. A hardship extension would need to be requested in writing 
and would specify the factors that qualify the refiner for such an 
extension. Factors considered for a hardship extension could include, 
but would not be limited to, the refiner's financial position; its 
efforts to procure necessary equipment and to obtain design and 
engineering services and construction contractors; the availability of 
desulfurization equipment, and any other relevant factors.
    By January 1, 2010 all refiners would be required to meet the 
permanent national average standard and cap. We are requesting comment 
on the proposed hardship extension, including the factors to be 
considered in petitions for extension, and the proposed time periods.
    vi. What Alternative Provisions for Small Refiners Are Possible?
    We have proposed one type of program to address the needs of small 
refiners. We solicit comment on other options so that we can consider 
these options as we finalize this rule. We encourage comments. We 
request comment on a range of alternatives, including those listed 
below, which could be considered when developing unique regulatory 
requirements for small refiners. We specifically request that the 
comments address not only the economic but also the environmental 
implications of the alternative, relative to the program we've 
proposed.
     Are there alternative or additional criteria that could/
should be used to define a small refiner, such as the volume of crude 
oil processed or the volume of gasoline produced (since the gasoline 
sulfur standard applies specifically to gasoline)? Other criteria may 
also be acceptable, such as a different employee number for 
qualification as a small entity, or basing the count on employees 
employed in gasoline production only. We welcome your recommendations. 
Our desire is to limit the number of companies meeting the small 
refiner definition in order to provide regulatory relief only to those 
companies that have the economic concerns unique to small businesses. 
If you recommend criteria other than number of employees, please 
comment on how those criteria can be shown to limit the number of 
refineries that will be eligible for the proposed relief.
     Are the caps and averages of the proposed interim 
standards for small refiners (see Table IV.C.-3) appropriate for the 
corresponding individual sulfur baseline levels?
     What is an appropriate and sufficient time period for the 
proposed small refiner interim standards? Would most qualifying small 
refiners be able to meet the 30/80 standards within four years (six if 
a hardship extension is granted, which is dependent on the case made by 
the individual refiner), as proposed? The Panel report suggested that a 
period of six to ten years could

[[Page 26056]]

be desirable to provide sufficient time for small refiners to comply 
with the proposed standards. What are the arguments for granting more 
than four years of additional time and what are the environmental 
implications (and implications for Tier 2 vehicles) of such an 
extension?
     Should small refineries of multi-refinery companies 
(companies too large to meet the proposed small refiner criteria) be 
eligible for small refiner interim standards? Should refineries not 
producing gasoline as a major product (for example, refineries engaged 
primarily in the production of lubricants where gasoline is a small 
volume by-product) be eligible for small refiner interim standards 
regardless of corporate size/employment?
     If a small refiner operates more than one refinery (while 
still meeting our proposed small refiner criteria), should that refiner 
be permitted to aggregate the sulfur baselines and comply with the 
small refiner standards applicable to that aggregate baseline? Under 
the sulfur ABT program described below, we are proposing to require 
refiners to aggregate data from all of their refineries when 
determining compliance with the 2004 and 2005 corporate average 
standards (Table IV.C.-2) (but not the refinery gate standards, 
although we seek comment on that alternative).
     Rather than providing unique standards for qualifying 
small refiners, would the need for separate small refiner provisions be 
addressed if we were to adopt a regional sulfur program? In Section 
IV.C.1. above, we explained our concerns that a regional sulfur program 
would not achieve the same emission reductions we project for our Tier 
2/gasoline sulfur program. However, some have suggested to us that a 
regional program would address the need for small refiner provisions 
since the majority of small refiners are thought to sell gasoline in 
the West. We know of several refiners that appear to meet our proposed 
criteria for being small that sell at least some of their gasoline 
production in the eastern U.S. (as defined by the oil industry's 
proposed program) and thus a regional program would not cover all small 
refiners. We encourage comments on this alternative, particularly from 
refiners who could be impacted by such a decision.
     Would a more general hardship provision that would be 
based on a showing of substantial economic hardship, such a discussed 
in Section IV.C.4.c., provide sufficient compliance flexibility to 
address the needs of small refiners?
4. Compliance Flexibilities
    In addition to the basic standards applicable to refiners that were 
explained above, we are proposing two additional programs that will 
provide flexibility for refiners when complying with the proposed 
standards. The first is the sulfur ABT program mentioned previously. 
The second is a program to streamline the construction permitting 
process so that refiners can make the required process modifications by 
2004.
    a. Sulfur Averaging, Banking, and Trading (ABT) Program. We are 
proposing that any refiner or importer be allowed to generate, bank, 
and trade sulfur credits. A sulfur ABT program would accelerate the 
reduction of sulfur in gasoline and provide refiners with additional 
flexibility in achieving compliance with the 30 ppm standard in 2004 
and beyond. The following paragraphs provide additional information 
about our proposed sulfur ABT program, to supplement that presented in 
Section IV.C.-3.a above. We encourage comments on the design elements 
we have proposed for the sulfur ABT program. If you believe alternative 
approaches would make the program more useful to the refining industry, 
please share your specific recommendations with us.
    i. Why Are We Proposing a Sulfur Averaging, Banking, and Trading 
Program?
    A sulfur ABT program, if properly implemented, would provide the 
opportunity for a win for both the refining industry and the 
environment. The flexibility provided by an ABT program could provide 
refiners more lead time to bring all of their refineries into 
compliance with the 30 ppm standard, by allowing them to use credits 
generated at one refinery to delay having to desulfurize gasoline from 
another refinery. ABT would provide the opportunity for reduced costs 
by allowing the industry the flexibility to average sulfur levels among 
different refineries, between companies, and across time. Since, under 
banking, early reductions have a value during program implementation, 
ABT provides an incentive for technological innovation and the early 
implementation of refining technology.
    The ABT program could provide meaningful early benefits for the 
environment because it would allow the Tier 2 standards to be 
implemented earlier than might otherwise have been possible, and 
because it would provide direct environmental benefits. The first 
direct benefit relates to atmospheric sulfur loads. This benefit is 
largely independent of when credits are generated and used. However, 
atmospheric deposition and transformation rates of sulfur compounds 
tend to vary geographically and seasonally and thus we must consider 
whether a broad averaging program would have different pollutant 
effects when compared to a more constrained averaging program or a 
program without averaging. Any potential negative effects of a broad 
ABT program should be mitigated by the geographic distribution of 
refineries, the widespread distribution pipelines, and the fungible 
nature of gasoline. All of these factors, taken together, lead us to 
believe that any negative effect on atmospheric sulfur levels from ABT 
(relative to a single 30 ppm average/80 ppm cap in 2004) would be 
negligible. It should be noted that this situation is further moderated 
by the pool averages and caps proposed for 2004 and 2005, since these 
averages and caps would reduce actual gasoline sulfur levels as the ABT 
program phases in.
    Another environmental benefit is related to the effect of gasoline 
sulfur on catalyst performance, as discussed in the draft RIA. Since 
catalyst performance depends in part on gasoline sulfur levels, we must 
consider whether the emissions benefits (measured in g/mi-per-ppm) of 
early sulfur reductions when credits are generated are essentially the 
same as the g/mi-per-ppm benefits when the credits are used. The effect 
of sulfur on emissions from Tier 0 and Tier 1 vehicles, which will 
dominate the fleet in 2000-2005, is approximately the same when sulfur 
levels increase from 30 to 150 ppm as it is when sulfur levels increase 
from 150 ppm to 330 ppm. In other words, for each ppm increase in 
sulfur levels, approximately the same effect on emissions results 
regardless of whether the increase is from low levels (e.g., from 30 
ppm up to 150 ppm) or from higher levels (e.g., from 150 ppm up to 
current average levels). Therefore, the emissions benefits from credits 
generated before 2004 would essentially offset the emissions effects of 
those credits being used in 2004 and beyond, especially since corporate 
pool average sulfur levels could not exceed 120 ppm in 2004 and 90 ppm 
in 2005, and sulfur levels will be capped at 80 ppm in 2006 and beyond.
    Nonetheless, there remains concern about the sensitivity of later 
models (NLEV and Tier 2) to sulfur and about the reversibility of the 
effect of higher sulfur levels on catalyst efficiency. More explicitly, 
the relatively few Tier 2 vehicles that would see somewhat higher 
sulfur levels than 30 ppm in 2004 and 2005 (about three-quarters of

[[Page 26057]]

a model year of production) would not be able to fully recover the loss 
in emissions performance due to the higher sulfur levels. Hence, the 
corporate averages and caps would be necessary in these interim years. 
In 2006 and beyond, the 80 ppm cap and the 30 ppm average refinery 
standard, even with the ongoing use of credits to comply with the 30 
ppm standard, would keep in-use sulfur levels very close to 30 ppm. 
Thus, Tier 2 vehicles sold in 2006 and beyond would receive appropriate 
protection from gasoline sulfur.
    ABT programs must be designed and implemented carefully to be 
certain that they are sensitive to equity and competitive issues in the 
industry and do not create the potential for inadvertent emission 
increases. In the context of gasoline sulfur control, concerns about 
different baseline sulfur levels and different technological 
capabilities among refiners must be considered. Even with the proposed 
lead time, some refiners would find it easier to achieve reductions 
than would others. This is due to a number of factors, including 
refinery configuration, product mix (gasoline versus distillates), 
crude oil sulfur levels, and the ability to generate capital to fund 
the investment. At the same time the program must be designed to 
eliminate the possibility of windfall credits and to be sure that the 
environmental benefits associated with early sulfur reductions offset 
the potential forgone benefits when the credits are used.
    The program we are proposing today attempts to strike a balance 
among all of these factors. Some of the elements and design features 
(such as the eligibility trigger and the baseline requirement) were 
included to address concerns such as timing, disparate capabilities 
among refineries, and the potential for excessive (``windfall'') 
credits. We are seeking comment on options for dealing with all of the 
issues we have identified.
    The ABT program is voluntary. No refiner or importer qualifying for 
credits is required to generate them, use them, or make them available 
to others (except as discussed in Section IV.C.4.a.vi. below). The 
process for establishing a sulfur baseline and generating and using 
credits is outlined below.
    ii. How Would Refiners Establish a Sulfur Baseline?
    To establish a sulfur baseline against which credits would be 
calculated, we propose that by July 1, 2000, each refiner or importer 
that wants to generate credits submit two pieces of information to the 
Agency. One would be the volume-weighted average sulfur content for 
conventional gasoline (CG) for each refinery (or imported by that 
importer) for 1997 and 1998. The second would be the annual average 
volume of CG produced by that refinery (or imported by the importer) in 
those years. 51 52
---------------------------------------------------------------------------

    \51\ Since participation in the sulfur ABT program is voluntary, 
refines opting not to generate or use sulfur credits do not have to 
establish a sulfur baseline for this program.
    \52\ We believe that variations in specific gravity, which could 
affect the sulfur content of gasoline as determined on a mass basis, 
will average out over the year and need not be included in the 
calculations. However, we request comment on whether specific 
gravity should be considered in the calculation of sulfur baselines 
(including whether such data exists for 1997-98) and subsequently, 
in calculating credits generated relative to this baseline.
---------------------------------------------------------------------------

    Since we expect summer RFG sulfur levels to decrease in 2000 to 
approximately 150 ppm (due to the actions refiners will take to meet 
the Phase II NOX standards for RFG), we are proposing to set 
the individual refinery sulfur baseline for summer RFG at 150 ppm, 
regardless of volume produced in 1997 and 1998. Winter RFG production 
would be assigned the same sulfur baseline as the refinery's 
conventional gasoline, without regard to the volume of winter RFG 
produced in 1997-98. Hence, no reporting of RFG sulfur levels or 
volumes would be required in setting a sulfur baseline. We encourage 
comments on the use of different sulfur baselines for summer and winter 
RFG, particularly regarding whether this could create a disincentive to 
produce RFG in the summer months. We do not want to jeopardize our RFG 
program, but at the same time, we want sulfur credits to reflect 
actions taken by refiners above and beyond their current operations 
and/or regulatory obligations.
    Conventional gasoline produced in 2000 and beyond that exceeded 
105% of the CG baseline volume produced at that refinery would be 
assigned a sulfur baseline (from which credits would be generated) of 
150 ppm. This provision is intended to prevent increases in average 
sulfur levels resulting from increases in CG production. A refiner/
importer of conventional gasoline to which oxygenate is added 
downstream during 1997-1998 could include the downstream oxygenate 
volume in that refinery's CG baseline, if the refiner can substantiate 
that oxygenate was added to that gasoline.
    A refinery/importer that did not produce/import gasoline during 
1997-1998 would be assigned a baseline of 150 ppm each for CG and RFG 
for the purposes of sulfur credit generation in 2000 and beyond. This 
provision would also apply to blenders of natural gasoline, butane, or 
similar non-oxygenated blending components. Such parties would be 
considered refiners and would need to meet all requirements, such as 
analyzing each batch of the blending component for sulfur prior to its 
addition to gasoline. Credits would be based only on the volume of the 
blending components. We encourage comments on alternative provisions 
for establishing baselines for refiners/importers that could not 
establish a 1997-98 sulfur baseline as described above. In particular 
would 150 ppm be appropriate, or would a greater or lesser sulfur 
content be most equitable and most environmentally neutral? Should this 
baseline be tied in some way to the trigger for credit generation in 
(as discussed below) 2000-2003?
    We request comment on several aspects of this baseline provision. 
The 1997-1998 years for the baseline represent the latest available 
data and thus best reflects the present state of each refinery's 
gasoline sulfur levels. However, we already have established baseline 
sulfur levels for 1990 for most refineries. Except for changes related 
to RFG, average gasoline sulfur levels have changed little since 1990. 
Hence, we request comment on whether that 1990 baseline would be a 
suitable substitute. Alternately, we request comment on whether 1997 
and 1998 are the appropriate years to average when establishing a 
sulfur baseline, given that mandatory use of the Complex Model starting 
in 1998 could have led to changes in sulfur levels between 1997 and 
1998. Since our purpose in proposing to establish sulfur baselines is 
to try to capture current sulfur levels (within a reasonable date of 
the 2000 start date for credits to be generated), the sulfur baseline 
could be based on a single year's data (for example, 1998) rather than 
a two-year average. We proposed a two-year average to try to capture 
and accommodate operational fluctuations and changes. However, a single 
year's data may adequately capture current sulfur levels.
    We are not proposing a formal baseline review and/or approval 
process since the proposal envisions a self-certifying process. 
Refiners would submit their 1997 and 1998 sulfur baseline data for each 
refinery to us, and then would generate credits from that baseline in 
2000-2003. If we determined, through a refinery audit or other action, 
that the sulfur baseline was calculated with incorrect data, we would 
establish a new sulfur baseline and the refinery would subject to that 
baseline, even if it meant recalculating

[[Page 26058]]

the number of credits generated in subsequent years. We have used this 
baseline review process in other mobile source programs and believe it 
works well, but we request comment this approach.
    We considered the possibility that, since refiners report annual 
production information to EPA, we could issue baselines for each 
refinery rather than refiners having to submit them to us. However, we 
do not think this is a possible solution because many refiners comply 
with our RFG and CG requirements by aggregating the data from all of 
their refineries. Thus, the data we currently receive from refiners 
would not allow us to establish an individual baseline for every 
refinery in the U.S. (unless we went back to 1990 data). However, we 
would like comment on whether a more formal sulfur baseline approval 
process (say, a letter from the Agency or a date by which approval can 
be assumed unless the refiner hears otherwise) would be desirable. Keep 
in mind that even with a more formal baseline approval process, the 
baseline could be changed at a later date if we found, during an audit 
of refinery records, errors in compliance with the proposed baseline 
requirements. Hence, any up-front approval would only provide certainty 
that, based on the data reported to us, we believe the refiner had 
correctly applied the mathematical equations proposed today for 
establishing a sulfur baseline.
    Some have raised the concern that if imported gasoline were allowed 
to be used for credit generation, as we propose today, foreign refiners 
might be able to gain an unfair advantage. For example, it is possible 
that foreign refiners could simply re-blend their gasoline (without 
installing new capital equipment) and send their lowest-sulfur refinery 
streams to the U.S. at a lower cost than gasoline produced by domestic 
refiners that had to reduce overall sulfur levels through 
desulfurization. Since importers, not foreign refiners, would be the 
parties assigned a sulfur baseline and eligible for generating credits, 
we do not believe foreign refiners would have a strong incentive to 
send lower sulfur gasolines to the U.S. We believe that the benefits of 
allowing importers to participate in the sulfur ABT program (more 
players in the credit trading field, more chance for early reductions 
in gasoline sulfur levels) outweigh the potential detriments. However, 
we encourage comment on the implications of the decision to allow 
imported gasoline to be used for credit generation.
    Oxygenate blenders would not be able to participate in this 
proposed credit program because they would not be subject to the sulfur 
standard. Special provisions would exempt them from having to measure 
the sulfur content of the oxygenate they blend and from the 
recordkeeping and reporting requirements of the sulfur program, other 
than the requirements that apply to all parties that handle gasoline 
and gasoline blendstocks downstream of the refinery.
    iii. How Would Refiners Generate Credits? 
    During the period 2000-2003, credits could be generated annually by 
any refinery that produced conventional gasoline averaging 150 ppm 
sulfur or less on an annual, volume-weighted basis. Credits would be 
calculated based on the amount of reduction from the refinery's CG 
sulfur baseline.53 Credits could also be generated from 
winter RFG based on reductions from the sulfur baseline, if the winter 
RFG sulfur level averaged 150 ppm or less (on a seasonal volume-
weighted basis). Similarly, summer RFG would need to have a seasonal 
volume-weighted average sulfur level below 150 ppm to be eligible for 
credit generation, although credits would only be created based on the 
difference between 150 ppm and the summer RFG sulfur average. Thus, 
credits would need to be generated separately for conventional gasoline 
and RFG. Conventional gasoline produced in excess of 105% of the 
baseline volume could only generate credits for sulfur reductions below 
150 ppm, not for the cumulative reduction from the baseline sulfur 
level. Winter RFG would not be subject to any volume limitations, and 
thus refineries could generate credits for any volume of winter RFG 
that contains 150 ppm sulfur or less.
---------------------------------------------------------------------------

    \53\ If a refinery's baseline average were 150 ppm or less, 
credits could only be generated for annual average reduction's below 
the baseline level.
---------------------------------------------------------------------------

    For example, if in 2002 a refinery reduced its annual average 
sulfur level for conventional gasoline from a baseline of 450 ppm to 
150 ppm, its sulfur credits would be determined based on the difference 
in annual sulfur level (450-150=300 ppm) multiplied by the volume of 
conventional gasoline produced (up to 105% of the baseline CG volume). 
If this refinery produced more CG than 105% of the baseline volume, it 
would only generate credits from that incremental volume if the 
incremental gasoline were below 150 ppm. (For example, if the 
refinery's 2002 average CG sulfur level were 100 ppm, it would get 150-
100=50 ppm sulfur credits on any volume in excess of 105% of its 
baseline CG volume, as well as 450-100=350 ppm for the baseline volume 
up to 105%.)
    If this same refinery also produced RFG with an annual average 
sulfur content of 90 ppm in 2002, it could also receive sulfur credits 
calculated based on the difference between 150 ppm and 90 ppm (60 ppm) 
times the volume of summer RFG produced plus 360 ppm (450-90) times the 
volume of winter RFG produced. A refinery with a sulfur baseline lower 
than 150 ppm sulfur would only generate credits relative to reductions 
from its baseline, for either CG or winter RFG. Credits from summer RFG 
would be based on reductions from 150 ppm.
    Several states have implemented or are considering gasoline sulfur 
control programs. To avoid double-counting of emission benefits, lower 
sulfur gasoline produced to comply with these state programs would not 
be eligible for early banking credits under this program.
    In 2004 and beyond we propose that credits could only be generated 
for actual annual sulfur averages below the 30 ppm standard (combining 
conventional and reformulated gasolines), and only for the difference 
between the standard and the actual annual sulfur average. (For 
example, a refinery producing gasoline in 2004 that averaged 25 ppm 
could generate 30-25=5 ppm, while a refinery producing gasoline that 
averaged 40 ppm would not be eligible for any credits.)
    We encourage comments on this credit generation concept. In 
particular, would these formulas permit sufficient credits to be 
generated industry-wide to provide adequate credits for use in 
compliance in 2004 and beyond? If not, what are the limitations on 
credits and what changes could be made to improve the likelihood that 
sufficient credits would be generated?
    Our proposal to cap volumes on which credits could be generated at 
105 percent of baseline levels is intended to preclude the possibility 
of closely-located refineries generating credits by moving blendstocks. 
This could occur if a refinery with a relatively low baseline level 
moved blendstocks to a refinery with relatively higher levels, thus 
allowing the somewhat artificial generation of credits. We request 
comment on whether such a provision is necessary and whether the 5 
percent cap should be increased to as high as 10 percent to reasonably 
accommodate normal growth in volume. We raise some potential 
alternatives to these provisions in Section IC.C.4.a.vi. below, and 
encourage your consideration of all of these issues in your comments.

[[Page 26059]]

    iv. How Would Refiners Use Credits? 
    Credits generated prior to 2004 would have to be used or 
transferred by 2007. Credits generated in 2004 and beyond would have to 
be used or transferred within five years of the year in which they were 
generated. If these credits were traded to another party, they would 
have to be used by the new owner within five years of the year of 
transfer. Since the transfer could occur any time within five years of 
generation, some credits could have a life of up to ten years.
    Our proposed ABT program is designed to ease implementation of the 
new standards and credits would be of their greatest value during 
phase-in periods. ABT is not necessarily intended to permit a refinery 
to operate above the standard for a protracted time period. While 
limiting credit life might reduce the incentive to generate credits and 
could create a ``use or lose'' mentality, the credit program would seem 
to be of relatively small value to any refiner/importer that held 
credits for five years and did not need to use them. We believe that 
limiting credit life is appropriate since we must also consider the 
basic reason for ABT and address concerns about our ability and the 
ability of the refiners to maintain the integrity of the credit system 
over many years. EPA requests comment on credit life including options 
such as limiting life by depreciating their value over a period of 
years as well as longer or shorter periods of fixed credit value.
    We propose that credits could be withdrawn from a refinery's/
importer's credit bank or purchased from another refinery/importer to 
bring the annual sulfur average for each refinery down to the 30 ppm 
standard beginning in 2004. There would be no geographic constraints on 
credit trades. However, as explained in Section IV.C.3.a above, in 2004 
no batch of domestically produced or imported gasoline could exceed 300 
ppm, and a refinery's/importer's actual annual corporate pool average 
sulfur level could not exceed 120 ppm. (A refiner owning more than one 
refinery would have to aggregate the respective sulfur levels of 
gasoline produced at those refineries for determining compliance with 
the 120 ppm standard.) In 2005, gasoline sulfur would be capped at 180 
ppm and the corporate pool average could not exceed 90 ppm. The 
aggregation requirement would also apply in 2005. As described above, 
credits would apply only to compliance with the 30 ppm refinery 
standard, not to the corporate pool average or the cap.
    A refiner or importer choosing to participate in the ABT program 
would be required to file annual reports with the Agency indicating the 
applicable baselines or standard(s) in ppm sulfur, the annual 
average(s) in ppm sulfur, and the annual volume(s) in gallons (for each 
refinery). These calculations would be reported, along with an 
accounting of credits banked, transferred (sold), or acquired (bought). 
(For 2000-2003, the reports would only cover credits banked and 
traded.) The credits would be in units of ppm-gallons.
    Thus, for each purchase of credits, as reported on the buyer's 
annual report, there should be a corresponding entry on the seller's 
annual report. Through the report, refiners would have to demonstrate 
that their average sulfur levels (with the use of credits, if 
necessary) comply with the 30 ppm standard at each refinery. Refiners 
would also have to demonstrate that the combined production from all 
refineries meets the corporate average standard. As mentioned above, 
the actual corporate averages could not exceed 120 ppm in 2004 and 90 
ppm in 2005. The identity of refiners/refineries and importers involved 
in these transactions would be reported, along with the registration 
numbers assigned to them by the Agency under the RFG/CG program (40 CFR 
part 80, Subparts D, E, and F).
    In addition, we are concerned that the potential exists for credits 
to be generated by one party and subsequently purchased or used in good 
faith by another, and later found to have been calculated or created 
improperly or otherwise determined to be invalid. In this case, both 
the seller and purchaser would have to adjust their sulfur calculations 
to reflect the proper credits and either party (or both) could be 
deemed in violation of the standards and other requirements if the 
adjusted calculations demonstrate noncompliance with an applicable 
standard. We have taken this approach in our other fuels enforcement 
programs. We welcome comments on this provision. In particular, we 
request comment on whether our program should be designed such that 
only the seller should be deemed in violation if that party sold 
invalid credits and, upon correction for this error, was found to have 
violated one or more standards. In general, mobile source ABT programs 
hold both parties liable.
    For the duration of the credit program, each participating refinery 
and importer could make deposits to and withdrawals from its ``bank 
account''. All transactions would have to be concluded by the last day 
of February after the close of the annual compliance period (2004, 
2005, etc.). It would be up to the industry to establish any mechanisms 
for linking buyers and sellers. The Agency does not intend to become 
involved in this marketplace activity.
    We are also proposing to allow refiners to miss the 30 ppm standard 
for an individual refinery and to carry forward the credit debt that 
would have brought that refinery into compliance in the year the 
deficit occurred. This is very similar to provisions proposed today for 
auto manufacturers in complying with the averaging provisions Tier 2 
standards. Under this provision, the refiner would have to make up the 
credit deficit and bring that refinery into compliance with the 30 ppm 
standard the next calendar year, or face penalties. This program would 
in no way absolve the refiner from having to meet the applicable per-
gallon cap standard. This provision would provide some relief for 
refiners faced with an unexpected shutdown or that otherwise were 
unable to obtain sufficient credits to meet the 30 ppm standard. We 
welcome comment on this provision.
    The following Table IV.C.-4 summarizes the compliance dates and 
program requirements of this proposed sulfur ABT program. See Section 
VI for more specific information, particularly about the dates that the 
sulfur caps would apply and the standards that would apply downstream 
of the refinery.

BILLING CODE 6560-50-P

[[Page 26060]]

[GRAPHIC] [TIFF OMITTED] TP13MY99.003



BILLING CODE 6560-50-C
    v. Could Small Refiners Participate in the ABT Program?
    We believe that refiners complying under the small refiner 
provisions outlined in the previous section should not be permitted to 
use sulfur credits to meet the average standard applicable to their 
refineries. We are proposing to exclude small refiners from using 
credits to meet the small refiner standards because the small refiner 
standards are generally more lenient than the 30 ppm standard and thus 
these refiners should have less need for a credit trading program than 
the rest of the industry. Furthermore, small refiners, even those 
currently producing gasoline near the 30 ppm average, are given an 
additional two years (until 2008) to meet the 30 ppm standard compared 
to refiners complying under the sulfur ABT program. We want to ensure 
that the sulfur levels of the majority of gasoline are reduced on 
average, and overall, in 2004 and 2005; permitting small refiners to 
meet the more lenient standards through the purchase of credits could 
jeopardize that goal by resulting in in-use sulfur levels that are even 
greater than the maximum small refiner standard (300 ppm average). If a 
small refiner believed it could generate sufficient sulfur credits in 
2000-2003, or obtain such credits through purchases from other 
refiners, to be able to meet the 30 ppm average and the corporate 
averages of 120 ppm in 2004 and 90 ppm in 2005, it should choose not to 
participate in the small refiner program and take full advantage of the 
sulfur ABT program.
    However, small refiners would be permitted to generate and trade 
sulfur credits if they reduced sulfur levels early in 2000-2003, per 
the requirements outlined above. Furthermore, a small refiner could 
sell credits that were generated in 2000-2003 in 2004 and 2005 while at 
the same time meeting the small refinery standards. A small refiner 
wishing to generate and sell credits would have to establish the 
individual refinery sulfur baseline by the deadline specified above for 
the ABT program (July 1, 2000) but could wait until June 1, 2002 to 
apply for small refiner status. However, the standards assigned to that 
refinery (as presented in Table IV.C-3) would be based on the sulfur 
level from which credits were generated, not the 1997-98 baseline 
sulfur level, since the refiner would have already demonstrated the 
ability to meet the lower sulfur level (in this case, 150 ppm or lower 
on an annual average basis).
    At any time, a small refiner could ``opt out'' of the small refiner 
program and, beginning the next calendar year, comply with the 
standards in Table IV.C-2. The refiner would have to notify us of this 
change in compliance program. Once a small refiner left the small 
refiner program, however, we propose that it would not be eligible to 
re-enter the small refiner program. We encourage comments on this 
provision.
    The sulfur ABT program could provide an alternative to offering any 
small refiner standards, if small refiners were capable of complying 
with the proposed pool average standards and caps in 2004 and 2005 just 
as larger refiners could. In this case, all refiners, large or small, 
could obtain credits necessary to meet the 30 ppm average standard for 
the two intervening years. However, EPA recognizes that this may not be 
the best response to the needs of small refiners, and has proposed, as 
a result of the SBREFA Panel process, alternate standards in section 
IV.C.3.b of this document. Indeed many small refiners expressed concern 
during the Panel process that an ABT program would not address their 
needs. However, we welcome comments on the pros and cons of using the 
sulfur ABT program to provide regulatory relief for small refiners in 
lieu of additional regulatory standards unique to small refiners.
    vi. What Alternative Implementation Approaches Are Possible?
    As we were developing this proposal, members of the oil industry 
and others expressed concern that the ABT program as described above 
may not be of great value in providing flexibility in complying with 
the 30 ppm standard in 2004. Several different concerns have been 
expressed.
    Industry representatives have asserted that the opportunity to 
generate early credits is limited because the proposed lead time would 
be too short to implement enough of the refinery operational changes 
and capital investments needed to achieve sulfur reductions before 
2004. Additionally, the industry is concerned that relying on early 
credits generated with what is perhaps the best long-term 
technology(ies) is problematic because the preferred technology(ies) is 
new and

[[Page 26061]]

does not yet have a proven performance record. Their concern is further 
exacerbated by   the   uncertainty   in the diesel   fuel   sulfur   
picture, the   MTBE /oxygenates situation developing in California, and 
the DI petition discussed below, as well as ongoing state initiatives 
to reduce sulfur in gasoline before this action is decided upon.
    When credits are generated, there is a fear that those that 
generate them will hoard them, particularly refiners that operate 
several refineries. And when credits are made available for trade, they 
may not become publicly available in enough time for them to be 
considered by others in their capital investment planning, so 
essentially all refineries would have to take steps to implement 30 ppm 
technology by 2004. These issues may be of special concern to those 
moderate sized refiners that are too large to qualify as small entities 
but do not have enough refineries or refineries of the right gasoline 
production volume to internally optimize their operations under the ABT 
program.
    Given these uncertainties about credit availability, the refiners 
may need additional flexibility as a means to provide relief to those 
that make a good faith effort to comply but are precluded by 
circumstances beyond their control. These may include unanticipated 
technological and commercial concerns, credit availability problems, or 
force majeure type events.
    We have examined this issue of credit availability and our 
analysis, which is presented in the Draft RIA, indicates that credits 
should be available by 2004 for the 2004/5 phase-in. This is based on 
the fact that the 300 ppm cap in 2004 would require that all refineries 
with a baseline above 300 ppm reduce sulfur by 2004. And, while they 
could choose to just achieve 300 ppm, some would need greater 
reductions to comply with the 120 ppm corporate pool average standard 
and all would be facing increasingly more stringent requirements in 
2005 and beyond. Quite simply, we believe that good business sense 
would dictate that once a hardware investment is made the refinery 
would shoot for 30 ppm or less. As the analysis shows, this approach 
implemented over just three years would yield compliance with the 120 
ppm corporate pool average and would generate ample credits. We 
requested comment on our analysis in the Draft RIA and the underlying 
analytical approach.
    EPA is proposing the ABT program described above in order to 
increase the refiners'/importers' confidence that they could comply in 
2004. And, while our analysis indicates that credits would be available 
for 2004/2005 compliance, we realize that the ABT program might not 
meet its objective if the industry did not have confidence that credits 
would be available in enough time and in sufficient quantities to 
enable them to make economically efficient investment decisions. It is 
our desire to provide the industry as much flexibility as possible to 
ease implementation and phase-in while still meeting the objectives of 
the program as described above. Toward that end we are asking for 
comment on several variations on the above proposal that might increase 
its overall value as a means to provide flexibility in meeting the 
proposed standards. These can be divided into four categories: (1) 
Modifications to the design elements of the proposed ABT program, (2) a 
compliance supplement pool, (3) an allowance-based system, and (4) 
reserved credits. As constructed below, the compliance supplement pool, 
an allowance-based system, and reserved credits could be implemented in 
varying ways to complement the early ABT program. EPA asks comments on 
the cost and air quality impact implications of these concepts, which 
are described in more detail below.

Potential Modifications to Proposed ABT Program

    Modifications to the base program to increase the potential 
availability of credits and the time over which these credits could be 
used might increase the effectiveness of the proposed ABT program. 
These changes could potentially affect both the near-term when the 
program was phasing-in and the long term when the 30 ppm standard was 
fully implemented.
    The 150 ppm trigger value is designed to ``level the playing 
field'' between companies with relatively low baselines and those with 
relatively high baselines. Those with high baselines could potentially 
generate more credits than those with lower baselines, but at a 
somewhat greater cost since achieving 150 ppm or less becomes 
increasing more difficult with higher sulfur gasoline. Those with 
baselines closer to 150 ppm may be able to generate fewer credits, but 
generate them more easily.
    However, requiring that gasoline be below 150 ppm before credits 
could be generated might preclude credit generation from higher sulfur 
gasolines that could achieve large, real reductions in sulfur. The size 
of the potential credit pool could be increased, perhaps dramatically, 
if the trigger were relaxed or eliminated. We would like comment on 
trigger values higher than 150 ppm for CG and winter RFG. We would also 
request comment on expressing the trigger as a percent reduction from 
baseline levels (e.g., 10-25%) rather than as an absolute value. In 
addition, we request comment on a hybrid concept under which credits 
would be generated for CG and winter RFG depending on initial 1997/1998 
baseline sulfur levels (gasoline less than 150 ppm sulfur would 
qualify, gasoline between 150 ppm and 350 ppm sulfur would need a 10-15 
percent reduction, and gasoline greater than 350 ppm sulfur would need 
a 15-20 percent reduction to qualify.) It would be helpful for those 
suggesting the ``no-trigger'' approach to also address the issue of 
equity among refiners with different baselines.
    In combination with comments on the trigger, we also ask for 
comment on the proposed phase-in approach. The 300 ppm cap effective 
October 1, 2003 and the timing for the 30 ppm average standard would 
both be important factors affecting the transition to low-sulfur 
gasoline. Our analysis of the potential availability of credits 
(discussed above and presented in the Draft RIA) indicates that most of 
the credits needed to smooth out the transition would be generated by 
low-sulfur winter RFG. Our analysis also assumes that a substantial 
number of credits would be generated by refiners investing in 
technology capable of producing 30 ppm gasoline prior to 2004 to ensure 
compliance with the 300 ppm cap. If refiners take another approach to 
meeting the 300 ppm cap (i.e., one that does not result in significant 
credit generation), fewer excess credits would be available. However, 
as long as some refiners invest in 30 ppm technology before 2004, we 
believe sufficient credits would be available. We encourage comment on 
our proposed phase-in approach.
    Specifically, should the interim phase-in program be extended by an 
additional year to provide an even smoother transition to the 30 ppm 
standard (e.g., 120/300, 105/210, 90/180 for 2004, 2005, and 2006)? 
Should the time frame for the 30 ppm average standard be shifted to 
2005, for example, while retaining the 120/300 ppm caps for 2004, to 
provide more time for transition to the 30 ppm standard? Should credits 
expire after 2007 (as proposed) or would a shorter (or longer) credit 
life be appropriate?
    We are also seeking comment on a concept that would provide an 
incentive to introduce clean technology early. Under this concept, any 
sulfur credits generated before 2004 would be banked at a rate of 1.5 
to 2.0 times the amount generated, if the annual average for that

[[Page 26062]]

refinery were equal to or less than 30 ppm and if the credits resulted 
from the implementation of gasoline sulfur reduction technology 
(hardware) not previously used at that refinery. This multiplier would 
not be available for credits generated from modest operational changes 
or product separation at the refinery or downstream. Calculation of the 
un-multiplied credits would be at the refinery level. Neither domestic 
refiners nor importers could qualify by segregating product or product 
streams either from their refinery(ies) or in the case of importers 
from one or more offshore refineries. Also, while refiners/importers 
could get sulfur credits under ABT through the use of allowable 
oxygenates, these could not be used as part of the basis for achieving 
the 30 ppm average. EPA seeks comment on the need for and utility of 
such an approach and on whether it is appropriate to encourage 
implementation of sulfur control technology in this manner.

Compliance Supplement Pool

    To address concerns about credit supply and the timeliness of the 
availability of credits, and as a way of providing additional 
flexibility, particularly to refiners that encounter unexpected 
problems in complying, we are considering the concept of a government-
created and -operated compliance supplement pool for the sulfur ABT 
program. Under this concept, the government would create a pool of 
additional credits that could be provided to refiners/importers. This 
pool would build refiner confidence that a supply of credits would be 
available in the market and that credits could in fact be considered as 
part of the business plan for 2004-2005 compliance. Credits from this 
pool could first be made available in the 2000-2001 time frame and 
perhaps in subsequent years and could only be used in 2004-2005. This 
program would supplement the 2000-2003 early credit approach under ABT.
    There are a number of issues related to implementing such a 
program. The size of the pool potentially available for use in 2004 and 
2005 would be a critical issue. A larger pool would lower the chance 
that a refiner/importer could not get credits, but would reduce the 
environmental benefits of the overall program. Clear rules on the 
availability of credits would need to be established at the outset so 
that refiners/importers could make correct investment decisions. In 
addition, EPA would not want a compliance supplement pool to supplant 
the need for each refiner to make aggressive efforts to comply in the 
appropriate time or for a pool to create a disincentive for refiners to 
generate early credits. If credits from early reductions were available 
at a reasonable price, EPA would prefer that refiners/importers 
purchase such credits rather than looking to a compliance supplement 
pool. EPA seeks comment on the appropriate size of a compliance 
supplement pool in light of these factors.
    The conditions under which a refiner/importer would be eligible for 
credits are important. For example, the pool could be made available 
only to refiners that had demonstrated that they had made a good faith 
effort to comply with the 2004 requirements, but, due to circumstances 
beyond their control could not do so. Providing credits to a refiner 
that failed to make good faith efforts to procure and install the 
technology would create the wrong incentives and could be unfair to 
competitors that had invested resources to comply.
    Options for distributing credits in the pool might include granting 
credits as rewards to those that generated some early reductions, 
distribution based primarily or solely on need, equal distribution to 
all, pro-rata distribution based on volume, making credits available at 
a fixed price, or a credit auction. These approaches could be 
considered singly or in combination. For example, the majority of the 
compliance supplement pool could be distributed based on need, with due 
consideration of the effect of lack of credits on gasoline supply in a 
given area. In this case, the remaining portion might be set aside and 
auctioned off to provide a price signal and a certain source of 
credits.
    It would seem that any such compliance pool should be administered 
by the government or its agent, but decisions on credit applications 
would include a public process. As part of our deliberations on this 
concept we need to decide whether credits could be used to meet the 
interim corporate pool averages (120/90 ppm) or just the 30 ppm 
standard or both. Unlike credits generated by refiners/importers 
reducing actual sulfur levels, any credits under this program would 
expire after 2005.
    Credits from the compliance supplement pool would be government-
created and not derived from actual reductions in gasoline sulfur. If 
credits from the compliance supplement pool were distributed at little 
or no cost to the receiver, such an approach might create an inequity 
between those using credits and those who invested in technology to 
reduce sulfur. As a means to address the potential environmental 
effects of these government credits and to correct financial inequities 
among refiners/importers, we seek comment on a provision that would 
require those awarded these credits from the compliance supplement pool 
to repay them. The credits to be used for repayment could be generated 
internally in 2004-2006, purchased surplus credits from other refiners/
importers, or simply unused credits originally distributed from the 
compliance supplement pool. These credits would have to be repaid by 
the expiration of the period to close credit balances under the interim 
program (2006, taking into account the one-year credit debt carry-
forward provision).
    If, as mentioned above, credits were sold at a fixed price or 
auction, several issues would arise. Should payment be through monetary 
means? If so, what is EPA's authority to engage in such monetary 
transactions, and what would be done with any proceeds? There is also 
an issue with regard to a requirement to both buy credits for cash and 
then also repay with credits. Alternatively, credits could be allocated 
based on a determination that a refiner/importer needs the credits, in 
conjunction with a determination regarding the refiner's/importer's 
ability and willingness to repay the credits to the pool in the future 
at a rate greater than 1:1. A credit auction could be held in a similar 
way, that being the willingness of the bidder to repay the credits in 
the future at a rate greater than 1:1. In these approaches, a refiner/
importer seeking credits might be willing to repay them at a rate of 
say 1.2:1, thus essentially offering or bidding a 20 percent premium. 
This could be done as a one-time premium or perhaps as a discount at 
the time the credits are issued from the pools. Under this system no 
money exchange would be required. This would simplify set-up of the 
compliance supplement pool, allow refiners to conserve capital for 
purposes of capital investment, and create an environmental return for 
the compliance supplement pool. In addition, it would result in credits 
being provided to refiners/importers that need them, and that are 
expected to achieve additional environmental benefits in the future by 
generating or purchasing excess credits.
    The ``reasonableness'' of the price of credits is critical to any 
approach requiring repayment from those entities using these credits. 
We request comment and suggestions on ways to establish reasonable 
credit prices. For example, as an upper bound, EPA might

[[Page 26063]]

set a credit price based on information received during the rulemaking 
on the cost of sulfur removal for different technologies.
    EPA also seeks comment on whether refiners/importers that used 
credits from the compliance supplement pool should be excused from the 
repayment of some or all of the credits if they could demonstrate that 
it was not feasible for them to generate credits themselves and 
insufficient credits were available at a reasonable price. Finally, EPA 
seeks comment on how to ensure that refiners/importers that used 
credits from the compliance supplement pool would in fact repay those 
credits. One option would be to hold such refiners/importers liable for 
failure to meet the sulfur standards over the averaging period during 
which they relied on credits from the compliance supplement pool, if 
such credits were not repaid in time. EPA seeks comment on this option, 
as well as other alternatives that would ensure that compliance 
supplement pool credits were repaid.
    EPA has some experience with the compliance supplement pool 
approach as part of the NOX SIP Call (ROTR) discussed in 
Section III above. In this process, a compliance supplement pool was 
created to address concerns raised by industry about how the 
requirements might affect the reliability of the supply of electric 
power. The size of the NOX compliance supplement pool was 
created based on an EPA projection of what compliance shortfalls might 
result if problems developed in implementing the control technology. 
The NOX SIP Call pool may be allocated through direct 
distribution based on need or as a reward for early reductions.

Allowance-Based System

    In the context of gasoline sulfur, a traditional allowance program 
would provide more confidence in the availability of ``credits'' 
(surplus allowances) by creating sulfur budgets that the industry 
(refiners and importers) would be required to meet during the 2004-5 
phase-in and perhaps beyond. This budget would be created on a mass 
basis using gasoline volume and the applicable regulatory standard. 
This budget would then have to be allocated to individual refiners and 
importers. If an individual refinery or importer had sulfur levels 
below its allocation this would create surplus allowances that could be 
traded. Allowances for 2004 and later would be made available in 2001. 
This would facilitate the development of a market in allowances, since 
those planning to beat the requirements for 2004/5 could market their 
allowances early. This could significantly contribute to the certainty 
that surplus allowances would be available in time for consideration by 
others in their 2004 business planning.
    While there are other possibilities, it would seem reasonable to 
allocate the budgets to individual refiners/importers in the 2004 and 
later time period based upon their individual percentages of the 
gasoline market. To be consistent with other aspects of this proposal 
this could be done at the corporate level in 2004/5 and at the 
individual refinery/importer level in 2006 and later.
    One major benefit of such an approach is that refiners/importers 
could trade part or all of their 2004 and later allowances for future 
use without EPA involvement and those purchasing these allowances could 
do so early enough to allow a more orderly and reasoned set of capital 
investment decisions. Also, since it would be allowances, not credits, 
that would be traded, the seller could be held solely responsible for 
failure to meet its budget without involving the buyer. The trading of 
allowances would be relatively unencumbered. Allowances could be used 
to meet the budgets allocated under the regulatory standard.
    This approach would provide increased flexibility and certainty, it 
is not clear that a large number of surplus allowances would be 
created, since surplus allowances would only exist relative to a budget 
based on the 30 ppm standard. Obviously the number of allowances 
created in 2004 and 2005 could be increased if the budget were based on 
a value higher than the 30 ppm regulatory standard, but this would 
require a fundamental change in overall program design. Alternatively, 
the number of surplus allowances might be increased if the allowances 
program were started earlier. For example, refiners/importers could be 
allocated budgets beginning in 2001 based on the product of their 1997/
1998 sulfur baselines in ppm (with appropriate adjustments for RFG 
Phase II) and their gasoline volume. Any reductions in the average 
sulfur levels or volume from the baseline level during that 2001-2003 
time period would result in surplus allowances.
    While the idea of pre-2004 allowances has merit, it requires the de 
facto implementation of a standard before 2004 (since each refiner's/
importer's budget would in effect be a standard), in order to establish 
allowances. And, in contrast to the ABT program where participation is 
voluntary and no requirements exist before 2004, an allowance system 
would require refiners subject to the allowance program to hold 
sufficient allowances to cover their calculated mass emissions starting 
in 2001.
    In principle, an allowance system could be designed to incorporate 
all of the features of an ABT credit system as described above. We are 
interested in comment on the viability of such an allowance program as 
an alternative to the traditional ABT program and whether such a 
program would have to be mandatory for all refiners/importers in order 
to be effective. For example, could we structure an allowance program 
such that the refiner opts into if it intends to generate or use 
allowances or opts out of if it does not? We are also interested in 
comment on the parameters of such a program, including the appropriate 
budget levels, methods for distributing the budgets to refiners/
importers, and whether allowances could be used to meet the corporate 
pool averages, the regulatory standard, or both. As with the ABT 
program, we would like to hear your views on the years over which such 
a program should apply (e.g., should it start in 2001?, should it 
extend beyond 2005?), as well as the other regulatory requirements that 
should apply in each year.
    We also request comment on whether the allowance program could be 
established as a supplement to the credit program. If an allowance 
program is implemented along with a compliance supplement pool and/or 
early ABT we are interested in comments on how to make credits fully 
exchangeable among the programs. We are also interested in comments on 
how the programs could/should be integrated. For example, could we let 
a refiner/importer generate early ABT credits and at the same time sell 
2004-2005 allowances?

Reserved Credits

    EPA is also aware of concerns regarding whether refiners that 
earned or received credits would make them available in a timely manner 
to those that needed them, particularly to small- to mid-sized 
refiners/importers. If an adequate number of credits were not available 
in a timely manner and for a reasonable price, small- to mid-size 
refiners would have no choice but to pursue near term capital 
investment to comply in 2004. This might be the appropriate course for 
many of these refineries, but we do not think it is appropriate for 
them to be precluded from the same flexibility as larger refineries.
    We are seeking comment on whether we should require that a set 
percentage (e.g., 1015%) of all credits generated in early ABT (2000-
2003), awarded

[[Page 26064]]

through the compliance supplement pool, or earned through the 
allowance-based approach either must be retired or offered for trade 
outside of the refining company that originally generated or was 
granted them. Under such a provision, refiners/importers would be 
required to set aside a percentage of credits/allowances they generate, 
but could choose whether to retire them or offer them for sale at a 
fair market price to another refiner/importer. Regardless of which 
option the refiner/importer chose, the results would be beneficial--the 
environment would benefit if credits are retired, and credit 
availability would improve if the refiner chose to sell credits. We are 
also interested in your views as to how this objective might be 
accomplished.
    EPA also asks comment on the disposition of credits that were put 
up for trade one or more times during the period 2004-2006 but did not 
sell during that period. This could be the case if a credit owner 
offered credits for sale at a price in excess of fair market value and 
thus they were not purchased by another party or if credit supply 
significantly exceed demand. In this kind of situation, should the 
credits be retired or revert to the generator at a full or reduced rate 
(e.g., 50%) for future use in compliance determinations? We request 
comment on whether such a provision for reserved credits would be 
needed by small- to mid-sized refiners and whether the reservation of 
10-15 percent of credits would be sufficient to address the concerns. 
We also seek comment on whether such a pool should be supplemented by 
the government through an auction to ensure that the pool size is 
adequate and whether such a pool could be useful in helping to 
establish a market price for company owned credits.
    b. Refinery Air Pollution Permitting Requirements. As discussed 
previously in this document, this proposed program would result in 
significant emission reductions from reducing sulfur in gasoline 
nationally, through the emission reductions from the current fleet of 
vehicles and ensuring the efficacy of new technologies in future 
vehicles. In order to achieve this environmental benefit as soon as 
possible, we want to be sure the public is aware of the full range of 
available methods for expediting permits required for refinery process 
changes to reduce gasoline sulfur. Expedited permitting also will 
facilitate refiners' ability to generate sulfur credits, under today's 
proposed sulfur Averaging, Banking and Trading program, described in 
the previous section.
    There are two key Clean Air Act permitting programs that refiners 
must comply with when making changes at their existing facilities to 
implement gasoline sulfur control--the New Source Review (NSR) program 
and the Title V operating permit program. Typically, both of these 
programs are administered by state/local permitting agencies, with EPA 
oversight. While the basic requirements of these programs are dictated 
by the Clean Air Act and EPA regulations, the specific requirements of 
each state/local permitting program may vary.
    We recognize that compliance with these air permitting requirements 
is an integral component in any plan to implement the gasoline sulfur 
control program under the schedule proposed today. To help refiners 
meet the permit requirements, below we discuss the possible mechanisms 
to address the substantive requirements of the major NSR and Title V 
programs, including possible opportunities to streamline and expedite 
the processing of permit applications. Finally, we conclude this 
section by discussing possible tools that we are currently testing in 
the experimental Pollution Prevention in Permitting Program (P4), which 
promotes permit streamlining and flexibility for Title V operating 
permits, along with increased pollution prevention activities. We 
encourage commenters to provide suggestions for additional 
opportunities to streamline the permitting process to accommodate the 
implementation of the proposed gasoline desulfurization requirements 
for the refining industry sector.
    The American Petroleum Institute (API) has sent a letter to EPA 
outlining its concerns about the potential impact of various permitting 
requirements on the industry's ability to meet future gasoline sulfur 
standards, as well as their suggested options for permit 
streamlining.54 This letter is included in the docket for 
this rulemaking. We are aware that individual refineries are in 
different situations regarding the modification to current operation 
that would be needed to meet the proposed sulfur standard and the 
regulatory requirements applicable to those modifications. Based on the 
limited information available at present, some refineries may not 
increase emissions significantly, and others may find it most 
economical to make on-site emission reductions at the plant to avoid 
emission increases. Accordingly, we request comment on the extent to 
which the various mechanisms to streamline the permitting process 
discussed in this section are in fact needed or useful. We request that 
commenters supporting such streamlining describe the specific refiner 
situations in which they believe streamlining is needed, and encourage 
them to provide any suggestions for additional opportunities to 
streamline the permit process to expedite refineries' preparation to 
meet the proposed sulfur standards.
---------------------------------------------------------------------------

    \54\ Letter from William F. O'Keefe, Executive Vice President, 
American Petroleum Institute, to Bruce Jordan, U.S. EPA, Office of 
Air Quality Planning and Standards, dated February 12, 1999 (Docket 
item IIG-304).
---------------------------------------------------------------------------

    i. New Source Review Program.
    The New Source Review (NSR) program,55 as it applies to 
existing major sources of air pollution, requires that a 
preconstruction permit be issued before a source begins construction of 
any project that would result in a significant net emissions increase. 
With respect to NSR, we anticipate that refineries will fall into one 
of two categories if the proposed sulfur standards are implemented. The 
first category consists of those refineries that would be able to avoid 
major NSR by demonstrating that the physical and operational changes 
needed to reduce gasoline sulfur do not result in a net emission 
increase of the quantity that would require a major NSR permit. Major 
NSR would not apply where: (1) The proposed changes would not result in 
an emissions increase at the refinery; (2) the increase is, in and of 
itself, less than ``significant'' 56; or (3) the refinery 
``nets'' the project out of review. In most cases, even where a 
refinery change to accommodate the production of lower sulfur gasoline 
does not trigger the major source NSR program, the project still will 
be subject to a state's general, or ``minor,'' NSR 
program.57 The second category consists of those refineries 
that would experience a significant net emissions increase as a result 
of process changes necessary to accommodate gasoline sulfur control 
and, therefore, will trigger major NSR applicability and the attendant 
permit process (e.g., nonattainment NSR or Prevention of Significant 
Deterioration). Accordingly, such facilities must obtain a major source 
preconstruction permit prior to making these process changes.
---------------------------------------------------------------------------

    \55\ See 40 CFR 51.165, 40 CFR 51.166, 40 CFR 52.21, 42 U.S.C. 
7475, and 42 U.S.C. 7503.
    \56\ EPA's and state/local regulations for major NSR define 
``significance'' levels for various pollutants.
    \57\ This permitting program applies to the construction or 
modification of any stationary source. See 40 CFR 51.160 and 42 
U.S.C. 7410(a)(2)(C).
---------------------------------------------------------------------------

    As described previously in today's document, there are several 
types of process changes refineries could make to meet the proposed 
gasoline sulfur

[[Page 26065]]

levels. Traditional sulfur removal technologies include installing a 
hydrocracker upstream, or a hydrotreater upstream or downstream, of the 
fluidized catalytic cracker (FCC) unit, the unit that produces the 
largest fraction of gasoline. There also are improved desulfurization 
technologies, CDHydro and CDHDS (licensed by the company CDTECH) and 
OCTGAIN 220 (licensed by Mobil Oil). These technologies use 
conventional refining processes combined in new ways, with either 
improved catalysts or other design changes to maximize gasoline 
desulfurization effectiveness with minimal negative effects, such as 
octane loss. To different degrees, all these technologies involve the 
use of a furnace and, thus, have the potential to increase pollutants 
associated with combustion, such as NOX, VOCs, PM, CO, and 
SO2. The addition of these technologies also could result in 
equipment leaks of petroleum compounds, which could increase emissions 
of VOCs and other pollutants. It also is possible that the increased 
removal of sulfur from the gasoline stream might require increased 
capacity of a number of refinery processes, such as the sulfur recovery 
unit (SRU), which converts hydrogen sulfide into elemental sulfur and 
is associated with SO2 emissions. The emission increase 
associated with a desulfurization project will vary from refinery to 
refinery, depending on a number of source-specific factors, such as the 
specific refinery configuration, choice of desulfurization technology, 
amount of gasoline production, and type of fuel used to fire the 
furnace.
    While we do not have sufficient information at this time to 
estimate the number of refineries nationwide that will trigger major 
NSR, we believe it could be substantial, given that over 100 refineries 
in the country would be required to make desulfurization process 
changes under today's proposal. Estimates from one vendor indicate that 
its desulfurization process could result in emission increases that are 
considered ``significant'' in severe ozone nonattainment areas (i.e., 
greater than 25 tons/year of NOX and VOC), which would 
trigger major source nonattainment NSR review. Since the significance 
threshold generally is lower in certain nonattainment areas (i.e., 
those nonattainment areas classified as serious and above for ozone), 
refineries located in those nonattainment areas may be the most likely 
to trigger major NSR review. There are many refineries located in ozone 
nonattainment areas (e.g., parts of the Gulf Coast).

NSR Applicability Principles

    A refiner's ability to avoid triggering major NSR by keeping 
emission increases below the major NSR applicability cutoffs will 
depend primarily on the case-by-case circumstances of each refinery. 
Nevertheless, numerous means by which a source can otherwise legally 
avoid major NSR permitting are available to all refineries for 
consideration and possible use. In addition, as discussed below, the 
Agency is prepared to work with refineries to explore the use of 
certain NSR applicability mechanisms (i.e., plant wide applicability 
limits or ``PALs''), where appropriate.
    To the extent needed, we intend to work with state/local permitting 
authorities to provide assistance with the proper application of the 
NSR rules on an expedited basis for permits involving refinery 
desulfurization projects. We want to ensure that applicability 
decisions are made at the earliest possible opportunity and consider 
the full spectrum of options available so that a refiner can adjust, or 
possibly reconfigure, planned desulfurization projects so as to prevent 
significant emission increases and thereby avoid major NSR within the 
framework of the current regulations. In addition, timely applicability 
decisions will provide added certainty as to the applicable NSR 
requirements and, where a major NSR permit is needed, how to best to 
expedite the issuance of a permit.
    Depending on the nature of the physical or operational changes 
necessary to accommodate desulfurization projects, the NSR 
applicability process for major modifications can be a complex and time 
consuming exercise. The NSR regulatory provisions require that a 
proposed physical change result in a significant net emissions increase 
in order for the change to be considered a modification and therefore 
subject to NSR. We expect that there likely will be questions regarding 
which, and how, existing emission units are affected by the change, 
including how to calculate the magnitude of the emissions change for 
major NSR applicability purposes. We are committed to working with 
refiners and state/local air pollution control agencies to clarify and 
ensure that, in applicability analyses for gasoline desulfurization 
projects, only those emissions increases resulting from the physical or 
operational changes necessary to comply with gasoline desulfurization 
requirements are included in the applicability analysis.
    In doing an applicability analysis for major NSR, refineries should 
analyze their past, current, and future operations and emissions to 
determine whether it is possible to avoid major NSR based upon their 
facility-specific circumstances, including the use of previous emission 
reductions at the facility to ``net'' out of NSR. Similarly, sources 
might avoid NSR by using Plantwide Applicability Limits (PALs) to cap 
emissions. Emissions netting is a term that refers to the process of 
considering certain previous and prospective emission changes at an 
existing major source to determine if a net emissions increase will 
result from the proposed new project. Where the sum total of creditable 
increases and decreases across the refinery is less than significant, 
major NSR would not apply. In addition, if the proposed emissions 
increase from a proposed project (in this case, a project undertaken to 
reduce gasoline sulfur levels) is by itself, without considering any 
decreases, less than significant, major NSR would also not apply.
    PALs may provide another opportunity for refineries to avoid 
triggering major NSR applicability. The voluntary, source-specific PAL 
is a straightforward, flexible approach to determine whether changes at 
an existing major source of air pollution result in a significant net 
emissions increase. By restricting (or ``capping'') a facility's 
emissions to a level representative of current actual emissions, a PAL 
allows a source to change operations and equipment without having to 
undergo major NSR permitting. For example, as long as refinery 
activities do not result in emissions above the PAL cap level, the 
refinery would not be subject to major NSR, regardless of the nature of 
the activity. Under a PAL, instead of a case-by-case assessment of 
whether a proposed change is subject to or excluded from major NSR, the 
refinery manager knows that as long as the refinery stays within its 
emissions cap, major NSR will not be triggered. Production units may be 
started and stopped, production lines reconfigured, and products 
changed and revamped without delay from major NSR permitting.
    Because of these advantages, the Agency previously has proposed to 
incorporate PALs in all of its NSR regulations (see 61 FR 38250, 38264, 
July 23, 1996), and has worked with state permitting authorities to 
develop PALs for individual sources. Likewise, the Agency is committed 
to exploring the propriety of authorizing PALs for refineries subject 
to the final gasoline

[[Page 26066]]

sulfur control rules. We are examining our authorities to assure they 
support these approaches. Should it be necessary, EPA stands prepared 
to issue final regulations to make PALs available to sources making 
changes to comply with these gasoline sulfur control requirements.
    We are further committed to investigating with affected refineries 
whether a PAL might be a valuable tool for managing a number of other 
Clean Air Act requirements. For instance, depending on the relevant 
state rules, a PAL also could include terms that allow facility changes 
to be made without triggering minor NSR. It is our experience that, in 
the cases where PALs have been applied, both industry and air pollution 
regulators have benefitted from the regulatory certainty and simplicity 
a PAL provides. The use of a PAL can enhance a refinery's ability to 
make appropriately designated changes quickly, without having to 
evaluate a baseline for each modification, determine the 
contemporaneous increases and decreases, and engage in other time-
consuming netting procedures required under the major NSR program on a 
case-by-case basis. A PAL also can encourage a source to reduce 
emissions voluntarily (e.g., from pollution prevention or other 
emission reduction efforts), so that it has sufficient room for growth 
(under the PAL) to accommodate increased emissions from future process 
changes.

Approaches to Expedite the Processing of NSR Permit Applications

    Notwithstanding the availability of the major NSR applicability 
principles and mechanisms discussed above, we anticipate that it will 
not be possible for all refineries subject to the gasoline 
desulfurization requirements to prevent significant emission increases 
and avoid major NSR. Additionally, even those facilities that are able 
to avoid major NSR likely will be required to obtain a state minor NSR 
permit. For facilities subject to major NSR, the timing of permit 
issuance could vary depending on many factors, including the complexity 
of process changes, the type of permit required, air quality impact, 
control technology reviews, and the state's overall permit workload. It 
is not uncommon for issuance of a major source preconstruction permit 
to take six to 12 months from the receipt of a source's complete permit 
application. In addition, determining the applicable permitting 
requirements for refineries is often complex, due to the wide array of 
emission points and processes.
    To help expedite the NSR permitting process, we suggest the 
following streamlining approaches. Since state/local governments 
typically are the lead permitting agencies, we will work closely with 
them on any of these efforts. We solicit comments on the efficacy of 
these approaches and opportunities for additional streamlining. We are 
particularly interested in understanding whether these permit 
streamlining approaches could enable refineries to begin voluntarily 
producing lower-sulfur gasoline earlier than the compliance dates 
proposed today, so that the environmental benefits may be realized 
sooner than 2004 and ABT credits (see previous Section) could be 
generated.
     Federal guidance on streamlining certain major NSR 
permitting requirements, such as control technology and compliance 
parameters. Although the major NSR permit is a case- and source-
specific evaluation, we could provide guidance on certain aspects of 
refinery projects designed to reduce fuel sulfur that share a common 
requirement or circumstance. For example, for refinery projects 
permitted in the same time frame, the Lowest Achievable Emission Rate 
(LAER) requirement should be the same for identical emissions units 
regardless of the location of the individual refinery. In this case, we 
could define for the industry what emissions levels would be expected 
to meet LAER and provide model permit conditions, including appropriate 
monitoring, record keeping, and reporting. Although Best Available 
Control Technology (BACT) determinations require case-by-case 
considerations, we also could issue guidance setting out a level of 
emissions that, in our view, satisfies BACT for the class or category 
of emission units associated with refinery desulfurization. We expect 
that providing BACT and LAER guidance would help to expedite major 
source permitting and add more certainty to the permit process. 
Consequently, for any applications processed within a discrete time 
frame, a presumptive federal LAER and/or BACT could be established.
     Availability of offsets. The major NSR permitting 
provisions require that a significant emissions increase of 
nonattainment pollutants must be offset by emission reductions from 
other sources. We solicit comment on the need for offsets by refineries 
making modifications to meet the proposed sulfur standards, and the 
expected size or volume of any offsets that may be necessary. In 
addition, to the extent offsets may be useful or necessary, EPA 
requests comment on whether on-site emissions reductions at the 
refinery could be used to avoid the expected emissions increases that 
would otherwise occur. We will work with refiners and state/local air 
pollution control agencies to explore options and possible new 
approaches that would help ensure the availability of offsets. For 
example, it may be possible to establish pre-funded offset pools, 
designed specifically for offsetting emissions increases resulting from 
gasoline desulfurization projects. We believe that the establishment of 
preapproved offset banks or pools could greatly expedite permitting in 
nonattainment areas.
    To help give certainty that offsets will be available, we seek 
comment on how and whether emission reductions resulting from vehicles 
operated on low sulfur gasoline could be used as offsets by refineries 
implementing gasoline sulfur controls. For example, it may be possible 
for a state, within a given nonattainment area, to set aside a portion 
of the emission reductions expected from vehicles operating on low 
sulfur gasoline and dedicate those reductions for use as offsets by 
refineries. These offsets would have to meet all the criteria currently 
established for being creditable, and could not be ``double-counted'' 
by the state for other SIP planning purposes. We request comment on the 
ability of emission reductions from the use of low sulfur gasoline to 
meet the Clean Air Act's criteria for creditable offsets for NSR 
purposes. Since securing offsets can be a significant challenge to 
sources undergoing major NSR permitting in nonattainment areas, we 
believe this approach could substantially speed up, and add certainty 
to, the permitting process. We believe this approach is worth 
evaluating, given the enormous emission reductions resulting from the 
use of low sulfur gasoline, and given that some refineries will trigger 
major NSR solely as a result of the process changes needed to produce 
this new gasoline. Finally, EPA seeks comment on whether providing the 
ability to use the emissions reductions resulting from the use of low 
sulfur gasoline in vehicles as offsets for refineries producing low 
sulfur gasoline can be limited to this specific situation. 
Specifically, EPA requests comment on the concern that providing this 
option to refineries would allow the use of such emissions reductions 
as offsets for other stationary sources.
    As discussed above, we believe that refineries in ozone 
nonattainment areas could be the most likely to trigger major NSR 
review, based on net emission increases of NOX and/or VOCs. 
The proposed Tier 2/gasoline sulfur control program is expected to 
result in over

[[Page 26067]]

500,000 tons of NOX reductions and over 100,000 tons of VOC 
reductions nationwide in 2004 (the first year of implementation), as 
well as substantial reductions in particulate matter and sulfur 
dioxide, as described elsewhere in this document and the draft 
Regulatory Impact Analysis.58 In a given nonattainment area, 
the program could result in hundreds to thousands of tons of 
NOX and VOC reductions, depending on the inventory of cars 
and light-trucks in the area. For example, for the New York 
metropolitan area, EPA projects NOX emission reductions of 
7,344 tons and VOC emission reductions of 1,285 tons in 2004 resulting 
from the proposed Tier 2/gasoline sulfur control program.59 
We anticipate that only a small fraction of these total emission 
reductions in a given area would be needed for use as offsets for 
refineries implementing gasoline sulfur control projects.
---------------------------------------------------------------------------

    \58\ Although these emission reduction estimates are for the 
combined Tier 2 emission standards/gasoline sulfur control program, 
in 2004, nearly all these emission reductions would be attributed 
solely to vehicles fueled by low sulfur gasoline, since vehicles 
meeting the Tier 2 emission standards would comprise only a small 
fraction of the vehicle fleet.
    \59\ See draft Regulatory Impact Analysis, Chapter III.
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     Model permits and permit applications. It may be possible 
to develop an individual, or series of, model permits or permit 
applications for gasoline desulfurization projects. Rather than each 
individual refinery having to develop its own permit application from 
scratch, a generic permit application form could be developed to 
address common issues. To file a major source application, a refinery 
would only need to fill in the blanks as they may relate to case-
specific assessments, such as air quality impacts. Similarly, a model 
permit could contain all necessary compliance measures avoiding the 
time spent in developing individual permit conditions. Model permits or 
permit applications would serve as templates, thereby eliminating much 
of the time and uncertainty associated with processing each 
application.
     EPA refinery permitting teams. We could establish a team 
of experts to be available as a resource, as needed, to refineries and 
state/local agencies to troubleshoot permitting issues that may develop 
with individual applications. The team could be made up of EPA 
permitting experts empowered to make decisions and resolve issues 
quickly.
    In addition to the above opportunities to streamline the permitting 
process, we encourage states to process a refinery's request to 
implement changes at a facility to meet gasoline desulfurization 
requirements as a priority and on an expedited basis. Priority 
treatment, in combination with the above opportunities to streamline 
the process, would ensure that permit applications associated with 
gasoline desulfurization changes are processed as expeditiously as 
possible. Given the enormous environmental benefits that we estimate 
would be achieved as a result of the proposed gasoline sulfur control 
requirements, we believe such expedited and special processing is 
appropriate.
    ii. Title V Operating Permit Program.
    We recognize that the changes to be made by refiners to implement 
gasoline sulfur controls typically would involve not only NSR 
preconstruction permitting requirements but also those of the title V 
operating permit program. Title V requires owners or operators of 
``major'' and certain other sources to obtain an operating permit--a 
document that identifies all emissions units, their applicable 
requirements as developed in accordance with the Clean Air Act, and 
monitoring and other permit conditions to provide a reasonable 
assurance of compliance with each of the applicable requirements on an 
ongoing basis. Most of the refiners likely are ``major'' sources 
subject to title V, due to their plant-wide level of emissions. As with 
other process changes, prior to implementing gasoline sulfur controls, 
refiners would need to work with their state, local, or tribal 
permitting agency to determine what requirements apply and what changes 
might be required to the source's title V permit application or permit 
(if one has been issued).
    A critical element of any successful title V permitting strategy to 
accomplish the necessary desulfurization is how best to integrate the 
procedural and substantive requirements of the title V and NSR permit 
programs. We believe the title V permitting process provides an 
excellent opportunity to accomplish this integration and to impart 
greater certainty into the ultimate approvability of a gasoline 
desulfurization project under both permit programs. Depending on a 
specific permitting authority's program and when the desulfurization 
activity would occur relative to the issuance of the refinery's initial 
title V permit, the NSR preconstruction permit and the title V permit 
processes might be done in parallel or in sequence.
    Where the title V permit is issued before the desulfurization 
activity commences, this permit must be updated before operation of the 
changes that would also be subject to NSR. In this case, we suggest 
that the preconstruction permit review process, managed by the 
permitting authority, be merged with the title V permit revision 
process so as to satisfy the procedural safeguards and the same 
substantive requirements of the NSR and title V programs at the same 
time.60 If this is done, the title V permit may be 
administratively amended to incorporate the contents of the NSR permit 
prior to operation of the desulfurization process changes. Where the 
appropriate NSR action (major or minor) approving the desulfurization 
changes precedes the issuance of a source's initial title V permit, the 
applicable NSR process can still be ``enhanced'' to address title V 
obligations. Here, in order to determine approvability under both title 
V and NSR, the permitting authority can issue a separate title V permit 
specifically for the desulfurization project in advance of the title V 
permit that will be issued subsequently for the rest of the site. 
Finally, if issuance of the title V permit issuance for the entire 
source would precede the NSR construction, depending on several 
factors, the permitting authority could conduct simultaneous permit 
processes to accomplish preconstruction approval of the desulfurization 
project and title V approval for the operation of the project in 
conjunction with the entire refinery source.
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    \60\ The concept of a merged NSR/title V process refers to the 
combination of the title V review process with any otherwise 
applicable state preconstruction review process, where such process 
satisfies the procedural requirements of the title V's permit 
revision, permit review, and public participation provisions. 
Example state review processes that may be eligible for merger 
include, but are not limited to, preconstruction review of major or 
minor NSR, source-specialized State Implementation Plan revisions, 
and procedures implementing section 112(g) of the Clean Air Act. 
Under a merged process, activities are only presented in a public 
forum once, rather than in sequence, to avoid duplication of 
process. Upon completion of the merged process, a successful project 
would have met all federal permitting requirements, including review 
by the public, EPA and affected States, and opportunities for EPA 
objection and public petition, and can implement both processes 
without delay. Qualifying activities that have received 
preconstruction review permits meeting the requirements of 40 CFR 
70.7(d)(1)(v) may be incorporated into title V permits as 
administrative permit amendments.
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    Beyond synchronizing when the two permit programs would be 
implemented, we recommend that permitting authorities take approaches 
in the substantive permitting of the desulfurization projects that will 
both assure compliance with all applicable air requirements and result 
in a more flexible and efficient permit design. We encourage that the 
approaches in the

[[Page 26068]]

title V ``White Papers'' 61 be considered to focus both the 
content of title V applications and permits. In particular, we 
recommend that permitting authorities and owners or operators of 
refineries consider the ``streamlining'' of multiple applicable 
requirements applying to the same project. Under the streamlining 
concept, where multiple applicable requirements apply to the same 
emission unit(s), the permitting authority may develop one emission 
limit (with associated monitoring, recordkeeping, and reporting) that 
assures compliance with all applicable requirements. For example, 
several aspects of the control requirements necessary to implement our 
maximum available control technology (MACT) and new source performance 
standards (NSPS) requirements, State Implementation Plan (SIP), and NSR 
programs (including both major and minor NSR, as applicable) could be 
considered for streamlining per White Paper Number 2. Where successful, 
this streamlining will result in a single control requirement (or 
emission limit), coupled with appropriate monitoring, recordkeeping, 
reporting, and testing requirements that yield a reasonable assurance 
of compliance for all subsumed requirements.62
---------------------------------------------------------------------------

    \61\ White Paper for Streamlined Development of Part 70 Permit 
Applications, Lydia N. Wegman, Deputy Director, Office of Air 
Quality Planning and Standards, U.S. EPA, July 10, 1995 and White 
Paper Number 2 for Improved Implementation of the Part 70 Operating 
Permits Program, Lydia N. Wegman, Deputy Director, Office of Air 
Quality Planning and Standards, U.S. EPA, March 5, 1996.
    \62\ See Section II.A. of White Paper Number 2.
---------------------------------------------------------------------------

    We also are willing to explore applying to the varying situations 
of sulfur removal at refineries certain permit design approaches that 
have previously been limited to some permitting pilot projects. In 
particular, in partnership with permitting authorities, we have been 
working with selected industries at specific sites to conduct Pollution 
Prevention in Permitting Project (P4) pilots. These projects respond to 
the Administration's goals for reinvention in order to implement 
environmental permit programs in a more streamlined fashion, while 
assuring required levels of environmental protection. Based on our 
prior experience with these regulatory reinvention projects, permit 
design options for refiners implementing gasoline desulfurization 
projects might include, but are not limited to, any of the following 
approaches:
     Advance approvals of certain types of changes in title V, 
including those subject to minor NSR.# 63
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    \63\ Advance approval means that a particular project (or class 
of projects) like one to accomplish gasoline desulfurization and its 
support activities would be preapproved for title V purposes before 
its actual construction, provided that the terms of the title V 
permit governing the advance approval are met. The Agency has a 
possible non-binding interpretation of the Title V regulations that 
would provide for the advance approval of certain new emission units 
and control devices. See 63 FR 50279, 50315-20 (Sept. 21, 1998) 
(Section IV.L., Permitting and Compliance Options/Change Management 
Strategy, in National Emission Standards for Hazardous Air 
Pollutants for Source Categories: Pharmaceuticals Production).
---------------------------------------------------------------------------

     Provisions that where met would prevent another 
requirement from applying (e.g., plant wide applicability limits (as 
noted above) to address potential major NSR applicability).
     Model permit conditions, such as a presumptive, 
streamlined approach to meet all applicable control technology 
requirements to expedite permitting decisions, where applicable.
     Adding terms to a title V permit so as to preauthorize a 
faster permit revision process where one is necessary to add further 
details within an approved approach (e.g., the minor instead of 
significant permit modification process).
     Permitting the worst-case emissions scenario to address 
all applicable requirements applying in a range of possible operating 
scenarios or to prevent certain requirements from applying.
     Permitting alternative compliance options where an owner 
or operator of a source needs the flexibility to vary the compliance 
approach with changing refinery conditions.
     Using pollution prevention approaches to facilitate 
compliance with applicable requirements and/or required permit terms.
    We recognize that the situations for refineries affected by the 
proposed gasoline sulfur control program can vary widely (e.g., sulfur 
level in the gasoline, size of the stream, air quality status of the 
area, etc.), and that the actual permit approach for an individual 
refinery may be a combination of certain options outlined above and 
previously for streamlining NSR. Any title V approach must, however, 
assure compliance with all applicable requirements linked to the 
necessary construction and provide a meaningful opportunity for all 
affected parties to review the appropriateness of a proposed approach 
as it would apply to a particular site. For example, where new 
desulfurization units would be required and would be well controlled so 
as to result in emissions below the threshold for triggering major NSR, 
then an advance approval of minor NSR requirements in combination with 
certain operationally limiting conditions might be an appropriate 
strategy. Where the addition of such a unit would trigger major NSR, 
then the strategies that combine the reviews and streamline the 
requirements of both title V and major NSR offer promise. In a few 
cases, reblending of high sulfur gasoline blend stocks, blending in low 
sulfur oxygenates, or using sweeter crude oil might be sufficient to 
achieve the necessary sulfur reductions and require few, if any, 
additional title V permit terms to implement.
    iii. EPA Assistance to Explore Permit Streamlining Options and 
Solicitation of Comment.
    We are committed to exploring the possible approaches described 
above. Accordingly, if there is sufficient interest and need, as 
expressed in comments on this proposed rule, within the refining 
industry and among state permitting authorities, we will hold a P4/
flexible permit workshop focused on the permitting of the refining 
industry arising from the gasoline desulfurization program. 
Additionally, should a permitting authority and owners or operators of 
affected facilities within a common jurisdiction express a desire for a 
specific flexible permit project aimed at the development of permit 
language to facilitate refinery activities to reduce gasoline sulfur, 
then in accordance with already established principles for initiating 
similar permit projects, we would be willing to work with a designated 
refinery. We intend that the approaches derived from such efforts could 
then serve as a template as needed for use by other refineries and 
state permitting authorities, provided the approaches are modified to 
conform with all applicable state title V and NSR requirements.
    We believe that application of one or more of the approaches 
described in today's document would reduce any burden of meeting NSR 
permit requirements and revisions to title V permit applications or 
permits to incorporate the gasoline desulfurization requirements 
adopted in the final rule. However, the use of one or more of these 
approaches would have accompanying resource requirements. For example, 
it is possible that the initial resources required to establish a PAL, 
and the attendant monitoring, recordkeeping and reporting requirements, 
could involve as much time and resources as associated with a typical 
NSR permit. However, once established, a PAL could provide more 
flexibility and minimize future resource demands than more traditional 
permit approaches. Accordingly, we request that permitting authorities, 
owners or operators of affected facilities, and the public comment on 
whether use of the

[[Page 26069]]

approaches described in today's document will achieve appropriate 
streamlining of controls and requirements arising out of this rule and 
meet the objectives of the NSR and title V permitting programs.
    c. Should Hardship Relief Be Available? Elsewhere in this document 
(Section IV.C.3.b.), we propose a hardship provision that would apply 
to small refiners. EPA seeks additional comment on whether it should 
adopt a hardship provision allowing for compliance with standards less 
stringent than those proposed today during the early years of the 
program. While EPA believes that it is feasible for most refiners to 
meet the proposed standard by 2004, the Agency is seeking comment on 
whether it may be appropriate to allow refiners with substantial 
economic hardship circumstances to apply for relief from compliance 
with the sulfur standard for a limited time period.
    Such a hardship provision would need to contain appropriate 
criteria to limit the provision to a narrowly drawn set of 
circumstances. This might include criteria such as ability to raise 
capital to make necessary refinery investments in time for 2004, given 
the current size and ownership of the refinery, the physical 
characteristics of the refinery, the volume of gasoline at issue, 
ability to purchase credits to comply, and any efforts by the refiner 
to limit sulfur that are already underway or have been attempted. The 
provision would also need to contain criteria to ensure that it would 
not undermine the emissions reduction goals of the Tier 2/sulfur 
program and would not allow large amounts of gasoline with sulfur 
levels significantly above 30 ppm into the market. For example, this 
might include a volume limit on the use of less stringent standards in 
hardship circumstances. It would also need to include an endpoint, so 
that the relief is short-term and the refinery would then have to meet 
the same standard as all other refineries. For example, EPA would not 
expect that hardship relief will be needed beyond 2009.
    Under such a provision, we expect that refiners would be subject to 
a reasonable level of control, albeit less stringent than the proposed 
standards. At a minimum, sulfur levels at a particular refinery should 
not be permitted to be higher than 1997-1998 baseline levels and in no 
event should the average sulfur level be greater than 300 ppm. EPA also 
seeks comment on the appropriate time frame for allowing relief in 
hardship circumstances. EPA solicits comments on whether any refiners 
would encounter significant hardship in meeting the proposed standard. 
EPA solicits comment on the implications of any such hardship provision 
on small refiners and its relationship to the small refiner provisions 
proposed in this document. Finally, EPA seeks comment on the 
implications of a hardship provision on the proposed ABT program.
5. Consideration of Diesel Fuel Control
    As explained in Section IV.B. above, the proposed Tier 2 standards 
would apply to both gasoline- and diesel fuel-fueled vehicles. 
Currently very few light-duty vehicles operate on diesel fuel. Given 
what we know about gasoline vehicles, we believe it is reasonable to 
anticipate that the use of exhaust aftertreatment devices may be 
required, and that these technologies may have similar sensitivities to 
sulfur that the catalysts used on gasoline engines have. However, we do 
not yet have enough information to be able to conclude that diesel 
sulfur levels need to be reduced in the same time frame that Tier 2 
vehicles are introduced. A decision to require reductions in diesel 
sulfur levels could have significant implications for the refining 
industry, both because it would likely require capital expenditures 
over and above the significant costs that would be incurred in 
controlling gasoline sulfur, and because for some refiners concurrent 
control of gasoline and diesel sulfur may be the most economical 
solution. Hence, due to the implications for automotive manufacturers 
and for diesel fuel producers, a decision on whether to require diesel 
fuel sulfur reductions needs to be made as soon as possible.
    Automobile and diesel engine manufacturers and state air quality 
agencies have recently asked us to set new fuel quality requirements 
for diesel fuel used in highway vehicles.64 The 
manufacturers believe that such requirements, especially controlling 
diesel fuel sulfur content to very low levels, could produce large 
environmental benefits by enabling dramatically lower-emitting diesel 
engines equipped with exhaust aftertreatment devices. The viability of 
such technologies would, of course, affect the feasibility of the 
proposed Tier 2 emission standards for diesel vehicles. Currently, 
highway diesel fuel is regulated under standards we set in 1990. These 
standards, which became effective in 1993, limit the concentration of 
sulfur in diesel fuel to a maximum of 500 ppm; they also control the 
amount of aromatic compounds in the fuel (55 FR 34120, August 21, 
1990).
---------------------------------------------------------------------------

    \64\ See the following contained in the docket for this 
rulemaking: Letter from Robert J. Eaton, Chrysler Corporation, Alex 
Trotman, Ford Motor Company and John F. Smith, Jr., General Motors 
Corporation, to Vice President Al Gore, July 16, 1998; ``STAPPA/
ALAPCO Resolution on Sulfur in Diesel Fuel,'' October 13, 1998; 
Letter from S. William Becker, Executive Director of STAPPA/ALAPCO, 
to Carol Browner, Administrator of U.S. EPA, October 16, 1998; 
Letter from Jed R. Mandel, Engine Manufacturers Association, to 
Margo T. Oge, Director, Office of Mobile Sources, EPA, November 6, 
1998.
---------------------------------------------------------------------------

    Diesel engine manufacturers have argued that implementing Tier 2 
standards without concurrent diesel fuel changes would be unfair to 
diesels because diesel fuel quality is worse than gasoline fuel 
quality, especially considering that the Tier 2 rulemaking includes 
proposed improvements in gasoline quality to enable advanced three-way 
catalytic converters. Some argue that, beyond fuel-neutrality 
considerations, diesel fuel quality improvement is needed to combat 
global warming because it will facilitate the marketing of more diesel 
vehicles and, in their opinion, thereby reduce emissions of global 
warming gases. Others counter that such benefits are illusory and that 
diesel vehicles should be discouraged because diesel exhaust is a 
serious health hazard, a hazard that improvements in fuel quality would 
do little to mitigate.
    To address the issue of diesel fuel changes, we will issue an 
Advance Notice of Proposed Rulemaking (ANPRM) in the near future. We 
encourage interested parties to review and comment on the issues raised 
in the ANPRM. On the basis of this information, if appropriate, we plan 
to publish a proposal on standards for diesel fuel in the next several 
months. This would provide some degree of clarity regarding our plans 
in this area in time to help affected industries to then make their own 
plans without undue disruption. This is especially important for the 
petroleum refining industry in planning capital outlays to accomplish 
sulfur reduction in gasoline, and potentially diesel fuel, at the most 
economical point in the refining process.
    Several diesel vehicle manufacturers have raised the concern that 
unless or until lower sulfur diesel fuel is available, the sulfate 
component of diesel PM may be particularly difficult to control to very 
low emission levels. They have encouraged us to express the proposed PM 
standards in terms of non-sulfate PM to provide manufacturers 
flexibility in how they balance the control of sulfate and non-sulfate 
PM components.

[[Page 26070]]

    We request comment on such an approach, including specific comments 
on the following:
     Whether or not such an approach could be justified on an 
air quality basis, given the potential for very high sulfate PM 
emissions due to unrestrained sulfate production in diesel catalytic 
converters;
     Whether such an approach should be limited to the interim 
PM standards and be discontinued when the Tier 2 standards are fully 
phased in;
     How this approach should be phased out if low-sulfur 
diesel fuel were to be phased in; and
     Whether a cap on sulfate PM should accompany such an 
approach and what value (in grams per mile) would be appropriate for a 
cap.

D. What Are the Economic Impacts, Cost Effectiveness and Monetized 
Benefits of the Proposal?

    Consideration of the economic impacts of new standards for vehicles 
and fuels has been an important part of our decision making process for 
this proposal. The following sections describe first the costs 
associated with meeting the new vehicle standards and the new fuel 
standards. This will be followed with a discussion of the cost 
effectiveness of the proposal. Lastly, we will discuss the results of a 
preliminary benefit-cost assessment that we have prepared.
    Full details of our cost analyses, including information not 
presented here, can be found in the Draft RIA associated with this 
rule. We invite comments on all aspects of these analyses.
1. What Are the Estimated Costs of the Proposed Vehicle Standards?
    To perform a cost analysis for the proposed standards, we first 
determined a package of likely technologies that manufacturers could 
use to meet the proposed standards and then determined the costs of 
those technologies. In making our estimates we have relied both on 
publicly available information, such as that developed by California, 
and confidential information supplied by individual manufacturers.
    In general, we expect that the Tier 2 standards will be met through 
refinements of current emissions control components and systems rather 
than through the widespread use of new technology. Furthermore, lighter 
vehicles will generally require less extensive improvements than larger 
vehicles and trucks. More specifically, we anticipate a combination of 
technology upgrades such as the following:
     Improvements to the catalyst system design, structure, and 
formulation plus some increase in average catalyst size and loading.
     Air and fuel system modifications including changes such 
as improved microprocessors, improved oxygen sensors, leak free exhaust 
systems, air assisted fuel injection, and calibration changes including 
improved precision fuel control and individual cylinder fuel control.
     Engine modifications, possibly including an additional 
spark plug per cylinder, an additional swirl control valve, or other 
hardware changes needed to achieve cold combustion stability.
     Increased use of fully electronic exhaust gas 
recirculation (EGR).
     Increased use of secondary air injection for 6 cylinder 
and larger engines.
     Heat optimized exhaust pipes and low thermal capacity 
manifolds.
    Using a typical mix of changes for each group, we projected costs 
separately for LDVs, the different LDT classes, and for different 
engine sizes (4, 6, 8-cylinder) within each class. For each group we 
developed estimates of both variable costs (for hardware and assembly 
time) and fixed costs (for R&D, retooling, and certification).
    Cost estimates based on the current projected costs for our 
estimated technology packages represent an expected incremental cost of 
vehicles in the near-term. For the longer term, we have identified 
factors that would cause cost impacts to decrease over time. First, 
since fixed costs are assumed to be recovered over a five-year period, 
these costs disappear from the analysis after the fifth model year of 
production. Second, the analysis incorporates the expectation that 
manufacturers and suppliers will apply ongoing research and 
manufacturing innovation to making emission controls more effective and 
less costly over time. Research in the costs of manufacturing has 
consistently shown that as manufacturers gain experience in production, 
they are able to apply innovations to simplify machining and assembly 
operations, use lower cost materials, and reduce the number or 
complexity of component parts.65 These reductions in 
production costs are typically associated with every doubling of 
production volume. Our analysis incorporates the effects of this 
``learning curve'' by projecting that the variable costs of producing 
the Tier 2 vehicles decreases by 20 percent starting with the third 
year of production. We applied the learning curve reduction only once 
since, with existing technologies, there would be less opportunity for 
lowering production costs than would be the case with the adoption of 
new technology.
---------------------------------------------------------------------------

    \65\ ``Learning Curves in Manufacturing,'' Linda Argote and 
Dennis Epple, Science, February 23, 1990, Vol. 247, pp. 920-924.
---------------------------------------------------------------------------

    We have prepared our cost estimates for meeting the Tier 2 
standards using a baseline of NLEV technologies for LDVs, LDT1s, and 
LDT2s, and Tier 1 technologies for LDT3s and LDT4s. These are the 
standards that vehicles would be meeting in 2003. 66 We have 
not specifically analyzed smaller incremental changes to technologies 
that might occur due to the interim standards between the baseline and 
Tier 2. In many cases, we believe these changes will not be significant 
based on current certification levels. For others, manufacturers can 
use averaging and other program flexibilities to avoid redesigning 
vehicles twice within a relatively short period of time. We believe 
this is likely to be an attractive approach for manufacturers due to 
the savings in R&D and other resources.
---------------------------------------------------------------------------

    \66\ Even though the NLEV program ends in the Tier 2 time frame, 
we have not included the NLEV program costs or benefits in our 
analysis, since EPA analyzed and adopted NLEV previously.
---------------------------------------------------------------------------

    For the total annual cost estimates, we projected that 
manufacturers will start the phase-in of Tier 2 vehicles with LDVs in 
2004 and progress to heavier vehicles until all LDT2s meet Tier 2 
standards in 2007. For LDT3s and LDT4s, we projected some sales of Tier 
2 LDT3s prior to 2008 for purposes of averaging in the interim program 
and that the phase-in of Tier 2 vehicles would end with LDT4s in 2009.
    Finally, we have incorporated what we believe to be a high level of 
R&D spending at $5,000,000 per vehicle line (with annual sales of 
100,000 units per line). We have included this large R&D effort because 
calibration and system optimization is likely to be a critical part of 
the effort to meet Tier 2 standards. However, we believe that the R&D 
costs may be overstated because the projection ignores the carryover of 
knowledge from the first vehicle lines designed to meet the standard to 
others phased-in later.
    The evaporative emissions standards we are proposing today for LDVs 
and LDTs are feasible with relatively small cost impacts. We estimate 
the cost of system improvements to be about $4 per vehicle, for all 
vehicle classes. This incremental cost reflects the cost of moving to 
low permeability materials, improved designs or low-loss

[[Page 26071]]

connectors. R&D for the evaporative emissions standard is included in 
the R&D estimates given above for the tailpipe standards. We have made 
no projections of learning curve reductions for the evaporative 
standard.
    Table IV.D.-1 provides our estimates of the per vehicle increase in 
purchase price for LDVs and LDTs. The near-term cost estimates in Table 
IV.D.-1 are for the first years that vehicles meeting the standards are 
sold, prior to cost reductions due to lower productions costs and the 
retirement of fixed costs. The long-term projections take these cost 
reductions into account. We have sales weighted the cost differences 
for the various engine sizes (4-, 6-, 8-cylinder) within each category.

               Table IV.D.-1.--Estimated Purchase Price Increases Due to Proposed Tier 2 Standards
----------------------------------------------------------------------------------------------------------------
                                                     LDV          LDT1         LDT2         LDT3         LDT4
----------------------------------------------------------------------------------------------------------------
Tailpipe standards:
    Near-term (year 1).........................          $76          $69         $132         $270         $266
    Long-term (year 6 and beyond)..............           46           43           99          214          209
Evaporative Standard...........................            4            4            4            4            4
----------------------------------------------------------------------------------------------------------------

2. What Are the Estimated Costs of the Proposed Gasoline Sulfur 
Standards?
    As explained in Section IV.C., most refiners will have to install 
capital equipment to meet the proposed gasoline sulfur standard. 
Presuming that refiners will want to minimize the cost involved, 
refiners are expected to desulfurize the gasoline blendstock produced 
by the fluidized catalytic cracker (FCC) unit. Recent advances have led 
to significant improvements in hydrotreating technology by CDTECH and 
Mobil Oil (OCTGAIN) that lower the cost of desulfurizing FCC gasoline; 
we understand that similar technologies are being developed by other 
parties. Since these improved desulfurization technologies represent 
the lowest cost options and are expected to be used by most refiners 
needing to install desulfurization equipment, we estimated the cost of 
desulfurization based on their use.
    For our analysis, we estimated the cost of lowering gasoline sulfur 
levels in five different regions of the country (Petroleum 
Administration Districts for Defense, or PADD), starting from the 
current regional average in each PADD down to 30 ppm. We then converted 
the regional cost to a national average per-refinery cost, and 
calculated a national aggregate cost and cents-per-gallon cost.
    Based on this analysis we estimate that, on average, refiners in 
the year 2004 would be expected to invest about $45 million for capital 
equipment and spend about $16 million per year for each refinery to 
cover the operating costs associated with these desulfurization units. 
Since this average represents many refineries diverse in size and 
gasoline sulfur level, some refineries would pay more and others less 
than the average costs. When the average per-refinery cost is 
aggregated for all the gasoline expected to be produced in this country 
in 2004, the total investment for desulfurization processing units is 
estimated to be about $4.7 billion dollars, and operating costs for 
these units is expected to be about $1.5 billion per year. We believe 
that the $4.7 billion in capital costs would be spread over several 
years by the refiners' participation in the proposed averaging, 
banking, and trading program.
    These capital and operating costs represent our estimates for 
domestic costs. While we think that many foreign refiners might incur 
capital costs to meet the requirements of our gasoline sulfur program, 
particularly in light of similar programs being enacted 
internationally, others will argue that most foreign refiners would not 
incur new costs as a result of our program because they can simply send 
the lowest-sulfur fraction of their current production to the U.S. 
Furthermore, some will argue that most foreign refiners do not face the 
same permitting limitation and environmental and other regulatory costs 
that domestic refiners face, and thus that their costs of producing low 
sulfur gasoline will be minimal even if some investment is required. 
While we have developed cost estimates with and without consideration 
of possible costs attributed to imported gasoline, our estimates of 
national and average costs do not include any costs attributed to 
foreign refiners.
    Using our estimated capital and operating costs we calculated the 
average per-gallon cost of reducing gasoline sulfur down to 30 ppm. 
Using a capital cost amortization factor based on a seven percent rate 
of return on investment, and including no taxes, we estimated the 
average national cost for desulfurizing gasoline to initially be about 
1.7 cents per gallon. This cost is the cost to society of reducing 
gasoline sulfur down to 30 ppm that we used for estimating cost 
effectiveness. If we amortize the costs based on a rate of return on 
investment of six to ten percent and a tax rate of 39 percent, which 
may more closely represent the actual economic situation facing 
refiners today, the average national cost for desulfurizing gasoline 
down to 30 ppm would be 1.7-1.9 cents per gallon.
    We anticipate that these costs will decrease in future years due to 
improvements in technology, similar to the learning curve improvements 
discussed above for vehicle cost. This improvement is estimated to 
result in a 20 percent reduction in operating costs after the second 
complete year of use. This estimated rate of improvement is similar to 
previous cost reductions observed with desulfurization technologies as 
they were being developed.
    Additional cost reduction is expected as refiners increase the 
throughput (debottleneck) of their refineries to lower their per-gallon 
fixed costs. This increase in throughput for the industry as a whole is 
termed capacity creep and it is has allowed a shrinking number of U.S. 
refineries to handle the increasing demand for refined products. Our 
analysis presumes that as an industry, refiners will debottleneck their 
refineries at a rate consistent with the forecasted increase in 
gasoline demand, which is about 2 percent per year. Thus, the fixed 
operating cost, and a portion of the capital costs for these 
desulfurization technologies, would decrease over time on a per gallon 
basis as the volume of gasoline processed at each refinery increased.
    Table IV.D.-2 below summarizes our estimates of per-gallon gasoline 
cost increases for the years 2004, 2010 and 2015.

 Table IV.D.-2.--Estimated Per-Gallon Cost for Desulfurizing Gasoline in
                              Future Years
------------------------------------------------------------------------
                                                             Cost (cents/
                            Year                               gallon)
------------------------------------------------------------------------
2004.......................................................          1.7
2010.......................................................          1.5
2015.......................................................          1.4
------------------------------------------------------------------------


[[Page 26072]]

3. What Are the Aggregate Costs of the Tier 2/Gasoline Sulfur Proposal?
    Using current data for the size and characteristics of the vehicle 
fleet and making projections for the future, the per-vehicle and per-
gallon fuel costs described above can be used to estimate the total 
cost to the nation for the proposed emission standards in any year. 
Figure IV.D.-1 portrays the results of these projections.67

BILLING CODE 6560-50-P
[GRAPHIC] [TIFF OMITTED] TP13MY99.004


BILLING CODE 6560-50-C
    As can be seen from the figure, the annual cost starts out at just 
over $2.5 billion per year and increases over the phase-in period to a 
maximum of $3.7 billion in 2008. Thereafter, the annual cost declines 
to a level of about $3.5 billion. The effect of projected growth in 
vehicle sales and fuel consumption causes a slow, gradual rise in 
annual cost to set in after about 2012.
4. How Does the Cost Effectiveness of This Program Compare to Other 
Programs?
    This section summarizes the cost effectiveness analysis done by EPA 
and its results. The purpose of this assessment is to determine whether 
reductions from the vehicle and fuel controls are cost effective, 
taking into consideration alternative means of attaining or maintaining 
the national primary ambient air quality standards. This involves a 
comparison of our proposed program not only with past measures, but 
with other new measures that might be employed to attain and maintain 
the NAAQS. Both EPA and states have already adopted numerous control 
measures, and remaining measures tend to be more expensive than those 
previously employed. Therefore, there is no single cost effectiveness 
level that defines what is acceptable. Rather, as we employ the most 
cost effective available measures first, more expensive ones tend to 
become necessary over time.
---------------------------------------------------------------------------

    \67\ Figure IV.D.-1 is based on the amortized costs from Tables 
IV.D.-1 and IV.D.-2. Actual capital investments, particularly 
important for fuels, would occur prior to and during the initial 
years of the program, as described above in section IV.D.2.
---------------------------------------------------------------------------

    a. What Is the Cost Effectiveness of This Program? We have 
calculated the per-vehicle cost effectiveness of the exhaust/gasoline 
sulfur standards and the evaporative emission standards, based on the 
net present value of all costs and emission reductions over the life of 
an average Tier 2 vehicle subject to today's proposal. As described 
earlier in the discussion of the cost of this proposal, the cost of 
complying with the new standards will decline over time as 
manufacturing costs are reduced and amortized capital investments are 
recovered. To show the effect of declining cost on the cost 
effectiveness, we have developed both near term and long term cost 
effectiveness values. More specifically, these correspond to

[[Page 26073]]

vehicles sold in years one and six of the vehicle and fuel programs. 
Vehicle cost is constant from year six onward. Fuel costs per gallon 
continue to decline slowly in the years past year six; however, the 
overall impact of this decline is small and we have decided to use year 
six results for our long term cost effectiveness. Chapter V of the 
draft RIA contains a full description of this analysis, and you should 
look in that document for more details on the results summarized here.
    Table IV.D.-3 summarizes the net present value lifetime cost, NMHC 
+ NOX emission reduction and cost effectiveness results for 
the Tier 2/gasoline sulfur proposal using sales weighted averages of 
the costs (both near term and long term) and emission reductions of the 
various vehicle classes affected.
    Table IV.D.-3 also displays cost effectiveness values based on two 
approaches to account for the small reductions in SO2 and 
tailpipe emitted sulfate particulate matter (PM) associated with the 
reduction in gasoline sulfur. While these reductions are not central to 
the proposal and are therefore not displayed with their own cost 
effectiveness, they do represent real emission reductions due to the 
proposed rule. The first set of cost effectiveness numbers in Table 
IV.D.-3 simply ignores these reductions and bases the cost 
effectiveness on only the NMHC + NOX reductions from Tier 2/
gasoline sulfur. The second set accounts for these reductions by 
crediting some of the cost of the program to SO2 and PM 
reduction. The amount of cost allocated to SO2 and PM is 
based on the cost effectiveness of SO2 and PM emission 
reductions from other EPA actions. You may refer to the RIA for details 
about these actions and how the specific allocations were developed.

                   Table IV.D.-3.--Cost Effectiveness of the Proposed Standards (1997 dollars)
----------------------------------------------------------------------------------------------------------------
                                                                                                    Discounted
                                                    Discounted      Discounted      Discounted     lifetime cost
                                                     lifetime      lifetime NMHC   lifetime cost   effectiveness
                   Cost basis                       vehicle and        + NOX       effectiveness   per ton with
                                                    fuel costs       reduction        per ton     SO2 and direct
                                                                      (tons)                        PM credita
----------------------------------------------------------------------------------------------------------------
Near term cost (production year 1)..............            $230           0.108          $2,134          $1,599
Long term cost (production year 6)..............             188           0.109           1,748           1,213
----------------------------------------------------------------------------------------------------------------
a $54 credited to SO2 ($4800/ton), $4 to direct PM ($10,000/ton).

    b. How Does the Cost Effectiveness of this Program Compare with 
Other Means of Obtaining Mobile Source NOX + NMHC 
Reductions? In comparison with other mobile source control programs, we 
believe that today's proposal represents the most cost effective new 
mobile source control strategy currently available that is capable of 
generating substantial NOX + NMHC reductions. This can be 
seen by comparing the cost effectiveness of today's program with a 
number of new mobile source standards that EPA has adopted in recent 
years. Table IV.D.-4 summarizes the cost effectiveness of several 
recent EPA actions.

  Table IV.D.-4.--C/E of Previously Implemented Mobile Source Programs
------------------------------------------------------------------------
                                                                  $/ton
                            Program                             NOX+NMHC
------------------------------------------------------------------------
2004 Highway HD Diesel stds...................................      300
Nonroad Diesel engine stds....................................  410-650
Tier 1 vehicle controls.......................................  1,980-2,
                                                                    690
NLEV..........................................................    1,859
Marine SI engines.............................................  1,128-1,
                                                                    778
On-board diagnostics..........................................   2,228
------------------------------------------------------------------------
(Costs adjusted to 1997 dollars.)

    We can see from the table that the cost effectiveness of the Tier 
2/gasoline sulfur standards falls within the range of these other 
programs. Engine-based standards (the 2004 highway heavy-duty diesel 
standards, the nonroad diesel engine standards and the marine spark-
ignited engine standards) have generally been less costly than Tier 2/
gasoline sulfur. Vehicle standards, most similar to today's proposal, 
have values comparable to or higher than Tier 2/gasoline sulfur.
    It is tempting to look at the engine standards and conclude that 
more reductions at a similar low cost effectiveness should still be 
available. This is especially true for the two largest categories 
(highway and nonroad diesel engines) where new standards have been 
adopted that were highly cost effective. However, cost effectiveness 
was not a limiting consideration in either case. Rather, the level of 
the standards selected was based primarily on technical feasibility in 
the time available. That is, the maximum level of control that we found 
to be feasible in these actions was driven more by what technology we 
believed would be available than by cost. It will be important to 
consider the potential for further control in these categories as we 
move forward.
    We do not believe that significant further control is available 
from highway or nonroad diesel engines through more stringent standards 
at the same cost effectiveness that these standards realized, in the 
time frame proposed. Based on current knowledge, the next generation of 
controls for these diesel engines would require advanced after-
treatment devices, still in the research and development phase. Such 
controls have not yet been employed and when they become available will 
be more costly and will have difficulty functioning without changes to 
diesel fuel. We fully expect that, as the development of new technology 
progresses and cost declines, future new standards for both of these 
source categories will be developed. But we also expect that the cost 
effectiveness of future standards will be higher and is not likely to 
be significantly less than the cost effectiveness of today's proposal.
    On the light duty vehicle side, the last two sets of standards were 
Tier 1 and NLEV, which had cost effectiveness comparable to or higher 
than Tier 2/gasoline sulfur. Compared to engines, these levels reflect 
the advanced (and more expensive) state of vehicle control technology, 
where standards have been in effect for a much longer period than for 
engines. In fact, considering the increased stringency of the Tier 2 
standards,68 it is remarkable that the cost effectiveness of 
Tier 2/gasoline sulfur is in the same range as these actions. Based on 
these results, Tier 2/gasoline sulfur appears to be a logical and 
consistent next step in vehicle control.
---------------------------------------------------------------------------

    \68\ Tier 2/gasoline sulfur will yield about a 75% reduction in 
NOX emissions compared to NLEV vehicles.
---------------------------------------------------------------------------

    In conclusion, we believe that the Tier 2/gasoline sulfur proposal 
is a cost effective program for mobile source NOX + NMHC 
control. We are unable to

[[Page 26074]]

identify another mobile source control program that would be more cost 
effective than Tier 2/gasoline sulfur for making substantial further 
progress in reducing NOX + NMHC emissions.
    c. How Does the Cost Effectiveness of this Proposed Program Compare 
with Other Known Non-Mobile Source Technologies for Reducing 
NOX + NMHC? In evaluating the cost effectiveness of the Tier 
2/gasoline sulfur proposal, we also considered whether our proposal is 
cost effective in comparison with alternative means of attaining or 
maintaining the NAAQS other than mobile source programs. As described 
below, we have concluded that Tier 2/gasoline sulfur is cost effective 
considering the anticipated cost of other technologies that will be 
needed to help attain and maintain the NAAQS.
    For purposes of estimating the cost of implementing the new ozone 
and PM NAAQS, the Agency assumed certain baseline controls and compiled 
a list of additional known technologies that could be considered in 
devising emission reductions strategies.69 Through this 
broad review, over 50 technologies were identified as reducing 
NOX or VOC. The average cost effectiveness of these 
technologies varied from hundreds of dollars a ton to tens of thousands 
of dollars a ton. The Agency selected from this list all those 
technologies that could be applied with an average cost effectiveness 
of $10,000/ton or less, and showed that substantial progress toward 
attainment could be made when operating within that limit.
---------------------------------------------------------------------------

    \69\ ``Regulatory Impact Analyses for the Particulate Matter and 
Ozone National Ambient Air Quality Standards and Proposed Regional 
Haze Rule,'' Appendix B, ``Summary of control measures in the PM, 
regional haze, and ozone partial attainment analyses,'' Innovative 
Strategies and Economics Group, Office of Air Quality Planning and 
Standards, U.S. Environmental Protection Agency, Research Triangle 
Park, NC, July 17, 1997.
---------------------------------------------------------------------------

    While many areas still remained in nonattainment under the NAAQS 
analysis, we assumed that other methods would be identified in the 
future that on average could help achieve the NAAQS at $10,000 per ton 
or less. We believe that Tier 2/gasoline sulfur is one of those 
methods. In fact, it will deliver critical further reductions that are 
not readily obtainable by any other means known to the Agency. By way 
of comparison, if all of the technologies identified for the NAAQS 
analysis costing less than $10,000/ton were implemented nationwide, 
they would produce NOX emission reductions of about 2.9 
million tons per year. The Tier 2/gasoline sulfur proposal by itself 
will generate about 2.8 million tons per year once fully implemented. 
To obtain significant further reductions using the other technologies 
identified in the NAAQS analysis rather than Tier 2/gasoline sulfur 
could mean adopting measures costing well beyond $10,000/ton. Given the 
continuing need for further emission reductions, we believe that Tier 
2/gasoline sulfur control is clearly a cost effective approach, in 
addition to those technologies assumed for the NAAQS analysis, for 
attaining and maintaining the NAAQS.
    We recognize that the cost effectiveness calculated for Tier 2/
gasoline sulfur is not strictly comparable to a figure for measures 
targeted at nonattainment areas, since Tier 2/gasoline sulfur is a 
nationwide program. However, there are several additional 
considerations that have led us to conclude that Tier2/gasoline sulfur 
is cost effective considering alternative means of attaining and 
maintaining the NAAQS.
    First, given the fact that Tier 2/gasoline sulfur is at most only 
20 percent as costly per ton as the NAAQS figure for additional control 
measures, we believe that there can be little doubt that the cost 
effectiveness of Tier 2/gasoline sulfur is well within the cost 
effectiveness range that the NAAQS cost analysis anticipated for 
unspecified additional technologies that will be needed to attain the 
NAAQS--technologies that the analysis noted might be applied in limited 
areas or nationwide. Furthermore, as a national program, Tier 2/
gasoline sulfur can be implemented as a single unified rule without the 
need for individual action by each of the states. Moreover, as noted 
above, for states to obtain further substantial emission reductions 
beyond those identified in the NAAQS could mean adopting measures 
costing well beyond $10,000/ton, something that few areas of the 
country to date have done.
    In dealing with the question of comparing local and national 
programs, it is also relevant to point out that, because of air 
transport, the need for NOX control is a broad regional 
issue not confined to non-attainment areas only. To reach attainment, 
future controls will need to be applied over widespread areas of the 
country. In the analyses supporting the recent NOX standards 
for highway diesel engines,70 we looked at this question in 
some detail and concluded that the regions expected to impact ozone 
levels in ozone nonattainment areas accounted for over 85% of total 
NOX emissions from a national heavy-duty engine control 
program. Similarly, NOX emissions in attainment areas also 
contribute to particulate matter nonattainment problems in downwind 
areas. Thus, the distinction between local and national control 
programs for NOX is less important than it might appear.
---------------------------------------------------------------------------

    \70\ Final Regulatory Impact Analysis: Control of Emissions of 
Air Pollution from Highway Heavy-Duty Engines, September 16, 1997.
---------------------------------------------------------------------------

    Finally, the statute indicates that in considering the cost 
effectiveness of Tier 2/gasoline sulfur EPA should consider not only 
attainment, but also maintenance of the standards. Tier 2/gasoline 
sulfur--unlike nonattainment area measures--will achieve attainment 
area reductions that, among other effects, will help to maintain air 
quality that meets the NAAQS. These reductions relate not only to the 
ozone and PM NAAQS, but also to SO2 and NO2, and 
to CO.
    In summary, given the array of controls that will have to be 
implemented to make progress toward attaining and maintaining the 
NAAQS, we believe that the weight of the evidence from alternative 
means of providing substantial NOX + NMHC emission 
reductions indicates that the Tier 2/gasoline sulfur proposal is cost 
effective. This is true from the perspective of other mobile source 
control programs or from the perspective of other stationary source 
technologies that might be considered.
5. Does the Value of the Benefits Outweigh the Cost of the Proposed 
Standards?
    While relative cost effectiveness is the principal economic policy 
criterion established for these standards in the Clean Air Act (see CAA 
202(i)), further insight regarding the merits of the proposed standards 
can be provided by benefit-cost analysis. The purpose of this section 
is to summarize the methods we used and results we obtained in 
conducting a preliminary analysis of the economic benefits of the 
proposed standards, and to compare these economic benefits with the 
estimated costs of the proposal. In summary, the results of our 
analysis indicate that the economic benefits of the proposed standards 
will likely exceed the costs of meeting the standards by a substantial 
margin, and the significant uncertainties underlying the analysis are 
unlikely to alter this outcome of positive net benefits.
    a. What Is the Purpose of this Benefit-Cost Comparison? Benefit-
cost analysis (BCA) is a useful tool for evaluating the economic merits 
of proposed changes in environmental programs and policies. In its 
traditional application, BCA

[[Page 26075]]

estimates the economic ``efficiency'' of proposed changes in public 
policy by organizing the various expected consequences and representing 
those changes in terms of dollars. Expressing the effects of these 
policy changes in dollar terms provides a common basis for measuring 
and comparing these various effects. Because improvement in economic 
efficiency is typically defined to mean maximization of total wealth 
spread among all members of society, traditional BCA must be 
supplemented with other analyses in order to gain a full appreciation 
of the potential merits of new policies and programs. These other 
analyses may include such things as examinations of legal and 
institutional constraints and effects; engineering analyses of 
technology feasibility, performance and cost; or assessment of the air 
quality need.
    In addition to the narrow, economic efficiency focus of most BCAs, 
the technique is also limited in its ability to project future economic 
consequences of alternative policies in a definitive way. Critical 
limitations on the availability, validity, or reliability of data; 
limitations in the scope and capabilities of environmental and economic 
effect models; and controversies and uncertainties surrounding key 
underlying scientific and economic literature all contribute to an 
inability to estimate the economic effects of environmental policy 
changes in exact and unambiguous terms. Under these circumstances, we 
consider it most appropriate to view BCA as a tool to inform, but not 
dictate, regulatory decisions such as the ones reflected in today's 
proposal.
    Despite the limitations inherent in BCA of environmental programs, 
we considered it useful to estimate the potential benefits of today's 
proposed standards both in terms of physical changes in human health 
and welfare and environmental change, and in terms of the estimated 
economic value of those physical changes. The BCA presented herein 
should be considered preliminary, however, due to limitations in the 
data and models available for analysis in advance of today's proposal. 
Additional, more refined analysis will be conducted prior to issuance 
of final standards. This post-proposal analysis will take account of 
public comments on the proposed standards and this BCA and will also 
make use of more extensive and refined data and models currently being 
developed. Our expectation is that the more extended and refined 
economic analysis conducted prior to final rulemaking will further help 
inform and guide decisions on the appropriateness of the final rules. 
Toward this end, we are presenting this preliminary BCA and requesting 
public comments on the assumptions, data, and modeling efforts 
supporting the analysis and its results, and the appropriate 
interpretations and uses of those results.
    b. What Was Our Overall Approach to the Benefit-Cost Analysis? The 
basic question we sought to answer in the preliminary BCA was: ``What 
are the net yearly economic benefits to society of the reduction in 
mobile source emissions likely to be achieved by today's proposed 
standards?'' In designing an analysis to answer this question, we 
adopted an analytical structure and sequence similar to that used in 
the so-called ``section 812 studies'' 71 to estimate the 
total benefits and costs of the entire Clean Air Act. Moreover, we used 
many of the same data sets, models, and assumptions actually used in 
the Section 812 studies and/or the recent Regulatory Impact Analyses 
(RIAs) for the Particulate Matter and Ozone National Ambient Air 
Quality Standards and for the NOX SIP Call (also known as 
the Regional Ozone Transport Rule, as discussed in Section III 
above).72 By adopting the major design elements, data sets, 
models, and assumptions developed for the recent RIAs, we have largely 
relied on methods that have already received extensive review by the 
public and by other federal agencies. Furthermore, the data sets 
adopted from the Section 812 studies have received extensive review by 
the independent Science Advisory Board and by the public.
---------------------------------------------------------------------------

    \71\ The ``section 812 studies'' refers to (1) USEPA, Report to 
Congress: The Benefits and Costs of the Clean Air Act, 1970 to 1990, 
October 1997 (also known as the ``section 812 Retrospective); and 
(2) the first in the ongoing series of prospective studies 
estimating the total costs and benefits of the Clean Air Act, 
expected to be published later in 1999.
    \72\ Regulatory Impact Analysis for the NOX SIP Call, 
FIP, and Section 126 Petitions'' September 1998, EPA-452/R-98-003.
---------------------------------------------------------------------------

    As described in more detail in the Draft RIA for today's proposal, 
this overall analytical design involves the following sequential steps:
    1. Identify the technologies likely to be used to comply with the 
proposed standards
    2. Estimate the costs society would incur to employ the 
technologies
    3. Estimate the emissions reductions achieved by application of the 
technologies
    4. Estimate the change in air quality conditions resulting from the 
estimated emissions reductions
    5. Estimate the changes in human health and well-being and 
environmental quality associated with the estimated changes in air 
quality
    6. Estimate the economic value of the estimated changes in human 
health, human welfare, and environmental outcomes
    7. Compare the resulting estimate of economic benefits with the 
estimated costs, and calculate the net monetized benefits of the 
proposed standards
    8. Evaluate the uncertainty surrounding the estimate of net 
monetized benefit by developing ranges of results that reflect the key 
underlying scientific, economic, data, and modeling uncertainties
    c. What Are the Significant Limitations of the Benefit-Cost 
Analysis? Every BCA examining the potential effects of a change in 
environmental protection requirements is limited to some extent by data 
gaps, limitations in model capabilities (such as geographic coverage), 
and uncertainties in the underlying scientific and economic studies 
used to configure the benefit and cost models. Deficiencies in the 
scientific literature often result in the inability to estimate changes 
in health and environmental effects, such as potential increases in 
premature mortality associated with increased exposure to carbon 
models. Deficiencies in the economics literature often result in the 
inability to assign economic values even to those health and 
environmental outcomes that can be quantified, such as changes in lung 
function caused by increased exposure to ozone. While these general 
uncertainties in the underlying scientific and economics literatures 
are discussed in detail in the RIA and its supporting documents and 
references, the key uncertainties that have a bearing on the results of 
the preliminary BCA of today's proposed standards are:
    1. The exclusion of potentially significant benefit categories 
(e.g., health and ecological benefits of incidentally controlled 
hazardous air pollutants)
    2. Scientific uncertainties regarding whether the observed 
statistical relationship between exposure to elevated particulate 
matter and incidences of adverse health effects reflects a causal 
relationship (especially premature mortality and chronic bronchitis)
    3. Scientific uncertainty regarding the potential existence of a 
concentration threshold below which adverse health effects of exposure 
to particulate matter might not occur
    4. Scientific uncertainty regarding whether tropospheric ozone 
exposure contributes to premature mortality
    In addition to these uncertainties and shortcomings that pervade 
all analyses of criteria air pollutant control

[[Page 26076]]

programs, a number of limitations apply specifically to the preliminary 
BCA of today's proposed rules. Though we used the best data and models 
currently available, we were required to adopt a number of simplifying 
assumptions and to use data sets that, while reasonably close, did not 
match precisely the conditions and effects expected to result from 
implementation of the standards proposed today. For example, the year 
2010 emissions data sets available for use in this analysis do not 
fully reflect the emissions reductions expected to be achieved by other 
recently-enacted standards and by expected near-future control 
programs, such as additional measures aimed at full attainment of the 
new fine particulate matter National Ambient Air Quality Standards. In 
addition, we have used the year 2010 as a proxy for the time (actually 
circa 2040) when all non-complying vehicles would be fully retired from 
the fleet and full implementation of today's proposed standards would 
be finally achieved, requiring adjustments described more fully in the 
next section. The key limitations and uncertainties unique to the 
preliminary BCA of today's proposed rules, therefore, include:
    1. A mismatch between the 2010 air quality base year adopted for 
the BCA and the eventual timing of fleet turnover
    2. Potential mis-estimation of future year emissions inventories, 
such as those associated with nonroad vehicle emissions and with 
measures aimed at attaining and maintaining compliance with newly 
revised ambient air quality standards
    3. Uncertainties associated with the extrapolation of air quality 
monitoring data to distant sites required to capture the effects of the 
proposed standards on all affected populations
    Despite these additional important uncertainties, which are 
discussed in more detail or referenced in the Draft RIA, we believe the 
preliminary BCA does provide a reasonable indication of the potential 
range of net economic benefits of the standards proposed today. This is 
because the analysis focuses on estimating the economic effects of the 
changes in air quality conditions expected to result from today's 
proposed rules, rather than focusing on developing a precise prediction 
of the absolute levels of air quality likely to prevail at some 
particular time in the future. An analysis focusing on the changes in 
air quality can give useful insights into the likely economic effects 
of emission reductions of the magnitude expected to result from today's 
proposed rule.
    d. How Did We Perform the Benefit-Cost Analysis? As summarized 
above, the analytical sequence begins with a projection of the mix of 
technologies likely to be deployed to comply with the new standards, 
and the costs incurred and emissions reductions achieved by these 
changes in technology. The program proposed today has various cost and 
emission related components, as described earlier in this section. 
These components would begin at various times and in some cases would 
phase in over time. This means that during the early years of the 
program there would not be a consistent match between cost and 
benefits. This is especially true for the vehicle control portions of 
the proposal, where the full vehicle cost would be incurred at the time 
of vehicle purchase, while the fuel cost along with the emission 
reductions and benefits would occur throughout the lifetime of the 
vehicle. To deal with this question, we might have wished to perform a 
per-vehicle analysis corresponding to the cost effectiveness analysis 
described above. However, the modeling used for benefits estimates 
cannot be done on a per-vehicle basis, so we have instead used an 
annual cost and annual benefit approach.
    To develop a representative benefit-cost number, we need to have a 
stable set of cost and emission reductions to use. This means using a 
future year where the fleet is fully turned over and there is a 
consistent annual cost and annual emission reduction. For today's 
proposal this stability wouldn't occur until well into the future. 
However, for the purpose of the benefit calculations, we have no 
available baseline data set beyond the year 2010. We have therefore 
made adjustments to allow use of 2010 as a surrogate for a future year 
in which the fleet consists entirely of Tier 2 vehicles.
    For emissions, we calculated reductions by treating 2010 as if the 
fleet had already turned over. We did this by applying the control case 
emission factor from a fully turned over fleet year (from the year 
2040) to the fleet mileages for this year. Clearly, this approach does 
not, nor is it intended to, predict actual expected emission reductions 
for 2010. This is not its purpose. It is intended to portray the 
characteristics of the vehicle fleet after it is fully turned over, 
within the constraint that 2010 was the latest year for which we could 
perform an analysis.
    The resulting analysis represents a snapshot of benefits and costs 
in a future year in which the light-duty fleet consists entirely of 
Tier 2 vehicles. As such, it depicts the maximum emission reductions 
(and resultant benefits) and among the lowest costs that would be 
achieved in any one year by the program on a ``per mile'' basis. (Note, 
however, that net benefits would continue to grow over time beyond 
those resulting from this analysis, but only because of growth in 
vehicle miles traveled.) Thus, based on the long-term costs for a fully 
turned over fleet, the resulting benefit-cost ratio will be close to 
its maximum point (for those benefits that we have been able to value).
    Costs to be compared to the monetized value of the benefits were 
also developed for a fleet the size of the year 2010 fleet. For this 
purpose we used the long term cost once the capital costs have been 
recovered and the manufacturing learning curve reductions have been 
realized, since this most closely represents the makeup of a fully 
turned over fleet.
    We also made adjustments in the costs to account for the fact that 
there is a time difference between when some of the costs are expended 
and when the benefits are realized. The vehicle costs are expended when 
the vehicle is sold, while the fuel related costs and the benefits are 
distributed over the life of the vehicle. We resolved this difference 
by using costs distributed over time such that there is a constant cost 
per ton of emissions reduction and such that the net present value of 
these distributed costs corresponds to the net present value of the 
actual costs.
    The resulting adjusted costs are somewhat greater than the expected 
actual annual cost of the program, reflecting the time value 
adjustment. Thus, both because of the assumption of a fully turned over 
fleet and because of the time value adjustment, the costs presented in 
this section do not represent expected actual annual costs for 2010. 
Rather, they represent an approximation of the steady-state cost per 
ton that would likely prevail in 2015 and beyond. The benefit cost 
ratio for the earlier years of the program would be expected to be 
lower than that based on these costs, since the fleet-adjusted costs 
are larger in the early years of the program while the benefits are 
smaller.
    Finally, at the time that we undertook the development of the 
benefit estimates for this rule, we did not have quantitative estimates 
of the VOC emission reductions that would result from the evaporative 
emission standards in the proposal. Therefore, the benefit estimates do 
not include the value of the evaporative emission standard. Consistent 
with this, the program cost estimates also exclude the evaporative 
emission control cost. Since the evaporative emission reductions and 
costs are both relatively small compared to the rest of the program, 
they are not

[[Page 26077]]

expected to significantly affect the overall cost-benefit ratio.
    In order to estimate the changes in air quality conditions that 
would result from these emissions reductions, we developed two 
separate, year 2010 emissions inventories to be used as inputs to the 
air quality models. The first, baseline inventory reflects the best 
available approximation of the county-by-county emissions for 
NOX, NMHC, and SO2 expected to prevail in the 
year 2010 in the absence of the standards proposed today. To generate 
the second, control case inventory, we first estimated the change in 
vehicle emissions, by pollutant and by county, expected to be achieved 
by the 2010 control scenario described above. We then took the baseline 
emissions inventory and subtracted the estimated reduction for each 
county-pollutant combination to generate the second, control case 
emissions inventory. Taken together, the two resulting emissions 
inventories reflect two alternative states of the world and the 
differences between them represent our best estimate of the reductions 
in emissions that would result from our control scenario.
    With these two emissions inventories in hand, the next step was to 
``map'' the county-by-county and pollutant-by-pollutant emission 
estimates to the input grid cells of two air quality models and one 
deposition model. The first model, called the Urban Airshed Model 
(UAM), is designed to estimate the tropospheric ozone concentrations 
resulting from a specific inventory of emissions of ozone precursor 
pollutants, particularly NOX and NMHC. The second model, 
called the Climatological Regional Dispersion Model Source-Receptor 
Matrix model (S-R Matrix), is designed to estimate the changes in 
ambient particulate matter and visibility that would result from a 
specific set of changes in emissions of primary particulate matter and 
secondary particulate matter precursors, such as SO2, 
NOX, and NMHC. Also, separate factors relating nitrogen 
emissions to watershed deposition were developed using the Regional 
Acid Deposition Model (RADM). By running both the baseline and control 
case emissions inventories through these models, we were able to 
estimate the expected 2010 air quality conditions and the changes in 
air quality conditions that would result from the emissions reductions 
expected to be achieved by the standards proposed today.
    After developing these two sets of year 2010 air quality profiles, 
we used the same health and environmental effect models used in the 812 
studies to calculate the differences in human health and environmental 
outcomes projected to occur with and without the proposed standards. 
Specifically, we used the Criteria Air Pollutant Modeling System 
(CAPMS) to estimate changes in human health outcomes, the Agricultural 
Simulation Model (AGSIM) to estimate changes in yields of a selected 
few agricultural crops, and a Household Soiling Damage function to 
estimate the value of reduced household soiling due to particulate 
matter. In addition, the benefits of reduced visibility impairment were 
estimated using the same overall methodology used in the 812 studies, 
updated to reflect recent advancements in the literature. Finally, we 
developed estimates of the effect of changes in nitrogen deposition to 
sensitive estuaries using methodologies applied in the PM/Ozone NAAQS 
RIA (1997) and in the recent NOX SIP Call rulemaking. (These 
benefits models and methodologies are described in detail in the RIAs 
associated with these actions.) Several air quality-related health and 
environmental benefits, however, could not be calculated for the 
preliminary BCA of today's proposed standards. Changes in human health 
and environmental effects due to changes in ambient concentrations of 
carbon monoxide (CO), gaseous sulfur dioxide (SO2), gaseous 
nitrogen dioxide (NO2), and hazardous air pollutants could 
not be included, though some of these may be included in the extended 
analysis to be conducted for the final rule.
    To characterize the total economic value of the reductions in 
adverse effects achieved across the lower 48 states,73 we 
used the same set of economic valuation coefficients and models used in 
the section 812 studies and the recent NOX SIP Call RIA to 
convert each type of adverse effect into a dollar value equivalent. The 
net monetary benefits of today's proposed standards were then 
calculated by subtracting the estimated costs of compliance from the 
estimated monetary benefits of the reductions in adverse health and 
environmental effects.
---------------------------------------------------------------------------

    \73\ Though California is included based on the expectation that 
reductions in surrounding states will achieve some benefits in 
California, this analysis does not assume additional reductions in 
California emissions beyond those already achieved by prevailing 
standards.
---------------------------------------------------------------------------

    In the final step of the analysis, we estimated the range of net 
benefit estimates that might occur if important but uncertain 
underlying factors were allowed to vary. By conducting this 
``uncertainty analysis,'' we sought to demonstrate how much the overall 
net benefit estimate might vary based on the particular uncertainties 
underlying the estimates for human health and environmental effect 
incidence and the economic valuation of those effects. To accomplish 
this, we calculated a range of possible monetized benefit estimates 
using two sets of assumptions surrounding the modeling techniques.
    The method for presenting uncertainty, referred to here as the 
sensitivity approach, identifies the uncertain variables that appear to 
most strongly influence the overall uncertainty in the monetized 
benefit estimate. These included, among others, (1) The potential that 
a concentration threshold exists below that adverse PM-related health 
effects may not occur, (2) alternative methods for valuing mortality, 
(3) the potential contribution of tropospheric ozone to premature 
mortality, (4) alternative methods for valuing reduced cases of chronic 
bronchitis, (5) the extent to which agricultural crops included in our 
benefits model are resistant to damage from tropospheric ozone, (6) 
alternative approaches for valuing visibility. After identifying these 
key variables, we defined lower bound and upper bound values for each 
variable and combined these into a Low Case and a High Case. This 
approach allowed us to demonstrate the sensitivity of the total 
benefits to uncertainties in important variables. For example, there is 
no compelling scientific evidence that a PM concentration threshold 
exists below that adverse health effects do not occur. However, there 
is also no scientific evidence ruling out the potential existence of a 
threshold. As a result, there are no data available that would support 
estimating the probability that a threshold exists at any particular PM 
concentration. Under these circumstances, using the sensitivity 
approach allows us to demonstrate the effect of assuming different 
levels for a PM threshold.
    This uncertainty calculation method does not provide a definitive 
or complete picture of the true range of monetized benefits estimates. 
This approach, as implemented in this preliminary BCA, does not reflect 
important uncertainties in earlier steps of the analysis, including 
estimation of compliance technologies and strategies, emissions 
reductions and costs associated with those technologies and strategies, 
and air quality and deposition changes achieved by those emissions 
reductions. Nor does this approach provide a full accounting of all 
potential benefits (or disbenefits) associated with the Tier 2 
standards, due to data or methodological

[[Page 26078]]

limitations. Therefore, the uncertainty range is only representative of 
those benefits that we were able to quantify and monetize.
    e. What Were the Results of the Benefit-Cost Analysis? The 
preliminary BCA for the proposed standards reflects a single year 
``snapshot'' indicative of the relative yearly benefits and costs 
expected to be realized once the proposed standards have been fully 
implemented and non-compliant vehicles have all been retired. By 
necessity, we chose to model the year 2010 because essential data on 
emissions and air quality were available for this year, but not for 
later years, even though the complete turnover of the fleet to Tier 2 
compliant vehicles will not occur until well after 2010. Consequently, 
these results are best viewed as a representation of yearly benefits 
and costs over the long-term and should not be interpreted as 
reflecting actual benefits and costs likely to be realized for the year 
2010 itself. Benefits of the amounts shown here are likely to be 
realized in the 2015-2020 time frame. In reality, near-term costs will 
be higher than long-run costs as vehicle manufacturers and oil 
companies invest in new capital equipment and develop and implement new 
technologies. In addition, near-term benefits will be lower than long-
run benefits because it will take a number of years for Tier 2-
compliant vehicles to fully displace older, more polluting vehicles. 
However, as described earlier, we have adjusted the cost estimates 
upward to compensate for this discrepancy in the timing of benefits and 
costs and to ensure that the benefits and costs are calculated on a 
consistent basis. Because of this adjustment, the cost estimates also 
should not be interpreted as reflecting the actual costs expected to be 
incurred in the year 2010. Actual program costs can be found in Section 
IV.D.3.
    Earlier in this section, we described in more detail our approach 
to estimating and adjusting our cost estimates, based upon the long-run 
costs expected to be incurred in future years after the initial capital 
and technology investments have been made. The resulting adjusted cost 
values are given in Table IV.D.-5. Since the long term costs are not 
representative of the per vehicle costs in the early phases of the 
program, we also estimated an adjusted cost based on the near term cost 
effectiveness value. Using the near term cost effectiveness value of 
$2134/per ton, the adjusted cost would be $4.3 billion. While no actual 
in-use fleet could consist entirely of vehicles experiencing this near 
term cost, this value does present an upper bound on the cost figure.

        Table IV.D.-5.--Adjusted Cost for Comparison to Benefits
------------------------------------------------------------------------
                                                               Adjusted
                                                                 cost
                         Cost basis                           (billions
                                                             of dollars)
------------------------------------------------------------------------
Long term..................................................          3.5
------------------------------------------------------------------------

    With respect to the benefits, several different measures of 
benefits can be useful to compare and contrast to the estimated 
compliance costs. These benefit measures include: (a) The tons of 
emissions reductions achieved, (b) the reductions in incidences of 
adverse health and environmental effects, and (c) the estimated 
economic value of those reduced adverse effects. Calculating the cost 
per ton of pollutant reduced is particularly useful for comparing the 
cost effectiveness of proposed new standards or programs against 
existing programs or alternative new programs achieving reductions in 
the same pollutant or combination of pollutants. The cost-effectiveness 
analysis presented earlier in this preamble provides such calculations 
on a per-vehicle basis. Considering the absolute numbers of avoided 
adverse health and environmental effects can also provide valuable 
insights into the nature of the health and environmental problem being 
addressed by the rule as well as the magnitude of the total public 
health and environmental gains potentially achieved by the proposed 
rule. Finally, when considered along with other important economic 
dimensions--including environmental justice, small business financial 
effects, and other outcomes related to the distribution of benefits and 
costs among particular groups--the direct comparison of quantified 
economic benefits and economic costs can provide useful insights into 
the overall estimated net economic effect of the proposed standards.
    Table IV.D.-6 presents our range of estimates of both the estimated 
reductions in adverse effect incidences and the estimated economic 
value of those incidence reductions. Specifically, the table lists the 
avoided incidences of individual health and environmental effects, the 
pollutant associated with each of these endpoints, and the range of 
estimated economic value of those avoided incidences. For several 
effects, particularly environmental effects, direct calculation of 
economic value in response to air quality conditions is performed, 
eliminating the intermediate step of calculating incidences. Table 
IV.D.-7 supplements Table IV.D.-6 by listing those additional health 
and environmental benefits that could not be expressed in quantitative 
incidence and/or economic value terms. A full appreciation of the 
overall economic consequences of today's proposed standards requires 
consideration of all benefits and costs expected to result from the new 
standards, not just those benefits and costs that could be expressed 
here in dollar terms.

     Table IV.D.-6.--Avoided Incidence and Monetized Benefits Associated With the Tier 2 Rule for a Range of
                                                 Assumption Sets
----------------------------------------------------------------------------------------------------------------
                                                  Avoided incidence  (cases/      Monetary benefits  (millions
                                                             year)                           1997$)
                   Endpoint                    -----------------------------------------------------------------
                                                     Low a          High b            Low              High
----------------------------------------------------------------------------------------------------------------
PM:
    Mortality (long-term exp.--ages 30+)......             832           2,416          2,275           14,256
    Mortality (long-term exp.--infants).......  ..............              10  ...............             56
    Chronic bronchitis........................           3,885           3,914            281            1,354
    Hosp. Admissions--all respiratory (all                 504             836              4.6              7.6
     ages)....................................
    Hosp. Admissions--congestive heart failure             127             138              1.5              1.7
    Hosp. Admissions--ischemic heart disease..             146             159              2.2              2.4
    Acute bronchitis..........................             984           4,072              0.1              0.2
    Lower respiratory symptoms (LRS)..........          19,782          37,437              0.3              0.5
    Upper respiratory symptoms (URS)..........           3,093           3,387              0.1              0.1
    Work loss days (WLD)......................         233,000         415,000             23.8             42.3
    Minor restricted activity days (MRAD).....       1,856,000       3,370,000             87.7            159.3

[[Page 26079]]

 
    Household soiling damage..................  ..............  ..............             60.1             60.1
Ozone:
    Mortality (short-term; four U.S. studies).  ..............             388  ...............          2,312
    Hospital admissions--all respiratory (all              549             736              5.3              7.1
     ages)....................................
    Any of 19 acute symptoms..................          54,101          71,545              1.3              1.7
    Decreased worker productivity.............  ..............  ..............             43.0             60.4
    Agricultural crop damage..................  ..............  ..............             -1              301
Visibility....................................  ..............  ..............            165              701
Nitrogen Deposition...........................  ..............  ..............            200              200
                                               -----------------------------------------------------------------
    Total (PM + ozone + visibility + N          ..............  ..............          3,150           19,525
     deposition)..............................
----------------------------------------------------------------------------------------------------------------
a The low assumption set assumes effects from PM do not occur below concentrations of 15 g/m3, that all
  mortality and chornic bronchitis effects occur within the same year of the PM reduction (see Section 7.a. of
  the Draft RIA for a discussion of this uncertainty), utilizes the value of statistical life year lost
  approach, ozone-related mortality and PM-related infant mortality are not included in the benefits estimate,
  chronic bronchitis valued with the cost of illness approach, plantings of commodity crop cultivars are assumed
  to be insensitive to ozone, does not value residential visibility benefits, and uses the lower-bound estimate
  of ``willingness to pay'' for recreational visibility to reflect variation.
b The high assumption set assumes a PM threshold of background, utilizes the value of a statistical life
  approach, both ozone-related mortality and PM-related mortality are included in the estimation of benefits,
  chronic bronchitis valued with a willingness-to-pay approach, plantings of commodity crop cultivars are
  assumed to be sensitive to ozone, and full accounting for recreational and residential visibility benefits.


                 Table IV.D.-7.--Additional, Non-monetized Benefits of Proposed Tier 2 Standards
----------------------------------------------------------------------------------------------------------------
             Pollutant                                      Nonmonetized adverse effects
----------------------------------------------------------------------------------------------------------------
Particulate Matter................  Large Changes in Pulmonary Function.
                                    Other Chronic Respiratory Diseases.
                                    Inflammation of the Lung.
                                    Chronic Asthma and Bronchitis.
Ozone.............................  Changes in Pulmonary Function.
                                    Increased Airway Responsiveness to Stimuli.
                                    Centroacinar Fibrosis.
                                    Immunological Changes.
                                    Chronic Respiratory Diseases.
                                    Extrapulmonary Effects (i.e., other organ systems).
                                    Forest and other Ecological Effects.
                                    Materials Damage.
Carbon Monoxide...................  Premature Mortality.
                                    Decreased Time to Onset of Angina.
                                    Behavioral Effects.
                                    Other Cardiovascular Effects.
                                    Developmental Effects.
Sulfur Dioxide....................  Respiratory Symptoms in Non-Asthmatics.
                                    Hospital Admissions.
                                    Agricultural Effects.
                                    Materials Damage.
Nitrogen Oxides...................  Increased Airway Responsiveness to Stimuli.
                                    Decreased Pulmonary Function.
                                    Inflammation of the Lung.
                                    Immunological Changes.
                                    Eye Irritation.
                                    Materials Damage.
                                    Acid Deposition.
Hazardous Air Pollutants..........  All Human Health Effects.
                                    Ecological Effects.
----------------------------------------------------------------------------------------------------------------

    These results indicate that, based on the particular assumptions, 
models, and data used in this preliminary BCA, the range of monetary 
benefits realized after full turnover of the fleet to Tier 2 vehicles 
would be approximately 3.2 billion to 19.5 billion dollars per year. 
Comparing this estimate of the economic benefits with the adjusted cost 
estimate indicates that the net economic benefit of the proposed 
standards to society could be from a net cost of 0.4 billion to a net 
benefit of 16.0 billion dollars per year.
    The breadth of the ranges of net economic benefit estimates 
presented in this preliminary BCA reinforces our conclusion that these 
BCA results may be indicative of potential overall economic effects, 
but they should by no means dictate whether or not the standards 
proposed today should be promulgated.
    f. What Additional Efforts Will Be Made Following Proposal? While 
we believe that the preliminary BCA provides a strong indication that 
the standards proposed today will yield positive overall economic 
benefits, we

[[Page 26080]]

believe it is important to do additional analysis prior to the final 
decision regarding these standards. In particular, we plan to develop 
an updated and extended set of emissions inventories, and to expand the 
range of pollutant-specific effects to include the benefits of 
reductions in carbon monoxide (CO), sulfur dioxide (SO2), 
nitrogen dioxide (NO2), and perhaps hazardous air 
pollutants. We will also carefully review the public comments submitted 
on the preliminary BCA and review each of the assumptions and methods 
used in light these public comments and the advice of the Science 
Advisory Board charged with reviewing these and other methods being 
used in the pending section 812 Prospective Study Report to Congress.

E. Other Program Design Options We Have Considered

    In addition to the proposed program combining Tier 2 vehicle 
standards and gasoline sulfur controls, we have considered two other 
major alternatives to a comprehensive vehicle/fuel program. This 
section identifies these two alternatives and seeks comment on specific 
aspects of each.
1. Corporate Average Standards Based on NMOG or NMOG+NOX
    We have described in great detail in previous sections of this 
preamble why NOX is our main pollutant of concern for this 
rulemaking. Based on this conclusion, we are proposing a Tier 2 program 
that is centered around a full useful life corporate average 
NOX standard (0.07 g/mi). Our proposed interim program for 
non-Tier 2 vehicles is also centered around a corporate average 
NOX standard (0.30 or 0.20 
g/mi, depending on vehicle type).
    California's program, by contrast, is centered on corporate average 
NMOG standards. We recognize that for Tier 2 vehicles we could also set 
up the bins of emission standards and impose an average NMOG standard 
in a similar fashion. A program centered on corporate average NMOG 
standards could even be defined in such a way that NOX 
emissions would be indirectly driven down to the levels we have defined 
with our proposed Tier 2 standards. Such an approach would provide more 
consistency with California's program, and would be consistent with our 
own NLEV program. However, we believe it is best, for the federal 
program, to use a NOX average standard.
    With a NOX average standard we can better tailor the 
various aspects of the program to reduce the pollutant with which we 
are most concerned. Thus, our averaging, banking and trading program 
has been set up to provide NOX credits for early compliance 
with the Tier 2 NOX average standard and to provide 
additional NOX credits for manufacturers certifying to 
extended useful lives. Also, the NOX average standard allows 
us to set up bins in such a way as to provide manufacturers with 
incentives to strive for additional NOX reductions.
    Although the use of an average NOX requirement conflicts 
with California's requirements, we do not believe any additional burden 
is imposed on manufacturers. Under an NMOG averaging requirement, 
manufacturers would still have to compute separate NMOG averages for 
their California and Federal vehicles. This would be no smaller burden 
than computing an NMOG average for California vehicles and a 
NOX average for Federal vehicles. We request comment on the 
appropriateness and burden of our NOX averaging standards 
and on what benefits, if any, might be afforded by an NMOG standard for 
the federal program in lieu of the proposed NOX average.
2. More Stringent Tier 2 NOX and Gasoline Sulfur Standards
    We considered whether average NOX levels even lower than 
0.07 g/mi (which would likely result in lower NOX standards 
for all of the Tier 2 certification bins and substantially limit the 
number of vehicles certified at NOX emissions levels 
significantly higher than 0.07 g/mi) might be possible and cost 
effective in a scenario where sulfur levels in gasoline would be 
reduced to an average level on the order of 10 ppm (with perhaps a 20 
ppm cap). Manufacturers have requested that California consider such a 
``near zero'' sulfur limit to help them to meet the mandatory bins in 
the CAL LEV II program, which are more stringent than what would be 
required in the proposed Tier 2 program. We believe our proposed Tier 2 
standards can be met with the proposed gasoline sulfur standards. 
However, tighter Tier 2 standards could require even lower gasoline 
sulfur limits.
    We selected our proposed Tier 2 standards and gasoline sulfur 
levels based on air quality need, technical feasibility, and cost 
effectiveness. Hence, we believe the proposed requirements are 
reasonable and are as stringent as is warranted. However, in 
consideration of the alternative discussed here, we request comment on 
the ability of manufacturers to produce vehicles meeting a corporate 
average NOX emission level substantially lower than 0.07 g/
mi. How would the cost of producing such a vehicle differ from the 
costs estimated for the proposed Tier 2 vehicles? How sensitive would 
such a vehicle be to the sulfur level of gasoline, and what sulfur 
level would be required? How soon could manufacturers be expected to be 
able to comply with a lower NOX standard, given that they 
will be producing LEVII vehicles for California beginning in 2004?
    We also request comment on the magnitude of additional sulfur 
reduction that would be necessary to reduce average full useful life 
NOX to levels significantly below 0.07 g/mi, and whether 
such low levels of sulfur can be met with the technology EPA expects 
refiners to use to meet the requirements we are proposing today. We 
request comment on the costs of such sulfur reductions and the timing 
needed to acquire and implement any additional refinery controls. If 
refiners invest today to achieve 30 ppm average sulfur levels, will 
those investments be rendered obsolete by a future sulfur requirement 
of a near-zero average, or would the technologies complement one 
another? How much time would refiners need to comply with a near-zero 
sulfur standard following compliance with a 30 ppm standard?

V. Additional Elements of the Proposed Vehicle Program and Areas 
for Comment

    The section describes several additional provisions of the vehicle 
proposal and issues on which we are requesting comment that were not 
previously discussed in this preamble.

A. Other Vehicle-Related Elements of the Proposal

1. Proposed Tier 2 CO, HCHO and PM Standards
    Table IV.B.-1 in Section IV.B.4.a. above presented the proposed 
Tier 2 standards for carbon monoxide (CO), formaldehyde (HCHO), and 
particulate matter (PM). The following paragraphs discuss our selection 
of these specific standards for proposal.
    a. Carbon Monoxide (CO) Standards. Beyond aligning carbon monoxide 
(CO) standards for all LDVs and LDTs, and allowing harmonizing with 
California vehicle technology, reduction in CO emissions is not a 
primary goal of the Tier 2 program. Thus the CO standards we are 
proposing for all Tier 2 LDVs and LDTs are essentially the same as 
those from the NLEV program for LDVs and LDT1s. These standards would 
harmonize with CalLEV II CO standards except at California's SULEV 
level (EPA Bin 2). This lone divergence would not pose additional 
burden to

[[Page 26081]]

manufacturers because the proposed federal Tier 2 CO standards for 
these vehicles would be less stringent than California's. Our proposed 
interim standards during the phase-in of Tier 2 standards would apply 
these same CO standards.
    As we indicated in the Tier 2 Report to Congress, the number and 
severity of CO NAAQS violations have decreased greatly in recent years. 
Presently, CO exceedances occur primarily during cold weather. The need 
for more stringent cold CO standards is a subject of a separate EPA 
study that is now underway. Consequently, in this rulemaking we propose 
to simply align CO standards for all categories with those applicable 
to LDVs and LDT1s under NLEV. This alignment is consistent with our 
goal of bringing all LDVs and all categories of LDTs under common 
standards that allow for technology to be harmonized to the extent 
possible with California.
    We believe that technological changes to bring LDT2s and HLDTs 
74 under tighter NMOG standards should easily ensure 
compliance with the CO standards at no additional cost. In fact, 
certification data on current model year LDTs indicate that there are 
LDTs in all categories that can already meet the LDV/LDT1 NLEV CO 
standard.
---------------------------------------------------------------------------

    \74\ As defined earlier, the category called HLDT, or heavy 
light-duty truck, includes all LDTs greater than 6000 pounds GVWR. 
This term includes the categories LDT3 and LDT4.
---------------------------------------------------------------------------

    We recognize that the vast majority of CO emissions are from motor 
vehicles and that increases in population in some areas combined with 
increases in vehicle miles traveled could lead to additional incidences 
of CO nonattainment. Consequently, we request comment on the need for 
and implications of tighter CO standards for any category of vehicles 
affected by today's document.
    b. Formaldehyde (HCHO) Standards. Similar to our approach to the 
proposed CO standards, we are proposing to align all Tier 2 LDVs and 
LDTs under the formaldehyde standards for LDVs and LDT1s from the NLEV 
program. For new bins below Bin No. 4, we propose to adopt the CalLEV 
II standards for formaldehyde. HLDTs, which are not subject to the NLEV 
program, would become subject to HCHO standards for the first time 
under the provisions of this rulemaking. The Tier 2 formaldehyde 
standards would be essentially replicated in the interim standards we 
are proposing for LDVs and LDTs.
    Formaldehyde is a component of NMOG but is primarily of concern for 
methanol-fueled vehicles, because it is chemically similar to methanol 
and is likely to occur when methanol is not completely burned in the 
engine. HLDTs are not included under the NLEV program and will 
therefore not face formaldehyde standards as LDVs and LLDTs will in 
2001 (1999 in the northeast states). We believe it is appropriate to 
bring HLDTs under HCHO standards in this rulemaking. Applying 
formaldehyde standards to HLDTs would be consistent with our goals of 
aligning standards for all LDVs and LDTs regardless of fuel type and 
harmonizing technologically with California standards wherever possible 
and reasonable and the burden would be minimal.
    Consequently, we are proposing to include formaldehyde standards 
for HLDTs under the Tier 2 program as well as under the interim 
programs. We note that HCHO is actually a component of NMOG, and as 
with CO, we expect that all vehicles able to meet the Tier 2 or interim 
NMOG standards (including methanol-fueled vehicles) would readily 
comply with the HCHO standards.
    c. Particulate Matter (PM) Standards. We are proposing to adopt 
tighter PM standards, although in this case only full useful-life 
standards. For Tier 2 vehicles, we are proposing a 0.01 g/mi standard 
for all categories at the Tier 2 (Bin 5) level or below (except ZEV 
which, of course, is 0.0). To provide manufacturers with additional 
flexibility, we are proposing a 0.02 g/mi PM standard for vehicles that 
certify to Bins 6 or 7 standards.
    For non-Tier 2 LDV/LLDTs during the phase-in period, we are 
proposing a PM standard of 0.06 g/mi for Bins 4 and 5. The other 
standards would be 0.04 for Bin 3 and 0.01 for Bin 2. For non-Tier 2 
HLDTs, similar standards would apply except that the highest bin would 
have a PM standard of 0.06 g/mi, gradually decreasing in the other bins 
to 0.01
g/mi (Bin 2).
    PM standards are primarily a concern for diesel-cycle vehicles, but 
they also apply to gasoline and other otto-cycle vehicles. We propose 
to continue to permit otto-cycle vehicles to certify to PM standards 
based on representative test data from similar technology vehicles. We 
request comment on the degree to which these standards would affect the 
certification of diesel-fueled vehicles.
2. Useful Life
    The ``useful life'' of a vehicle is the period of time, in terms of 
years and miles, during which a manufacturer is formally responsible 
for the vehicle's emissions performance. For LDVs and LDTs, there have 
historically been both ``full useful life'' values, approximating the 
average life of the vehicle on the road, and ``intermediate useful 
life'' values, representing about half of the vehicle's life. We are 
proposing several changes to the current useful life provisions for 
LDVs and LDTs.
    a. Mandatory 120,000 Mile Useful Life. We are today proposing to 
equalize full useful life values for all 2004 and later model year LDVs 
and LDTs at 120,000 miles. This value would apply to Tier 2 and interim 
non-Tier 2 vehicles. California, in its LEV II program, has adopted 
full useful life standards for all LDVs and LDTs of 10 years or 120,000 
miles, whichever occurs first. We are proposing that the time period 
for federal LDV/LLDTs would be 10 years, but it would remain at 11 
years for HLDTs consistent with the Clean Air Act.75 
Intermediate useful life values, where applicable, would remain at 5 
years or 50,000 miles, whichever occurs first. Where manufacturers 
elect to certify Tier 2 vehicles for 150,000 miles to gain additional 
NOX credits, as discussed below, the useful life of those 
vehicles would be 15 years and 150,000 miles. We are not proposing to 
harmonize with California on the mandatory useful life for evaporative 
emissions of 15 years and 150,000 miles, but rather we are proposing 
that this useful life be mandatory for evaporative emissions only when 
a manufacturer elects optional 150,000 mile exhaust emission 
certification.
---------------------------------------------------------------------------

    \75\ Section 202(h) of the Clean Air Act specifies a useful life 
of 11 years/120,000 miles for HLDTs. California is able to use a 10 
year figure because it has a waiver under section 209 of the Act to 
implement its own emission control program when such program is 
found to be at least as protective of public health and welfare ``in 
the aggregate'' as the federal program.
---------------------------------------------------------------------------

    b. 150,000 Mile Useful Life Certification Option. We are proposing 
to adopt a provision to provide additional NOX credit in the 
fleet average calculation for vehicles certified to a useful life of 
150,000 miles. In our proposal, a manufacturer certifying an engine 
family to a 150,000 mile useful life would incorporate those vehicles 
into its corporate NOX average as if they were certified to 
a full useful life standard 0.85 times the applicable 120,000 mile 
NOX standard. To use this option, the manufacturer would 
have to agree to (1) certify the engine family to the applicable 
120,000 mile exhaust and evaporative standards at 150,000 miles for all 
pollutants; and (2) increase the mileage on the single extra-high 
mileage in-use test vehicle from a minimum of

[[Page 26082]]

90,000 miles to a minimum of 105,000 miles.
    Congress, in directing EPA to perform the Tier 2 study, also 
directed EPA to consider changing the useful lives of LDVs and LDTs. 
Manufacturers have made numerous advances in quality, materials and 
engineering that have led to longer actual vehicle lives and data show 
that each year of a vehicle's life, people are driving more miles. 
Current data indicate that passenger cars are driven approximately 
120,000 miles in their first ten years of life. Trucks are driven 
approximately 150,000 miles. Current regulatory useful lives are 10 
years/100,000 miles for LDV/LLDTs and 11 years/120,000 miles for HLDTs. 
We project based on our Tier 2 model that approximately 13 percent of 
light-duty NOX and 11 percent of light-duty VOCs is produced 
between 100,000 and 120,000 miles. Given the trend toward longer actual 
vehicle lives and increases in annual mileage, we believe that it is 
reasonable to propose extension to the regulatory useful life 
requirements.
    Additionally, 41 percent of light-duty NOX and 59 
percent of light-duty VOC is produced beyond 120,000 miles. Based on 
this data, we believe it is also appropriate to propose incentives to 
manufacturers to certify their vehicles to extended useful lives beyond 
120,000 miles. This is why we are proposing, as discussed above, to 
provide additional NOX credits for Tier 2 vehicles certified 
to a useful life of 150,000 miles.
3. Light Duty Supplemental Federal Test Procedure (SFTP) Standards
    Supplemental Federal Test Procedure (SFTP) standards require 
manufacturers to control emissions from vehicles when operated at high 
rates of speed and acceleration (the US06 test cycle) and when operated 
under high ambient temperatures with air conditioning loads (the SC03 
test cycle). The existing light duty SFTP requirements begin a three 
year phase-in in model year 2000 for Tier 1 LDV/LLDTs . For HLDTs, SFTP 
requirements begin a similar phase-in in 2002. Intermediate and full 
useful life standards exist for all categories. SFTP standards do not 
apply to diesel fueled Tier 1 LDT2s and HLDTs. Table V.A.-1 shows the 
full useful life federal SFTP requirements applicable to Tier 1 
vehicles.

              Table V.A.-1.--Full Useful Life Federal SFTP Standards Applicable to Tier 1 Vehicles
----------------------------------------------------------------------------------------------------------------
                                                    NMHC + NOX                      CO (g/mi) b
                Vehicle category                   (weighted  g/ -----------------------------------------------
                                                       mi) a           US06            SC03          Weighted
----------------------------------------------------------------------------------------------------------------
LDV/LDT1 (gasoline).............................            0.91            11.1             3.7             4.2
LDV/LDT1 (diesel)...............................            2.07            11.1  ..............             4.2
LDT2............................................            1.37            14.6             5.6             5.5
LDT3............................................            1.44            16.9             6.4             6.4
LDT4............................................            2.09            19.3             7.3            7.3
----------------------------------------------------------------------------------------------------------------
a Weighting for NMHC+NOX and optional weighting for CO is 0.35 x (FTP)+0.28 x (US06)+0.37 x (SC03).
b CO standards are stand alone for US06 and SC03 with option for a weighted standard.

    The NLEV program includes SFTP requirements for LDVs, LDT1s and 
LDT2s. These requirements impose the Tier 1 intermediate and full 
useful life SFTP standards on Tier 1 and TLEV vehicles, but impose only 
4000 mile standards on LEVs and ULEVs.76 NLEV SFTP standards 
for LEVs and ULEVs are shown in Table V.A.-2. These standards do not 
provide for a weighted standard for NMHC+NOX or for CO, but 
rather employ separate sets of standards for the US06 and SC03 tests. 
Also, while the NLEV SFTP standards apply to gasoline and diesel 
vehicles, they do not include a standard for diesel particulates (PM).

    \76\ This disparity in useful lives arose because neither EPA 
nor CARB had full useful life SFTP standards for LEVs or ULEVs when 
the NLEV program was adopted. Since a major requirement of the NLEV 
program was harmony with California standards, EPA adopted the 
California SFTP standards in place for the NLEV time frame (2001 and 
later).

                      Table V.A.-2.--SFTP Standards for LEVs and ULEVs in the NLEV Program
----------------------------------------------------------------------------------------------------------------
                                                               US06                            SC03
                                                 ---------------------------------------------------------------
                                                   NMHC+NOX  (g/                   NMHC+NOX  (g/
                                                        mi)         CO  (g/mi)          mi)         CO  (g/mi)
----------------------------------------------------------------------------------------------------------------
LDV/LDT1........................................            0.14             8.0            0.20             2.7
LDT2............................................            0.25            10.5            0.27             3.5
----------------------------------------------------------------------------------------------------------------

    Since no significant numbers of vehicles certified to SFTP 
standards below TLEV levels will enter the fleet until 2001, 
manufacturers have raised concerns regarding significant changes to the 
SFTP program before its implementation. At this point, it seems 
reasonable not to increase SFTP stringency for the Tier 2 program, but 
we are proposing to substitute SFTP standards adjusted for intermediate 
and full useful life deterioration where there are currently only 4000 
mile standards.
    Full useful life standards for Tier 2 vehicles are consistent with 
our mandate under the Clean Air Act. The 4000 mile standards exist in 
the federal program only because they were adopted in the NLEV 
program--a voluntary program under which California requirements were 
adopted nationwide. We derived the full and intermediate useful life 
standards by applying deterioration allowances proposed for our MOBILE 
6 model to the existing 4000 mile standards for LDVs and LLDTs. For 
HLDTs we applied similarly derived deterioration allowances to 
California's LEV I SFTP standards for MDV2s and MDV3s, which are the 
corresponding categories to LDT3s and LDT4s in the California program. 
The full and intermediate useful life SFTP standards we are proposing 
are shown in Tables V.A.-3

[[Page 26083]]

and V.A.-4. These standards would apply to all Tier 2 vehicles 
including Tier 2 LDT3s and LDT4s.

                    Table V.A.-3.--Proposed Full Useful Life Supplemental Emission Standards
                                         [(SFTP Standards (grams/mile)]
----------------------------------------------------------------------------------------------------------------
                                                   USO6 NMHC+NOX      USO6 CO      SCO3 NMHC+NOX      SCO3 CO
----------------------------------------------------------------------------------------------------------------
LDV/LDT1........................................            0.2             11.1            0.26             4.2
LDT2............................................            0.37            14.6            0.39             5.5
LDT3............................................            0.53            16.9            0.44             6.4
LDT4............................................            0.78            19.3            0.62             7.3
----------------------------------------------------------------------------------------------------------------


                Table V.A.-4.--Proposed Intermediate Useful Life Supplemental Emission Standards
                                         [(SFTP Standards)(grams/mile)]
----------------------------------------------------------------------------------------------------------------
                                                   USO6 NMHC+NOX      USO6 CO      SCO3 NMHC+NOX      SCO3 CO
----------------------------------------------------------------------------------------------------------------
LDV/LDT1........................................            0.16             9.0            0.22             3.0
LDT2............................................            0.30            11.6            0.32             3.9
LDT3............................................            0.45            11.6            0.36             3.9
LDT4............................................            0.67            13.2            0.51             4.4
----------------------------------------------------------------------------------------------------------------

    Because our proposed interim standards for LDV/LLDTs (see section 
VI.A.3.d. above) are derived from NLEV standards, we believe that the 
SFTP standards we are proposing for Tier 2 vehicles should also apply 
to the interim non-Tier 2 LDV/LLDTs. However, we propose that TLEV 
vehicles (EPA interim Bin 5 in Table IV.B.-6), which are not subject to 
new SFTP standards under NLEV, could continue to meet Tier 1 SFTP 
standards, and HLDTs under the interim programs could continue to meet 
Tier 1 SFTP standards that do not fully phase in until the 2004 model 
year.
    LDT3 and LDT4 SFTP standards do not currently apply to diesels. 
Further, the standards applicable to Tier 1 diesel LDVs and LDT1s are 
less stringent than gasoline standards and do not apply to the SC03 
cycle. We are proposing to apply the approach we are using with other 
standards in this document to the Tier 2 and interim SFTP standards. 
Consequently, we are proposing that Tier 2 and interim LDVs and LDTs 
with diesel or gasoline engines comply with the same 
NMHC+NOX and CO SFTP limits. We are also requesting comment 
on the appropriate SFTP PM standards for diesel vehicles. We believe it 
would be appropriate to establish a margin between 10% and 50% above 
the applicable FTP PM standard to serve as the SFTP standard. As an 
example of how EPA has recently used such a margin, in recent consent 
decrees, heavy-duty engine manufacturers have agreed not to exceed 
emission levels 1.25 times the applicable exhaust standards (including 
PM standards) when engines are operated over a wide range of operating 
conditions. We request comment on the appropriate standard for PM in 
the SFTP.
4. LDT Test Weight
    Historically, HLDTs (LDT3s and LDT4s) have been emission tested at 
their adjusted loaded vehicle weight (ALVW), while LDVs, LDT1s, and 
LDT2s have been tested at their loaded vehicle weight (LVW). ALVW is 
equivalent to the curb weight of the truck plus half its maximum 
payload, while LVW is equivalent to the curb weight of the truck plus a 
driver and one adult passenger (300 pounds). As we are proposing in 
this document to equalize standards and useful lives across LDVs and 
all categories of LDTs, we believe it is appropriate to test all the 
vehicles under the same conditions. Therefore, consistent with the 
CalLEV II program, we are proposing to test HLDTs at their loaded 
vehicle weight. We recognize that removing all but 300 pounds of load 
from these trucks during the test provides them with a somewhat 
``easier'' test cycle than they currently have. However, the standards 
we are proposing for HLDTs under Tier 2, are considerably more 
stringent than the Tier 1 standards. Further, one of our reasons for 
bringing HLDTs under the same standards as passenger cars is that these 
trucks include many vans and sport utility vehicles that are often used 
as passenger cars with just one or two passengers. Consequently, we 
believe it is appropriate to test them at LVW.
5. Test Fuels
    As discussed elsewhere in this preamble, the NLEV program was 
adopted virtually in its entirety from California's program. Because 
California's standards were developed around the use of California 
Phase II reformulated gasoline (RFG) as the exhaust emission test fuel, 
we adopted California Phase II test fuel as the exhaust emission test 
fuel for gasoline-fueled vehicles in the federal NLEV program, although 
we recognized at the time that vehicles outside of California would be 
unlikely to operate on that fuel in use.
    We believe that it is best to establish compliance with standards 
based on the fuel that the vehicles will operate upon. However, we also 
believe that the major exhaust emission related issues between 
California Phase II fuel and federal test fuel are related to sulfur 
and we do not believe the other differences between the two fuels will 
significantly impact NMOG, CO or NOX exhaust emissions in 
Tier 2 (or interim) gasoline fueled vehicles.
    In this document, we are proposing to reduce the sulfur in federal 
test fuel to reflect the reductions in sulfur we are proposing for 
commercial gasoline. Currently, federal test gasoline is subject to a 
limit of 0.10 percent by weight. We are proposing to amend that to an 
allowable range of 30 to 80 ppm (0.003 to 0.008 percent by weight). We 
also propose that vehicles be certified and in-use tested using federal 
test fuel. However, where vehicles are certified for 50 state sale, and 
where other testing issues do not arise, we are proposing to accept the 
results of testing done for California certification on California 
Phase II fuel. We would reserve the right to perform or require in-use 
testing on

[[Page 26084]]

federal fuel. Where vehicles are only certified for non-California 
sale, we propose to require certification and in-use testing on federal 
fuel. We request comments with supporting emission data on all aspects 
of these two possible test fuels.
    Because differences exist between the California and federal 
evaporative emission testing procedures, we propose to continue to 
require the use of federal certification fuel as the test fuel in 
evaporative emission testing. Under current programs, where California 
and federal evaporative emission standards are nearly identical, 
California accepts evaporative results generated on the federal 
procedure (using federal test fuel), because available data indicates 
the federal procedure to be a ``worst case'' procedure. The evaporative 
standards California has adopted for their LEV II program are more 
stringent than those we are proposing in this document. We request 
comment and supporting emission test data on whether vehicles certified 
to CalLEV II evaporative standards using California fuels will 
necessarily comply with the federal Tier 2 evaporative standards, 
including ORVR standards, when tested with federal test fuel.
6. Changes to Evaporative Certification Procedures to Address Impacts 
of Alcohol Fuels
    Current certification procedures, including regulations under the 
CAP2000 program,77 allow manufacturers to develop their own 
durability process for calculating deterioration factors for 
evaporative emissions. The regulations (Sec. 86.1824-01) permit 
manufacturers to develop service accumulation (aging) methods based on 
``good engineering judgement'', subject to review and approval by EPA. 
The manufacturer's durability process must be designed to predict the 
expected evaporative emission deterioration of in-use vehicles over 
their full useful lives. We are proposing to require that these aging 
methods include the use of alcohol fuels to address concerns that 
alcohol fuels increase the permeability and thus the evaporative losses 
from hoses and other evaporative components.
---------------------------------------------------------------------------

    \77\ The Compliance Assurance Program, CAP2000, was proposed in 
an NPRM (63 FR 39654, July 23, 1998). The final rule was signed on 
March 15, 1998. As today's NPRM went forward for signature, the 
CAP2000 final rule had not been published, so no citation for the 
final rule is available. You should check our web site (http://
www.epa.gov/omswww/) for the most current information on publication 
of the CAP2000 rule takes effect in the 2000 model year.
---------------------------------------------------------------------------

    We have reviewed data indicating that the permeability, and 
therefore the evaporative losses, of hoses and other evaporative 
components can be greatly increased by exposure to fuels containing 
alcohols.78 Alcohols have been shown to promote the passage 
of hydrocarbons through a variety of different materials commonly used 
in evaporative emission systems. Data from component and fuel line 
suppliers indicate that alcohols cause many elastomeric materials to 
swell, which opens up pathways for hydrocarbon permeation and also can 
lead to distortion and tearing of components like ``O'' ring seals. 
Ethers such as MTBE and ETBE have a much smaller effect. Alcohol-
resistant materials such as fluoroelastomers are available and are 
currently used by manufacturers to varying extents.
---------------------------------------------------------------------------

    \78\ Numerous SAE papers examine the permeability of fuel and 
evaporative system materials as well as the influence of alcohols on 
permeability. See, for example SAE Paper #s 910104, 920163, 930992, 
970307, 970309, 930992, and 981360, copies of which are in the 
docket for this rulemaking.
---------------------------------------------------------------------------

    Alcohols do not impact evaporative components and hoses 
immediately, but rather it may take as long as one year of exposure to 
alcohol fuels for permeation rates to stabilize. The end result in 
higher permeation and increased in-use evaporative emissions.\79\
---------------------------------------------------------------------------

    \79\ Ibid.
---------------------------------------------------------------------------

    Today, roughly 10% of fuel sold in the U.S. contains alcohol, 
mainly in the form of ethanol, and such fuels are often offered in 
ozone nonattainment areas. We believe it is appropriate to ensure that 
evaporative certification processes expose evaporative components to 
alcohols and do so long enough to stabilize their permeability. 
Therefore, we are proposing to amend evaporative certification 
requirements to require manufacturers to develop their deterioration 
factors using a fuel that contains the highest legal quantity of 
ethanol available in the U.S.
    To implement this change, we are proposing to modify the Durability 
Demonstration Procedures for Evaporative Emissions found at 
Sec. 86.1824-01. Our proposal would require manufacturers to age their 
systems using a fuel containing the maximum concentration of alcohols 
allowed by EPA in the fuel on which the vehicle is intended to operate, 
i.e., a ``worst case'' test fuel. (Under current requirements, this 
fuel would be about 10% ethanol, by volume.) We are also proposing to 
modify the Durability Demonstration Procedures to require manufacturers 
to ensure that their aging procedures are of sufficient duration to 
stabilize the permeability of the fuel and evaporative system 
materials.
    It is our desire to find an alternative way by which a manufacturer 
could document or demonstrate that its tanks, hoses, connectors and 
other evaporative components are made of materials whose permeability 
is not significantly affected by alcohols. Successful manufacturers 
would not have to use alcohol fuel in certification. There are a 
variety of test methods to evaluate permeation losses from materials, 
components or subassemblies described in the literature.80 
However, from our discussions with component and materials suppliers, 
we conclude that there is currently no consensus test procedure or 
standard available that we could rely on to establish whether a fuel/
evaporative system is likely to be sufficiently impermeable to alcohol 
fuels. We request comment on the availability and appropriateness of 
such procedures and standards and we request comment on the need for 
and benefits of certification enhancements to account for the effects 
of alcohols in fuels. We also seek comment on whether certification 
test fuel for evaporative emissions should include 10% ethanol.
---------------------------------------------------------------------------

    \80\ Ibid.
---------------------------------------------------------------------------

7. Other Test Procedure Issues
    California's LEV II program implements a number of minor changes to 
exhaust emissions test procedures. We have evaluated these changes and 
found that, for tailpipe emissions, the California test procedures fall 
within ranges and specifications permitted under the Federal Test 
Procedure.
    With regard to HEVs and ZEVs, we believe that these vehicles will 
be predominantly available in California, or that they will typically 
be first offered for sale in California, because of California's ZEV 
requirement, which promotes the sale of HEVs and ZEVs. Where 
manufacturers market HEVs or ZEVs outside of California, it is likely 
that they will market the same vehicles in California. Consequently, we 
intend to incorporate by reference California's exhaust emission test 
procedures for HEVs and ZEVs.81 We request comment on the 
appropriateness of this proposed incorporation and an emission 
allowance for HEVs.
---------------------------------------------------------------------------

    \81\ California Zero-Emission and Hybrid Electric Vehicle 
Exhaust Emission Standards and Test Procedures for 2003 and 
Subsequent Model Year Passenger Cars, Light-Duty Trucks and Medium-
Duty Vehicles. September 18, 1998 for the Board Hearing of November 
5, 1998.
---------------------------------------------------------------------------

    In the NLEV program, we provided a specific formula used by 
California that could be used to compute an HEV contribution factor to 
NMOG emissions. This formula took into consideration the

[[Page 26085]]

range without engine operation of various types of HEVs and had the 
effect of reducing the NMOG emission standard for a given emission bin 
(for HEV vehicles only). This would have obvious beneficial effects on 
a manufacturer's calculation of its corporate NMOG average.
    The technology of HEVs is under rapid change and we do not believe 
that we can design a formula now that will accurately predict the 
impact of HEVs on corporate average NOX emissions in the 
Tier 2 time frame. Consequently, we are including a provision by which 
manufacturers could propose HEV contribution factors for NOX 
to EPA. If approved, these factors could be used in the calculation of 
a manufacturer's fleet average NOX emissions and would 
provide a mechanism to credit an HEV for operating with no emissions 
over some portion of its life.
    These factors would be based on good engineering judgement and 
would consider such vehicle parameters as vehicle weight, the portion 
of the time during the test procedure that the vehicle operates with 
zero emissions, the zero emission range of the vehicle, NOX 
emissions from fuel-fired heaters and any measurable NOX 
emissions from on-board electricity production and storage.
    The final NLEV rule (See 62 FR pg 31219, June 6, 1997) incorporates 
by reference California's NMOG measurement procedure and adopts 
California's approach of using Reactivity Adjustment Factors (RAFs) to 
adjust vehicle emission test results to reflect differences in the 
impact on ozone formation between an alternative-fueled vehicle and a 
vehicle fueled with conventional gasoline. While we intend to bring all 
LDVs and LDTs under NMOG standards beginning in 2004 and while we 
desire to harmonize with California when practical and reasonable, we 
are not proposing to allow the use of RAFs for Tier 2 vehicles and 
interim non-Tier 2 vehicles. As has been discussed elsewhere in this 
preamble, the NLEV program is a special case in which California 
standards and provisions were adopted virtually in their entirety. In 
the preamble to the final NLEV rule (See 62 FR 31203), we expressed our 
reservations about the use of RAFs. We also addressed our reservations 
about the use of reactivity factors developed in California in a 
program that spans a range of climate and geographic locations across 
the United States in the final rule on reformulated gasoline (RFG) (see 
59 FR 7220). We are concerned about the validity of RAFs to predict 
ozone formation nationwide and have asked the National Academy of 
Sciences to look at the scientific evidence in support of the use of 
these factors nationwide. We expect to receive their report prior to 
making our final decisions about the Tier 2 standards.
    Recognizing that we are not proposing a corporate average NMOG 
standard, and that RAFs impact only the calculation of NMOG emissions, 
we request comment on all aspects of RAFs including the impact of not 
using them on the severity of our proposed standards, their validity to 
predict ozone formation nationwide, and any impact the lack of RAFs may 
have on alternative fueled vehicles.
    In its LEV II program, California is also implementing a number of 
changes to evaporative emission test procedures.82 Many of 
these changes address the evaporative emission testing of hybrid 
electric vehicles. We are generally not proposing to adopt California's 
changes, because California uses different test temperatures and 
different test fuel in its evaporative emission testing of gasoline 
vehicles than we use in the federal program. The preamble to the final 
NLEV rule (See 62 FR 31227) explains that California and EPA are 
reviewing an industry proposal to streamline and reconcile the 
California and federal procedures. That work has not been completed. 
However, where California proposes procedures specific to HEVs and 
ZEVs, we do intend to adopt those procedures, except that our testing 
would occur at lower temperatures, and use a fuel determined by EPA to 
be representative of federal usage (for HEVs only). Given the small 
number of HEVs and ZEVs likely to be sold in states other than 
California early in the Tier 2 program, and given the small quantities 
of fuel likely to be used by HEVs in any event, we request comment on 
the appropriateness of simply accepting California evaporative results 
for HEVs and ZEVs to show compliance with the less stringent federal 
evaporative standards. We also request comment on whether any or all of 
the changes California has adopted for evaporative emission testing 
should be adopted into federal testing requirements.
---------------------------------------------------------------------------

    \82\ California Evaporative Emission Standards and Test 
Procedures for 2001 and Subsequent Model Motor Vehicles; September 
18, 1998. Prepared for the November 5, 1998 Hearing of the 
California Air Resources Board.
---------------------------------------------------------------------------

8. Small Volume Manufacturers
    Our proposal includes the following flexibilities intended to 
assist all manufacturers in complying with the stringent proposed 
standards without harm to the program's environmental goals: (1) A four 
year phase-in of the standards for LDV/LLDTs; (2) a delayed phase-in 
for HLDTs; (3) the freedom to select from specific bins of standards; 
(4) a standard that can be met through averaging, banking and trading 
of NOX credits; (5) provisions for NOX credit 
deficit carryover; and (6) provisions by which a manufacturer may 
generate additional NOX credits.
    These flexibilities would apply to all manufacturers, regardless of 
size, and in general we believe they eliminate the need for more 
specific provisions for small volume manufacturers. However, we are 
proposing one additional flexibility for small volume 
manufacturers.83 Our proposal would exempt small volume 
manufacturers from the 25%, 50% and 75% Tier 2 phase-in requirements 
applicable to the 2004, 2005 and 2006 LDV/LLDTs and the 50% phase-in 
requirement applicable to 2008 HLDTs. Instead, small volume 
manufacturers would simply comply with the appropriate 100% requirement 
in the 2007 or 2009 model year. Our proposal would also exempt small 
volume manufacturers from the 25%, 50% and 75% phase-in requirements 
applicable to interim HLDTs in 2004-2006. Instead, small volume HLDT 
manufacturers would simply comply with the interim standards, including 
the corporate average NOX standard, in 2007 for 100% of 
their vehicles. During model years 2004-2006, these same small volume 
manufacturers would comply with any of the interim bins of HLDT 
standards for 100% of their HLDTs.84
---------------------------------------------------------------------------

    \83\ We define small volume manufacturers to be those with total 
U.S. sales of less than 15,000 highway units per year. Independent 
commercial importers (ICIs) with sales under 15,000 per year would 
be included under this term.
    \84\ For a graphical illustration of the phase-ins through time, 
see Figure IV.B.-1.
---------------------------------------------------------------------------

    Also, we will continue to apply the federal small volume 
manufacturer provisions, which provide relief from emission data and 
durability showing and reduce the amount of information required to be 
submitted to obtain a certificate of conformity. In addition, the 
CAP2000 program contains reduced in-use testing requirements for small 
volume manufacturers. Under section V.B.1. below, we describe and 
request comment on possible additional special provisions for 
certifiers that qualify as small businesses.
    Our proposal to exempt small volume manufacturers from the Tier 2 
phase-in requirements eliminates a dilemma that the phase-in 
percentages might pose to a manufacturer that has a limited product 
line, i.e., how to address percentage phase-in requirements if the

[[Page 26086]]

manufacturer makes vehicles in only one or two test groups. We have 
proposed similar provisions for small entities in other rulemakings. 
Approximately 15-20 manufacturers that currently certify vehicles, many 
of which are independent commercial importers (ICIs), would qualify. 
These manufacturers represent just a fraction of one percent of LDVs 
and LDTs produced. We do not believe that this provision would have any 
measurable impact on air quality.
9. Compliance Monitoring and Enforcement
    a. Application of EPA's Compliance Assurance Program, CAP2000. The 
CAP2000 program (final rule signed March 15, 1998; Federal Register 
cite not yet available) streamlines and simplifies the procedures for 
certification of new vehicles and would also require manufacturers to 
test in-use vehicles to monitor compliance with emission standards. The 
CAP2000 program was developed jointly with the State of California and 
involved considerable input and support from manufacturers. As the name 
implies, it can be implemented as early as the 2000 model year.
    In today's document, we are proposing that the Tier 2 and the 
interim requirements would be implemented subject to the requirements 
of the CAP2000 program. Certain CAP2000 requirements would be slightly 
modified to reflect changes to useful lives, standard structure and 
other aspects of the Tier 2 program, but we are proposing no major 
changes to fundamental principles of the CAP2000 program.
    Although we are proposing changes to useful lives in this document, 
we are not proposing to amend the 50,000 mile minimum mileage used in 
manufacturer in-use verification testing or in-use confirmatory testing 
under the CAP2000 program at this time. The CAP2000 in-use program is 
not yet implemented and we believe it is appropriate to allow 
manufacturers to gain experience with procuring and testing vehicles at 
the 50,000 mile level before making significant changes. However, where 
one vehicle from each in-use test group would have a minimum mileage of 
75,000 miles under the CAP2000 program, we are proposing, consistent 
with California, to change that figure to 90,000 miles for Tier 2 
vehicles.
    We may, in our own in-use program, procure and test vehicles at 
mileages higher than 50,000 and pursue remedial actions (e.g. recalls) 
based on that data. We may also use that data as the basis to initiate 
a rulemaking to make changes in theCAP2000 in-use requirements, if the 
data indicate significant non-conformity at higher mileages.
    b. Compliance Monitoring. We plan no new compliance monitoring 
activities or programs for Tier 2 vehicles. These vehicles would be 
subject to the certification and manufacturer in-use testing provisions 
of the CAP2000 rule. Also, we expect to continue our own in-use testing 
program for exhaust and evaporative emissions. We will pursue remedial 
actions when substantial numbers of properly maintained and used 
vehicles fail any standard in either in-use testing program.
    We retain the right to conduct Selective Enforcement Auditing of 
new vehicles at manufacturer's facilities. In recent years, we have 
discontinued SEA testing of new light-duty vehicles and trucks, because 
compliance rates were routinely at 100%. We recognize that the need for 
SEA testing may be reduced by the low mileage in-use testing 
requirements of the CAP2000 program. However, we expect to re-examine 
the need for SEA testing as standards tighten under the NLEV and Tier 2 
programs.
    We have established a data base to record and track manufacturers' 
compliance with NLEV requirements including the corporate average NMOG 
standards. We expect to monitor manufacturers' compliance with the Tier 
2 and interim corporate average NOX standards in a similar 
fashion and also to monitor manufacturers' phase-in percentages for 
Tier 2 vehicles.
    c. Relaxed In-Use Standards for Tier 2 Vehicles Produced During the 
Phase-in Period. As we have indicated numerous times in this preamble, 
the Tier 2 standards we are proposing would be challenging for 
manufacturers to achieve, and some vehicles would pose more of a 
challenge than others. Not only would manufacturers be responsible for 
assuring that vehicles can meet the standards at the time of 
certification, they would also have to ensure that the vehicles could 
comply when tested in-use by themselves under the provisions of the 
CAP2000 program, and by EPA under its in-use (``Recall'') test program.
    With any new technology, or even with new calibrations of existing 
technology, there are risks of in-use compliance problems that may not 
appear in the certification process. In-use compliance concerns may 
discourage manufacturers from applying new technologies or new 
calibrations. Thus, it may be appropriate for the first few years, for 
those bins most likely to require the greatest applications of effort, 
to provide assurance to the manufacturers that they will not face 
recall if they exceed standards by a specified amount.
    We are proposing, for Tier 2 vehicles only, that for the first two 
years after a test group meeting a new standard is introduced, that 
test group be subject to more lenient in-use standards. These ``in-use 
standards'' would apply only to Tier 2 Bins 5 and below, only for the 
pollutants indicated, and only for the first two model years that a 
test group was certified under that bin. The in-use standards would not 
be applicable to any test group first certified to a new standard after 
2007 for LDV/LLDTs or after 2009 for HLDTs.
    The in-use standards we are proposing are shown in Table V.A.-5 
below.

                                          Table V.A.-5.--In-use Compliance Standards for Tier 2 Vehicles (g/mi)
                                                 [Certification standards shown for reference purposes]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                   Durability                          NOX
                    Bin No.                      period (miles)    NOX In-use     certification    NMOG in-use              NMOG certification
--------------------------------------------------------------------------------------------------------------------------------------------------------
5, 4...........................................          50,000            0.07            0.05             N/a  0.075, 0.04.
5, 4...........................................         120,000            0.10            0.07             N/a  0.090, 0.055.
3..............................................         120,000            0.06            0.04             N/a  0.070.
2..............................................         120,000            0.03            0.02            0.02  0.010.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We believe manufacturers should and will strive to meet the Tier 2 
certification standards for the full useful lives of the vehicles, but 
we recognize that the existence of such in-use standards poses some 
risk that a

[[Page 26087]]

manufacturer might aim for the in-use standard in its design efforts 
rather than the certification standard, and thus market less durable 
designs. We do not believe that risk to be significant. We believe that 
such risks are more than balanced by the gains that could result from 
earlier application of new technology or new calibration techniques 
that might occur in a scenario where in-use liability is slightly 
reduced. Further, we believe that the in-use standards will be of short 
enough duration that any risks are minimal.
    We note that the in-use provisions proposed above are similar to 
those included in California's LEV II program. We request comment on 
all aspects of the proposed in-use standards including the 
appropriateness of and need for separate in-use compliance standards 
for the early years of the Tier 2 program.
    d. Enforcement of the Tier 2 and Interim Corporate Average 
NOX Standards. Under the proposed programs, manufacturers 
could either report that they met the relevant corporate average 
NOX standard in their annual reports to the Agency or they 
could show via the use of NOX credits that they have offset 
any exceedence of the corporate average NOX standard. 
Manufacturers would also report their NOX credit balances or 
deficits.
    The averaging, banking and trading program would be enforced 
through the certificate of conformity that the manufacturer would need 
to obtain in order to introduce any regulated vehicles into commerce. 
The certificate for each test group would require all vehicles to meet 
the applicable Tier 2 emission standards from the applicable bin of the 
Tier 2 program, and would be conditioned upon the manufacturer meeting 
the corporate average NOX standard within the required time 
frame. If a manufacturer failed to meet this condition, the vehicles 
causing the corporate average NOX exceedence will be 
considered to be not covered by the certificate of conformity for that 
engine family. A manufacturer would be subject to penalties on an 
individual vehicle basis for sale of vehicles not covered by a 
certificate. These provisions would also apply to the interim corporate 
average standards.
    As outlined in detail in the preamble to the final NLEV rule, EPA 
would review the manufacturer's sales to designate the vehicles that 
caused the exceedence of the corporate average NOX standard. 
We would designate as nonconforming those vehicles in those test groups 
with the highest certification emission values first, continuing until 
a number of vehicles equal to the calculated number of noncomplying 
vehicles as determined above is reached. In a test group where only a 
portion of vehicles would be deemed nonconforming, we would determine 
the actual nonconforming vehicles by counting backwards from the last 
vehicle produced in that test group. Manufacturers would be liable for 
penalties for each vehicle sold that is not covered by a certificate.
    We are proposing in today's action to condition certificates to 
enforce the requirements that manufacturers not sell NOX 
credits that they have not generated. A manufacturer that transferred 
NOX credits it did not have would create an equivalent 
number of debits that it would be required to offset by the reporting 
deadline for the same model year. Failure to cover these debits with 
NOX credits by the reporting deadline would be a violation 
of the conditions under which EPA issued the certificate of conformity, 
and nonconforming vehicles would not be covered by the certificate. EPA 
would identify the nonconforming vehicles in the same manner described 
above.
    In the case of a trade that resulted in a negative credit balance 
that a manufacturer could not cover by the reporting deadline for the 
model year in which the trade occurred, we propose to hold both the 
buyer and the seller liable. This is consistent with other mobile 
source rules, except for the NLEV rule as discussed below. We believe 
that holding both parties liable will induce the buyer to exercise 
diligence in assuring that the seller has or will be able to generate 
appropriate credits and will help to ensure that inappropriate trades 
do not occur.
    In the NLEV program we implemented a system in which only the 
seller of credits would be liable. In the preamble to the final NLEV 
rule (See 62 FR 31216), we explained that a multiple liability approach 
would be unnecessary in the context of the NLEV program given that the 
main benefit to a multi-party liability approach would be to ``protect 
against a situation where one party sells invalid credits and then goes 
bankrupt, leaving no one liable for either penalties or compensation 
for the environmental harm.'' Our preamble stated further that EPA 
would not necessarily take the same approach for ``other differently 
situated trading programs.''
    The NLEV program was implemented to be a relatively short duration 
program, during which time we could expect relative stability in the 
industry. Also, given that NLEV is a voluntary program of lower than 
mandated standards, we did not expect that the smallest manufacturers 
would opt in. These are the companies whose stability is most in 
jeopardy in a dynamic and very competitive worldwide business.
    We currently believe that the Tier 2 program and its framework will 
remain for many years. We note that the program is not scheduled for 
complete phase-in for almost nine years after the publication of this 
proposal. All manufacturers, large and small, will ultimately have to 
meet the Tier 2 standards. We cannot predict that in the Tier 2 time 
frame there will not be companies that leave the market or are divided 
between other companies in mergers and acquisitions. Thus we believe it 
is prudent to implement a program to provide inducements to the seller 
to assure the validity of any credits that it purchases or contracts 
for. However, we request comment on whether we should implement a 
program that would only deem the seller to be in violation if it sold 
credits it could not supply.
10. Miscellaneous Provisions
    We are proposing to continue existing emission standards from Tier 
1 and NLEV that apply to cold CO, certification short testing, 
refueling, running loss, idle CO for LDTs, and highway NOX. 
We are not proposing to continue the 50 degree (F) standards and 
testing included in the NLEV program. The 50 degree standards are a 
part of the NLEV program because that national program adopted 
California requirements virtually in their entirety. These standards 
had not previously been part of any federal program. We request comment 
on the need and the associated burden for any of the standards 
mentioned in this paragraph.

B. Other Areas on Which We are Seeking Comment

1. LDV/LDT Program Options
    The alternatives for which we seek comment would have impacts on 
the level of emission reductions achieved by the program as well as on 
the cost and technological impacts of the program. Any decision to 
adopt an alternative would have to consider those factors. We welcome 
comments on all of the options described below. Commenters should 
address cost, technological feasibility and emission impact whenever 
possible.
    a. Alternatives to Address Stringency of the Standards.
    i. Alternative Standards and Implementation Schedules.
    We believe that the Tier 2 standards and phase-in schedule 
contained in this proposal provide appropriate lead time and 
flexibility for manufacturers to

[[Page 26088]]

achieve cost-effective emission reductions in a reasonable time period. 
Further, our standards and phase-in schedules are reasonably harmonized 
with California's LEV II program to facilitate the sale of 50-state 
vehicles and to minimize the administrative burdens involved with 
having to meet the requirements of both California and EPA 
simultaneously. We believe our proposed fuels provisions will ensure 
that appropriate fuels are available to enable Tier 2 vehicles to 
provide substantive in-use emission reductions. Some have suggested 
delays in the program to 2007 and later. However, many states need 
reductions as soon as possible for 2007 NAAQS compliance, so there is a 
need for an aggressive but achievable implementation schedule.
    Nevertheless, we are interested in reviewing alternative standards, 
implementation schedules and averaging schemes. Therefore we request 
comment on all aspects of the standards and schedules we are proposing 
today, including the interim standards and schedules, and we request 
comment on what alternative standards and implementation approaches 
might provide comparable emission reductions that are cost-effective in 
the same time frame as our proposal.
    We recognize that the Tier 2 program as proposed today does not 
provide for further reductions in average certification levels after 
2008 as California's LEV II program does. We request comment on the 
technological feasibility, necessity, cost and likely benefits of 
further reductions in corporate average standards after 2009, including 
comments on the reduction of the corporate average NOX 
standard to a level of approximately 0.05 g/mi in the 2011-2012 time 
frame. We also request comment on a traditional, non-averaging standard 
of 0.07 g/mi NOX with related standards for NMOG, CO, HCHO, 
and PM in the 2011-2012 time frame, applicable to all LDVs and LDTs.
    ii. Use of Family Emission Limits (FELs) Rather than Bins.
    A bins-based program with an overarching corporate average standard 
has worked well in California for many years and is being implemented 
nationwide beginning in 1999 under the NLEV program. We believe that a 
phased in, bins-based program is the best way to implement the Tier 2 
exhaust emission standards and, at the same time, encourage the 
development of advanced emission control technology. We believe that 
manufacturers of light duty vehicles and trucks are accustomed to such 
programs and will appreciate the flexibility and opportunities for 50-
state certification that a bins-based program affords.
    We are aware, of course, that in other EPA mobile source emission 
programs, we have implemented averaging standards that were not based 
upon bins. In these programs, manufacturers declare a family emission 
limit (FEL) either above or below the averaging standard set by EPA. 
The FEL becomes the standard for that family. Similar to the bins 
approach, manufacturers compute a sales weighted average for the 
subject pollutant at the end of the model year and then determine 
credits generated or needed based on the distance of that average above 
or below the standard.
    In an FEL based program, every test group can have a different 
FEL--essentially there is an unlimited continuum of bins to choose from 
(although there is usually an upper limit or cap on the FELs). The FEL 
approach adds flexibility and could increase the incentive for cost-
effective improvements in vehicle emissions performance. Under a bins 
approach, a manufacturer is limited to step-wise improvements. An FEL 
approach could provide incentive for manufacturers to realize smaller, 
low cost emissions improvements that could be achieved, for example, 
through engine re-calibration.
    However, FEL-based programs create other concerns. One concern with 
an FEL approach is that it may be viewed as providing too much 
flexibility since a manufacturer could request a change in an FEL based 
on a change in desired compliance margin above the certification level 
or based on concern about its credit balance rather than a change in 
technology. In EPA's FEL-based programs, it is not uncommon for a 
manufacturer to declare an FEL that is identical to its certification 
level. It is also not uncommon for a manufacturer to change its FEL 
several times during a model year, based, among other reasons, on the 
availability of or need for credits. In a bins approach, such changes 
are unlikely, since a change in bins involves more of an increment in 
emissions and involves compliance with all pollutants in that bin. 
Consequently, a bins approach eases EPA's compliance monitoring burden. 
It provides additional assurance that expected emission reductions will 
occur in use because some vehicles may ``over-qualify'' for their bin 
resulting in greater than expected reductions than if they exactly met 
the standard for that bin. Of course, an FEL approach could be modified 
to restrict or prohibit changes in certification levels during a model 
year.
    Also, in an FEL-based program, it may be necessary to establish 
corporate average standards for other pollutants besides 
NOX. These standards would then require manufacturers to 
establish FELs for additional pollutants. In a bins-based program, the 
standards for the other pollutants are simply set by the different 
bins.
    An FEL approach could also lead to additional complexity in 
manufacturer in-use testing under the CAP2000 program and in EPA in-use 
testing because if FEL changes are made, the issue of which standard to 
measure compliance against arises as does the issue of how many 
vehicles to test for each different FEL. If we were to adopt an FEL 
approach, we would have to consider significant changes to the in-use 
provisions of the CAP2000 program to assure that all variations of a 
test group were adequately covered by manufacturer in-use testing.
    We request comment on the appropriateness and need for an FEL-based 
program for the Tier 2 and/or interim standards. Commenters supporting 
the use of an FEL-based program should also provide comment as to how 
EPA can best manage the issues related to in-use testing and how EPA 
can best assure that FEL changes are closely linked to real changes in 
vehicle emissions.
    iii. Use of Different Averaging Sets.
    We chose for our proposal the broadest possible--and therefore most 
flexible--averaging set for the Tier 2 vehicles. We are proposing that, 
beginning in 2009 when phase-in of all vehicles is complete, all LDVs 
and LDTs could be averaged together to meet the corporate average 
NOX standard. We believe this approach is appropriate 
because it treats LDTs like LDVs, considering that LDTs are used as 
passenger cars much of the time. Also, by permitting this broad 
averaging, a manufacturer of larger LDTs that might have difficulty 
meeting a 0.07 g/mi NOX level can certify the LDTs to Bin 6 
or 7 and offset the emissions of these trucks with cars or smaller 
trucks that it certifies to levels below 0.07 g/mi.
    While we believe our proposed averaging program is appropriate, we 
recognize that most manufacturers do not produce larger LDTs and may be 
able to meet the corporate average NOX standard of 0.07 g/mi 
with less overall effort. Therefore, we request comment as to whether 
another approach to averaging might be more appropriate such as a 
segregated approach where LDTs are averaged separately from LDVs or 
where HLDTs (LDT3s and 4s) are averaged separately from LDV/LLDTs.

[[Page 26089]]

    iv. Different Standards for Different Categories of Vehicles.
    We have explained several times in this preamble that we believe 
the same standards should apply to all LDVs and LDTs because LDTs are 
so often used as passenger vehicles, and because the standards are 
feasible for all LDVs and LDTs. The technological challenge may be 
greater for larger trucks, so our proposal provides additional leadtime 
and a later start date for HLDTs to provide more opportunity to resolve 
potential problems. However, we recognize that other approaches exist 
that could yield comparable environmental benefit. Therefore, we 
request comment on other approaches such as one that would employ a 
lower corporate average NOX standard for LDV/LLDTs, with a 
higher corporate average standard for HLDTs.
    v. Consideration of Special Provisions for the Largest LDTs and 
Advanced Technology.
    California has adopted a provision in its LEV II program, under 
which a manufacturer could certify up to 4 percent of its larger LDTs 
to a higher NOX standard. These trucks could meet a 0.10 g/
mi NOX standard rather than a 0.07 g/mi NOX 
standard, provided they have a payload of at least 2500 pounds. 
California chose the figure of 4% because it approximates the fraction 
of such trucks in the largest volume manufacturer's fleet.
    We have not proposed such an option in the federal program because 
we are providing additional lead time and compliance on average for all 
cars and trucks beginning in 2009. Nevertheless, we do recognize that 
the largest trucks will likely require the greatest application of 
emission control technology to comply with Tier 2 standards and we 
expect that larger trucks will likely be the last, and the most 
difficult, vehicles to phase into the Tier 2 program.
    In the context of the flexibilities already proposed for the 
federal program, we request comment on the need for and environmental 
impact of additional program flexibility for the largest trucks. One 
option we have considered would allow manufacturers to exclude a small 
fraction (perhaps 4 percent) of their largest Tier 2 trucks (HLDTs) 
from the corporate average NOX calculation beginning in 2009 
and lasting through approximately model year 2011. These trucks would 
still be subject to a NOX standard of 0.20 g/mi and all 
other standards and provisions of the Tier 2 program, including the 
requirement to fit within a Tier 2 bin for other emission standards.
    This provision would provide a less stringent standard for the 
heaviest LDTs. We believe these LDTs are the most likely to be used 
primarily for work and commercial purposes, while at the same time 
having the most difficulty complying with Tier 2 requirements. We 
request comment on all aspects of this provision, including whether the 
allowable sales fraction (4%) and payload minimum (2500 pounds) set by 
California would be appropriate for the federal provision, and whether 
such a concept should also be applied to only LDT4s or both LDT3s and 
4s. Supporters of such an approach should comment on the appropriate 
allowable sales fraction for the interim vehicles.
    Some have suggested that a potential way of providing flexibility 
for advanced technology vehicles would be to provide bins with less 
stringent standards while retaining the stringency of the 0.07 
NOX average. These additional bins would augment the current 
flexibilities offered to manufacturers. We request comment on this 
idea, specifically on including additional bins with NOX 
standards up to 0.60 g/mi, with any other modifications that are 
appropriate. We also ask comment on whether such bins should be a 
temporary part of the Tier 2 program.
    vi. Measures to Prevent LDT Migration to Heavy-Duty Vehicle 
Category.
    Existing regulations define a light-duty truck to be any motor 
vehicle rated at 8500 pounds gross vehicle weight rating (GVWR) or less 
that has a curb weight of 6000 pounds or less and that has a basic 
frontal area of 45 square feet or less, which is:
     Designed primarily for purposes of transportation of 
property or is a derivation of such a vehicle, or
     Designed primarily for transportation of persons and has a 
capacity of more than 12 persons, or
     Available with special features enabling off-street or 
off-highway operation and use.
    For the heaviest LDTs, we are concerned that manufacturers may, in 
some cases, find it attractive to add GVWR capacity, curb weight or 
frontal area to their vehicles such that they would no longer meet one 
or more of the criteria to be considered an LDT. The vehicles would 
then fall into the heavy-duty category and would be subject to less 
technologically challenging standards.
    We would like to develop reasonable restrictions to prevent this 
``gaming'' of the LDT definition. The ideal restrictions would prevent 
migration of LDTs above the limiting criteria, but would not impact 
vehicles with legitimate needs to be outside, but close to, the LDT 
definition. Our objective is complicated by the fact that many LDTs 
currently have derivatives or corresponding models that are over 8500 
pounds GVWR.
    We have considered various approaches to restrictions on LDTs. Some 
of the ideas we have considered are as follows:
     Require all complete trucks in the 8500-10,000 pound GVWR 
range to meet light-duty standards.
     Raise the GVWR cutoff from 8500 pounds to some other 
number such as 8750, 9000 or 9500 pounds.
     Require manufacturers of vehicles that are above but close 
to any of the three size criteria to provide justification that they 
cannot accomplish their intended function if built to a lower size 
criterion.
     Require manufacturers to provide supporting data, surveys, 
etc., that vehicles above, but close to, any of the LDT cutoffs are 
primarily used for commercial purposes.
    We request comment on all aspects of this vehicle migration issue, 
including specific comment on the ideas presented above and on other 
approaches that might be appropriate. This discussion serves as notice 
that we are very likely to finalize a provision to address this vehicle 
migration issue. You are encouraged to consider the approaches we have 
outlined above and provide specific suggestions on other approaches as 
well as comments as to the need for such controls, their feasibility 
and their cost.
    In the longer term, the best way to address the vehicle migration 
issue is to implement standards for complete heavy-duty vehicles that 
have a stringency comparable to their HLDT counterparts. In the near 
future, we expect to publish an NPRM addressing emissions from 
gasoline-fueled heavy-duty engines and vehicles for 2004 and later 
model years. As part of that effort we are considering chassis-based 
standards for gasoline-fueled complete vehicles between 8,500 and 
14,000 lbs GVWR. The degree to which such standards discourage 
migration depends upon the relative stringency of the standards. EPA 
requests comment on the potential effectiveness of such a strategy in 
addressing migration concerns and the timing and level of emission 
standards necessary to do so.
    vii. Use of Non-conformance Penalties (NCPs).
    NCPs are monetary payments that manufacturers can pay to meet an 
adjusted standard in lieu of complying with a prescribed emission 
standard or set of emission standards. See CAA

[[Page 26090]]

section 206(g). Current regulations at 40 CFR part 86 Subpart L provide 
for NCPs for HLDTs, and for heavy-duty engines. However, in order to 
establish NCPs for a specific standard or set of standards for these 
vehicles and engines, EPA must first determine that (1) substantial 
work will be required to meet the standard for which the NCP is 
offered; and (2) that there will be a manufacturer that is a 
technological laggard in complying with that standard. EPA must also, 
through rulemaking, determine compliance costs so that the penalty 
rates can be established appropriately.
    NCPs were used extensively by manufacturers of on-highway heavy-
duty engines in the late 1980s, prior to the implementation of our 
heavy-duty averaging, banking and trading program. Since that time, 
their use has been rare. We believe manufacturers have used the 
flexibility of an averaging, banking and trading scheme as a preferred 
alternative to incurring the monetary losses associated with NCPs.
    We are not proposing NCPs for HLDTs in the primary Tier 2 program 
or in the interim programs. This is because we believe that the 
NOX averaging program we are proposing makes it unlikely 
that the criteria for NCPs mentioned above will be met, as 
NOX credits from other vehicles may be used to enable HLDTs 
to meet the 0.07 g/mi average NOX standard.
    We have considered whether NCPs might be appropriate for the Tier 2 
diesel particulate standards, for which our proposal contains no 
averaging provisions. We are not proposing PM NCPs for those diesel 
powered trucks, but we request comment on whether such NCPs would be 
appropriate. We believe that appropriate technologies will be available 
from component vendors and diesel engine suppliers. We request comment 
on the need for and appropriateness of NCPs for any Tier 2 standard for 
HLDTs.
    viii. Additional NOX Credits for Vehicles Certifying to 
Low NOX Levels.
    There is currently substantial work underway to develop vehicles 
with extremely low emissions. We believe that it is appropriate to 
encourage such technology by providing incentives for its use. 
Consequently, we are requesting comment as to whether we should 
implement a provision by which manufacturers can earn additional 
NOX credits for certifying to levels below 0.07 g/mi. As we 
envision such a provision, manufacturers would be allowed, in the 
calculation of their year end corporate average NOX level, 
to multiply the number of vehicles sold which are certified to bins 
below 0.07 g/mi NOX by some preset multiplier, or set of 
multipliers. For example, the number of vehicles certified to the 0.04 
bin might be multiplied by 1.5, those in the 0.02 bin might be 
multiplied by 2.0 and those in the 0.0 bin (ZEVs) might be multiplied 
by 3.0.
    We recognize that such a program would enable manufacturers to use 
more credits than actually generated in use, and that the use of these 
credits would likely result in some additional NOX 
emissions. However, we believe that it may be appropriate to provide 
inducements to manufacturers to strive for ever lower NOX 
emissions and that these inducements may help pave the way for greater 
and/or more cost effective emission reductions from future vehicles. We 
request comment on all aspects of such incentive credits. Issues 
related to these credits include the value of a multiplier or 
multipliers, whether early credits should be subject to the 
multipliers, and whether there should be a ``sunset'' provision to 
limit the time period in which manufacturers could obtain and/or use 
these extra credits. We request comment on a sunset year of 2009, since 
it is the end of the proposed Tier 2 program phase-in.
    ix. Incentives for Manufacturers to Bank Additional Early NOX 
credits.
    We are interested in exploring any reasonable approaches that would 
provide incentives to manufacturers to produce vehicles meeting the 
0.07 g/mi NOX standard earlier than required. We believe 
that early certification to this level will help manufacturers gain 
experience with new or enhanced technologies on a limited scale before 
they must be applied to the entire fleet, and that such experience 
would have a positive, although hard to quantify, environmental 
benefit.
    We have proposed an approach elsewhere in this preamble that 
permits manufacturers to utilize alternative phase-in schedules. 
Manufacturers that introduce Tier 2 vehicles before the first required 
year in the primary phase-in schedule could follow a more flexible 
phase-in path to 100% compliance than required under the primary 
option. Manufacturers would also be able to generate NOX 
credits if these ``early'' vehicles met a corporate average 
NOX level of less than 0.07 g/mi.
    We have considered whether a mechanism that provided additional 
NOX credits could induce manufacturers to introduce more 
Tier 2 vehicles sooner than required. Such a mechanism might substitute 
a number higher than the 0.07 g/mi NOX standard in the 
credit calculation so that the manufacturer would subtract its 
corporate average NOX level from, say, 0.10 and then 
multiply the difference by the number of Tier 2 vehicles to determine 
credits earned. While we believe such a scheme might induce 
manufacturers to accelerate the introduction of Tier 2 vehicles, we 
have concerns about whether this approach would lead to windfall 
credits and whether we would need to employ a discount to compensate 
for them. Should the resulting credits have finite or infinite life? 
Should we apply such a scheme to LDV/LLDTs only; or should we also 
apply it to HLDTs; and should we apply such a scheme to the interim 
standards for HLDTs? We request comment on these and all other aspects 
of permitting additional NOX credits for Tier 2 and interim 
vehicles.
    x. Flexibilities for Small Volume Manufacturers and Small 
Businesses.
    In section V.A.8. above, we propose to waive the Tier 2 phase-in 
requirements for small volume manufacturers.85 These 
manufacturers, which each produce 15,000 or fewer vehicles per year, 
would simply comply with the 100 % requirement in 2007 (2009 for 
HLDTs).
---------------------------------------------------------------------------

    \85\ A ``small volume manufacturer'' is not necessarily a 
``small business''. Rather, ``small volume manufacturer'' is an EPA 
term that refers to entities whose annual on-highway sales are 
15,000 or fewer vehicles per year. However, most if not all small 
businesses covered under this discussion are also ``small volume 
manufacturers,'' though most small volume manufacturers are not 
small businesses.
---------------------------------------------------------------------------

    Some very small volume manufacturers of LDVs and LDT1s and LDT2s 
elected not to opt into NLEV and thus will produce Tier 1 vehicles 
during the NLEV program. We are seeking comment about the burden that 
our interim standards might impose on very small manufacturers in 2004 
given that they will have to meet the Tier 2 standards no later than 
2007 under today's proposal. Similarly we are concerned about the 
burden that the interim standards might impose on any small volume HLDT 
manufacturers. We request comment on the need for and appropriateness 
of a provision that would waive the interim standards for very small 
volume manufacturers who produce, say, less than 1,000 vehicles per 
year, or who qualify as small businesses (see below).
    The panel convened under the Small Business Regulatory Enforcement 
Fairness Act (SBREFA),86 recommended that we seek comment on 
five provisions outlined below to ease our

[[Page 26091]]

proposal's impact on small businesses. These provisions, if adopted, 
would apply to ``small businesses'' as defined by Small Business 
Administration. The size of a ``small business'' varies by industry 
type as represented by SIC codes. Tables V.B.-2 and V.B.-3 contain the 
SIC codes that could potentially be impacted by the Tier 2 rule and the 
maximum number of employees or maximum revenue a business can have to 
be considered a small business.
---------------------------------------------------------------------------

    \86\ This panel was convened, consistent with SBREFA, by EPA, 
the Small Business Administration, and the Office of Management and 
Budget to review of the likely impact of Tier 2 requirements on 
small businesses.

   Table V.B.-2.--SBA Small Business Categories for Small Independent
                          Commercial Importers
------------------------------------------------------------------------
                                                           Size standard
                                                              (annual
            SIC code                   Description          revenues in
                                                             millions)
------------------------------------------------------------------------
7533...........................  Auto Exhaust System                  $5
                                  Repair Shops.
7549...........................  Automotive Services....               5
8742...........................  Management Consulting                 5
                                  Services.
------------------------------------------------------------------------


    Table V.B.-3.--SBA Small Business Categories for Alternative Fuel
                           Vehicle Converters
------------------------------------------------------------------------
                                                      Size standard ($
          SIC code                 Description        =annual revenues)
------------------------------------------------------------------------
3592........................  Carburetors,          500 employees.
                               Pistons, Rings and
                               Valves.
3714........................  Motor Vehicle Parts   750 employees.
                               and Accessories.
5172........................  Petroleum Products..  100 employees.
5984........................  Liquefied Petroleum   $5 million.
                               Gas Dealers.
7549........................  Automotive Services.  $5 million.
8742........................  Management            $5 million.
                               Consulting Services.
8931........................  Commercial Physical   500 employees.
                               Research.
------------------------------------------------------------------------

    The vast majority of businesses in these categories are not subject 
to these EPA requirements. However, some businesses in these categories 
may in fact manufacture LDVs and LDTs or may modify vehicles produced 
by others in a manner that will subject them to the requirements 
applicable to manufacturers under EPA regulations. For example, 
Independent Commercial Importers (ICIs) modify imported motor vehicles 
into configurations that they certify to meet federal emission 
requirements. Approximately 15-20 small businesses qualified as 
manufacturers and received certificates of conformity each year over 
the last five years.
    For simplicity, and consistency with the report of the SBREFA 
panel, we refer to these small businesses as small certifiers in the 
following discussion. The requirements to certify continue to apply 
only to parties that meet the definition of ``manufacturer.''
    Consistent with the recommendations of the SBREFA panel, we request 
comment on the following ideas:

    For small certifiers that convert imported vehicles to U.S. 
standards (independent commercial importers or ICIs) and for small 
certifiers that convert vehicles to operate on alternative fuels, 
provide a delay in required compliance of two years after the 
particular model vehicle is certified to Tier 2 standards by the 
original equipment manufacturer.

    This provision would provide time for development of appropriate 
emission control systems and test data for small businesses who may 
need to first obtain a regular production vehicle certified by the OEM 
before they can begin work.
    Although it was not a specific recommendation of the SBREFA panel, 
we are also requesting comment on whether ICIs should be exempted from 
the Tier 2 and interim fleet average NOX standards. ICIs may 
not be able to predict their sales of vehicles and control their fleet 
average emissions because they may be dependant upon vehicles brought 
to them by individuals attempting to import uncertified vehicles. 
Presently, the NLEV requirements are optional for ICIs and ICIs are 
specifically exempted from complying with the fleet average NMOG 
standard under the NLEV program. (See 40 CFR 85.1515(c)). Further, a 
prohibition in the current ICI regulations specifically bars ICIs from 
participating in any emission related averaging, banking or trading 
program. (See 40 CFR 85.1515(d)). If we do not amend this prohibition, 
the likely outcome would be that ICIs could choose any bin to certify 
their vehicles and would pick the least stringent standards.
    Given the historically very low sales of ICIs and the probable 
challenges that even the least stringent Tier 2 and interim non-Tier 2 
bins will impose upon ICIs, we do not expect ICIs to grow significantly 
in number or size. Therefore, we do not expect that provisions 
exempting or prohibiting ICIs from the fleet average NOX 
standard would have any air quality impact. However, we request comment 
on all aspects of the applicability of the fleet average NOX 
standards to ICIs.
    Establish a credit program and provide incentives for large 
manufacturers so that they would make credits available to small 
certifiers.
    This provision would address the problem inherent with any emission 
credit trading program that manufacturers holding credits don't have to 
trade them. While the panel proposed this option, it did not provide 
any thoughts on what type of incentives might be appropriate and 
necessary to induce larger manufacturers to supply credits at 
reasonable prices to small businesses.
    Develop a program to provide credits to small certifiers for taking 
older vehicles off of the road (i.e., a scrappage program).
    Because older vehicles often have very high emissions, removing one 
from use could more than offset the emissions of a new vehicle produced 
by a small certifier that was unable to fully comply with the Tier 2 
standards. Scrappage programs must be designed so that they remove 
vehicles from the fleet that see significant annual mileage. They must 
be adequately funded and managed. They must have controls and oversight 
to ensure that they don't remove vehicles that would have been scrapped 
anyway.
    Design a case-by-case hardship relief provision that would delay 
required

[[Page 26092]]

compliance for small certifiers that demonstrate that they would face a 
severe economic impact from meeting the Tier 2 standards.
    We have implemented case-by-case hardship provisions in some rules 
subject to specific limiting constraints. Typically, these would 
provide that small businesses that have tried all other regulatory 
options and apply in writing before they experience nonconformity, 
could obtain a 1 year delay in the implementation of the standards. The 
small business would have to show that failure to comply was the fault 
of external and extenuating circumstances and that inability to sell 
the subject vehicles would have a major impact on the company's 
solvency.
    If the Tier 2 program involves a phase-in of standards, allow small 
certifiers to comply at the end of such a phase-in.
    As indicated at the beginning of this section, we are proposing 
this option for all phase-ins associated with the Tier 2 program 
including the phase-in of the Interim standards for HLDTs (see Section 
V.A.8. above).
    We request comment on the need for, appropriateness and 
environmental impact of all of the items proposed by the SBREFA panel. 
Also, we request comment on whether any such provisions would be 
necessary and appropriate for the interim standards for non-Tier 2 
vehicles.
    xi. Adverse Effects of System Leaks.
    For the emission control system to operate as designed, the air-
fuel (A/F) ratio must stay within strictly prescribed limits that vary 
with vehicle/engine operating conditions and engine controls must 
respond quickly to the slightest changes in this ratio. Even the 
smallest air leak in either the exhaust manifold or exhaust pipe or any 
related connection can provide the oxygen sensor incorrect information 
on the oxygen content of the exhaust gas it uses to calibrate the 
engine A/F ratio.
    Some manufacturers have taken steps to address this concern as part 
of their overall design process by incorporating features such as 
corrosion-free flexible couplings, corrosion-free steel, and improved 
welding of catalyst assemblies. EPA is concerned that either as a 
result of manufacturing or installation errors or errors in a repair 
action, there will be an unintentional and unobserved increase in 
emissions and perhaps a failure to meet FTP and a SFTP emission 
standards in-use.
    EPA seeks comment on design or onboard monitoring requirements that 
might be useful to address this concern. EPA would also seek comment on 
a provision that would require a manufacturer to demonstrate through 
engineering analysis or design that such possibilities have been taken 
into account.
    xii. Consideration of Other Corporate Averaging Approaches.
    We welcome comments on the pros and cons, including regulatory 
burden, of establishing a combined NMOG plus NOX corporate 
average standard in lieu of either the proposed NOX average 
or a California-like NMOG average. We also request comments, if not 
provided in response to Section IV.B. above, on the concept of 
requiring a declining corporate average NOX standard or a 
declining corporate average NMOG standard at the federal level. For 
example, we would consider a declining average approach that reduces 
NMOG/NOX corporate average emissions by 20-25% over the 
period 2008-2012, or nominally to 0.07 NMOG/0.05 NOX. Such a 
reduction might involve a reduction in gasoline sulfur levels as 
discussed in Section IV.E.2. above. We also seek comment on the idea of 
eliminating the averaging concept in 2011 or 2012 and setting the LDV/
LDT standards at the levels of Bin No. 5 in Table IV.B.-2 (0.07 g/mi 
NOX plus the other standards). Commenters should address the 
cost and feasibility of these approaches.
2. Tighter Evaporative Emission Standards
    We considered proposing tighter evaporative emission standards, 
including California's LEV II standards for evaporative emissions, 
shown in Table V.B.-4 below.

  Table V.B.-4.--California's LEV II Evaporative Hydrocarbon Standards
                            [Grams per test]
------------------------------------------------------------------------
                                                            Supplemental
                                                 Three day     two day
                 Vehicle class                   diurnal +    diurnal +
                                                  hot soak    hot soak
                                                  standard    standard
------------------------------------------------------------------------
LDV............................................       0.50         0.65
LDT1 AND LDT2..................................       0.65         0.85
LDT3 AND LDT4..................................       0.90         1.15
------------------------------------------------------------------------

    These standards are based on an evaporative emission test procedure 
that is conducted at different temperatures using fuel with lower vapor 
pressure than the corresponding federal evaporative test procedure. 
Under current evaporative standards, California accepts the results of 
federal evaporative testing, because it represents a worst case test. 
We do not know whether California's standards are feasible under the 
federal test conditions.
    We are concerned about evaporative hydrocarbons and we recognize 
that they constitute a portion of the mobile source VOC inventory that 
will be similar in size to the light duty exhaust contribution when 
NLEV exhaust standards are in place. Our proposed standards, which are 
found in section IV.B.4.a. above, are roughly in line with current 
average certification levels but will nonetheless yield real in-use 
evaporative reductions as manufacturers reduce certification levels to 
gain safety margins under the new standards. These standards will also 
prevent manufacturers from ``backsliding'' from their current low 
certification levels upward toward the existing standards as they seek 
cost reductions. Our proposed standards will require manufacturers to 
capture the abilities of available fuel system materials to minimize 
evaporative emissions. Further, we are proposing certification 
enhancements to address the impact of alcohol fuels on evaporative 
emissions, and we expect that these measures will lead to more uniform 
use of lower permeability materials that will result in in-use 
reductions in non-attainment areas where alcohol fuels are the most 
prevalent.
    We request comment on the appropriateness and cost effectiveness of 
applying tighter evaporative standards in the federal program.
3. Credits for Innovative VOC, NOX and Ozone Reduction 
Technologies Not Appropriately Credited by EPA's Emission Test 
Procedures
    Compliance with the current and proposed EPA motor vehicle emission 
standards is based on the emission performance of a vehicle over EPA's 
prescribed test procedure. While this test procedure addresses many of 
the aspects of a vehicle's impact on air quality, it does not address 
all such impacts. Two developing technologies have been brought to 
EPA's attention that have shown significant potential to improve ozone-
related air quality, but that would not do so over the current EPA test 
procedure.
    The first example is a device that removes ozone from the air as 
the vehicle is driven. A major producer of automotive catalysts, 
Englehard, has approached both California and EPA with a proposal for a 
technology (called Premair) in which vehicle radiators would be coated 
with a catalyst that converts ambient ozone to oxygen. In its CalLEVII 
program, California has adopted some basic ground rules concerning the 
types of information that

[[Page 26093]]

would have to be submitted in order to certify such ozone reduction 
technologies and determine the amount of allowable NMOG 
credits.87 This determination would be made on a case-by-
case basis. The manufacturer would have to provide an evaluation of the 
system's performance and durability, as well as a description of the 
on-board diagnostic strategy to monitor the performance of the device 
in use. The NMOG credit would be based upon the running of an approved 
airshed model, which would determine the amount of NMOG emission 
reductions that would produce the same change in one-hour peak ozone as 
the use of the ozone reduction device being evaluated.
---------------------------------------------------------------------------

    \87\ See page II-28 of the following California document for a 
full discussion: Proposed Amendments to California Exhaust and 
Evaporative Emission Standards and Test Procedures for passenger 
Cars, Light-Duty Trucks and Medium Duty Vehicles (``LEV II'') and 
Proposed Amendments to California Motor Vehicle Certification, 
Assembly-Line and In-Use Test Requirements (``CAP2000''). Released 
September 18, 1998 for the Air Resources Board Hearing of November 
5, 1998.
---------------------------------------------------------------------------

    Englehard has asked EPA to develop a similar procedure to that 
adopted by ARB and to consider granting their technology a 
NOX credit, as well as an NMOG credit. The manufacturer of 
the vehicle employing Premair would then have the option of which 
credit to use.
    There are a number of issues that would have to be resolved before 
such credits could be granted, including:
     The methods to be used to certify in-use performance over 
the useful life of the vehicle,
     The requirement for, and the design and certification of, 
an onboard diagnostic system to monitor in-use performance, and
     Which airshed model to use, including what cities and 
episodes to use in modeling the 8-hour peak ozone reduction, and
     The methods for determining either the NMOG or 
NOX credit, or both.
    EPA has placed information provided to date by Englehard in the 
docket to this rule, and requests comments on the appropriateness of 
such credits, and on the procedures that should be used to determine 
those credits, should we proceed.
    The second example is an insulated catalyst. The insulation retains 
heat for extended periods of time, increasing the catalyst temperature 
when the engine is started and reducing the time required for the 
catalyst to reach an operational temperature. This technology can 
reduce cold start emissions for engine off times (called soaks) of 24 
hours or less. The vast majority of engine soaks in-use are less than 
24 hours. However, EPA's test procedure only tests emissions at two 
fairly extreme soak times: 10 minutes and 12-36 hours. The 10 minute 
soak is so short that even an uninsulated catalyst is warm enough to 
quickly begin working upon restart. The 36 hour soak is beyond the 
practical limit of cost-effective insulating techniques.
    In 1994, as part of its proposed SFTP standards, EPA proposed 
adding an intermediate soak of 1 hour to the test procedure, due both 
to the large number of in-use soaks falling between the current 10 
minute and 12-36 hour soaks and to the desire to encourage catalyst 
technology that reduced cold start emissions for such intermediate 
soaks. EPA did not promulgate this aspect of its SFTP standards, due in 
part to concerns about the cost effectiveness of mandating such 
controls. However, the efficacy of such technology was not questioned. 
Thus, there appears to be little reason to prohibit a manufacturer from 
using such technology to reduce in-use emissions in lieu of other 
technology needed to meet the proposed Tier 2 standards.
    As mentioned above concerning Premair, a methodology would need to 
be developed to estimate the impact of an insulated catalyst, or other 
any other similar technology, on in-use emissions so that equivalent 
NMOG and NOX emission credits could be determined. Also, 
procedures for certifying in-use performance and durability and onboard 
diagnostics would also have to be addressed. EPA requests comments on 
the appropriateness of allowing emission credits for insulated 
catalysts and other technologies not appropriately assessed under 
current test procedures. EPA also requests comments on the procedures 
to be used to develop such credits.
    EPA also requests comments on whether the credits granted for 
either ozone or emission reduction technologies should be restricted to 
the proposed Tier 2 standards, or whether they should also be granted 
under the current NLEV standards and the proposed interim standards for 
non-Tier 2 vehicles, as well.
4. Need for Intermediate Useful Life Tier 2 Standards
    For our Tier 2 and interim standards we have generally proposed 
both full useful life and intermediate useful life FTP exhaust emission 
standards. (See Tables IV.B.-2, -3, -6,-7,-10 and -11.) We have also 
proposed full and intermediate life SFTP standards. (See Tables V.A.-3 
and -4.) Intermediate useful life standards are more stringent than 
full useful life standards and reflect our experience that better 
emission performance can be expected at lower mileages.
    We are not proposing intermediate useful life standards for the 
three lowest Tier 2 FTP bins, and we are not proposing intermediate 
standards for the lowest FTP bin (the Zero Emission Vehicle or ZEV bin) 
in any case. This is because the full life standards in those bins are 
already so low as to allow little deterioration between a new vehicle 
and a vehicle at full useful life.
    We request comment on the appropriateness of and need for 
intermediate useful life and what the environmental consequences might 
be from deleting intermediate useful life standards for all Tier 2 
vehicles and from the interim standards bins that match those of the 
Tier 2 program.

VI. Additional Proposed Elements and Areas for Comment: Gasoline 
Program

    Section VI.A. presents two additional issues that have some impact 
on our proposed program: whetherstates are preempted from requiring 
gasoline sulfur reductions as a result of today's action, and whether 
other gasoline properties may also need to be controlled in the future. 
We encourage your comment on all of these issues. Section VI.B. 
provides additional detailed information about our proposed 
requirements for establishing compliance with the gasoline sulfur 
standards, as well as how we will enforce these standards. The major 
details of our proposed gasoline sulfur control program were explained 
in Section IV.C.; the information presented here is supplementary.

A. Other Areas for Comment

    The following sections raise additional issues that are relevant to 
our decisions regarding gasoline sulfur control and the design of our 
gasoline sulfur program. We encourage you to comment on these issues if 
they are of interest to you.
1. Would States Be Preempted From Adopting Their Own Sulfur Control 
Programs?
    When we adopt federal fuel standards, states are preempted from 
adopting similar state-level controls. Section 211(c)(4)(A) of the CAAA 
prohibits states from prescribing or attempting to enforce controls or 
prohibitions respecting any fuel characteristic or component if EPA has 
prescribed a control or prohibition applicable to such fuel 
characteristic or component under section 211(c)(1). This preemption 
applies to all states except California, as explained in section

[[Page 26094]]

211(c)(4)(B). For these states other than California, the Act provides 
two mechanisms for avoiding preemption. First, section 211(c)(4)(A)(ii) 
creates an exception to preemption for state prohibitions or controls 
that are identical to the prohibition or control adopted by EPA. 
Second, states may seek EPA approval of SIP revisions containing fuel 
control measures, as described in section 211(c)(4)(C). EPA may approve 
such SIP revisions, and thereby ``waive'' preemption, only if it finds 
the state control or prohibition ``is necessary to achieve the national 
primary or secondary ambient air quality standard which the plan 
implements.''
    We are proposing to adopt the sulfur standards pursuant to our 
authority under section 211(c)(1). Thus, we believe final promulgation 
of the sulfur standards would result in the clear preemption of future 
state actions to adopt fuel sulfur controls.88 States would 
therefore need to obtain a waiver from us under the provisions 
described in section 211(c)(4)(C) for all state fuel sulfur control 
measures adopted following promulgation, unless the state standard were 
identical to our final sulfur standard. We welcome your comments on our 
interpretation of the source and effect of federal preemption.
---------------------------------------------------------------------------

    \88\ Even in the absence of final promulgation of federal sulfur 
standards, existing federal fuel controls for RFG and conventional 
gasoline have raised issues of preemption of state fuel sulfur 
measures. In any case, it is clear that state sulfur standards would 
be preempted as of the date of promulgation of the proposed federal 
sulfur standard.
---------------------------------------------------------------------------

    Section 211(c)(4)(A) preempts state fuel controls if EPA has 
``prescribed'' federal controls. We read this language to preempt non-
identical state standards on the effective date of the standards, as 
opposed to the date the standards become enforceable. Thus, if the 
proposed standards are finalized according to our expected schedule, 
this rulemaking would preempt state actions upon promulgation at the 
end of 1999, even though the standards would not require sulfur 
reductions until 2004. This interpretation is consistent with EPA 
actions applying other federal fuel measures. See 54 FR 19173 (May 4, 
1989) (noting preemption of Massachusetts state RVP measure before 
start of first control period for federal RVP). We also believe this 
interpretation is consistent with the intent behind section 
211(c)(4)(A). Though the standards are not immediately enforceable, 
they will have an immediate impact on refiners' investment decisions. 
We believe, by adopting 211(c)(4)(A), Congress intended to provide 
security for these investment decisions by preventing unnecessary 
conflict between state and federal fuel controls.
2. Potential Changes in Gasoline Distillation Properties
    During the last several years, representatives of the automotive 
industry have presented information to us suggesting that control of 
certain gasoline distillation properties can provide reductions in both 
exhaust hydrocarbon emissions as well as the frequency of performance 
problems such as hesitation, cold startability, and impeded 
acceleration. Automotive industry representatives contend that the 
source of most performance problems--slower atomization and 
vaporization due to fuels with higher boiling points--also leads to 
less efficient combustion, and thus higher levels of hydrocarbons in 
the exhaust.
    With regard to Tier 2 vehicles, some automakers have claimed that 
in-use fuels with high boiling points would impact their ability to 
control the mixture of air and fuel entering the engine, and thus could 
result in in-use emissions that are higher than expected based on 
certification levels. Thus, automakers argue, controls on the 
distillation properties of gasoline would not only produce emission 
benefits for the in-use fleet, but would also ensure the viability and 
benefits of Tier 2 vehicles.
    On January 27, 1999, we received a petition 89 from a 
group of automakers in which they provided a more detailed analysis of 
the costs and benefits of controlling gasoline distillation properties. 
In this petition, they specifically requested that the Distillation 
Index (DI) be capped at 1200 for all summer-grade gasolines nationwide. 
They have defined the distillation index by the equation 1.5xT10 + 
3xT50 + T90 +20xOxy, where T10 represents the temperature at which 10% 
of the fuel has evaporated in a standard distillation test, and 
likewise for T50 and T90, and Oxy is the oxygen content contributed by 
ethanol. This petition includes a study conducted by MathPro 
Inc.90 to estimate the feasibility and cost to the refining 
industry of capping all summer grade gasoline at a DI level of 1200. 
MathPro concluded that the cost of such control would be approximately 
0.4  cents/gal on average for all summer grade gasoline.
---------------------------------------------------------------------------

    \89\ ``Petition to regulate gasoline distillation properties''. 
Submitted by DaimlerChrysler Corporation, Ford Motor Company, 
General Motors Corporation, and the Association of International 
Automobile Manufacturers. Submitted to EPA Administrator Carol 
Browner on January 27, 1999. EPA Air Docket A-97-10, Document No. 
II-G-286.
    \90\ ``Technical and economic implications of controlling the 
distillation index of gasoline.'' MathPro Inc., October 21, 1998. 
EPA docket A-97-10, document II-G-268.
---------------------------------------------------------------------------

    We believe that the analyses presented by this petition have merit. 
However, we do not believe that they are sufficient to justify capping 
DI at 1200 at this time, since there are a number of issues that it 
does not address. Before we could formally propose a DI cap, we would 
need to have a justification for the cap based on air quality need, 
peer-reviewed estimates of the cost to the refining industry and to 
consumers, and comparisons of the cost effectiveness of this strategy 
to that for other potential hydrocarbon control strategies. Therefore, 
we are not today proposing controls on gasoline distillation 
properties. However, we request comment on the automakers' DI petition 
and the included MathPro report in terms of their sufficiency in 
demonstrating that a DI cap of 1200 is appropriate.

B. Gasoline Sulfur Program Compliance and Enforcement Provisions

1. Overview
    We are proposing enforcement mechanisms that track those of the 
reformulated gasoline/conventional gasoline (RFG/CG) rule, because of 
significant similarities between the two programs, including refinery 
average standards, refinery level and downstream level caps, and the 
generation and use of credits. These features raise similar compliance 
issues for both programs. Because of the importance of assuring that 
all gasoline meets the sulfur standards, measures are needed to assure 
the accuracy of refiner and importer testing, and to assure that the 
quality of gasoline is not adversely affected downstream of the 
refinery. Downstream enforcement would be based primarily on EPA 
sampling and testing, and examination of product transfer documents 
(PTDs) and other evidence.
    More specifically, we are proposing:
     That refiners and importers test each batch of RFG and CG 
produced or imported for sulfur content and maintain testing records 
and retain test samples.
     That refiners and importers of gasoline submit reports 
regarding compliance with averaging and credits provisions.
     That the current attest procedures of the RFG/CG rule 
91 be applied to sulfur rule compliance.
---------------------------------------------------------------------------

    \91\ 40 CFR part 80 subpart F.

---------------------------------------------------------------------------

[[Page 26095]]

     Enforcement provisions regarding the credit program, to 
prevent the use, sale or purchase of invalid credits, and to require 
adjustments to compliance calculations based on use of invalid credits.
     Requirements to ensure compliance by small foreign 
refiners subject to individual refinery sulfur standards and to ensure 
the separation of such foreign gasoline from all other gasoline to the 
U.S. port of entry.
     Downstream maximum sulfur caps, which would apply to all 
persons in the chain of distribution of gasoline, including 
distributors, resellers, carriers, retailers and wholesale purchaser-
consumers of gasoline.
     Voluntary downstream quality assurance testing by 
distributors and refiners to help assure compliance.
    The sulfur standards proposed today would apply, as in other fuels 
programs, to all motor vehicle fuel that meets the definition of 
gasoline. See 40 CFR 80.2. This definition typically includes all the 
gasoline that is produced and distributed through the gasoline 
distribution system, including gasoline, such as marina gas, that is 
ultimately used in nonroad equipment. Such fuel meets the definition of 
gasoline and is subject to the standards proposed today. For example, 
where gasoline makes up only a small portion of what a refinery 
produces, and is perhaps a byproduct of other processing, the refiner 
could not avoid the sulfur standard by designating the product as 
marina gasoline or nonroad gasoline. EPA would apply the sulfur 
standard to the same broad group of products that meets the definition 
of gasoline for its other gasoline fuel programs.
    We are aware that there are certain fuels, such as aviation fuel 
and racing fuel, that are generally segregated from gasoline throughout 
the distribution system. Where such fuels are segregated from motor 
vehicle gasoline and not made available for use in motor vehicles, the 
fuel would not be subject to sulfur rule standards.92 We 
propose that such fuel become subject to the sulfur standards and other 
regulatory requirements and prohibitions if its segregation from 
gasoline at any point in the distribution system is compromised. 
Offering such fuel for motor vehicle use or dispensing such fuel for 
motor vehicle use would be prohibited. We are also proposing specific 
PTD requirements and labeling requirements to prevent introduction of 
high sulfur fuels into motor vehicles. EPA invites comment on whether 
such fuel should also be subject to refinery level sulfur standards, or 
whether it should be subject to the standards from the point at which 
it is made available for use in motor vehicles.
---------------------------------------------------------------------------

    \92\ If a fuel is not segregated throughout the gasoline 
distribution system, but is fungibly mixed with gasoline, then it 
becomes a gasoline that is subject to the standard.
---------------------------------------------------------------------------

    The proposal would clarify the definition of refinery at 40 CFR 
80.2(h). Specifically, we are proposing to clarify that ``refinery'' 
means any facility, including a plant, tanker truck or vessel where 
gasoline or diesel fuel is produced, including any facility at which 
blendstocks are combined to produce gasoline or diesel fuel, or at 
which blendstock is added to gasoline or diesel fuel.93
---------------------------------------------------------------------------

    \93\ This is consistent with all current EPA fuels rules, 
interpretations, policies and question and answer documents, and is 
only a clarification.
---------------------------------------------------------------------------

    We propose that any oxygenate blender that only adds oxygenate to 
gasoline or to ``reformulated blendstocks for oxygenate blending'' 
(RBOB), be exempt from sulfur standards and would not be required to 
conduct any new testing, or perform any new recordkeeping or reporting, 
because we believe the sulfur level of EPA-allowed oxygenates added 
downstream from the refinery is very low. We believe it is an 
appropriate assumption, barring special circumstances, that the sulfur 
content of the gasoline will be diluted in proportion to the addition 
of the oxygenate.
    In the remainder of this section we address enforcement issues 
regarding today's proposed rule that are not discussed in section 
IV.C.3., above.
2. What Requirements is EPA Proposing for Foreign Refiners and 
Importers?
    As discussed in section IV.C, under today's proposal, standards for 
gasoline produced by foreign refineries that are not subject to small 
refiner individual refinery standards would be met by the importer. 
Standards for gasoline produced by a foreign refinery subject to an 
individual sulfur rule standard would be met by the foreign refinery, 
with certain limited exceptions. The provisions would be very similar 
to the foreign refinery provisions of the RFG/CG rule, under 40 CFR 
80.94.

a. What Are the Proposed Requirements for Small Foreign Refiners with 
Individual Refinery Sulfur Standards?

    Under the RFG/CG rule, EPA has promulgated regulations 
94 addressing establishment and implementation of individual 
baselines for CG produced by certain foreign refiners. The purpose of 
these regulations is to assure the compliance of gasoline supplied from 
foreign refineries with individual compliance baselines. It includes 
comprehensive controls, requirements and enforcement mechanisms to 
monitor the movement of gasoline from the foreign refinery to the U.S., 
to monitor gasoline quality and to provide for compliance and 
enforcement as necessary.
---------------------------------------------------------------------------

    \94\ 40 CFR 80.94.
---------------------------------------------------------------------------

    Today we are proposing similar requirements that would apply to any 
foreign refiner that can demonstrate that it meets the small refiner 
criteria. Foreign refinery baselines would be based on average sulfur 
levels and the volume of gasoline imported to the U.S. in 1997-98. Any 
foreign refiners that obtain a foreign refinery sulfur rule baseline 
would be subject to the same requirements as domestic small refiners 
with individual refinery sulfur rule standards. Additionally, 
provisions similar to the provisions at 40 CFR 89.94 would apply, that 
include:
    1. Segregating gasoline produced at the small refinery until it 
reaches the U.S.;
    2. Refinery registration;
    3. Controls on product designation;
    4. Load port and port of entry testing;
    5. Attest requirements; and
    6. Requirements regarding bonds and sovereign immunity.
    The rationale for these enforcement provisions is discussed more 
fully in the Agency's August 28, 1997 preamble to the final RFG/CG 
foreign refineries rule. (See 62 FR 45533 (Aug. 28, 1997)).
    By no later than January 1, 2010, 95 all gasoline would 
be subject to a single national averaged standard and one national 
refinery level cap. Thus, EPA is proposing that, beginning on that 
date, the use of foreign small refinery baselines would sunset and 
standards for all imported gasoline would be met by U.S. importers. 
With a single national standard and cap, gasoline sulfur content could 
most readily be monitored at the U.S. importer level, since there would 
no longer be a special class of gasoline with different standards that 
would need to be monitored.
---------------------------------------------------------------------------

    \95\ As stated in section IV.C. of the preamble, small refiner 
individual refinery standards would sunset January 1, 2008, except 
for any small refineries that receive a hardship extension not to 
exceed two years.
---------------------------------------------------------------------------

    b. What Are the Proposed Requirements for Truck Importers? The 
proposed sampling and testing requirements for importers require 
sampling and testing of each batch of gasoline. For parties that import 
gasoline into the U.S. by truck, the every-batch testing requirement 
would include testing the gasoline in each

[[Page 26096]]

truck compartment, or if the gasoline is homogeneous, testing the 
gasoline in the truck. However, EPA is concerned that this testing 
requirement may not be feasible for truckers hauling many small loads 
of gasoline. Since some northern U.S. communities rely, in large part, 
on gasoline transported into the U.S. by truck from Canadian terminals, 
these communities could suffer gasoline shortages if this requirement 
proves too burdensome for truck importers. We therefore propose to 
allow alternative requirements for truck-imported gasoline only.
    i. Truck Transports of Gasoline (Excluding Gasoline Subject to 
Small Foreign Refiner Individual Refinery Standards).
    EPA is proposing a limited alternative approach for truck importers 
in lieu of every-batch testing. This proposal would be based on the 
importer meeting the 30 ppm sulfur average standard on a per-gallon 
basis. Under this proposal, the importer would be allowed to rely on 
the sulfur results of sampling and testing conducted by the operator of 
the truck loading terminal in Canada. The environmental consequences of 
this proposal would be neutral, because by meeting the 30 ppm sulfur 
standard on an every-gallon basis the standard also is being met on 
average.
    The importer would be required to demonstrate the gasoline meets 
the 30 ppm sulfur standards on an every-gallon basis. The gasoline in 
the storage tank from which the importer's trucks are loaded would have 
to be sampled and tested subsequent to each receipt of gasoline into 
the terminal tank, and these tests would have to show the gasoline 
meets the 30 ppm sulfur standard. For each truck load of gasoline, the 
importer would have to obtain documents that accurately state the 
sulfur content of the gasoline. The importer then would treat each 
truck load of imported gasoline as a separate batch for purposes of the 
recordkeeping and reporting requirements.
    The terminal operator in most cases would not be subject to United 
States laws, so the proposal contains safeguards that are intended to 
ensure the gasoline in fact meets the applicable standard. First, the 
importer would be required to conduct an independent program of quality 
assurance sampling and testing of the gasoline dispensed to the 
importer. This sampling and testing would have to be at a rate 
specified in the proposed regulations, and the sampling would have to 
be unannounced to the terminal operator. In addition, EPA inspectors 
would have to be given access to conduct inspections at the truck 
loading terminal and at any laboratory where samples collected pursuant 
to this proposed approach are analyzed. These inspections could be 
unannounced, and would include gasoline sampling and testing, and 
record reviews.
    EPA requests comment on this proposal for parties that import 
gasoline by truck. Specifically, EPA requests comment on the provisions 
that apply to persons located outside the United States, and the need 
for EPA inspectors to conduct inspections at terminals located outside 
the United States. In addition, EPA recognizes that the proposed per-
gallon standard of 30 ppm is more restrictive than an annual average 
standard with per-gallon caps, although it provides assurance that 
gasoline imported by truck will meet the requirements of the sulfur 
control program. However, establishing an averaged standard with per-
gallon caps for truck-imported gasoline would require more substantial 
recordkeeping, reporting and auditing by the importers and more 
compliance monitoring by the EPA. EPA requests comments on the 
alternative of allowing an annual average standard with per-gallon caps 
for truck importers and the appropriate sulfur standards that should 
apply under such an approach.

ii. Truck-Imported Gasoline Subject to Small Foreign Refiner Individual 
Refinery Standards

    There are additional compliance concerns related to the gasoline 
produced by small foreign refiners whose gasoline is imported into the 
U.S. by truck. The proposed requirements for gasoline produced at a 
small foreign refinery with an individual baseline, and certified as 
subject to the individual standard (S-FRGAS), include the necessity of 
segregating the gasoline from all other gasoline, from the refinery 
gate to the U.S., so that compliance with standards can be tracked. 
Under our proposed certified S-FRGAS provisions applicable to other 
importers, each batch of gasoline must be tested at the load port and 
port of entry. However, in the case of gasoline imported by truck, each 
truckload of such gasoline would constitute a batch. Given the small 
batch volumes for truck imports, the testing and other procedures 
proposed for certified S-FRGAS may not be feasible. The issue is 
further complicated because the load port, in effect, stretches from 
the refinery, through a pipeline and to a terminal in Canada. 
Therefore, EPA is proposing an alternative to the requirement for 
testing every truckload of imported certified S-FRGAS.
    EPA is proposing that small foreign refiners whose gasoline is 
exported to the U.S. by truck would, as part of their petition for an 
individual baseline, submit a plan designed to ensure that certified S-
FRGAS remains segregated from all other gasoline from the refinery to 
the U.S. The proposed plan would be reviewed for approval in 
conjunction with the baseline petition.
    Rather than specifying the precise requirements of such a plan in 
the regulations, EPA would allow the refiner to develop its own 
procedures for ensuring that S-FRGAS remains segregated until it 
reaches the U.S. However, EPA believes that any plan would have to 
include certain elements. For example, PTDs would have to accompany 
each transfer of certified S-FRGAS through the distribution system, 
clearly identifying the origin of the gasoline and prohibiting its 
commingling with any product other than certified S-FRGAS from that 
refinery. The refiner may need to enter into contracts with pipelines 
and terminals, if the gasoline is shipped in this manner, that ensure 
segregation and prohibit commingling. This certified product could then 
only be loaded into trucks if they were importing the gasoline into the 
U.S.
    The refiner of such gasoline would have to receive and maintain all 
such product shipment documents, including U.S. import documents, for 
five years and review these on an ongoing basis to ensure segregation 
is maintained until reaching the U.S. To further ensure that this 
review occurs, EPA is proposing that the refiner's plan would include 
attest audit procedures to be conducted annually by an independent 
third party that would review the refiner's procedures and records to 
ensure that the certified S-FRGAS is segregated at all times. For 
example, these procedures would likely include volume reconciliation to 
confirm that product is transferred without commingling. However, 
additional procedures may be needed to accomplish the goal of ensuring 
that certified-S-FRGAS remains segregated from all other gasoline.
3. What Standards Would Apply Downstream?
    EPA is proposing downstream per-gallon cap standards that would 
apply to all parties in the distribution system downstream of the 
refinery-level, including pipelines, terminals, distributors, carriers, 
retailers and wholesale purchaser-consumers. Downstream standards would 
help ensure the sulfur level of gasoline remains below the cap level 
when dispensed for use in motor vehicles, thereby avoiding the adverse 
emissions

[[Page 26097]]

consequences of using gasoline with a sulfur content above the cap 
level.
    EPA is proposing that downstream standards would be more lenient 
than the refinery-level cap standards so that refiners and importers 
can produce gasoline that equals the refinery-level cap standard. It 
has been EPA's experience that if a refiner produces gasoline that 
equals, or almost equals a standard, that gasoline may be shown to 
violate the standard when subsequently tested at a location downstream 
of the refinery due to testing variability. As a result, parties 
downstream of the refinery (primarily pipelines) set commercial 
specifications for the quality of the gasoline they will accept that 
are more stringent than the standard that applies to the downstream 
party. This, in effect, forces refiners to produce gasoline that is 
``cleaner'' than the refinery-level standard.
    In other fuels programs (for example, the benzene per-gallon 
standard for RFG) EPA has resolved this concern by announcing 
enforcement tolerances for fuels standards that apply downstream of the 
refinery-level, thereby reducing the need for pipelines to set 
specifications more stringent than the refinery level standards. EPA 
believes the approach proposed for the gasoline sulfur cap standards--
more lenient downstream standards--would have the same effect as 
announced enforcement tolerances.
    EPA is proposing that the values of the downstream cap standards 
would reflect the testing variability that could reasonably be expected 
when different laboratories test gasoline for sulfur content, that is, 
lab-to-lab variability, or reproducibility. For gasoline subject to the 
80 ppm refinery-level sulfur cap the proposed downstream standard would 
be 95 ppm. This difference reflects the lab-to-lab variability 
established by the American Society for Testing and Materials 
(ASTM).96 For gasoline subject to refinery-level sulfur caps 
higher than 80 ppm, which would be the case for gasoline produced 
before 2006 and by certain small refiners, the proposed downstream cap 
would be similarly established by using the most recent available ASTM 
reproducibility data.
---------------------------------------------------------------------------

    \96\ ASTM standard method D-2622-98, entitled ``Standard Test 
Method for Sulfur in Petroleum Products by Wavelength Dispersive X-
ray Fluorescence Spectrometry.'' The California Air Resources Board 
found nearly identical reproducibility under ASTM D-2622-94, 
according to a round robin study conducted by ARB and received by 
EPA Feb. 11, 1999.
---------------------------------------------------------------------------

    As described in section IV.C.3, EPA is proposing that the cap 
standards that apply to some small refiners would be higher than the 
cap standards that apply to refiners generally. The downstream 
standards that apply to this small refiner gasoline would be 
correspondingly higher, based on ASTM reproducibility for each 
refinery's assigned cap. If gasoline produced by a small refiner with a 
higher cap standard is mixed in the distribution system with other 
gasoline with a lower cap standard, the entire mixture then would be 
subject to the higher cap standard. For this reason, EPA is concerned 
that the small volume of small refinery gasoline could drive up the 
downstream standard for all gasoline, most of which would have been 
subject to the much lower national cap standard.
    Therefore, EPA is proposing that during the period small refinery 
individual standards are in effect, PTDs must identify whether gasoline 
is comprised, in whole or in part, of gasoline produced at a small 
refinery with a higher sulfur cap standard than the national cap 
standard, and the level of the downstream cap applicable to the 
gasoline. A downstream party could rely on the information contained in 
the PTDs for gasoline received by that party as the basis for whether 
gasoline contains any small refinery gasoline.
    However, as gasoline is mixed, and re-mixed, in downstream 
pipelines and tanks, the percentage of a particular gasoline that is 
small refinery gasoline normally will progressively diminish. For this 
reason EPA also is proposing that a downstream party must classify 
gasoline as containing no small refinery gasoline if a test result for 
the gasoline shows a sulfur content below the applicable national 
downstream cap.
    Under these proposed requirements, downstream parties and EPA would 
know the downstream standard that applies to any particular gasoline. 
If the gasoline contains no small refiner gasoline, the downstream 
standard would be based on the national cap. If the gasoline is 
comprised in whole or in part of small refiner gasoline subject to a 
higher cap standard, the downstream standard would be based on this 
higher cap standard. This approach would require regulated parties and 
EPA to review and rely on the information contained in PTDs.
    Following are two examples of how gasoline from small refineries 
with individual standards (S-RGAS) would be identified downstream of 
the refinery and how the downstream cap would apply:
    (1) In 2005 the national refinery cap standard is 180 ppm. If a 
small refinery with an individual sulfur cap standard produces a batch 
of gasoline that contains 175 ppm sulfur, the transfer document that 
accompanies that batch of gasoline into a pipeline may not indicate the 
batch contains S-RGAS.
    (2) In 2006, when the national downstream cap is 95 ppm, a terminal 
receives three shipments of gasoline that are identified in the PTD's 
as S-RGAS subject to downstream per-gallon cap standards of 205, 325 
and 410 ppm. The terminal operator combines these shipments in a 
storage tank. That gasoline mixture is subject to a downstream cap 
standard of 410 ppm and any PTD subsequently provided to transferees 
must identify the gasoline as containing S-RGAS and state the gasoline 
is subject to a downstream cap standard of 410 ppm.
    After several additional receipts of gasoline into the storage 
tank, the terminal operator obtains a test result indicating the sulfur 
level of the mixture is 90 ppm. Based on this test result, the gasoline 
mixture becomes subject to the national cap standard of 95 ppm and any 
PTD subsequently provided to transferees may not state the gasoline 
contains S-RGAS.
    EPA requests comment on these proposed downstream standards. 
Specifically, we request comment on an alternative whereby gasoline 
would be presumed to be subject to the national cap downstream 
standard, unless the responsible regulated party were able to 
demonstrate through PTDs the presence of small refinery gasoline. EPA 
also requests comment on any alternatives that would allow enforcement 
of the national downstream cap standards during the period small 
refiner individual refinery standards were in effect.
4. What Are the Proposed Testing and Sampling Methods and Requirements?
    a. What Is the Primary Test Method for Gasoline? We propose that 
the ASTM standard method D 2622-98 be the primary test method for 
testing for sulfur in gasoline by refiners and importers. This is the 
regulatory method under the RFG/CG rule.97 However, we are 
requesting comment on whether ASTM method D 5453-93, entitled 
``Standard Test Method for Determination of Total Sulfur in Light 
Hydrocarbons, Motor Fuels and Oils by Ultraviolet Fluorescence,'' 
should be the primary method. We are specifically concerned about the 
suitability of these test methods for sulfur levels between 0-10 ppm, 
and invite comment on other appropriate test methods, including ASTM D 
4045, which is used under the California fuels program for sulfur 
levels below 10 ppm. We are also requesting

[[Page 26098]]

comment on relative costs of the methods. We believe that ASTM D 5453 
would significantly reduce capital costs for test equipment and that 
operational costs would be similar to ASTM D 2622. A description of 
these ASTM test methods, as well as other methods discussed later in 
this section, can be found in Table VI-1, below.
---------------------------------------------------------------------------

    \97\ See 40 CFR 80.46(a). The proposed rule would update the 
current method, ASTM D 2622-94.

Table VI.-1.--ASTM Standard Test Methods and Practices Described in This
                                 Section
------------------------------------------------------------------------
                ASTM No.                              Title
------------------------------------------------------------------------
D 2622.................................  Standard Test Method for Sulfur
                                          in Petroleum Products by
                                          Wavelength Dispersive X-ray
                                          Fluorescence Spectrometry.
D 4045.................................  Standard Test Method for Sulfur
                                          in Petroleum Products by
                                          Hydrogenolysis and Rateometric
                                          Colorimetry.
D 4057.................................  Standard Practice for Manual
                                          Sampling of Petroleum and
                                          Petroleum Products.
D 4177.................................  Standard Practice for Automatic
                                          Sampling of Petroleum and
                                          Petroleum Products.
D 5453.................................  Standard Test Method for
                                          Determination of Total Sulfur
                                          in Light Hydrocarbons, Motor
                                          Fuels and Oils by Ultraviolet
                                          Fluorescence.
D 5842.................................  Standard Practice for Sampling
                                          and Handling of Fuels for
                                          Volatility Measurement.
------------------------------------------------------------------------

    b. What Is the Proposed Test Method for Sulfur in Butane? We are 
proposing that ASTM D 5623 would be the regulatory method for testing 
the sulfur content of butane. This is the sulfur test method for butane 
that the Agency proposed under the RFG/CG rule (proposal published at 
62 FR 37338 (July 11, 1997)). However, we received several negative 
comments regarding this test method in response to our proposal. We are 
requesting comments on other methods and correlation of those methods 
to ASTM D 5623. We are also requesting comment on appropriate 
correlation procedures and other issues such as bias, accuracy, and 
precision.
    c. Is EPA Proposing a Requirement To Test Every Batch of Gasoline 
Produced or Imported? Under today's proposal, all refiners and 
importers 98 would be required to sample and test the sulfur 
content of each batch of gasoline produced or imported. Test results 
would be used to calculate a refiner's or importer's annual average 
sulfur level. Any batch of gasoline that exceeded the applicable sulfur 
cap could not be distributed or sold in the U.S., unless it was 
exempted from this rule, as described later in this section. This 
``every-batch'' testing requirement is not a new requirement for RFG 
refiners and importers. However, it would be a new requirement for 
refiners and importers of CG.
---------------------------------------------------------------------------

    \98\ Except for certain truck importers, as noted above.
---------------------------------------------------------------------------

    In the past, CG refiners and importers have been allowed to prepare 
composite samples of gasoline from multiple gasoline batches and test 
the composite sample. However, we believe that every-batch sulfur 
testing by refiners and importers is necessary to ensure compliance 
with upstream and downstream sulfur caps contained in the proposed 
rule. We have proposed the use of alternative test methods to reduce 
the cost of testing. We are requesting comment on this proposed 
requirement.

i. Butane Blenders' Every-Batch Testing Requirement

    Under the RFG rule, refiners that blend butane to previously 
certified gasoline (PCG) must determine the volume and parameter values 
of the butane, including sulfur content, by testing the gasoline, 
before and after blending, and calculating the properties of the butane 
by subtracting the volume and parameter values of the PCG. For CG only, 
under certain conditions, we have allowed butane blenders to use the 
parameter specifications of butane as tested by the butane producer. 
This includes an assumed sulfur content of 140 ppm. We have allowed 
this alternative to every-batch testing because of the costs of testing 
each load of butane.99
---------------------------------------------------------------------------

    \99\ In addition, commercial grade butane easily meets 
conventional gasoline standards, but that is not the case with 
regard to the proposed gasoline sulfur standards.
---------------------------------------------------------------------------

    We are proposing a similar alternative to every-batch testing for 
butane blenders under today's sulfur program. We propose that butane 
blenders could use the actual sulfur test result of their suppliers, if 
the butane contained less than 30 ppm sulfur and if the butane blender 
undertook a quality assurance program to ensure that the supplier's 
sampling and testing was accurate. If the butane were tested and found 
to violate the 30 ppm cap, the butane blender would be in violation for 
the volume of product that exceeded the 30 ppm cap that was added to 
gasoline and for any violations of the national downstream cap 
resulting from the butane sulfur content. We believe this is a fair 
alternative to every batch testing and the only alternative that gives 
EPA reasonable ability to monitor compliance. We request comment on 
this proposal.

ii. Refiners Blending Other Blendstocks into Previously Certified 
Gasoline

    Refiners that blend blendstock into PCG would be required to sample 
and test each batch of gasoline produced. This would normally include 
sampling and testing the PCG to determine its sulfur content and 
volume; then sampling and testing the combined product subsequent to 
blending; and calculating the sulfur content and volume of the 
blendstock (which is the blender's batch for annual average compliance 
and reporting purposes), by subtracting the volume and sulfur content 
of the PCG from the volume and sulfur content of the combined product. 
We are proposing to allow such refiners to meet an alternative testing 
requirement in lieu of testing every batch of gasoline. Provided that 
the refiner's test result for the sulfur content of each of the 
blendstocks is less than the national refinery level per-gallon cap 
standard, a refiner could sample and test each blendstock when received 
at the refinery, and treat each blendstock receipt as a separate batch 
for purposes of compliance calculations for the annual average sulfur 
standard.
    d. What Sampling Methods Are Proposed? Sampling methods apply to 
all parties that conduct sampling and testing under the rule. We are 
proposing requiring the use of sampling methods that were proposed in 
the July 11, 1997 Federal Register notice (62 FR 37338, at 37341-37342, 
37375-37376), which proposes modifications to the RFG/CG rule. These 
sampling methods include ASTM D 4057-95 (manual sampling), D 4177-95 
(automatic sampling from pipelines/in-line blending), and ASTM D 5842 
(this sampling method is primarily concerned with sampling where 
gasoline volatility is going to be tested, but it would also be an 
appropriate sampling method to use when testing for sulfur). We are 
proposing requiring use of these ASTM methods instead of the methods 
provided in 40 CFR part 80, Appendix D. That is because the proposed 
methods have been updated by ASTM, the updates have provided 
clarification and they have eliminated certain requirements, such as 
storage tank tap extensions, that are not necessary for sampling light 
petroleum products such as gasoline.
    e. What Are the Proposed Gasoline Sample Retention Requirements? 
    We are proposing a refiner and importer sampling and testing 
program to establish the sulfur compliance of each batch of gasoline 
produced or

[[Page 26099]]

imported. However, we are aware of the inherent drawbacks to a self-
testing scheme. There is the possibility that a party might sample or 
test gasoline in a manner not consistent with the required procedures, 
or that employees might inaccurately record the test results, by 
mistake or otherwise. Under such a scheme, parties might also attempt 
to conceal a discovered violation or to save money by not correcting a 
violation.
    In an attempt to address these concerns about self-testing, we 
considered the option of requiring independent sampling and testing for 
all gasoline, including conventional gasoline. Under current 
regulations, only refiners or importers of reformulated gasoline are 
obligated to do this. However, because of the costs of independent 
sampling and testing 100 EPA is instead proposing an 
alternative strategy to help ensure refinery and importer sulfur 
compliance. Refiners and importers would be required to retain for 
thirty days a representative sample from each batch of gasoline 
produced, and to provide such samples to the Agency upon request. By 
means of this option, EPA could verify the refiner test results.
---------------------------------------------------------------------------

    \100\ See the discussion on this subject in the preamble to the 
reformulated gasoline program's final rule, 59 FR 7765 (Feb. 16, 
1994).
---------------------------------------------------------------------------

    This limited duration sample retention would be useful to address 
many of the potential problems concerning a refiner self-testing 
program. Through this requirement, parties would be faced with the 
knowledge that EPA could easily and randomly confirm the accuracy of 
the refiner's test results and could discover unrecorded violations. We 
believe that this would create an incentive for refiners to sample, 
test, and record their sulfur results in an accurate and truthful 
manner.
    The Agency also is proposing that refiners be required to certify 
annually that the samples have been collected in the manner required 
under the sulfur rule. This requirement is intended to assure that 
refinery officials insist on accurate and honest sampling and retention 
of samples at their refineries. We are also proposing that specific 
procedures be followed by refiners to properly collect retain, and ship 
the samples in a manner consistent with requirements already imposed or 
proposed under the RFG program. Under today's proposal, a minimum 
representative sample of 330 ml of each gasoline batch would need to be 
retained.101
---------------------------------------------------------------------------

    \101\ See 40 CFR 80.65(f)(3)(F)(ii), and the Proposed Rule for 
Modifications to Standards and Requirements for Reformulated and 
Conventional Gasoline, 62 FR 37337 et seq, proposed 40 CFR 
80.101(i)(l)(i)(C)(iii).
---------------------------------------------------------------------------

    The Agency does not believe that the proposed sulfur rule sample 
retention requirements would impose an undue financial burden on 
regulated parties. Many refineries already engage in some sample 
retention for their own purposes, and the retention procedures proposed 
in today's proposal would merely require that typical industry 
retention standards be applied. Shipping samples to us would entail 
some expense, but this shipping would only occur periodically, and 
would certainly cost less than hiring an independent laboratory to 
regularly sample and test gasoline.
    The Agency requests comments on the costs and effectiveness of the 
proposed sample retention requirements, and invites comments on any 
alternative plan to promote accuracy of refiner self-testing of 
gasoline for sulfur compliance. In particular, we are interested in 
information on the cost and effectiveness of a nationwide, independent 
sampling and testing program
5. What Federal Enforcement Provisions Would Exist for California 
Gasoline and When Could California Test Methods Be Used to Determine 
Compliance?
    a. Requirement to Segregate Gasoline and To Use Product Transfer 
Document Requirements. Today's proposal would generally exempt 
California gasoline from regulation under the sulfur rule for the 
reasons previously described in this preamble. However, today's NPRM 
does propose two requirements that would apply to some California 
gasoline. The first would require that gasoline produced outside of 
California, that is intended for California use, be segregated from all 
other gasoline at all points in the distribution system. Second, the 
Agency is proposing that out-of-state producers of gasoline intended 
for sale in California be required to create PTDs identifying the 
product as California gasoline, and that such PTDs be provided to all 
transferees of this gasoline in the distribution system. Such 
documentation is intended to facilitate our enforcement of the proposed 
sulfur control program through identifying the gasoline not covered by 
the federal regulation, even though it is produced in areas otherwise 
subject to this proposed regulation. This documentation would also 
assist regulated parties in identifying the gasoline as non-federally 
regulated to facilitate segregation of California gasoline from federal 
gasoline.
    The sulfur program PTD requirements for California gasoline 
produced out-of-state should not create any new burdens on regulated 
parties, since the same requirements currently apply under the RFG 
program.102 Today's proposal would incorporate and restate 
the RFG rule's PTD requirements for this California gasoline. The 
Agency does not believe that it is necessary to impose additional PTD 
requirements under the sulfur program, since the California gasoline 
identification requirements under the RFG rule would also satisfy the 
identification needs of this rule. Having the same requirements in both 
rules means that regulated parties that fail to produce and transfer 
the necessary PTD identification would be in violation of both 
programs.
---------------------------------------------------------------------------

    \102\ See CFR 80.81(g).
---------------------------------------------------------------------------

    b. Use of California Test Methods for 49 State Gasoline. As stated 
previously, we are proposing to exclude gasoline produced in California 
for California use from federal sulfur standards. However, refineries 
or importers located in California would have to meet the standards and 
other requirements with regard to ``federal'' gasoline used outside of 
California. Nevertheless, EPA is proposing that gasoline produced in 
California for sale outside of California could be tested for 
compliance under the federal sulfur rule using the methodologies 
approved by the ARB, provided that the producer complies with the 
procedures for such testing as already required under 40 CFR 80.81(h), 
which permits California test methods not identical to federal test 
methods to be used for conventional gasoline only.
6. What Are the Proposed Recordkeeping and Reporting Requirements?
    a. What Are the Proposed Product Transfer Document Requirements? We 
are proposing that the PTDs that accompany each transfer of custody or 
title of gasoline that includes gasoline produced by any small refiner 
subject to sulfur rule individual refinery standards be required to 
identify the gasoline as such, including the applicable downstream cap, 
as an aid to enforcing the national downstream cap. Other PTD 
information is currently required under the RFG/conventional gasoline 
regulations. We believe that the additional PTD information regarding 
sulfur compliance required under today's proposal would impose little 
additional burden on industry. We request comment on this proposed 
requirement.

[[Page 26100]]

    b. What Are the Proposed Recordkeeping Requirements? We are 
proposing to require that refiners and importers keep and make 
available to EPA certain records that demonstrate compliance with the 
sulfur program standards and requirements. The RFG/CG regulations 
currently require refiners and importers to retain records that include 
much of the information proposed to be required under today's rule. As 
a result, we believe that the proposed reporting requirements would 
impose very little additional burden on these regulated parties.
    We are proposing to require all parties in the gasoline 
distribution system, including refiners, importers, retailers, and all 
types of distributors to retain PTDs and records of quality assurance 
programs that parties conduct to establish a defense to downstream 
violations. All parties in the gasoline distribution system currently 
are required to keep PTDs for RFG. However, since there are no 
downstream CG standards, only refiners and importers are required to 
retain PTDs for conventional gasoline. Because today's proposed sulfur 
rule, like the RFG rule, includes downstream standards, we believe that 
a requirement to retain PTDs for all parties in the gasoline 
distribution system would be appropriate under the sulfur rule. The PTD 
information would help us identify the source of any gasoline found to 
be in violation of the sulfur standards. The PTDs would also provide 
downstream parties with information regarding the applicable downstream 
standard.
    Today's proposal would require parties to keep records for a period 
of five years, with additional requirements for records pertaining to 
credits. Records pertaining to credits that were banked and never 
transferred to another party would need to be retained for five years 
after the credits are used for compliance purposes. Records pertaining 
to credits that were transferred would need to be retained by both 
parties (transferee and transferor) for ten years after the date the 
credits were generated (which would ensure the records are retained at 
least years after they are used, since use would have to occur within 
five years of generation even if the credits were transferred).
    Most of the records that would be required to be kept for five 
years already are subject to that requirement by the RFG/CG rule. Five 
years is the applicable statute of limitations for the RFG and other 
fuels programs. See 28 U.S.C. 2462. We request comment on these 
proposed recordkeeping requirements for refiners, importers and 
downstream regulated parties. In particular, we request comment on the 
record retention provisions specific to credits that were transferred. 
While we recognize that retaining records for ten years could be 
problematic for both parties, we believe that both parties would need 
to retain records so that we could be reasonably sure that credits used 
for compliance were appropriate. An alternative, raised earlier in this 
proposal, would be to give a more finite life to credits or to require, 
beginning in 2006, credits to be used in the same year they were 
generated or transferred. We welcome comments on this solution or any 
other way in which we can be assured that adequate records would be 
available should a credit transaction come into question at some date 
longer than five years after the transaction.
    c. What Are the Proposed Reporting Requirements? Today's proposed 
rule would require refiners and importers to submit to us, on an annual 
basis, a report that demonstrated compliance with the applicable sulfur 
standards and data on individual batches of gasoline, including batch 
volume and sulfur content. The RFG/CG programs contain similar 
reporting requirements. Based on our experience with these programs, we 
believe that requiring an annual sulfur report and batch information 
would provide an appropriate and effective means of monitoring 
compliance with the average standards under the sulfur program. The 
batch data also would serve to verify that each batch of gasoline met 
the applicable sulfur cap standard when it left the refinery. In 
addition, the annual report would provide a vehicle for accounting for 
any sulfur credits created, sold or used to achieve compliance during 
the averaging period.
    d. What Are the Proposed Attest Requirements? We are also proposing 
to require refiners and importers to arrange for a certified public 
accountant or certified internal auditor to conduct an annual review of 
the company's records that form the basis of the annual sulfur 
compliance report (called an ``attest engagement''). The purpose of the 
attest engagement is to determine whether representations by the 
company are supported by the company's internal records. Attest 
engagements are required under the RFG/CG regulations. We believe that 
an attestation for sulfur could be included in a refiner's current 
attest engagement with little additional burden.
    We believe that the proposed reporting requirements under today's 
rule would impose minimal additional reporting burdens on industry 
while providing us with information necessary to monitor compliance 
with the sulfur standards. We request comment on these proposed 
reporting requirements.
7. What Are the Proposed Exemptions for Research, Development, and 
Testing?
    We are proposing to exempt from the sulfur requirements gasoline 
used for research, development and testing purposes. We recognize that 
there may be legitimate research programs that require the use of 
gasoline with higher sulfur levels than those allowed under today's 
proposed rule. As a result, today's rule contains proposed provisions 
for obtaining an exemption from the prohibitions for persons 
distributing, transporting, storing, selling or dispensing gasoline 
that exceeded the standards, where such gasoline is necessary to 
conduct a research, development or testing program.
    Under the proposal, parties would be required to submit to EPA an 
application for exemption that would describe the purpose and scope of 
the program and the reasons why use of the higher sulfur gasoline is 
necessary. In approving any application, EPA would impose reasonable 
conditions such as recordkeeping, reporting and volume limitations. We 
believe that the proposal includes the least onerous requirements for 
industry that also would ensure that higher sulfur gasoline is used 
only for legitimate research purposes. We request comment on these 
proposed provisions. We also request comment on whether in lieu of an 
approval process, parties should be required to submit the required 
information to EPA at the start of the program, and annually 
thereafter, with the condition that EPA could provide a party with 
written notification in the event the Agency determines the exemption 
is not justified. We also request comment on whether the regulations 
should impose a volume limit on the amount of gasoline that could be 
used in a research program, as a way of minimizing any adverse 
environmental effects that could result from allowing such an exemption 
from the sulfur requirements.
8. What Are the Proposed Liability and Penalty Provisions for 
Noncompliance?
    Today's proposed rule contains provisions for liability and 
penalties that are similar to the liability and penalty provisions of 
the RFG and other fuels regulations.103 Under the proposed

[[Page 26101]]

rule, regulated parties would be liable for committing certain 
prohibited acts, such as selling or distributing gasoline that does not 
meet the sulfur standards, or causing others to commit prohibited acts. 
In addition, parties would be liable for a failure to meet certain 
affirmative requirements, or causing others to fail to meet affirmative 
requirements. For example, persons who produce or import gasoline would 
be liable for a failure to fulfill any of the requirements for refiners 
and importers, including the sampling and testing requirements, the 
reporting and attest audit requirements, the averaging requirements, 
the small refinery requirements, and the credit creation and trading 
requirements. In such cases the regulated party would also be liable 
for any violation of the sulfur standard based on corrected 
information. All parties in the gasoline distribution system, including 
refiners, importers, distributors, carriers, retailers, and wholesale 
purchaser-consumers, would be liable for a failure to fulfill the 
recordkeeping requirements and the PTD requirements.
---------------------------------------------------------------------------

    \103\ See section 80.5 (penalties for fuels violations); section 
80.23 (liability for lead violations); section 80.28 (liability for 
volatility violations); section 80.30 (liability for diesel 
violations); section 80.79 (liability for violation of RFG 
prohibited acts); section 80.80 (penalties for RFG/conventional 
gasoline violations).
---------------------------------------------------------------------------

    a. Presumptive Liability Scheme of Current EPA Fuels Programs. 
Current EPA fuels programs include a presumptive liability scheme for 
violations of prohibited acts. Under this approach, presumptive 
liability is imposed on two types of parties: (1) That party in the 
gasoline distribution system that controls the facility where the 
violation was found or had occurred; and (2) those parties, typically 
upstream in the gasoline distribution system from the initially listed 
party, (such as the refiner, reseller, and any distributor of the 
gasoline), whose prohibited activities could have caused the program 
non-conformity to exist.104 This presumptive liability 
scheme has worked well in enabling us to enforce our fuels programs, 
since it creates comprehensive liability for substantially all the 
potentially responsible parties. The presumptions of liability may be 
rebutted by establishing an affirmative defense.
---------------------------------------------------------------------------

    \104\ Additional type of liability, vicarious liability, is also 
imposed on branded refiners under these fuels programs.
---------------------------------------------------------------------------

    To clarify the inclusive nature of these presumptive liability 
schemes, today's proposed rule would explicitly include causing another 
person to commit a prohibited act and causing the presence of non-
conforming gasoline to be in the distribution system as prohibitions. 
This is consistent with the provisions and implementation of other 
fuels programs.
    Today's proposed rule, therefore, provides that most parties 
involved in the chain of distribution would be subject to a presumption 
of liability for actions prohibited, including causing non-conforming 
gasoline to be in the distribution system and causing violations by 
other parties. Like the other fuels regulations, a refiner also would 
be subject to a presumption of vicarious liability for violations by 
any downstream facility that displays the refiner's brand name, based 
on the refiner's ability to exercise control at these facilities. 
Carriers, however, would be presumed liable only for violations arising 
from product under their control or custody, and not for causing non-
conforming gasoline to be in the distribution system, except where we 
have specific evidence of causation.
    b. Affirmative Defenses for Each Presumptively Liable Party. The 
proposal includes affirmative defenses for each party that is deemed 
presumptively liable for a violation, and all presumptions of liability 
are refutable. The proposed defenses are similar to the defenses 
available to parties for violations of the RFG regulations. We believe 
that these defense elements set forth reasonably attainable criteria to 
rebut a presumption of liability. The defenses include a demonstration 
that: (1) the party did not cause the violation; and (2) except for 
retailers and wholesale purchaser-consumers, the party conducted a 
quality assurance program. For parties other than tank truck carriers, 
the quality assurance program would be required to include periodic 
sampling and testing of the gasoline. For tank truck carriers, the 
quality assurance program would not need to include periodic sampling 
and testing, but in lieu of sampling and testing, the carrier would be 
required to demonstrate evidence of an oversight program for monitoring 
compliance, such as appropriate guidance to drivers on compliance with 
applicable requirements and the periodic review of records concerning 
gasoline quality and delivery.
    As in the other fuels regulations, branded refiners would be 
subject to more stringent standards for establishing a defense because 
of the control such refiners have over branded downstream parties. 
Under today's rule, in addition to the other defense elements, branded 
refiners would be required to show that the violation was caused by an 
action by another person in violation of law, an action by another 
person in violation of a contractual agreement with the refiner, or the 
action of a distributor not subject to a contract with the refiner but 
engaged by the refiner for the transportation of the gasoline.
    Based on experience with other fuels programs, we believe that a 
presumptive liability approach would increase the likelihood of 
identifying persons who cause violations of the sulfur standards. We 
normally do not have the information necessary to establish the cause 
of a violation found at a facility downstream of the refiner or 
importer. We believe that those persons who actually handle the 
gasoline are in the best position to identify the cause of the 
violation, and that a refutable presumption of liability would provide 
an incentive for parties to be forthcoming with information regarding 
the cause of the violation. In addition to identifying the party that 
caused the violation, providing evidence to rebut a presumption of 
liability would serve to establish a defense for the parties who are 
not responsible. Presumptive liability is familiar to both industry and 
to us, and we believe that this approach would make the most efficient 
use of EPA's enforcement resources. For these reasons, we are proposing 
a liability scheme for the sulfur program based on a presumption of 
liability. We request comment on the proposed liability provisions.
    c. Penalties for Violations. Section 211(d)(1) of the CAA provides 
for penalties for violations of the fuels regulations.105 
Today's rule proposes penalty provisions that would apply this CAA 
penalty provision to the sulfur rule. The proposed provisions would 
subject any person who violates any requirement or prohibition of the 
sulfur rule to a civil penalty of up to $27,500 for every day of each 
such violation and the amount of economic benefit or savings resulting 
from the violation. A violation of the applicable average sulfur 
standard would constitute a separate day of violation for each day in 
the averaging period. A violation of a sulfur cap standard would 
constitute a

[[Page 26102]]

separate day of violation for each day the gasoline giving rise to the 
violation remained in the gasoline distribution system. The length of 
time the gasoline in question remained in the distribution system would 
be deemed to be twenty-five days unless there is evidence that the 
gasoline remained in the gasoline distribution system for fewer than or 
more than twenty-five days. The penalty provisions proposed in today's 
rule are similar to the penalty provisions for violations of the RFG 
regulations. EPA requests comment on these provisions.
---------------------------------------------------------------------------

    \105\ Section 211(d)(1) reads, in pertinent part:
    (d)(1) Civil Penalties.--Any person who violates * * * the 
regulations prescribed under subsection (c) * * * of this section * 
* * shall be liable to the United States for a civil penalty of not 
more than the sum of $25,000 for every day of such violation and the 
amount of economic benefit or saving resulting from the violation. * 
* * Any violation with respect to a regulation prescribed under 
subsection (c) * * * of this section which establishes a regulatory 
standard based upon a multi-day averaging period shall constitute a 
separate day of violation for each and every day in the averaging 
period. * * *
    Pursuant to the Debt Collection Improvement Act of 1996 (31 
U.S.C. 3701 note), the maximum penalty amount prescribed in section 
211(d)(1) of the CAA was increased to $27,500. (See 40 CFR part 19.)
---------------------------------------------------------------------------

9. How Would Compliance With the Sulfur Standards Be Determined?
    We have often used a variety of evidence to establish non-
compliance with requirements imposed under our current fuels 
regulations. Test results of the content of gasoline have been used to 
establish violations, both in situations where the sample has been 
taken from the facility at which the violation is found, and where the 
sample has been obtained from other parties' facilities when such test 
results have had probative value of the gasoline's characteristics at 
points upstream or downstream. The Agency has also commonly used 
documentary evidence to establish non-compliance or a party's liability 
for non-compliance. Typical documentary evidence has included transfer 
documents identifying the gasoline as inappropriate for the facility it 
is being delivered to, or identifying parties having connection with 
the non-complying gasoline.
    a. What Evidence Could Be Used to Establish Sulfur Rule Violations 
and Liability for these Violations? A recent EPA Environmental Appeals 
Board decision, (In re: Commercial Cartage Company, Docket No. CAA-93-
H-002, CAA Appeal No. 97-9) (the ``Cartage'' decision), interpreted the 
regulatory language of one of EPA's fuels programs as restricting the 
evidence that the Agency may use in establishing a violation of a 
standard under that program. Under the Cartage decision, in order to 
establish the existence of a violation of the gasoline volatility 
standards 106 at a particular carrier or retail outlet 
facility, we would have to produce non-compliant test results obtained 
only by using the regulatory method and only from a sample taken from 
the facility itself. Other potentially persuasive evidence establishing 
volatility standard violations would not be permitted under the Cartage 
decision's interpretation of the volatility rule.107
---------------------------------------------------------------------------

    \106\ EPA's gasoline volatility regulations are found at 40 CFR 
80.27 and 80.28.
    \107\ See 40 CFR 80.27(b) and 80.28(b) and (e).
---------------------------------------------------------------------------

    We believe that it would best serve the purposes of the proposed 
sulfur rule to not limit the evidence that may be used to show whether 
a violation occurred or liability for that violation. Our enforcement 
experience in other programs has shown that the Cartage-permitted 
evidence (test results from samples taken only from a particular 
facility, and using only the regulatory test methods) often does not 
exist, while other persuasive evidence of the existence of the 
violations does exist. If we are not able to use other forms of 
persuasive evidence to establish violations or other necessary facts 
short of test results such as those permitted by the volatility 
regulations under the Cartage interpretation, violators will continue 
to avoid liability for their actions.
    To ensure that evidence with probative value could be used under 
the sulfur rule, the Agency is making explicit in today's proposal that 
any probative evidence could be used to establish compliance or non-
compliance with the sulfur standards and requirements and liability for 
non-compliance. This would not remove or change the obligation on 
refiners and importers to perform testing on each batch of gasoline 
using the procedures authorized under these regulations. Compliance or 
non-compliance with sulfur standards would continue to be based on 
regulatory test methods. However, other probative evidence could be 
used to determine compliance with sulfur standards if the evidence is 
relevant to whether the sulfur content would have been in compliance if 
the appropriate sampling and testing methodologies had been performed.
    Under today's proposal, the permitted probative evidence 
specifically includes information obtained from any source or any 
location, since Agency enforcement experience has proven the value of 
such widely-obtained material. Respondents in EPA enforcement actions 
would have the same right to present other evidence of compliance with 
the sulfur rule as the Agency would have to establish non-compliance.

VII. Public Participation

    We received many comments from a range of interested parties on our 
Tier 2 Report to Congress. We have also received comments as part of 
the our outreach to small entities (see section V.B.). These comments 
have been very valuable in developing this proposal, and we look 
forward to additional comment during the rulemaking process. You can 
find comments on the issuance of Tier 2 standards and gasoline sulfur 
control we received prior to this proposed action in the rulemaking 
docket, and many of them are discussed in the context of various issues 
in this preamble. We have considered comments received during the 
development of the proposal and have addressed a number of them in 
today's document.

A. Comments and the Public Docket

    Publication of this document opens a formal comment period on this 
proposal. You may submit comments during the period indicated under 
DATES above. The Agency encourages all parties that have an interest in 
the program described in this document to offer comment on all aspects 
of the action. Throughout this proposal you will find requests for 
specific comment on various topics.
    The most useful comments are those supported by appropriate and 
detailed rationales, data, and analyses. We also encourage commenters 
who disagree with the proposed program to suggest and analyze alternate 
approaches to meeting the air quality goals of this proposed program. 
You should send all comments, except those containing proprietary 
information, to the EPA's Air Docket (see ADDRESSES) before the date 
specified above for the end of the comment period.
    Commenters who wish to submit proprietary information for 
consideration should clearly separate such information from other 
comments. Such submissions should be labeled as ``Confidential Business 
Information'' and be sent directly to the contact person listed (see 
FOR FURTHER INFORMATION CONTACT), not to the public docket. This will 
help ensure that proprietary information is not placed in the public 
docket. If a commenter wants EPA to use a submission of confidential 
information as part of the basis for the final rule, then a 
nonconfidential version of the document that summarizes the key data or 
information must be sent to the docket.
    We will disclose information covered by a claim of confidentiality 
only to the extent allowed by the procedures set forth in 40 CFR Part 
2. If no claim of confidentiality accompanies a submission when we 
receive it, we will make it available to the public without further 
notice to the commenter.

B. Public Hearings

    We will hold four public hearings as noted under ``DATES'' above. 
If you would like to present testimony at the

[[Page 26103]]

public hearings, we ask that you notify the contact person listed above 
two weeks before the date of the hearing at which you plan to testify. 
You should include in this notification the date of the hearing at 
which the testimony will be presented, an estimate of the time required 
for the presentation, and any need for audio/visual equipment. We also 
suggest that sufficient copies of the statement or material to be 
presented be made available to the audience. In addition, it is helpful 
if the contact person receives a copy of the testimony or material 
before the hearing.
    The hearings will be conducted informally, and technical rules of 
evidence will not apply. A sign-up sheet will be available at the 
hearings for scheduling the order of testimony. At the scheduled two 
day hearing, we suggest that testimony that primarily pertains to the 
proposed fuel requirements be presented on the first day of the 
hearings and that testimony that primarily pertains to the proposed 
vehicle standards (and/or other aspects of this proposal) be presented 
on the second day of the hearings. Written transcripts of the hearings 
will be prepared. The official record of the hearings will be kept open 
for 30 days after the hearing dates to allow submittal of supplementary 
information.

VIII. Administrative Requirements

A. Administrative Designation and Regulatory Analysis

    Under Executive Order 12866 (58 FR 51735, Oct. 4, 1993), the Agency 
is required to determine whether this regulatory action would be 
``significant'' and therefore subject to review by the Office of 
Management and Budget (OMB) and the requirements of the Executive 
Order. The order defines a ``significant regulatory action'' as any 
regulatory action that is likely to result in a rule that may:
    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;
     Create a serious inconsistency or otherwise interfere with 
an action taken or planned by another agency;
     Materially alter the budgetary impact of entitlements, 
grants, user fees, or loan programs or the rights and obligations of 
recipients thereof; or,
     Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    Pursuant to the terms of Executive Order 12866, EPA has determined 
that this proposal is a ``significant regulatory action'' because the 
proposed vehicle standards, gasoline sulfur standards, and other 
proposed regulatory provisions, if implemented, would have an annual 
effect on the economy in excess of $100 million. Accordingly, a Draft 
Regulatory Impact Analysis (RIA) has been prepared and is available in 
the docket for this rulemaking. This action was submitted to the Office 
of Management and Budget (OMB) for review as required by Executive 
Order 12866. Written comments from OMB on today's action and responses 
from EPA to OMB comments are in the public docket for this rulemaking.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601-612, was amended by 
the Small Business Regulatory Enforcement Fairness Act of 1996 
(SBREFA), Public Law 104-121, to ensure that concerns regarding small 
entities are adequately considered during the development of new 
regulations that affect them. In response to the provisions of this 
statute, EPA has identified industries subject to this proposed rule 
and has provided information to, and received comment from, small 
entities and representatives of small entities in these industries. An 
Initial Regulatory Flexibility Analysis (RFA) has been prepared by the 
Agency to evaluate the economic impacts of today's proposal on small 
entities.108 The key elements of the Initial RFA include:
---------------------------------------------------------------------------

    \108\ The Initial RFA is contained in Chapter 8 of the 
Regulatory Impact Analysis.
---------------------------------------------------------------------------

     The number of affected small entities;
     The projected reporting, record keeping, and other 
compliance requirements of the proposed rule, including the classes of 
small entities that would be affected and the type of professional 
skills necessary for preparation of the report or record;
     Other federal rules that may duplicate, overlap, or 
conflict with the proposed rule; and,
     Any significant alternatives to the proposed rule that 
accomplish the stated objectives of applicable statutes and that 
minimize significant economic impacts of the proposed rule on small 
entities.
    The Agency convened a Small Business Advocacy Review Panel (the 
Panel) under section 609(b) of the Regulatory Flexibility Act as added 
by SBREFA. The purpose of the Panel was to collect the advice and 
recommendations of representatives of small entities that could be 
affected by today's proposed rule and to report on those comments and 
the Panel's findings as to issues related to the key elements of the 
Initial Regulatory Flexibility Analysis under section 603 of the 
Regulatory Flexibility Act. The report of the Panel has been placed in 
the rulemaking record.109
---------------------------------------------------------------------------

    \109\ Report of the Small Business Advocacy Panel on Tier 2 
Light-Duty Vehicle and Light-Duty Truck Emission Standards, Heavy-
Duty Gasoline Engine Standards, and Gasoline Sulfur Standards, 
October 1998.
---------------------------------------------------------------------------

    The contents of today's proposal and the Initial Regulatory 
Flexibility Analysis reflect the recommendations in the Panel's report. 
We summarize our outreach to small entities and our responses to the 
recommendations of the Panel below. The Agency continues to be 
interested in the potential impacts of the proposed rule on small 
entities and welcomes additional comments during the rulemaking process 
on issues related to such impacts.
1. Potentially Affected Small Businesses
    The Initial Regulatory Flexibility Analysis identified small 
businesses from the industries in the following table as subject to the 
provisions of today's proposed rule:

       Table VIII.1.--Industries Containing Small Businesses Potentially Affected by Today's Proposed Rule
----------------------------------------------------------------------------------------------------------------
              Industry                NAICS a codes    SIC b codes     Defined by SBA as a small business if: c
----------------------------------------------------------------------------------------------------------------
Motor Vehicle Manufacturers........          336111            3711  <1000 employees.
                                             336112
                                             336120
Alternative Fuel Vehicle Converters          336311            3592  <500 employees.
                                             541690            8931
                                             336312            3714  <750 employees.

[[Page 26104]]

 
                                             422720            5172  <100 employees.
                                             454312            5984  <$5 million annual sales.
                                             811198            7549
                                             541514            8742
Independent Commercial Importers of          811112            7533  <$5 million annual sales.
 Vehicles and Vehicle Components.            811198            7549
                                             541514            8742
Petroleum Refiners.................          324110            2911  <1500 employees.
Petroleum Marketers and                      422710            5171  <100 employees.
 Distributors.                               422720            5172
----------------------------------------------------------------------------------------------------------------
a North American Industry Classification System.
b Standard Industrial Classification system.
c According to SBA's regulations (13 CFR 121), businesses with no more than the listed number of employees or
  dollars in annual receipts are considered ``small entities'' for purposes of a regulatory flexibility
  analysis.

    The Initial RFA identified about 15 small petroleum refiners, 
several hundred small petroleum marketers, and about 15 small 
certifiers of covered vehicles (belonging to the other categories in 
the above table) that would be subject to the proposed rule.
2. Small Business Advocacy Review Panel and the Evaluation of 
Regulatory Alternatives
    The Small Business Advocacy Review Panel was convened by EPA on 
August 27, 1998. The Panel consisted of representatives of the Small 
Business Administration (SBA), the Office of Management and Budget 
(OMB), and EPA. During the development of today's proposal, EPA and the 
Panel were in contact with representatives from the small businesses 
that would be subject to the provisions in today's proposal. In 
addition to verbal comments from industry noted by the Panel at 
meetings and teleconferences, written comments were received from each 
of the affected industry segments or their representatives. These 
comments, alternatives suggested by the Panel to mitigate adverse 
impacts on small businesses, and issues the Panel requested EPA take 
additional comment on are contained in the report of the Panel and are 
summarized below. Today's proposal incorporates or requests comment on 
the alternatives and issues suggested by the Panel.

Fuel-Related Small Business Issues

    Most of the small refiners stated that if they were required to 
achieve 30 ppm sulfur levels on average with an 80 ppm per-gallon cap 
without some regulatory relief, they would be forced out of business. 
Thus, the Panel devoted much attention to regulatory alternatives to 
address this concern. Most small refiners strongly supported delaying 
mandatory compliance for their facilities. On the other hand, most 
small refiners stated that a phase-in of gasoline sulfur standards 
would not be helpful because it would be more cost-effective for them 
to install the maximum technology required for the most stringent 
sulfur levels that would ultimately be imposed.
    The Society of Independent Gasoline Marketers of America (SIGMA) 
commented that EPA should consider giving relief not only to refiners 
that meet the SBA definition of small refiner but also to refineries 
with relatively small production capacity that are owned by large 
refining companies. This was because a refinery with a small production 
capacity would operate essentially as an SBA-defined small refiner 
would. SIGMA also noted that small gasoline marketers would be affected 
by the closure of any refinery with small production capacity, whether 
it was owned by a large company or an SBA-defined small refining 
company.
    The Panel recommended that small refiners be given a four to six 
year period of relief during which less stringent gasoline sulfur 
requirements would apply. The Panel also advised that EPA specifically 
request comment on an alternative duration of ten years for the relief 
period. Small refiners would be assigned interim sulfur standards 
during this relief period based on their current individual refinery 
sulfur levels. Following this relief period, small refiners would be 
required to meet the industry-wide standard, although temporary 
hardship relief would be available on a case-by-case basis. The 
additional time provided to small refiners before compliance with the 
industry-wide standard was required would allow (1) new sulfur-
reduction technologies to be proven-out by larger refiners, (2) the 
costs of advanced technology units to drop as the volume of their sales 
increases, (3) industry engineering and construction resources to be 
freed-up, and (4) the acquisition of the necessary capital by small 
refiners. The provisions that EPA is proposing for small refiners and 
our requests for specific comments are found in Section IV.C.3.b.above. 
The Panel concluded that adding gasoline sulfur to the fuel parameters 
already being sampled and tested by gasoline marketers would likely 
result in little, if any, additional burden. Therefore, the Panel did 
not recommend any special provision for gasoline marketers.

Vehicle-Related Small Business Issues

    Independent commercial importers of vehicles (ICIs) suggested that 
the new emissions standards be phased-in with the phase-in schedule 
based on the small vehicle manufacturer's annual production volume. 
Secondly, the ICIs requested that small testing laboratories be 
permitted to use older technology dynamometers than proposed for use by 
the Agency. Finally, the ICIs commented that the certification process 
should be waived for certain foreign vehicles. Small-volume vehicle 
manufacturers (SVMs) stated that a phase-in of Tier-2 emissions 
standards is essential. They further stated that SVMs should not be 
required to comply until the end of the phase-in period, which should 
not be before model year 2007. The SVMs also stated that a case-by-case 
hardship relief provision should be provided for their members. SVMs 
requested that a credit program be established with incentives for 
larger manufacturers to make credits available to SVMs in meeting their 
compliance goals.
    Based on the above comments, the Panel advised that EPA consider 
several

[[Page 26105]]

alternatives, individually or in combination, for the potential relief 
that they might provide to small certifiers of vehicles. Our requests 
for comments on these alternatives are found in Section V.A.8 above.
    The Initial Regulatory Flexibility Analysis evaluates the financial 
impacts of the proposed vehicle standards and fuel controls on small 
entities. EPA believes that the regulatory alternatives considered in 
today's document will provide substantial relief to small business from 
the potential adverse economic impacts of complying with today's 
proposed rule.

C. Paperwork Reduction Act

    The information collection requirements (ICR) in this proposed rule 
have been submitted for approval to the Office of Management and Budget 
(OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. The 
Agency may not conduct or sponsor an information collection, and a 
person is not required to respond to a request for information unless 
the information collection request displays a currently valid OMB 
control number. The OMB control numbers for EPA's regulations are 
listed in 40 CFR part 9 and 48 CFR chapter 15.
    The information collection requirements associated with today's 
proposed rule belong to two distinct categories: (1) Those that pertain 
to the proposed amendments to the vehicle certification requirements, 
and (2) those that pertain to the proposed requirements for the control 
of gasoline sulfur content. The information collection requirements are 
contained in two separate ICR documents according to the category to 
which they belong.110
---------------------------------------------------------------------------

    \110\ The information collection requirements associated with 
the proposed amendments to the requirements for vehicle 
certification are contained in the Information Collection Request 
entitled ``Amendments to the Reporting and Recordkeeping 
Requirements for Motor Vehicle Certification Under the Proposed Tier 
2 Rule''. The information collection requirements associated with 
the proposed gasoline sulfur control program are contained in the 
Information Collection Request entitled ``Recordkeeping and 
Reporting Requirements Regarding the Sulfur Content of Motor Vehicle 
Gasoline Under the Tier 2 Rule''.
---------------------------------------------------------------------------

    The Paperwork Reduction Act stipulates that ICR documents estimate 
the burden of activities that would be required of regulated parties 
within a three year time period. Consequently, the ICR documents that 
accompany today's proposed rule provide burden estimates for the 
activities that would be required under the first three years of the 
proposed program.

ICRs Pertaining to the Proposed Amendments to Vehicle Certification 
Requirements

    The information collection burden to vehicle certifiers associated 
with the proposed amendments to the vehicle certification requirements 
in today's document pertain to the proposed fleet-average 
NOX standard and emission credits provisions. These proposed 
requirements are very similar to those under the voluntary National Low 
Emission Vehicle (NLEV) program, which includes a fleet-average 
standard for nonmethane hydrocarbon organic gases (NMOG) and associated 
emission credits provisions. The hours spent annually by a given 
vehicle certifier on the information collection activities associated 
with the proposed recordkeeping and reporting requirements depends upon 
certifier-specific variables, including: the scope/variety of their 
product line as reflected in the number of test groups and strategy 
used to comply with the proposed fleet-average NOX standard, 
the extent they utilize the proposed emissions credits provisions, and 
whether they opted into the NLEV program. Vehicle certifiers that use 
the proposed provisions for early banking of emission credits would be 
subject to the associated information collection requirements as early 
as September 1, 2000.111 All vehicle certifiers would be 
required to comply with the information collection requirements 
associated with the amendments to the vehicle certification program 
beginning September 1, 2003.112 The ICR document for the 
proposed amendments to the vehicle certification program provides 
burden estimates for all of the associated information collection 
requirements. The total information collection burden associated with 
the proposed amendments to the vehicle certification requirements is 
estimated at 8,361 hours and $564,172 annually for the certifiers of 
light-duty vehicles and light-duty trucks.
---------------------------------------------------------------------------

    \111\ These ICRs would become effective on the date that model 
year 2001 vehicles are introduced into commerce. EPA assumes that 
September 1, 2000 is the earliest date that model year 2001 vehicles 
will be marketed.
    \112\ Assuming model year 2004 vehicles are introduced into 
commerce on this date.
---------------------------------------------------------------------------

ICRs Pertaining to the Proposed Requirements for Gasoline Sulfur 
Control

    The information collection burden to gasoline refiners, importers, 
marketers, distributors, retailers and wholesale purchaser-consumers 
(WPCs), and users of research and development (R&D) gasoline pertain to 
the proposed gasoline sulfur control requirements. The scope of the 
recordkeeping and reporting requirements for each regulated party, and 
therefore the cost to that party, reflects the party's opportunity to 
create, control, or alter the sulfur content of gasoline. As a result, 
refiners and importers would have significant requirements, which are 
necessary both for their own tracking, and that of downstream parties, 
and for EPA enforcement. Parties downstream from the gasoline 
production or import point, such as retailers, would have minimal 
burdens that are primarily associated with the transfer and retention 
of product transfer documents. Many of the reporting and recordkeeping 
requirements for refiners and importers regarding the sulfur content of 
gasoline on which the proposed rule would rely currently exist under 
EPA's Reformulated Gasoline (RFG) and Anti-Dumping programs. The ICR 
for the RFG program covered start up costs associated with reporting 
gasoline sulfur content under the RFG program. Consequently, much of 
the cost of the information collection requirements under the proposed 
gasoline sulfur control program has already been accounted for under 
the RFG program ICR.
    The information collection requirements under the proposed sulfur 
control program would evolve over time as the program is phased-in. 
Beginning July 1, 2000, certain requirements would apply to parties 
that voluntarily opt to generate credits for early sulfur reduction 
under the proposed average banking and trading (ABT) provisions. Many 
of the requirements would not become applicable until the beginning of 
the sulfur control program on October 1, 2003, when all refiners would 
be required to meet the proposed standards. The information collection 
requirements under the proposed program would become stable after 
January 1, 2008, when the optional small refiner provisions would 
expire.113
---------------------------------------------------------------------------

    \113\ A refiner could petition EPA for an extension of the small 
refiner provisions beyond January 1, 2008, based on hardship.
---------------------------------------------------------------------------

    The ICR document for the proposed gasoline sulfur control program 
provides burden estimates for the activities that would be required 
under the first three years of the sulfur control program, from July 1, 
2000 through June 30, 2003. The burden associated with activities that 
would be required after June 30, 2003 will be estimated in later ICRs. 
The initial ICR for the gasoline sulfur control program, however, does

[[Page 26106]]

provide a qualitative characterization of all of the required 
activities and associated burdens for the various regulated parties as 
they develop, and until they become stable after January 1, 2008.
    We estimate that the total burden of the information collection 
requirements that would be applicable during the first three years of 
the proposed gasoline sulfur control program would be 42,479 hours and 
$2,149,865 annually. The estimated annual burden for the various 
regulated entities under the initial three year period of the proposed 
gasoline sulfur control program are as follows:

--Refiners: 31,231 hours, $1,879,822
--Importers: 40 hours, $2,067
--Pipelines: 85 hours, $2,785
--Terminals: 1,700 hours, $55,700
--Truckers: 3,333 hours, $118,000
--Retailers/WPCs: 6,087 hours, $ 91,298
--R&D Gasoline Users: 3 hours, $193

Total Burden of the Proposed ICRs

    We estimate that the total burden of the recordkeeping and 
reporting requirements associated with the proposed vehicle 
certification and gasoline sulfur control requirements would be at 
50,840 hours and $2,714,037 annually over the first three years that 
these requirements would be in effect.

Comments on EPA's Burden Estimates

    We request comments on the Agency's need for the information 
proposed to be collected, the accuracy of our estimates of the 
associated burdens, and any suggested methods for minimizing the 
burden, including the use of automated techniques for the collection of 
information. Comments on the ICR should be sent to: the Office of 
Policy, Regulatory Information Division, U.S. Environmental Protection 
Agency (Mail Code 2136), 401 M Street, SW., Washington, DC 20460, 
marked ``Attention: Director of OP;'' and to the Office of Information 
and Regulatory Affairs, Office of Management and Budget, 725 17th 
Street, NW., Washington, DC 20503, marked ``Attention: Desk Officer for 
EPA.'' Include the ICR number in any such correspondence. OMB is 
required to make a decision concerning the ICR between 30 and 60 days 
after publication of a proposed rule. Therefore, comments to OMB on the 
ICR are most useful if received within 30 days of the publication date 
of today's document. Any comments from OMB and from the public on the 
information collection requirements in today's proposal will be placed 
in the docket and addressed by EPA in the final rule.
    Copies of the ICR documents can be obtained from Sandy Farmer, 
Office of Policy, Regulatory Information Division, U.S. Environmental 
Protection Agency (Mail Code 2137), 401 M Street, SW., Washington, DC 
20460, or by calling (202) 260-2740. Insert the ICR title and/or OMB 
control number in any correspondence. Copies may also be downloaded 
from the internet at http://www.epa.gov.icr.

D. Intergovernmental Relations

1. Unfunded Mandates Reform Act
    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for federal agencies to assess the 
effects of their regulatory actions on state, local, and tribal 
governments, and the private sector. Under section 202 of the UMRA, EPA 
generally must prepare a written statement, including a cost-benefit 
analysis, for proposed and final rules with ``federal mandates'' that 
may result in expenditures to state, local, and tribal governments, in 
the aggregate, or to the private sector, of $100 million or more for 
any single year. Before promulgating a rule, for which a written 
statement is needed, section 205 of the UMRA generally requires EPA to 
identify and consider a reasonable number of regulatory alternatives 
and adopt the least costly, most cost-effective, or least burdensome 
alternative that achieves the objectives of the rule. The provisions of 
section 205 do not apply when they are inconsistent with applicable 
law. Moreover, section 205 allows EPA to adopt an alternative that is 
not the least costly, most cost-effective, or least burdensome 
alternative if EPA provides an explanation in the final rule of why 
such an alternative was adopted.
    Before we establish any regulatory requirement that may 
significantly or uniquely affect small governments, including tribal 
governments, we must develop a small government plan pursuant to 
section 203 of the UMRA. Such a plan must provide for notifying 
potentially affected small governments, and enabling officials of 
affected small governments to have meaningful and timely input in the 
development of our regulatory proposals with significant federal 
intergovernmental mandates. The plan must also provide for informing, 
educating, and advising small governments on compliance with the 
regulatory requirements.
    This proposed rule contains no federal mandates for state, local, 
or tribal governments as defined by the provisions of Title II of the 
UMRA. The rule imposes no enforceable duties on any of these 
governmental entities. Nothing in the proposed rule would significantly 
or uniquely affect small governments.
    EPA has determined that this rule contains federal mandates that 
may result in expenditures of more than $100 million to the private 
sector in any single year. EPA believes that the proposed program 
represents the least costly, most cost-effective approach to achieve 
the air quality goals of the proposed rule. The cost-benefit analysis 
required by the UMRA is discussed in Section IV.D. above and in the 
Draft RIA. See the ``Administrative Designation and Regulatory 
Analysis'' section in today's preamble (VIII.A.) for further 
information regarding these analyses.
2. Executive Order 12875: Enhancing Intergovernmental Partnerships
    Under Executive Order 12875, EPA may not issue a regulation that is 
not required by statute and that creates a mandate upon a state, local 
or Tribal government, unless the federal government provides the funds 
necessary to pay the direct compliance costs incurred by those 
governments, or EPA consults with those governments. If EPA complies by 
consulting, Executive Order 12875 requires EPA to provide to the Office 
of Management and Budget a description of the extent of EPA's prior 
consultation with representatives of affected state, local and tribal 
governments, the nature of their concerns, copies of any written 
communications from the governments, and a statement supporting the 
need to issue the regulation. In addition, Executive Order 12875 
requires EPA to develop an effective process permitting elected 
officials and other representatives of state, local and Tribal 
governments ``to provide meaningful and timely input in the development 
of regulatory proposals containing significant unfunded mandates.''
    Today's proposed rule would not create a mandate on state, local or 
Tribal governments. The proposed rule would not impose any enforceable 
duties on these entities. Accordingly, the requirements of section 1(a) 
of Executive Order 12875 do not apply to this rule.
3. Executive Order 13084: Consultation and Coordination With Indian 
Tribal Governments
    Under Executive Order 13084, EPA may not issue a regulation that is 
not required by statute, that significantly or uniquely affects the 
communities of Indian Tribal governments, and that imposes substantial 
direct compliance

[[Page 26107]]

costs on those communities, unless the federal government provides the 
funds necessary to pay the direct compliance costs incurred by the 
tribal governments, or EPA consults with those governments. If EPA 
complies by consulting, Executive Order 13084 requires EPA to provide 
to the Office of Management and Budget, in a separately identified 
section of the preamble to the rule, a description of the extent of 
EPA's prior consultation with representatives of affected tribal 
governments, a summary of the nature of their concerns, and a statement 
supporting the need to issue the regulation. In addition, Executive 
Order 13084 requires EPA to develop an effective process permitting 
elected officials and other representatives of Indian tribal 
governments ``to provide meaningful and timely input in the development 
of regulatory policies on matters that significantly or uniquely affect 
their communities.''
    Today's rule does not significantly or uniquely affect the 
communities of Indian Tribal governments. The proposed motor vehicle 
emissions, motor vehicle fuel, and other related requirements for 
private businesses in today's document would have national 
applicability, and thus would not uniquely affect the communities of 
Indian Tribal Governments. Further, no circumstances specific to such 
communities exist that would cause an impact on these communities 
beyond those discussed in the other sections of today's document. Thus, 
EPA's conclusions regarding the impacts from the implementation of 
today's proposed rule discussed in the other sections of today's 
document are equally applicable to the communities of Indian Tribal 
governments. Accordingly, the requirements of section 3(b) of Executive 
Order 13084 do not apply to this rule.

E. National Technology Transfer and Advancement Act

    Section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (NTTAA), Section 12(d) of Public Law 104-113, directs EPA 
to use voluntary consensus standards in its regulatory activities 
unless it would be inconsistent with applicable law or otherwise 
impractical. Voluntary consensus standards are technical standards 
(e.g., materials specifications, test methods, sampling procedures, and 
business practices) developed or adopted by voluntary consensus 
standards bodies. The NTTAA directs EPA to provide Congress, through 
OMB, explanations when the Agency decides not to use available and 
applicable voluntary consensus standards.
    This proposed rule references technical standards adopted by the 
Agency through previous rulemakings. No new technical standards are 
proposed in today's document. The standards referenced in today's 
proposed rule involve the measurement of gasoline fuel parameters and 
motor vehicle emissions. The measurement standards for gasoline fuel 
parameters referenced in today's proposal are all voluntary consensus 
standards. The motor vehicle emissions measurement standards referenced 
in today's proposed rule are government-unique standards that were 
developed by the Agency through previous rulemakings. These standards 
have served the Agency's emissions control goals well since their 
implementation and have been well accepted by industry. EPA is not 
aware of any voluntary consensus standards for the measurement of motor 
vehicle emissions. Therefore, the Agency proposes to use the existing 
EPA-developed standards found in 40 CFR part 86 for the measurement of 
motor vehicle emissions.
    EPA welcomes comments on this aspect of the proposed rulemaking 
and, specifically, invites the public to identify potentially-
applicable voluntary consensus standards and to explain why such 
standards should be used in this regulation.

F. Executive Order 13045: Children's Health Protection

    Executive Order (E.O.) 13045, ``Protection of Children from 
Environmental Health Risks and Safety Risks'' (62 FR 19885, April 23, 
1997) applies to any rule that (1) is determined to be ``economically 
significant'' as defined under E.O. 12866, and (2) concerns an 
environmental health or safety risk that EPA has reason to believe may 
have a disproportionate effect on children. If the regulatory action 
meets both criteria, section 5-501 of the Order directs the Agency to 
evaluate the environmental health or safety effects of the planned rule 
on children, and explain why the planned regulation is preferable to 
other potentially effective and reasonably feasible alternatives 
considered by the Agency.
    This proposed rule is subject to the Executive Order because it is 
an economically significant regulatory action as defined by E.O. 12866 
and it concerns in part an environmental health or safety risk that EPA 
has reason to believe may have a disproportionate effect on children.
    This rulemaking will achieve significant reductions of various 
emissions from passenger cars and light trucks, primarily 
NOX, but also NMOG and PM. These pollutants raise concerns 
regarding environmental health or safety risks that EPA has reason to 
believe may have a disproportionate effect on children, such as impacts 
from ozone, PM and certain toxic air pollutants. See Section III of 
this proposal and the RIA for a further discussion of these issues.
    The effects of ozone and PM on children's health were addressed in 
detail in EPA's rulemaking to establish the NAAQS for these pollutants, 
and EPA is not revisiting those issues here. EPA believes, however, 
that the emission reductions from the strategies proposed in this 
rulemaking will further reduce air toxics and the related adverse 
impacts on children's health. EPA will be addressing the issues raised 
by air toxics from motor vehicles and their fuels in a separate 
rulemaking that EPA will initiate in the near future under section 
202(l) of the Act. That rulemaking will address the emissions of 
hazardous air pollutants from vehicles and fuels, and the appropriate 
level of control of HAPs from these sources.
    In this proposal, EPA has evaluated several regulatory strategies 
for reductions in emissions from passenger cars and light trucks. (See 
sections IV, V, and VI of this proposal as well as the RIA.) For the 
reasons described there, EPA believes that the strategies proposed are 
preferable under the Clean Air Act to other potentially effective and 
reasonably feasible alternatives considered by the Agency, for purposes 
of reducing emissions from these sources as a way of helping areas 
achieve and maintain the NAAQS for ozone and PM. Moreover, EPA believes 
that it has selected for proposal the most stringent and effective 
control reasonably feasible at this time, in light of the technology 
and cost requirements of the Act.

IX. Statutory Provisions and Legal Authority

    Statutory authority for the vehicle controls proposed in today's 
document can be found in sections 202, 206, 207, 208, and 301 of the 
Clean Air Act (CAA), as amended, 42 U.S.C. sections 7521, 7525, 7541, 
and 7601.
    Statutory authority for the fuel controls proposed in today's 
document comes from section 211(c) of the CAA, which allows EPA to 
regulate fuels that either contribute to air pollution which endangers 
public health or welfare or which impair emission control equipment. 
Both criteria are satisfied for

[[Page 26108]]

the proposed gasoline sulfur controls. Additional support for the 
procedural and enforcement-related aspects of the fuel's controls in 
today's proposal, including the proposed record keeping requirements, 
comes from sections 114(a) and 301(a) of the CAA.

List of Subjects

40 CFR Part 80

    Environmental protection, Administrative practice and procedure, 
Fuel Additives, Gasoline, Imports, Labeling, Motor vehicle pollution, 
Penalties, Reporting and recordkeeping requirements.

40 CFR Part 85

    Environmental protection, Confidential business information, 
Imports, Labeling, Motor vehicle pollution, Penalties, Reporting and 
recordkeeping requirements, Research, Warranties.

40 CFR Part 86

    Environmental protection, Administrative practice and procedure, 
Confidential business information, Labeling, Motor vehicle pollution, 
Penalties, Reporting and recordkeeping requirements.

    Dated: May 1, 1999.
Carol M. Browner,
Administrator.

    For the reasons set forth in the preamble, we propose to amend 
parts 80, 85 and 86 of title 40, of the Code of Federal Regulations as 
follows:

PART 80--REGULATION OF FUELS AND FUEL ADDITIVES

    1. The authority citation for part 80 continues to read as follows:

    Authority: Secs. 114, 211, and 301(a) of the Clean Air Act, as 
amended (42 U.S.C. 7414, 7545 and 7601(a)).

    2. Section 80.2 is amended by removing and reserving paragraph (aa) 
and revising paragraphs (h), (s), (w) and (gg) to read as follows:


Sec. 80.2  Definitions.

* * * * *
    (h) Refinery means any facility, including but not limited to, a 
plant, tanker truck, or vessel where gasoline or diesel fuel is 
produced, including any facility at which blendstocks are combined to 
produce gasoline or diesel fuel, or at which blendstock is added to 
gasoline or diesel fuel.
* * * * *
    (s) Gasoline blending stock, blendstock, or component means any 
liquid compound which is blended with other liquid compounds to produce 
gasoline.
* * * * *
    (w) Previously certified gasoline means gasoline or RBOB that 
previously has been included in a batch for purposes of complying with 
the standards for reformulated gasoline, conventional gasoline or 
gasoline sulfur, as appropriate.
* * * * *
    (aa) [Reserved]
* * * * *
    (gg) Batch of gasoline means a quantity of gasoline that is 
homogeneous with regard to those properties that are specified for 
conventional or reformulated gasoline.
* * * * *
    3. Section 80.46 is amended by revising paragraphs (a) and (h) to 
read as follows:


Sec. 80.46  Measurement of reformulated gasoline fuel parameters.

    (a) Sulfur. Sulfur content must be determined by using one of the 
following methods:
    (1) Primary method. American Society for Testing and Materials 
(ASTM) standard method D-2622-98, entitled ``Standard Test Method for 
Sulfur in Petroleum Products by Wavelength Dispersive X-ray 
Fluorescence Spectrometry.''
    (2) Alternative method. ASTM D-5453-93, entitled ``Standard Test 
Method for Determination of Total Sulfur in Light Hydrocarbons, Motor 
fuels and Oils by Ultraviolet Fluorescence.''
* * * * *
    (h) Incorporations by reference. ASTM standard methods D-2622-98, 
D-5453-93, D-3606-92, D-1319-93, D-4815-93, and D-86-90 with the 
exception of the degrees Fahrenheit figures in Table 9 of D-86-90, are 
incorporated by reference. These incorporations by reference were 
approved by the Director of the Federal Register in accordance with 5 
U.S.C. 552(a) and 1 CFR part 51. Copies may be obtained from the 
American Society for Testing and Materials, 100 Barr Harbor Dr., West 
Conshohocken, PA 19428. Copies may be inspected at the Air Docket 
Section (LE-131), room M-1500, U.S. Environmental Protection Agency, 
Docket No. A-97-03, 401 M Street, SW., Washington, DC 20460, or at the 
Office of the Federal Register, 800 North Capitol Street, NW., Suite 
700, Washington, DC.
    4. Subpart H is added to read as follows:

Subpart H--Gasoline Sulfur

General Information

Sec.
80.180  What are the implementation dates for the gasoline sulfur 
program?
80.185  [Reserved]
80.190  Am I required to register with EPA under the sulfur program?

Gasoline Sulfur Standards

80.195  What are the gasoline sulfur standards for refiners and 
importers?
80.200  What gasoline is subject to the sulfur standards?
80.205  How is compliance with the annual average sulfur level 
determined?
80.210  What sulfur standards apply to gasoline downstream from 
refineries and importers?
80.215  What requirements apply to oxygenate blenders?
80.220  [Reserved]

Small Refiner Provisions

80.225  What is the definition of a small refiner?
80.230  Who is not eligible for the small refiner provisions?
80.235  How does a refiner obtain approval as a small refiner?
80.240  What are the small refiner gasoline sulfur standards?
80.245  How does small refiner apply for a sulfur baseline?
80.250  How is the small refiner sulfur baseline determined?
80.255  [Reserved]
80.260  What are the procedures and requirements for obtaining a 
hardship extension?
80.265  How will the EPA approve or disapprove of my hardship 
extension application?
80.270-80.275  [Reserved]

Sulfur Averaging, Banking, Trading--General Information

80.280  What is the sulfur Averaging, Banking and Trading (ABT) 
program?
80.285  Who may participate in the sulfur ABT program?

Sulfur ABT Program--Baseline

80.290  How do I apply for a sulfur baseline?
80.295  How is a refinery or importer sulfur baseline determined?
80.300  What if I did not produce or import gasoline during 1997 or 
1998?

Sulfur ABT Program--Credit Generation

80.305  How are credits generated during the time period 2001 
through 2003?
80.310  How are credits generated beginning in 2004?

Sulfur ABT Program--Credit Use

80.315  How are credits used?
80.320  What are the reporting requirements for the sulfur ABT 
program?
80.325  [Reserved]

Sampling, Testing and Retention Requirements for Refiners and Importers

80.330  What are the sampling and testing requirements for refiners 
and importers?

[[Page 26109]]

80.335  What gasoline sample retention requirements apply to 
refiners and importers?
80.340  What alternative standards, sampling and testing 
requirements apply to refiners producing gasoline by blending 
blendstocks into previously certified gasoline (PCG)?
80.345  [Reserved]
80.350  What alternative sulfur standards, sampling and testing 
requirements apply to importers who transport gasoline by truck?
80.355  [Reserved]

Recordkeeping and Reporting Requirements

80.360  What are the product transfer document requirements?
80.365  What records must be kept?
80.370  What are the annual reporting requirements?

Exemptions

80.375  What requirements apply to California gasoline?
80.380  What are the requirements for obtaining an exemption for 
gasoline used for research, development or testing purposes?

Violation Provisions

80.385  What acts are prohibited under the gasoline sulfur program?
80.390  What evidence may be used to determine compliance with the 
prohibitions and requirements of this subpart and liability for 
violations of this subpart?
80.395  Who is liable for violations under the gasoline sulfur 
program?
80.400  What defenses apply to persons deemed liable for a violation 
of a prohibited act?
80.405  What penalties am I subject to?

Provisions for Foreign Refiners With Individual Sulfur Baselines

80.410  What are the additional requirements for gasoline produced 
at foreign refineries having individual small refiner sulfur 
baselines?

Attest Engagements

80.415  What are the attest engagement requirements for gasoline 
sulfur compliance?

Subpart H--Gasoline Sulfur

General Information


Sec. 80.180  What are the implementation dates for the gasoline sulfur 
program?

    (a) July 1, 2000. Deadline for submittal of sulfur baseline 
determinations for averaging, banking and trading program per 
Sec. 80.290.
    (b) June 1, 2002. Deadline for small refiner applications per 
Sec. 80.235.
    (c) October 1, 2003. Per-gallon caps apply, per Sec. 80.195 or 
Sec. 80.240, as applicable.
    (d) January 1, 2004. Refinery and importer average standards apply 
and corporate pool average gasoline standards apply, per Sec. 80.195. 
Small refinery average standards apply per Sec. 80.240.
    (e) February 1, 2004. Downstream caps apply, per Sec. 80.210.
    (f) January 1, 2005. Corporate pool average standards and per-
gallon caps are made more stringent per Sec. 80.195.
    (g) January 1, 2006. Corporate pool average gasoline standards no 
longer apply. Per-gallon caps are made more stringent per Sec. 80.195.
    (h) June 30, 2007. Deadline for small refiner hardship extension 
applications per Sec. 80.260.
    (i) January 1, 2008. With the exception of gasoline produced by 
small refiners with approved hardship extensions, every batch of 
gasoline is subject to the 80 ppm cap. With the exception of small 
refiners with approved hardship extensions, refinery and importer 
average gasoline sulfur standards apply, per Sec. 80.195.
    (j) January 1, 2010. Every batch of gasoline is subject to the 80 
ppm cap. Refinery and importer average gasoline sulfur standards apply, 
per Sec. 80.195.


Sec. 80.185  [Reserved]


Sec. 80.190  Am I required to register with EPA under the sulfur 
program?

    (a) Each refiner and importer must register with EPA according to 
the procedures specified in this section.
    (b) Refiners and importers subject to the standards in Sec. 80.195 
who are registered by EPA under Sec. 80.76(a) are deemed to be 
registered for purposes of this subpart. Refiners and importers subject 
to the standards in Sec. 80.195 who are not registered by EPA under 
Sec. 80.76(a) must provide to EPA the information required by 
Sec. 80.76 by November 1, 2003 or not later than three months in 
advance of the first date that such person produces or imports 
gasoline, whichever is later.
    (c) Refiners and individual refineries that are registered by EPA 
under Sec. 80.76(a) and have established small refiner individual 
refinery standards status under Sec. 80.235(f) are deemed to be 
registered for purposes of this subpart. Refiners having any refinery 
subject to the standards in Sec. 80.240 who are not registered by EPA 
under Sec. 80.76(a) must provide to EPA the information required by 
Sec. 80.76 by June 1, 2002.
    (d) Any refiner or importer who plans to generate credits in any 
year prior to 2004 must register with us no later than November 1 of 
the year prior to the first year of credit generation.

Gasoline Sulfur Standards


Sec. 80.195  What are the gasoline sulfur standards for refiners and 
importers?

    (a)(1) The gasoline sulfur standards for refiners and importers, 
excluding small refiners subject to the standards at Sec. 80.240, are 
shown in Table 1 of this section.
    (2) The averaging period is January 1 through December 31 of each 
year. For each averaging period, a refiner's or importer's average 
sulfur level must be no greater than the levels specified in Table 1 of 
this section, as follows:

                                       Table 1.--Gasoline Sulfur Standards
----------------------------------------------------------------------------------------------------------------
                                                                 For the averaging period beginning
                                                  --------------------------------------------------------------
                                                     January 1, 2004      January 1, 2005      January 1, 2006+
----------------------------------------------------------------------------------------------------------------
Refinery or Importer Average, ppm................                   30                   30                   30
Corporate Pool Average, ppm......................                  120                   90                  (b)
Per-Gallon Cap, ppm..............................                 a300                  180                   80
----------------------------------------------------------------------------------------------------------------
a This per-gallon cap standard must be met beginning October 1, 2003.
b Not applicable.

    (b) The refinery or importer average gasoline sulfur standard.
    (1) The refinery or importer average gasoline sulfur standard is 
the maximum average sulfur level, measured in parts per million (ppm), 
allowed for the combined reformulated and conventional gasoline 
produced at a refinery or imported by an importer

[[Page 26110]]

during each calendar year starting January 1, 2004.
    (2) The annual average sulfur level is calculated as specified in 
section Sec. 80.205.
    (3) The refinery or importer average gasoline sulfur standard may 
be met using credits according to Sec. 80.315, or any other potential 
sources of credits or allowances, if applicable.
    (c) The corporate pool average gasoline sulfur standard applicable 
in 2004 and 2005 is the maximum average sulfur level, in ppm, allowed 
for a refiner's or importer's combined reformulated and conventional 
gasoline production from all of a refiner's refineries and all gasoline 
imported by an importer in a calendar year. The corporate pool average 
is determined by volume-weighting each refinery's and importer's actual 
annual average sulfur levels by their respective production or import 
volumes, as specified in Sec. 80.205.
    (d) The per-gallon cap standard specified in Table 1 of this 
section for the averaging period beginning January 1, 2004, must be met 
beginning October 1, 2003.


Sec. 80.200  What gasoline is subject to the sulfur standards?

    All gasoline is subject to the standards in this subpart, with the 
following exceptions:
    (a) Gasoline that is used to fuel aircraft, racing vehicles or 
racing boats that are used only in sanctioned racing events, provided 
that:
    (1) Product transfer documents associated with such gasoline, and 
any pump stand from which such gasoline is dispensed, identify the 
gasoline either as gasoline that is restricted for use in aircraft, or 
as gasoline that is restricted for use in racing motor vehicles or 
racing boats that are used only in sanctioned racing events;
    (2) The gasoline is completely segregated from all other gasoline 
throughout production, distribution and sale to the ultimate consumer; 
and
    (3) The gasoline is not made available for use as motor vehicle 
gasoline, or dispensed for use in motor vehicles.
    (b) California gasoline as defined in Sec. 80.81(a)(2).
    (c) Gasoline that is exported for sale outside the U.S.


Sec. 80.205  How is compliance with the annual average sulfur level 
determined?

    (a) The refinery or importer average gasoline sulfur level is 
calculated as follows:
[GRAPHIC] [TIFF OMITTED] TP13MY99.005

Where:

Sa = The refinery or importer annual average sulfur value.
Vi = The volume of gasoline produced or imported in batch i.
Si = The sulfur content of batch i as determined in 
accordance with the requirements of Sec. 80.330.
n = The number of batches of gasoline produced or imported during the 
averaging period.
i = Individual batch of gasoline produced or imported during the 
averaging period.

    (b) A refiner or importer may include oxygenate added downstream 
from the refinery or import facility when calculating the sulfur 
content, provided the following requirements are met:
    (1) For oxygenate added to conventional gasoline, the refiner or 
importer must comply with the requirements of Sec. 80.101(d)(4)(ii).
    (2) For oxygenate added to RBOB, the refiner or importer must 
comply with the requirements of Sec. 80.69(a).
    (c) Refiners and importers must exclude from compliance 
calculations all of the following:
    (1) Gasoline that was not produced at the refinery or was not 
imported by the importer (or that was imported as Certified Sulfur-
FRGAS).
    (2) Blending stocks or gasoline that have been included in another 
refiner's compliance calculations.
    (3) Gasoline exempted from standards under Sec. 80.200.
    (d) Compliance deficit. A refinery or importer may exceed the 
refinery or importer annual average sulfur standard specified in 
Sec. 80.195 under the following conditions:
    (1) In the calendar year following the year the standard is not 
met, the refinery or importer achieves compliance with the refinery or 
importer annual average sulfur standard specified in Sec. 80.195; and
    (2) In the calendar year following the year the standard is not 
met, and after achieving compliance with the refinery or importer 
annual average sulfur standard specified in Sec. 80.195, the refinery 
or importer must have sufficient additional credits and/or actual 
reduction in sulfur levels to equal the compliance deficit of the 
previous year.


Sec. 80.210  What sulfur standards apply to gasoline downstream from 
refineries and importers?

    (a) Definition. S-RGAS means gasoline produced by a domestic 
refinery that is subject to the standards in Sec. 80.240, and to 
Certified Sulfur-FRGAS, as defined in Sec. 80.410, except that no batch 
of gasoline may be classified as S-RGAS if the actual sulfur content is 
less than the national refinery cap standard specified in Sec. 80.195.
    (b) The sulfur cap standard for gasoline at any point in the 
gasoline distribution system downstream from refineries and import 
facilities, including gasoline at facilities of distributors, carriers, 
retailers and wholesale purchaser-consumers, is as follows:
    (1) The following standards apply to gasoline except where product 
transfer documents indicate the presence of any S-RGAS:

------------------------------------------------------------------------
                                                              National
                                                             Downstream
                     During the Period                       Sulfur Cap
                                                              Standard
                                                                (ppm)
------------------------------------------------------------------------
February 1, 2004, through January 31, 2005................  3
                                                                      26
February 1, 2005, through January 31, 2006................  2
                                                                      01
February 1, 2006, and thereafter..........................  9
                                                                       5
------------------------------------------------------------------------

    (2) For gasoline, including a mixture of gasoline batches from 
different refineries, where product transfer documents indicate the 
presence of any S-RGAS, the downstream cap standard for the gasoline is 
the highest downstream cap standard applicable to any gasoline in the 
mixture, except that if a test result indicates the sulfur content of 
the mixture is less than or equal to the applicable national downstream 
cap standard, the gasoline is subject to the national downstream cap 
standard.


Sec. 80.215  What requirements apply to oxygenate blenders?

    Oxygenate blenders, as defined by Sec. 80.2(mm), are subject to the 
requirements of this subpart except for the reporting requirements of 
Sec. 80.370 and the requirements under Sec. 80.330 to sample and test 
each batch of gasoline produced.


Sec. 80.220  [Reserved]

Small Refiner Provisions


Sec. 80.225  What is the definition of a small refiner?

    (a) A small refiner is defined as any person, as defined by 42 
U.S.C. 7602(e), which, as of January 1, 1999:

[[Page 26111]]

    (1) Produced gasoline at a refinery by processing crude oil through 
refinery processing units; and
    (2)(i) Employed no more than 1500 people, including subsidiaries, 
and in the case of a refiner who operates a refinery as a joint venture 
with other refiners, including the total number of employees of all 
corporate entities in the venture; or
    (ii) Is a subsidiary, in which case the employees of the parent 
company and any wholly-owned subsidiaries of the parent company must be 
included in determining if the 1,500 employee limit is exceeded.
    (b) This definition applies to domestic and foreign refiners.
    (c) If, without merger with or acquisition of another business 
unit, a company with approved small refiner status exceeds 1500 
employees after January 1, 1999, it will be considered a small refiner 
for the duration of the small refiner program.
    (d) A refiner that was not in operation as of January 1, 1999, that 
begins operation before January 1, 2001, and meets all other criteria 
of this subpart, may apply for small refiner status according to 
Sec. 80.235.


Sec. 80.230  Who is not eligible for the small refiner provisions?

    (a) The following are not eligible for the small refiner 
provisions:
    (1) Refineries built or started up after January 1, 1999, unless 
the criteria of Sec. 80.225(d) are met; or
    (2) Persons that employ more than 1500 people on January 1, 1999, 
but employ fewer than 1500 people after that date; or
    (3) Importers; or
    (4) Refiners employing 1500 or fewer people which were part of a 
larger corporation as of January 1, 1999 but subsequently were sold to 
form a new company.
    (b) Disqualification as a small refiner. (1) Refiners who qualify 
as small under Sec. 80.225, and subsequently employ more than 1500 
people as a result of merger with or acquisition of another entity, are 
disqualified as small refiners and must meet the standards in 
Sec. 80.195 beginning on January 1 of the first calendar year following 
such merger or acquisition.
    (2) If a small refiner is no longer eligible for small refiner 
status or elects to change the status of any refinery operating under a 
small refiner individual refinery standard to subject the refinery to 
the standards in Sec. 80.195, the refiner must notify EPA in writing 
within 20 days of the disqualifying event or, in the case of a 
voluntary election, no later than November 15 prior to the year that 
the change will occur. Each refinery of the small refiner no longer 
eligible for small refiner status must meet the standards inSec. 80.195 
for the next averaging period.


Sec. 80.235  How does a refiner obtain approval as a small refiner?

    (a) A refiner must apply to EPA for small refiner status by June 1, 
2002.
    (b) Applications for small refiner status must be sent to: U.S. 
EPA--FED, Gasoline Sulfur Small Refiner Status, 2000 Traverwood, Ann 
Arbor, MI 48105.
    (c) The small refiner status application must contain the following 
information:
    (1) A listing of the name and address of each location where any 
employee of the refiner worked on January 1, 1999, the total number of 
employees at each location, and the type of business activities carried 
out at each location.
    (2) A letter signed by the president, chief operating or chief 
executive officer of the company, or his/her designee, stating that the 
information contained in the application is true to the best of his/her 
knowledge.
    (3) Name, address, phone number, facsimile number and E-mail 
address of a corporate contact person.
    (d) For joint ventures, the total employee count includes the 
combined employee count of all corporate entities in the venture.
    (e) For government-owned refiners, the total employee count 
includes all government employees.
    (f) Refiners who apply for small refiner status based on the number 
of employees after January 1, 1999 but before January 1, 2001, as 
permitted under Sec. 80.225(d), must comply with paragraphs (a) through 
(c) of this section.
    (g) EPA will notify a refiner of approval or disapproval of small 
refiner status by letter.
    (1) If approved, EPA will notify the refiner of each refinery's 
approved baseline, refinery per-gallon cap, and downstream per-gallon 
cap standard under Sec. 80.210.
    (2) If disapproved, the refiner must comply with the standards in 
Sec. 80.195.


Sec. 80.240  What are the small refiner gasoline sulfur standards?

    (a) The gasoline sulfur standards for an approved small refiner 
depend on the refinery baseline sulfur level, and are shown in Table 1 
of this section, as follows:

     Table 1.--Gasoline Sulfur Standards for Approved Small Refiners
------------------------------------------------------------------------
                                        Refinery annual average and per-
                                             gallon (``cap'') sulfur
 Refinery baseline sulfur level (ppm)      standards (ppm) that apply
                                                during 2004-2007
------------------------------------------------------------------------
0 to 30...............................  Refinery average: 30.
                                        Cap: 80.
31 to 80..............................  Refinery average: no
                                         requirement.
                                        Cap: 80.
81 to 200.............................  Refinery average: baseline
                                         level.
                                        Cap: Factor of 2 above the
                                         baseline.
201 and above.........................  Refinery average: 200 ppm or 50%
                                         of baseline, whichever is
                                         higher, but in no event greater
                                         than 300 ppm.
                                        Cap: Factor of 1.5 above
                                         baseline level.
------------------------------------------------------------------------

    (b) The average standards specified in Table 1 of this section 
apply to the combined reformulated and conventional gasoline produced 
at a refinery.
    (c) The refinery average sulfur standards specified in Table 1 of 
this section must be met on an annual calendar year basis for each 
refinery owned by a small refiner.
    (d) The per-gallon cap standards specified in Table 1 of this 
section for the averaging period beginning January 1, 2004 must be met 
beginning October 1, 2003.
    (e) Volume limitation. (1) The refinery average standards specified 
in Table 1 of this section apply to the volume of gasoline produced by 
a small refiner's refinery up to the lesser of:
    (i) 105% of the baseline gasoline volume; or
    (ii) The volume of gasoline produced at that refinery during the 
average period by processing crude oil.
    (2) If a refiner exceeds the volume limitation in paragraph (e)(1) 
of this section during the calendar year, the annual average sulfur 
standard is calculated as follows:
[GRAPHIC] [TIFF OMITTED] TP13MY99.007

Where:

Ssr = Small refiner annual average sulfur standard.
Vb = Applicable volume under paragraph (e)(1) of this 
section.
Va = Averaging period gasoline volume.
Sb = Small refiner sulfur baseline.

    (3) The applicable volume from paragraph (e)(1) of this section 
excludes volumes of gasoline blending stocks used in the small 
refinery's gasoline

[[Page 26112]]

production that were received from external sources, unless such 
blending stocks are substantially transformed through the refinery's 
processing operations and have not been included in any other refiner's 
or importer's compliance determination.
    (4) The applicable per-gallon cap standards in Table 1 of this 
section apply to all gasoline produced by small refiners.
    (f) Withdrawal of small refiner status. Refiners that receive 
notification from EPA under Sec. 80.235(f) of their qualification as 
small refiners will have that status withdrawn if EPA finds that the 
refiner provided false or inaccurate information on its application for 
small refiner status. Such refiners will be subject to the standards in 
Sec. 80.195 beginning on January 1, 2004.


Sec. 80.245  How does a small refiner apply for a sulfur baseline?

    (a) A refiner seeking small refiner status must establish an 
individual sulfur baseline for every refinery covered by the small 
refiner status application by June 1, 2002
    (1) If a sulfur baseline was submitted for the refinery under 
Sec. 80.290, the refiner does not need to resubmit that information.
    (2) If no sulfur baseline was previously submitted, the refiner 
must submit a sulfur baseline for every refinery according to 
Sec. 80.250.
    (b) The sulfur baselines must be submitted to the address specified 
in Sec. 80.235(b).


Sec. 80.250  How is the small refiner sulfur baseline determined?

    (a) The small refiner sulfur baseline is determined as follows:
    [GRAPHIC] [TIFF OMITTED] TP13MY99.008
    
Where:

Sb = Sulfur baseline value.
Vi = Volume of gasoline batch i.
Si = Sulfur content of batch i.
n = Total number of batches of conventional gasoline produced from 
January 1, 1997 through December 31, 1998.
i = Individual batch of conventional gasoline produced from January 1, 
1997 through December 31, 1998.

    (b) Foreign small refiners must also comply with the baseline 
establishment requirements in Sec. 80.410(b).
    (c) An approved small refiner may not aggregate the gasoline 
volumes and sulfur levels of its refineries for compliance with the 
applicable standards specified in Sec. 80.240.
    (d) If at any time a small refinery baseline is determined to be 
incorrect, the corrected baseline applies ab initio and the annual 
average standards and cap standards are deemed to be those applicable 
under the corrected information.
    (e) If a small refiner does not have the data specified in 
paragraph (a) of this section to generate a sulfur baseline, or if any 
refineries owned by that refiner were not operating in 1997-1998, EPA 
will assign each refinery a baseline average sulfur level of 150 ppm 
sulfur and a baseline CG volume equivalent to the annual gasoline 
volume capability of the refinery at the time it applies for small 
refiner status.


Sec. 80.255  [Reserved].


Sec. 80.260  What are the procedures and requirements for obtaining a 
hardship extension?

    (a) An approved small refiner may apply to EPA for a hardship 
extension of the small refiner standards for calendar years 2008 and 
2009. The application must be submitted no later than June 30, 2007 to 
U.S. EPA-FED, Small Refiner Hardship Extension, 2000 Traverwood, Ann 
Arbor, MI 48105.
    (b) The application must provide a detailed discussion regarding 
the inability of the refinery to produce gasoline meeting the 
requirements of Sec. 80.195. Such an application must include, at a 
minimum, the following information:
    (1) A detailed analysis of the reasons the refinery is unable to 
produce gasoline meeting the requirements of Sec. 80.195 in 2008, 
including costs, specification of equipment still needed, potential 
equipment suppliers, and efforts already completed to obtain the 
necessary equipment;
    (2) If unavailability of equipment is part of the reason for the 
inability to comply, a discussion of other options considered, and the 
reasons these other options are not feasible;
    (3) If relevant, a demonstration that a needed or lower cost 
technology is immediately unavailable, but will be available in the 
near future, and full information regarding when and from what sources 
it will be available;
    (4) Schematic drawings of the refinery configuration as of January 
1, 1997 and as of the date of the hardship extension application, and 
any planned future additions or changes;
    (5) If relevant, a demonstration that a temporary unavailability 
exists of engineering or construction resources necessary for design or 
installation of the needed equipment;
    (6) If sources of crude oil lower in sulfur than what the refiner 
is currently using are available, full information regarding the 
availability of these different crude sources, the sulfur content of 
those crude sources, the cost of the different crude sources over the 
past five years, and an estimate of gasoline sulfur levels achievable 
by your refinery if the lower sulfur crude sources were used;
    (7) A discussion of any sulfur reductions that can be achieved from 
current levels;
    (8) The date the refiner anticipates compliance with the standards 
in Sec. 80.195 can be achieved at its refinery;
    (9) An analysis of the economic impact of compliance on the 
refiner's business (including financial statements from the last 5 
years, or for any time period up to 10 years, at EPA's request); and
    (10) Any other information regarding other strategies considered, 
including strategies, or components of strategies, that do not involve 
installation of equipment, and why meeting the standards in Sec. 80.195 
beginning in 2008 is infeasible.
    (c) The hardship extension application must contain a letter signed 
by the president, chief operating or chief executive officer, of the 
company, or his/her designee, stating that the information contained in 
the application is true to the best of his/her knowledge.


Sec. 80.265  How will the EPA approve or disapprove of my hardship 
extension application?

    (a) EPA will evaluate each application for hardship extension on a 
case-by-case basis. An extension will be granted for a refinery if the 
small refiner who owns the refinery adequately demonstrates that severe 
economic hardship would result if compliance with the standards in 
Sec. 80.195 is required in 2008 and/or 2009.
    (b) EPA may request more information, if necessary, for evaluation 
of the application. If requested information is not submitted within 
the time specified in EPA's request, or any extensions granted, the 
application may be denied.
    (c) EPA will notify the refiner of approval or disapproval of 
hardship extension by letter.
    (1) If approved, EPA will also notify the refiner of the date that 
full compliance with the standards specified at Sec. 80.195 must be 
achieved or what interim sulfur levels or schedules apply, if any.

[[Page 26113]]

    (2) If disapproved, beginning January 1, 2008, the refinery is 
subject to the requirements in Sec. 80.195.


Sec. 80.270-80.275  [Reserved]

Sulfur Averaging, Banking, Trading-General Information


Sec. 80.280  What is the sulfur Averaging, Banking and Trading (ABT) 
program?

    (a) The sulfur averaging, banking and trading program is a 
voluntary program which allows eligible, participating refiners and 
importers to generate, bank, trade and use credits.
    (b) Beginning in 2000, refiners and importers may generate credits 
by producing or importing gasoline with sulfur levels below the 
applicable baseline as calculated under Sec. 80.295.
    (c) Beginning in 2004, sulfur credits may be:
    (1) Used by the refiner or importer who generated the credits;
    (2) Banked for later use or transfer; or
    (3) Traded or sold to another refiner or importer.
    (d) This subpart contains specific requirements for the following:
    (1) Using, generating, selling and trading credits; and
    (2) The duration of the ABT program.
    (e) The gasoline sulfur ABT program is summarized in Table 1 of 
this section as follows:

BILLING CODE 6560-50-P
[GRAPHIC] [TIFF OMITTED] TP13MY99.009


BILLING CODE 6560-50-C


Sec. 80.285  Who may participate in the sulfur ABT program?

    (a) Any refiner or importer of gasoline, may participate in the 
program, except that participation by small refiners is limited under 
paragraph (d) of this section.
    (b) Refiners and importers who choose to generate credits in the 
ABT program must establish a sulfur baseline under Sec. 80.290.
    (c) Oxygenate blenders may not participate in the program.
    (d) Small refiners with any refinery subject to the standards 
specified in Sec. 80.240:
    (1) May not use sulfur credits to meet the average standard 
applicable to the refinery.
    (2) May generate early credits under Sec. 80.305 and bank and trade 
such sulfur credits throughout the duration of the sulfur ABT program.

Sulfur ABT Program--Baseline


Sec. 80.290  How do I apply for a sulfur baseline?

    (a) Each refiner or importer who wishes to generate ABT program 
credits during 2000-2003 must submit a sulfur baseline notification to 
EPA by July 1, 2000.
    (b) The sulfur baseline notification must be sent to: U.S. EPA-FED, 
ABT Sulfur Baseline, 2000 Traverwood, Ann Arbor, MI 48105.
    (c) The sulfur baseline notification must include the following 
information:
    (1) A listing of the names and addresses of all refineries and/or 
import facilities owned by the corporation;
    (2) The conventional gasoline sulfur baseline value, calculated as 
specified in Sec. 80.295(a), for each refinery and import facility of 
the corporation.
    (3) The conventional gasoline baseline volume, calculated as 
specified in Sec. 80.295(c), for each refinery and import facility of 
the corporation.
    (4) A letter signed by the president, chief operating or chief 
executive officer, of the company, or his/her delegate, stating that 
the information contained in the sulfur baseline determination is true 
to the best of his/her knowledge.
    (5) Name, address, phone number, facsimile number and E-mail 
address of a corporate contact person.
    (d)(1) A refiner or importer may generate credits as specified in 
Sec. 80.305, beginning in calendar year 2000, based on the sulfur 
baseline submitted to EPA according to paragraph (c) of this section.
    (2) If at any time the baseline submitted in accordance with the 
requirements of this section is determined to be incorrect, the 
corrected baseline applies. Credits

[[Page 26114]]

generated, banked, used or traded will be adjusted to reflect the 
correction.


Sec. 80.295  How is a refinery or importer sulfur baseline determined?

    (a) A refinery's or importer's conventional gasoline sulfur 
baseline is calculated using the following equation:
[GRAPHIC] [TIFF OMITTED] TP13MY99.010

Where:

SBCG = Conventional gasoline sulfur baseline value.
Vi = Volume of conventional gasoline batch i.
Si = Sulfur content of conventional gasoline batch i.
n = Total number of batches of conventional gasoline produced or 
imported during January 1, 1997 through December 31, 1998.
i = Individual batch of conventional gasoline produced or imported 
during January 1, 1997 through December 31, 1998.

    (b) The individual sulfur baseline for summer reformulated gasoline 
is 150 ppm.
    (c) The individual sulfur baseline for winter reformulated gasoline 
is equivalent to the conventional gasoline sulfur baseline calculated 
under paragraph (a) of this section.
    (d) The baseline volumes are as follows:
    (1) The conventional gasoline baseline volume is one half of the 
total 1997 and 1998 volume of conventional gasoline produced or 
imported.
    (2) There is no baseline volume for either summer or winter RFG 
produced or imported.
    (e) Any refiner or importer who, under Sec. 80.65 or 
Sec. 80.101(d)(4), included oxygenate blended downstream in 
conventional gasoline compliance calculations for 1997-1998 must 
include this oxygenate in the baseline calculations for sulfur content 
and volume under paragraphs (a) and (d) of this section.
    (f) The baseline calculations for sulfur content and volume under 
paragraphs (a) and (d) of this section for non-oxygenated blendstock, 
such as natural gasoline or butane, that is blended into gasoline must 
be calculated using the sulfur content and volume of the blendstock 
only.


Sec. 80.300  What if I did not produce or import gasoline during 1997 
or 1998?

    A refiner or importer who did not produce or import gasoline during 
1997 or 1998 is assigned a baseline sulfur level of 150 ppm for 
conventional gasoline and RFG (winter and summer).

Sulfur ABT Program--Credit Generation


Sec. 80.305  How are credits generated during the time period 2000 
through 2003?

    (a) General. (1) Sulfur credits may be generated annually during 
calendar years 2000-2003.
    (2) Credits must be calculated separately for Conventional gasoline 
and RFG. Credits must be calculated by multiplying the volume of 
gasoline for which credits are generated under paragraphs (b) and (c) 
of this section by the amount of sulfur reduction in ppm below the 
refiner's or importer's applicable sulfur baseline. The refiner or 
importer may include any oxygenates included in its RFG or Conventional 
gasoline volume under Secs. 80.65 and 80.101(d)(4), respectively, for 
the purpose of generating credits.
    (3) A refiner's or importer's total credit generation is the sum of 
the separate credit calculations for Conventional gasoline and RFG.
    (4) Credits under this program are in units of ``ppm-gallons''.
    (5) Credits must be identified by the year of creation, the year of 
transfer (if any), and the year of use (as specified in Sec. 80.315). 
Records relating to credit generation, use, and transfer, including the 
applicable years, must be maintained pursuant to Sec. 80.365.
    (b) Calculation of credits for conventional gasoline. (1) Refiners 
and importers may generate credits for conventional gasoline produced 
or imported during an averaging period only if the annual average 
sulfur level for the conventional gasoline produced during the 
averaging period is less than 150 ppm.
    (2) Refiners and importers whose conventional gasoline volume for 
the averaging period is less than or equal to 105% of its baseline 
volume for conventional gasoline, must calculate credits as follows:

    CRCG = (VCG)  x  
SBCG-SACG)

Where:

CRCG = Credits generated for conventional gasoline.
VCG = Volume of conventional gasoline produced or imported 
during the averaging period.
SBCG = Sulfur baseline value for conventional gasoline or 
150, whichever is greater .
SACG = Annual average sulfur level for conventional gasoline 
produced or imported during the averaging period.

    (3) Refiners and importers whose conventional gasoline volume for 
the averaging period is greater than 105% of the baseline volume for 
conventional gasoline, must calculate credits as follows:

CRCG = (VBCG  x  1.05)  x  
(SBCG-SACG) + (VCG-(1.05  x  
VBCG))  x  (150-SACG)

Where:

CRCG = Credits generated for conventional gasoline.
VBCG = Baseline volume of conventional gasoline.
SBCG = Sulfur baseline value for conventional gasoline or 
150, whichever is greater.
SACG = Annual average sulfur level for conventional gasoline 
produced or imported during the averaging period.
VCG = Volume of conventional gasoline produced or imported 
during the averaging period.

    (c) Calculation of credits for RFG. (1) Refiners and importers may 
generate credits for summer RFG produced or imported during an 
averaging period only if the average sulfur level for the summer RFG 
produced or imported during the averaging period is less than 150 ppm. 
Summer RFG credits are calculated as follows:

CRSRFG = (VSRFG)  x  (150-SSRFG)

Where:

CRSRFG = Credits generated for summer reformulated gasoline.
VSRFG = Volume of summer RFG produced or imported during the 
averaging period.
SSRFG = Average sulfur level for summer RFG produced or 
imported during the averaging period.

    (2) Refiners and importers may generate credits for winter RFG 
produced or imported during an averaging period only if the average 
sulfur level for the winter RFG produced or imported during the 
averaging period is less than 150 ppm. Winter RFG credits calculated as 
follows:

CRWRFG = (VWRFG)  x  
(SBCG-SWRFG)

Where:

CRWRFG = Credits generated for winter reformulated gasoline.
VWRFG = Volume of winter RFG produced or imported during the 
averaging period.
SBCG = Sulfur baseline value for conventional gasoline or 
150, whichever is greater.
SWRFG = Average sulfur level for winter RFG produced or 
imported during the averaging period.

[[Page 26115]]

Sec. 80.310  How are credits generated beginning in 2004?

    (a) A refiner, for any refinery owned by it, or an importer may 
generate credits for annual average sulfur reductions if the annual 
average sulfur level for the combined RFG and conventional gasoline 
produced by any refinery owned by the refiner or imported by the 
importer for the averaging period is less than 30 ppm.
    (b) Credits calculated as follows:

CRA = (VA)  x  (30-SA)

Where:

CRA = Credits generated for the averaging period.
VA = Total annual combined volume of RFG and conventional 
gasoline produced in a refinery or imported during the averaging 
period.
SA = Annual average sulfur level of RFG and conventional 
gasoline produced in a refinery or imported during the averaging 
period.

    (c) Credits must be identified by the year of creation, the year of 
transfer (if any), and the year of use (as specified in Sec. 80.315). 
Records relating to credit generation, use, and transfer, including the 
applicable years, must be maintained pursuant to Sec. 80.365.

Sulfur ABT Program-Credit Use


Sec. 80.315  How are credits used?

    (a) Credits may be used, beginning with the 2004 averaging period, 
to meet the applicable annual average sulfur standard of 30 ppm, 
provided that:
    (1) Sulfur credits used were generated pursuant to the requirements 
of this subpart; and
    (2) The requirements of paragraphs (b) and (e) of this section are 
met.
    (b) Credits may not be used to meet the applicable corporate pool 
average under Sec. 80.195.
    (c) Credit transfers. (1) Credits obtained from other persons may 
be used to meet the annual averaged 30 ppm standard specified in 
Sec. 80.195 if all the following conditions are met:
    (i) The credits are generated and reported according to the 
requirements of this subpart.
    (ii) The credits are used in compliance with the limitations 
regarding the appropriate periods for credit use in this subpart.
    (iii) Any credit transfer takes place no later than the last day of 
February following the calendar year averaging period when the credits 
are used.
    (iv) Only the refiner or importer who generates the credits 
transfers them, and only a refiner or importer who uses the credits to 
achieve its compliance with the averaged standards obtains them from 
the transferor refiner or importer.
    (v) The credit transferor must apply any credits necessary to meet 
the transferor's applicable average standard, including credits 
generated during 2000, 2001, 2002 and 2003, before transferring credits 
to any other refiner or importer. No credits may be transferred that 
would result in the transferor having a negative credit balance.
    (vi) The transferor must supply to the transferee records 
indicating the year(s) the credits were generated.
    (2) In the case of credits that have been calculated or created 
improperly, or are otherwise determined to be invalid in violation of 
the requirements of this subpart, the following provisions apply:
    (i) Invalid credits cannot be used to achieve compliance with the 
transferee's averaging standard, regardless of the transferee's good 
faith belief that the credits were valid.
    (ii) The refiner or importer who used the credits, and any 
transferor of the credits, must adjust its sulfur calculations to 
reflect the proper credits.
    (iii) Any properly created credits existing in the transferor's 
credit balance after correcting the credit balance, and after the 
transferor applies credits as needed to meet the average standard at 
the end of the compliance year, must first be applied to correct the 
invalid transfers before the transferor trades or banks the credits.
    (d) Limitations on credit use. (1) Credits generated prior to 2004 
must be used or transferred no later than 2007.
    (2) Credits generated in 2004 or later must be used or transferred 
within five years of generation.
    (3) Credits transferred must be used by the transferee within five 
years of transfer, or no more than ten years of the year of generation, 
whichever is less.
    (4) A refiner possessing credits must use all credits prior to 
falling into compliance deficit, as defined under Sec. 80.205(d) (2).
    (e) If the recordkeeping requirements of Sec. 80.365(d) are not 
met, credits used under this subpart are invalid.


Sec. 80.320  What are the reporting requirements for the sulfur ABT 
program?

    (a) A refiner or importer who generates, uses, or transfers credits 
under the sulfur ABT program must file an annual report with EPA which 
must be submitted with the refiner's or importer's annual compliance 
report under Sec. 80.370.
    (b) The report must include the following information:
    (1) For credits generated in 2000, 2001, 2002 and 2003, the 
applicable Conventional gasoline sulfur content baseline, in ppm, and 
Conventional gasoline baseline;
    (2) The actual annual average sulfur content, in ppm, before the 
application of credits, separately for Conventional gasoline and 
separately, the average sulfur content, in ppm, for winter RFG and for 
summer RFG;
    (3) For refiners, the annual volume of conventional gasoline 
produced, and for importers, the annual volume of Non-Certified S-FRGAS 
imported, in gallons;
    (4) The number of credits used in ppm-gallons, in the averaging 
period;
    (5) The number of credits banked, credits transferred and credits 
acquired, in ppm-gallons;
    (6) The identity of the refiners and importers involved in these 
transactions, including their registration numbers, under Sec. 80.190, 
and the number of credits in ppm-gallons in each transaction; and
    (7) The number of credits, if any, for which the refiner is 
deficient, as defined under Sec. 80.205 (d), and the use of credits in 
the following year to cure the deficiency under Sec. 80.205(d)(2).


Sec. 80.325  [Reserved].

Sampling, Testing and Retention Requirements for Refiners and 
Importers


Sec. 80.330  What are the sampling and testing requirements for 
refiners and importers?

    (a) Sample and test each batch of gasoline. (1) Refiners and 
importers of gasoline must collect a representative sample from each 
batch of gasoline produced or imported and test each sample to 
determine its sulfur content for compliance with requirements under 
this subpart prior to the gasoline leaving the refinery or import 
facility, using the sampling and testing methods provided in this 
section.
    (2) The requirements of this section apply beginning October 1, 
2003, or January 1 of the first year of credit generation for refiners 
and importers generating early credits under Sec. 80.305.
    (b) Sampling methods. Refiners and importers must sample each batch 
of gasoline by using one of the following methods:
    (1) Manual sampling of tanks and pipelines must be performed 
according to the applicable procedures specified in one of the two 
following methods:
    (i) American Society for Testing and Materials (ASTM) method D 
4057-95, entitled ``Standard Practice for Manual Sampling of Petroleum 
and Petroleum Products.''
    (ii) Samples collected under the applicable procedures in ASTM D 
5842-95, entitled ``Standard Practice for Sampling and Handling of 
Fuels for Volatility Measurement,'' may be used

[[Page 26116]]

for measuring sulfur content if you assure that there is no 
contamination present that could affect the sulfur test result.
    (2) Automatic sampling of petroleum products in pipelines must be 
performed according to the applicable procedures specified in ASTM 
method D 4177-95, entitled ``Standard Practice for Automatic Sampling 
of Petroleum and Petroleum Products.''
    (c) Test method for measuring the sulfur content of gasoline. 
Refiners and importers must use the method provided in Sec. 80.46(a) to 
measure the sulfur content of gasoline they produce or import.
    (d) Test method for sulfur in Butane. The sulfur content of butane 
must be determined by ASTM D-5623-94, entitled ``Standard Test Method 
for Sulfur Compounds in Light Petroleum Liquids by Gas Chromatography 
and Sulfur Selective Detection.''
    (e) Incorporations by reference. ASTM standard practices D 4057-95, 
D 4177-95 and D 5842-95, and ASTM standard method D 5623-94 are 
incorporated by reference. These incorporations by reference were 
approved by the Director of the Federal Register in accordance with 5 
U.S.C. 552(a) and 1 CFR part 51. Copies may be obtained from the 
American Society for Testing and Materials, 100 Barr Harbor Dr., West 
Conshohocken, PA 19428. Copies may be inspected at the Air Docket 
Section (LE-131), room M-1500, U.S. Environmental Protection Agency, 
Docket No. A-97-03, 401 M Street, SW., Washington, DC 20460, or at the 
Office of the Federal Register, 800 North Capitol Street, NW., suite 
700, Washington, DC.


Sec. 80.335  What gasoline sample retention requirements apply to 
refiners and importers?

    (a) For each batch of gasoline produced or imported, refiners and 
importers must:
    (1) Retain a representative sample of at least 330 ml, collected 
from the batch and keep the sample for a period not less than 30 days 
from the date the batch was collected.
    (2) Comply with the gasoline sample handling and storage procedures 
found in the sampling procedures specified in Sec. 80.330 for each 
sample retained.
    (3) Provide the sample retained under paragraph (a) of this section 
to the Administrator's authorized representative upon request by EPA, 
and if requested by EPA, ship the sample to EPA within two working days 
by an overnight shipping service or comparable means, following the 
procedures specified by EPA when the request is made.
    (4) Include with each annual report filed under Sec. 80.370, the 
following statement, signed and dated by the same person who signs the 
annual report:

    I certify that I have made inquiries that are sufficient to give 
me knowledge of the procedures to collect and store gasoline 
samples, and I further certify that the procedures meet the 
requirements of the ASTM procedures required under Sec. 80.330.

    (b) The requirements of this section apply beginning October 1, 
2003, or January 1 of the first year of credit generation for refiners 
and importers generating early credits under Sec. 80.305.


Sec. 80.340  What alternative standards, sampling and testing 
requirements apply to refiners producing gasoline by blending 
blendstocks into previously certified gasoline (PCG)?

    (a) Any refiner who produces gasoline by blending blendstock into 
PCG must meet the requirement of Sec. 80.330 to sample and test every 
batch of gasoline as follows:
    (1)(i) Sample and test to determine the volume and sulfur content 
of the PCG prior to blendstock blending;
    (ii) Sample and test to determine the volume and sulfur content of 
the gasoline subsequent to blendstock blending;
    (iii) Calculate the volume and sulfur content of the blendstock, 
which is a batch for purposes of compliance calculations and reporting, 
by subtracting the volume and sulfur content of the PCG from the volume 
and sulfur content of the gasoline subsequent to blendstock blending.
    (2) In the alternative, and provided every batch of blendstock used 
at a refinery during an averaging period has a sulfur content that is 
equal to or less than the applicable per-gallon cap standard under 
Sec. 80.195, a refiner may sample and test each batch of blendstock 
when received at the refinery to determine the volume and sulfur 
content, and treat each blendstock receipt as a separate batch for 
purposes of compliance calculations for the annual average sulfur 
standard and for reporting.
    (b) Refiners that blend only butane into PCG may meet the sampling 
and testing requirements by using sulfur test results of the butane 
supplier, provided that the following requirements are also met:
    (1) The sulfur content of the butane received from the butane 
supplier must not exceed 30 ppm on a per-gallon basis.
    (2) The butane supplier must demonstrate that the sulfur content of 
each load of butane supplied does not exceed the per-gallon sulfur 
standard of 30 ppm through test results of samples of the butane 
contained in the storage tank from which the butane blender is 
supplied.
    (i) Testing for the sulfur content of the butane by the supplier 
must be subsequent to each time butane is supplied to the supplier's 
storage tank, or the testing must be immediately before transfer of 
butane to the butane blender.
    (ii) The testing must be performed by the method specified in 
Sec. 80.330(d).
    (iii) The butane blender must obtain a copy of the butane 
supplier's test results, at the time of each transfer of butane to the 
butane blender, that reflect the sulfur content of each load of butane 
supplied to the butane blender.
    (3) The sulfur content and volume of each batch of gasoline 
produced must be that of the butane the refiner blends into gasoline 
for purposes of calculating compliance with the standards in 
Sec. 80.195.
    (4) The refiner must conduct a quality assurance program of 
sampling and testing for each butane supplier that demonstrates the 
butane sulfur content does not exceed 30 ppm. The frequency of butane 
sampling and testing, for each butane supplier, must be one sample for 
every 500,000 gallons of butane received, or one sample every 3 months, 
whichever results in more frequent sampling.
    (5) If any of the requirements of this section are not met, in 
whole or in part, for any butane blended into gasoline, that butane is 
deemed in violation of the gasoline sulfur standards in Sec. 80.195.


Sec. 80.345  [Reserved]


Sec. 80.350  What alternative sulfur standards, sampling and testing 
requirements apply to importers who transport gasoline by truck?

    Importers who import gasoline into the United States by truck, as 
an alternative to the requirements to sample and test every batch of 
gasoline under Sec. 80.330(a), and the annual sulfur average and per-
gallon cap standards otherwise applicable to importers under 
Sec. 80.195, may instead comply with the following requirements:
    (a) Per-gallon standard. The imported gasoline must meet a sulfur 
standard of 30 ppm on a per-gallon basis.
    (b) Terminal testing. The terminal operator must demonstrate the 
gasoline does not exceed 30 ppm sulfur on a per-gallon basis, through 
testing of the gasoline contained in the storage tank from which the 
trucks used to transport gasoline into the United States are loaded.

[[Page 26117]]

    (1) This sampling and testing must be performed after each receipt 
of gasoline into the storage tank, or immediately before each transfer 
of gasoline to the importer's truck.
    (2) The sampling and testing must be performed using the methods 
specified in Sec. 80.330.
    (3) At the time of each transfer of gasoline to the importer's 
truck, the importer must obtain a copy of the terminal test result that 
indicates the sulfur content of each truck load of gasoline that is 
imported into the United States.
    (c) Quality assurance program. The importer must conduct a quality 
assurance program, as specified in this paragraph, for each truck 
loading terminal.
    (1) Quality assurance samples must be obtained from the truck-
loading terminal and tested by the importer, or by an independent 
laboratory, and the terminal operator must not know in advance when 
samples are to be collected.
    (2) The sampling and testing must be performed using the methods 
specified in Sec. 80.330.
    (3) The quality assurance test results for sulfur must be within 12 
ppm of the terminal's test results.
    (4) The frequency of the quality assurance sampling and testing 
must be at least one sample for each fifty of an importer's trucks that 
are loaded at a terminal, or one sample per month, whichever is more 
frequent.
    (d) Instead of conducting the quality assurance program specified 
in paragraph (c) of this section an importer may meet the quality 
assurance program requirement if the sampling and testing requirements 
of paragraph (b) of this section are conducted by an independent 
laboratory that meets the requirements in Sec. 80.65(f)(2)(iii).
    (e) The importer must treat each truck load of imported gasoline as 
a separate batch for purposes of assigning batch numbers and 
maintaining records under Sec. 80.365, and reporting under Sec. 80.370.
    (f) EPA inspectors or auditors, and auditors conducting attest 
engagements under Sec. 80.415, must be given full and immediate access 
to the truck-loading terminal and any laboratory at which samples of 
gasoline collected at the terminal are analyzed, and must be allowed to 
conduct inspections, review records, collect gasoline samples, and 
perform audits. These inspections or audits may be either announced or 
unannounced.
    (g) This section does not apply to Certified Sulfur-FRGAS.
    (h) If any of the requirements of this section are not met, all 
gasoline imported by the truck importer during the time any 
requirements are not met is deemed in violation of the gasoline sulfur 
average and per-gallon cap standards in Sec. 80.195. In addition, the 
truck importer may not in the future use the sampling and testing 
provisions in this section in lieu of the provisions in Sec. 80.330.


Sec. 80.355  [Reserved]

Recordkeeping and Reporting Requirements


Sec. 80.360  What are the product transfer document requirements?

    (a) On each occasion that any person transfers custody of or title 
to S-RGAS, as defined in Sec. 80.210, other than when S-RGAS is sold or 
dispensed for use in motor vehicles at a retail outlet or wholesale 
purchaser-consumer facility, the product transfer documents must 
include a statement identifying the gasoline as S-RGAS and the 
applicable downstream cap under Sec. 80.210(b).
    (b) Except for transfers to truck carriers, retailers and wholesale 
purchaser-consumers, product codes may be used to convey the 
information required by this section if such codes are clearly 
understood by each transferee.


Sec. 80.365  What records must be kept?

    (a) Records that must be kept. Beginning January 1, 2004, any 
person who sells, offers for sale, dispenses, distributes, supplies, 
offers for supply, stores, or transports gasoline, must keep the 
following records:
    (1) The product transfer documents required under Secs. 80.106, 
80.77 and 80.360;
    (2) For any sampling and testing for sulfur content conducted:
    (i) The location, date, time and storage tank or truck 
identification for each sample collected;
    (ii) The name and title of the person who collected the sample and 
the person who performed the testing;
    (iii) The results of the tests for sulfur content and the test 
volume; and
    (3) Reasonable business records documenting the actions you took to 
stop the sale or distribution of any gasoline found not to be in 
compliance with the sulfur standards specified in this subpart, and the 
actions you took to identify the cause of any noncompliance and prevent 
future instances of noncompliance.
    (b) Additional records that refiners and importers must keep. 
Beginning October 1, 2003, or January 1 of the first year of early 
credit generation for refiners and importers generating credits under 
Sec. 80.305, refiners and importers must keep records that include the 
following information:
    (1) The volume of each batch of gasoline produced or imported;
    (2) For credit generation, the information required by paragraph 
(a)(2) of this section as well as the information required under 
Sec. 80.305(a)(5) and Sec. 80.310(c);
    (3) The batch number assigned to each batch of gasoline under 
Sec. 80.65(d)(3); however, if composite samples that represent multiple 
batches of conventional gasoline for anti-dumping purposes are used, a 
separate batch number must be assigned to each batch for purposes of 
this subpart;
    (4) The date of production or importation of each batch of gasoline 
produced or imported;
    (5) The calculations and records used in making the calculations to 
determine compliance with the applicable sulfur standard on average, 
including compliance with the debit provision of this subpart and 
records regarding the generation, use, transfer, and banking of credits 
under Secs. 80.195, 80.305, 80.310 and 80.315; and
    (6) A copy of all reports and other documents submitted to the EPA 
pursuant to the requirements of this subpart.
    (c) Additional records importers must keep. Importers must maintain 
documentation which verifies the source of each batch of certified 
Sulfur-FRGAS and non-certified Sulfur-FRGAS imported.
    (d) Length of time records must be kept. The records required in 
paragraphs (a), (b) and (c) of this section must be maintained for five 
years from the date they were created, except for the following:
    (1) For any person who generates credits, and/or uses the credits 
so generated, the records required by paragraphs (a), (b) and (c) of 
this section must be retained for five years from the date the credits 
were used, and in no case must the records be retained for more than 
ten years from the year they were generated.
    (2) In the case of credits that were transferred between two 
parties, both parties must retain records of those credits for ten 
years from the date the credits were generated.
    (e) Make records available to EPA. The records required in 
paragraphs (a), (b) and (c) of this section must be made available to 
the Administrator or the Administrator's authorized representative upon 
request.


Sec. 80.370  What are the annual reporting requirements?

    Beginning with the 2004 averaging period, or the first year of 
credit

[[Page 26118]]

generation for refiners and importers generating early credits under 
Sec. 80.305, and continuing for each averaging period thereafter, 
refiners and importers must submit to the Administrator a report that 
contains the information required in this section and such other 
information as EPA may require. A refiner's annual reports for 2004 and 
2005 must include the refiner's RFG and conventional gasoline 
production for all refineries during the averaging period. Beginning in 
2006 and thereafter, a refiner must submit a separate annual report for 
each refinery that produced gasoline during the averaging period. An 
importer must submit a report for all of the gasoline imported during 
the averaging period no later than the last day of February following 
the previous year's averaging period.
    (a) Information required in a refiner's report. For refiners, the 
annual sulfur averaging report must include the following information:
    (1) The EPA refiner and refinery facility registration numbers;
    (2) The total gallons of gasoline (winter reformulated, summer 
reformulated, and conventional) produced at the refinery or aggregation 
of refineries;
    (3) The annual average sulfur content of the gasoline (winter 
reformulated, summer reformulated, and conventional) produced at the 
refinery, or aggregation of refineries, in parts per million;
    (4) For each batch of gasoline produced during the averaging 
period:
    (i) The batch number assigned under Sec. 80.65(d)(3); however, if 
composite samples that represent multiple batches of conventional 
gasoline are tested for conventional gasoline, a separate batch number 
must be assigned to each batch, using the batch numbering procedures 
specified in Sec. 80.65(d)(3);
    (ii) The date the batch was produced;
    (iii) The volume of the batch;
    (iv) The sulfur content of the batch as determined under 
Sec. 80.330;
    (v) The information on individual batches submitted to EPA under 
Sec. 80.75(a)(2) and 80.105(a)(5) satisfies the requirements of this 
paragraph (a)(4) unless compositing of samples is used for anti-dumping 
rule batch reporting under Sec. 80.105(a)(5);
    (5) A refiner's annual report for 2004 and 2005 must include the 
refiner's winter reformulated RFG, summer RFG, and conventional 
gasoline for all refineries during the averaging period;
    (6) Beginning in 2006 and thereafter, a refiner must submit a 
separate annual report for each of its refineries that produced 
gasoline during the averaging period.
    (b) Information required in an importer's report. An importer must 
submit a report for all the gasoline it imported during the averaging 
period. The report must include the following information:
    (1) The EPA importer registration number;
    (2) The total gallons of gasoline (reformulated and conventional) 
imported during the averaging period, excluding certified Sulfur-FRGAS;
    (3) The annual average sulfur content of the gasoline (reformulated 
and conventional) imported during the averaging period, excluding 
certified Sulfur-FRGAS, in parts per million;
    (4) For gasoline imported during the averaging period from any 
small foreign refiner who has an EPA approved individual baseline under 
the small refiner provisions at Sec. 80.410, include the following 
information:
    (i) The EPA refiner and refinery registration numbers of each such 
small foreign refiner and refinery facility; and
    (ii) The total gallons of certified Sulfur-FRGAS and non-certified 
Sulfur-FRGAS imported from each such small foreign refiner;
    (5) The batch information required in paragraph (a)(4) of this 
section.
    (c) Sulfur credit program activity. Refiners and importers who 
generate, bank, transfer, or use sulfur credits must submit to EPA an 
annual report in accordance with the provisions of Sec. 80.320.
    (d) The report must state the debit for the current year, as 
applicable, and credits applied to the previous compliance year's 
debit, as applicable.
    (e) Report submission. Each annual report required under this 
section must be:
    (1) Signed and certified as meeting all of the applicable 
requirements of this subpart H by the owner or a responsible corporate 
officer of the refiner or importer; and
    (2) Submitted to EPA no later than the last day of February for the 
prior calendar year averaging period.
    (f) Attest reports. Attest reports for refiner and importer attest 
engagements must be submitted to the Administrator by May 30 of each 
year under Sec. 80.415.

Exemptions


Sec. 80.375  What requirements apply to California gasoline?

    (a) Definition. For purposes of this subpart, California gasoline 
is defined under Sec. 80.81(a)(2).
    (b) California gasoline exemptions. California gasoline is exempt 
from all requirements of this subpart with the exception of the 
segregation requirement described in paragraph (c) of this section and 
the product transfer document requirements described in paragraph (d) 
of this section.
    (c) Segregation requirement. California gasoline produced at a 
refinery located outside of the state of California must be kept 
segregated from all gasoline that is not California gasoline at all 
points in the distribution system.
    (d) Product transfer documents. For California gasoline produced at 
a refinery located outside the state of California, the transferors and 
transferees must comply with the product transfer document requirements 
in Sec. 80.81(g).
    (e) Use of California test methods and off site sampling 
procedures. Any refiner of gasoline produced in California or importer 
of gasoline imported into California whose gasoline is used outside of 
California may:
    (1) Use the sampling and testing methods approved in Title 13 of 
the California Code of Regulations, as permitted under Sec. 80.81(h)(1) 
as an alternative to the sampling and testing methods required by 
Sec. 80.330; and
    (2) Determine the sulfur content of gasoline at off site tankage as 
permitted in Sec. 80.81(h)(2).


Sec. 80.380  What are the requirements for obtaining an exemption for 
gasoline used for research, development or testing purposes?

    (a) R&D application. Any person may request an exemption from the 
provisions of this subpart for gasoline used for research, development 
or testing (``R&D'') purposes by submitting an application that 
includes all the information listed in paragraph (c) of this section 
to:

Director (6406J), Fuels and Energy Division, U.S. Environmental 
Protection Agency, 401 M Street SW, Washington, DC 20460; and
Director (2242A), Air Enforcement Division, U.S. Environmental 
Protection Agency, 401 M Street, SW, Washington, DC 20460.

    (b) Criteria for an R&D exemption. For an R&D exemption to be 
granted, the proposed test program must:
    (1) Have a purpose that constitutes an appropriate basis for 
exemption;
    (2) Necessitate the granting of an exemption;
    (3) Be reasonable in scope; and
    (4) Have a degree of control consistent with the purpose of the 
program and EPA's monitoring requirements.
    (c) Information required to be submitted. To demonstrate each of 
the four elements in paragraphs (b)(1) through (4) of this section, the

[[Page 26119]]

application required under paragraph (a) of this section must include 
the following information:
    (1) A concise statement of the purpose of the program demonstrating 
that the program has an appropriate R&D purpose.
    (2) An explanation of why the stated purpose of the program cannot 
be achieved in a practicable manner without performing one or more of 
the prohibited acts under Sec. 80.385.
    (3) To demonstrate the reasonableness of the scope of the program:
    (i) An estimate of the program's duration;
    (ii) An estimate of the maximum number of vehicles or engines 
involved in the program;
    (iii) The time or mileage duration of the program;
    (iv) The range of sulfur content of the gasoline expected to be 
used in the program, in ppm; and
    (v) The quantity of gasoline which exceeds the applicable sulfur 
standard that is expected to be used in the program.
    (4) With regard to control, a demonstration that the program 
affords EPA a monitoring capability, including at a minimum:
    (i) The technical nature of the program;
    (ii) The site(s) of the program (including street address, city, 
county, State, and zip code);
    (iii) The manner in which information on vehicles and engines used 
in the program will be recorded and made available to the 
Administrator;
    (iv) The manner in which results of the program will be recorded 
and made available to the Administrator;
    (v) The manner in which information on the gasoline used in the 
program (including quantity, sulfur content, name, address, telephone 
number and contact person of the supplier, and the date received from 
the supplier), will be recorded and made available to the 
Administrator;
    (vi) The manner in which distribution pumps will be labeled to 
insure proper use of the gasoline;
    (vii) The name, address, telephone number and title of the 
person(s) in the organization requesting an exemption from whom further 
information on the application may be obtained; and
    (viii) The name, address, telephone number and title of the 
person(s) in the organization requesting an exemption who is 
responsible for recording and making available the information 
specified in paragraphs (b)(4)(iii), (iv) and (v) of this section, and 
the location in which such information will be maintained.
    (d) Additional requirements. (1) The product transfer documents 
associated with R&D gasoline must identify the gasoline as such, and 
must state that the gasoline is to be used only for research, 
development, or testing purposes.
    (2) The R&D gasoline must be kept segregated from non-exempt 
gasoline at all points in distribution of the gasoline.
    (3) The R&D gasoline must not be sold, distributed, offered for 
sale or distribution, dispensed, supplied, offered for supply, 
transported to or from, or stored by a gasoline retail outlet, or by a 
wholesale purchaser-consumer facility, unless the wholesale purchaser-
consumer facility is associated with the R&D program that uses the 
gasoline.
    (e) Memorandum of exemption. The Administrator will grant an R&D 
exemption upon a demonstration that the requirements of this section 
have been met. The R&D exemption will be granted in the form of a 
memorandum of exemption signed by the applicant and the Administrator 
(or delegate), which will include such terms and conditions as the 
Administrator determines necessary to monitor the exemption and to 
carry out the purposes of this section. Any violation of such a term or 
condition of the exemption or any requirement under this section will 
cause the exemption to be void ab initio.

Violation Provisions


Sec. 80.385  What acts are prohibited under the gasoline sulfur 
program?

    No person may:
    (a) Produce or import gasoline that does not comply with the 
applicable sulfur average standards at Sec. 80.195 or Sec. 80.240.
    (b) Produce, import, sell, offer for sale, dispense, supply, offer 
for supply, store or transport gasoline that does not comply with the 
applicable sulfur cap standards at Sec. 80.195, Sec. 80.210 or 
Sec. 80.240.
    (c) Cause another person to commit an act in violation of paragraph 
(b) of this section.
    (d) Cause gasoline that does not comply with an applicable refiner/
importer or downstream cap standard under Sec. 80.195, Sec. 80.210 or 
Sec. 80.240 to be in the gasoline distribution system.


Sec. 80.390  What evidence may be used to determine compliance with the 
prohibitions and requirements of this subpart and liability for 
violations of this subpart?

    (a) Compliance with the sulfur standards of this subpart must be 
determined based on the sulfur level of the gasoline, measured using 
the methodologies specified in Sec. 80.330. Any evidence or 
information, including the exclusive use of such evidence or 
information, may be used to establish the sulfur level of gasoline if 
the evidence or information is relevant to whether the sulfur level of 
gasoline would have been in compliance with the standards if the 
appropriate sampling and testing methodology had been correctly 
performed. Such evidence may be obtained from any source or location 
and may include, but is not limited to, test results using methods 
other than those specified in Sec. 80.330, business records, and 
commercial documents.
    (b) Determination of compliance with the requirements of this 
subpart other than the sulfur standards, and determination of liability 
for any violation of this subpart, are based on probative evidence or 
information obtained from any source or location. Such evidence may 
include, but is not limited to, business records and commercial 
documents.


Sec. 80.395  Who is liable for violations under the gasoline sulfur 
program?

    (a) Persons liable for violations of prohibited acts. (1) Any 
refiner or importer who violates Sec. 80.385(a) is liable for the 
violation.
    (2) Any refiner, importer, distributor, reseller, carrier, retailer 
or wholesale purchaser-consumer who owned, leased, operated, controlled 
or supervised a facility where a violation of Sec. 80.385(b) occurred, 
is deemed in violation of Sec. 80.385(b).
    (3) Any refiner, importer, distributor, reseller, retailer, or 
wholesale purchaser-consumer who produced, imported, sold, offered for 
sale, dispensed, supplied, offered for supply, stored, transported, or 
caused the transportation or storage of gasoline that is the subject of 
a violation of Sec. 80.385(b), is deemed in violation of 
Sec. 80.385(c).
    (4) Any refiner or importer whose corporate, trade, or brand name, 
or whose marketing subsidiary's corporate, trade, or brand name 
appeared at a facility where a violation of Sec. 80.385(b) occurred, is 
deemed in violation of Sec. 80.385(b).
    (5) Any carrier who dispensed, supplied, stored, or transported 
gasoline which is the subject of a violation of Sec. 80.385(b), is 
deemed in violation of Sec. 80.385(c) provided that EPA demonstrates, 
by reasonably specific showing by direct or circumstantial evidence, 
that any such carrier caused the violation.
    (6) Any refiner, importer, distributor, reseller, or carrier who 
owned, leased, operated, controlled or supervised a facility from which 
gasoline that does

[[Page 26120]]

not comply with an applicable refiner/importer or downstream sulfur cap 
standard at Sec. 80.195, Sec. 80.210 or Sec. 80.240 was released into 
the distribution system, is deemed in violation of Sec. 80.385(d).
    (7) Any person who caused another party to violate Sec. 80.385(a), 
is liable for causing a violation of Sec. 80.385(a).
    (b) Persons liable for failure to meet other requirements of this 
subpart. (1) Any person who failed to meet a requirement of this 
subpart not addressed in paragraph (a) of this section is liable for a 
violation of that requirement.
    (2) Any person who caused another person to fail to meet a 
requirement of this subpart not addressed in paragraph (a) of this 
section is liable for causing a violation of that requirement.


Sec. 80.400  What defenses apply to persons deemed liable for a 
violation of a prohibited act?

    (a) Any person deemed liable for a violation of a prohibition under 
Sec. 80.395(a), will not be deemed in violation if the person 
demonstrates:
    (1) That the violation was not caused by the person or the person's 
employee or agent; and
    (2) That the person conducted a quality assurance sampling and 
testing program, as described in paragraph (d) of this section. A 
carrier may rely on the quality assurance program carried out by 
another party, including the party who owns the gasoline in question, 
provided that the quality assurance program is carried out properly. 
Retailers and wholesale purchaser-consumers are not required to conduct 
quality assurance programs.
    (b) In the case of a violation found at a facility operating under 
the corporate, trade or brand name of a refiner or importer, or a 
refiner's or importer's marketing subsidiary, the refiner or importer 
must show, in addition to the defense elements required by paragraph 
(a) of this section, that the violation was caused by:
    (1) An act in violation of law (other than the Clean Air Act or 
this Part 80), or an act of sabotage or vandalism;
    (2) The action of any refiner, importer, retailer, distributor, 
reseller, carrier, retailer or wholesale purchaser-consumer in 
violation of a contractual agreement between the branded refiner or 
importer and the person designed to prevent such action, and despite 
periodic sampling and testing by the branded refiner or importer to 
ensure compliance with such contractual obligation; or
    (3) The action of any carrier or other distributor not subject to a 
contract with the refiner or importer, but engaged for transportation 
of gasoline, despite specifications or inspections of procedures and 
equipment which are reasonably calculated to prevent such action.
    (c) Under paragraph (a) of this section, for any person to show 
that the violation was not caused by it, or under paragraph (b) of this 
section, to show that the violation was caused by any of the specified 
actions, the person must demonstrate by reasonably specific showing, by 
direct or circumstantial evidence, that the violation was caused or 
must have been caused by another person and that the person asserting 
the defense did not contribute to that other person's causation.
    (d) Quality assurance program. To demonstrate an acceptable quality 
assurance program under paragraph (a)(2) of this section, a person must 
present evidence of the following:
    (1) A periodic sampling and testing program to ensure the gasoline 
the person sold, dispensed, supplied, stored, or transported, meets the 
applicable sulfur standard;
    (2) On each occasion when gasoline is found not in compliance with 
the applicable sulfur standard:
    (i) The person immediately ceases selling, offering for sale, 
dispensing, supplying, offering for supply, storing or transporting the 
non-complying product; and
    (ii) The person promptly remedies the violation and the factors 
that caused the violation (for example, by removing the non-complying 
product from the distribution system until the applicable standard is 
achieved and taking steps to prevent future violations of a similar 
nature from occurring); and
    (3) Any carrier who transports gasoline in a tank truck, the 
quality assurance program required under this paragraph (d) of this 
section is not required to include periodic sampling and testing of 
gasoline in the tank truck, but instead of such sampling and testing, 
the carrier must present evidence of an oversight program relating to 
the transport or storage of gasoline by tank truck, such as appropriate 
guidance to drivers regarding compliance with the applicable sulfur 
standard and product transfer document requirements, and the periodic 
review of records received in the ordinary course of business 
concerning gasoline quality and delivery.


Sec. 80.405  What Penalties Am I Subject To?

    (a) Any person liable for a violation under Sec. 80.395, is subject 
to a civil penalty of not more than $27,500 for every day of each such 
violation and the amount of economic benefit or savings resulting from 
each violation.
    (b) Any person liable under Sec. 80.395(a) for a violation of the 
applicable sulfur average standard or causing another party to violate 
that standard during any averaging period, is subject to a separate day 
of violation for each and every day in the averaging period. Any person 
liable under Sec. 80.395(b) for a failure to fulfill any credit 
creation or transfer requirement, is subject to a separate day of 
violation for each and every day in the averaging period.
    (c)(1) Any person liable under Sec. 80.395(a) for causing gasoline 
that does not comply with an applicable refiner/importer or downstream 
sulfur cap standard to be in the gasoline distribution system in 
violation of Sec. 80.385(d), is subject to a separate day of violation 
for each and every day that the non-complying gasoline remains any 
place in the gasoline distribution system.
    (2) For purposes of paragraph (c) of this section, the length of 
time the gasoline in question remained in the gasoline distribution 
system is deemed to be twenty-five days, unless a person subject to 
liability or EPA demonstrates by reasonably specific showings, by 
direct or circumstantial evidence, that the non-complying gasoline 
remained in the gasoline distribution system for fewer than or more 
than twenty-five days.
    (d) Any person liable under Sec. 80.395(b) for failure to meet, or 
causing a failure to meet, a requirement of this subpart is liable for 
a separate day of violation for each and every day such requirement 
remains unfulfilled.

Provisions for Foreign Refiners With Individual Sulfur Baselines


Sec. 80.410  What are the additional requirements for gasoline produced 
at foreign refineries having individual small refiner sulfur baselines?

    (a) Definitions. (1) A foreign refinery is a refinery that is 
located outside the United States, the Commonwealth of Puerto Rico, the 
Virgin Islands, Guam, American Samoa, and the Commonwealth of the 
Northern Mariana Islands (collectively referred to in this section as 
``the United States'').
    (2) A foreign refiner is a person who meets the definition of 
refiner under Sec. 80.2(i) for foreign refinery.
    (3) A small foreign refiner is a refiner that meets the definition 
of a small refiner under Sec. 80.225.
    (4) ``Sulfur-FRGAS'' means gasoline produced at a foreign refinery 
that has been assigned an individual refinery

[[Page 26121]]

sulfur baseline and that is imported into the United States.
    (5) ``Non-Sulfur-FRGAS'' means gasoline that is produced at a 
foreign refinery that has not been assigned an individual refinery 
sulfur baseline, gasoline produced at a foreign refinery with an 
individual refinery sulfur baseline that is not imported into the 
United States, and gasoline produced at a foreign refinery with an 
individual sulfur baseline during a year when the foreign refiner has 
opted to not participate in the Sulfur-FRGAS program under paragraph 
(c)(3) of this section.
    (6) ``Certified Sulfur-FRGAS'' means Sulfur-FRGAS the foreign 
refiner intends to include in the foreign refinery's sulfur compliance 
calculations under Sec. 80.205, and does include in these compliance 
calculations when reported to EPA.
    (7) ``Non-Certified Sulfur-FRGAS'' means Sulfur-FRGAS that is not 
Certified Sulfur-FRGAS.
    (b) Baseline establishment. Any foreign refiner that meets the 
definition of small under Sec. 80.225, may submit to a petition to the 
Administrator for an individual refinery sulfur baseline, under 
Sec. 80.235 by June 1, 2002.
    (1) The baseline for a foreign refinery must reflect only the 
volume and properties of gasoline produced in 1997 and 1998 that was 
imported into the United States.
    (2) In making determinations for foreign refinery baselines EPA 
will consider all information supplied by a foreign refiner, and in 
addition may rely on any and all appropriate assumptions necessary to 
make such a determination.
    (3) Where a foreign refiner submits a petition that is incomplete 
or inadequate to establish an accurate baseline, and the refiner fails 
to cure this defect after a request for more information, then EPA will 
not assign an individual refinery sulfur baseline.
    (c) General requirements for foreign refiners with individual 
refinery sulfur baselines. A foreign refiner of a refinery that has 
been assigned an individual sulfur baseline under paragraph (b) of this 
section must designate all gasoline produced at the foreign refinery 
that is exported to the United States as either Certified Sulfur-FRGAS 
or as Non-Certified Sulfur-FRGAS, except as provided in paragraph 
(c)(3) of this section.
    (1) In the case of Certified Sulfur-FRGAS, the foreign refiner must 
meet all requirements that apply to refiners under this subpart.
    (2) In the case of Non-Certified Sulfur-FRGAS, the foreign refiner 
must meet all the following requirements:
    (i) The designation requirements in this section.
    (ii) The recordkeeping requirements in Secs. 80.360 and 80.365.
    (iii) The reporting requirements in Sec. 80.370 and this section.
    (iv) The product transfer document requirements in this section.
    (v) The prohibitions in this section and Sec. 80.385.
    (vi) The independent audit requirements in Sec. 80.415 and 
paragraph (h) of this section.
    (3)(i) Any foreign refiner that has been assigned an individual 
sulfur baseline for a foreign refinery under paragraph (b) of this 
section may elect to classify no gasoline imported into the United 
States as Sulfur-FRGAS, provided the foreign refiner notifies EPA of 
the election no later than November 1 of the prior calendar year.
    (ii) An election under paragraph (c)(3)(i) of this section must:
    (A) Be for an entire calendar year averaging period and apply to 
all gasoline produced during the calendar year at the foreign refinery 
that is used in the United States; and
    (B) Remain in effect for each succeeding calendar year averaging 
period, unless and until the foreign refiner notifies EPA of a 
termination of the election. The change in election takes effect at the 
beginning of the next calendar year.
    (d) Designation, product transfer documents, and foreign refiner 
certification. (1) Any foreign refiner of a foreign refinery that has 
been assigned an individual sulfur baseline must designate each batch 
of Sulfur-FRGAS as such at the time the gasoline is produced, unless 
the refiner has elected to classify no gasoline exported to the United 
States as Sulfur-FRGAS under paragraph (c)(3)(i) of this section.
    (2) On each occasion when any person transfers custody or title to 
any Sulfur-FRGAS prior to its being imported into the United States, 
they must include the following information as part of the product 
transfer document information in this section:
    (i) Identification of the gasoline as Certified Sulfur-FRGAS or as 
Non-Certified Sulfur-FRGAS; and
    (ii) The name and EPA refinery registration number of the refinery 
where the Sulfur-FRGAS was produced.
    (3) On each occasion when Sulfur-FRGAS is loaded onto a vessel or 
other transportation mode for transport to the United States, the 
foreign refiner must prepare a certification for each batch of the 
Sulfur-FRGAS that meets the following requirements:
    (i) The certification must include the report of the independent 
third party under paragraph (f) of this section, and the following 
additional information:
    (A) The name and EPA registration number of the refinery that 
produced the Sulfur-FRGAS;
    (B) The identification of the gasoline as Certified Sulfur-FRGAS or 
Non-Certified Sulfur-FRGAS, and for Certified Sulfur-FRGAS the 
information required by Sec. 80.360;
    (C) The volume of Sulfur-FRGAS being transported, in gallons;
    (D) A declaration that the Sulfur-FRGAS is being included in the 
compliance baseline calculations under Sec. 80.250 for the refinery 
that produced the Sulfur-FRGAS; and
    (E) In the case of Certified Sulfur-FRGAS:
    (1) The sulfur content as determined under paragraph (f) of this 
section; and
    (2) A declaration that the Sulfur-FRGAS is being included in the 
compliance calculations under Sec. 80.205 for the refinery that 
produced the Sulfur-FRGAS.
    (ii) The certification must be made part of the product transfer 
documents for the Sulfur-FRGAS.
    (e) Transfers of Sulfur-FRGAS to non-United States markets. The 
foreign refiner is responsible to ensure that all gasoline classified 
as Sulfur-FRGAS is imported into the United States. A foreign refiner 
may remove the Sulfur-FRGAS classification, and the gasoline need not 
be imported into the United States, but only if:
    (1)(i) The foreign refiner excludes:
    (A) The volume of gasoline from the refinery's compliance baseline 
calculations under Sec. 80.250; and
    (B) In the case of Certified Sulfur-FRGAS, the volume and sulfur 
content of the gasoline from the compliance calculations under 
Sec. 80.205;
    (ii) The exclusions under paragraph (e)(1)(i) of this section must 
be on the basis of the parameter and volumes determined under paragraph 
(f) of this section; and
    (2) The foreign refiner obtains sufficient evidence in the form of 
documentation that the gasoline was not imported into the United 
States.
    (f) Load port independent sampling, testing and refinery 
identification. (1) On each occasion Sulfur-FRGAS is loaded onto a 
vessel for transport to the United States a foreign refiner must have 
an independent third party:
    (i) Inspect the vessel prior to loading and determine the volume of 
any tank bottoms;
    (ii) Determine the volume of Sulfur-FRGAS loaded onto the vessel 
(exclusive of any tank bottoms present before vessel loading);

[[Page 26122]]

    (iii) Obtain the EPA-assigned registration number of the foreign 
refinery;
    (iv) Determine the name and country of registration of the vessel 
used to transport the Sulfur-FRGAS to the United States; and
    (v) Determine the date and time the vessel departs the port serving 
the foreign refinery.
    (2) On each occasion Certified Sulfur-FRGAS is loaded onto a vessel 
for transport to the United States a foreign refiner must have an 
independent third party:
    (i) Collect a representative sample of the Certified Sulfur-FRGAS 
from each vessel compartment subsequent to loading on the vessel and 
prior to departure of the vessel from the port serving the foreign 
refinery;
    (ii) Prepare a volume-weighted vessel composite sample from the 
compartment samples, and determine the value for sulfur using the 
methodology specified in Sec. 80.330 by:
    (A) The third party analyzing the sample; or
    (B) The third party observing the foreign refiner analyze the 
sample;
    (iii) Review original documents that reflect movement and storage 
of the certified Sulfur-FRGAS from the refinery to the load port, and 
from this review determine:
    (A) The refinery at which the Sulfur-FRGAS was produced; and
    (B) That the Sulfur-FRGAS remained segregated from:
    (1) Non-Sulfur-FRGAS and Non-Certified Sulfur-FRGAS; and
    (2) Other Certified Sulfur-FRGAS produced at a different refinery.
    (3) The independent third party must submit a report:
    (i) To the foreign refiner containing the information required 
under paragraphs (f)(1) and (2) of this section, to accompany the 
product transfer documents for the vessel; and
    (ii) To the Administrator containing the information required under 
paragraphs (f)(1) and (2) of this section, within thirty days following 
the date of the independent third party's inspection. This report must 
include a description of the method used to determine the identity of 
the refinery at which the gasoline was produced, assurance that the 
gasoline remained segregated as specified in paragraph (n)(1) of this 
section, and a description of the gasoline's movement and storage 
between production at the source refinery and vessel loading.
    (4) The independent third party must:
    (i) Be approved in advance by EPA, based on a demonstration of 
ability to perform the procedures required in this paragraph (f);
    (ii) Be independent under the criteria specified in 
Sec. 80.65(f)(2)(iii); and
    (iii) Sign a commitment that contains the provisions specified in 
paragraph (i) of this section with regard to activities, facilities and 
documents relevant to compliance with the requirements of this 
paragraph (f).
    (g) Comparison of load port and port of entry testing. (1)(i) Any 
foreign refiner and any United States importer of Certified Sulfur-
FRGAS must compare the results from the load port testing under 
paragraph (f) of this section, with the port of entry testing as 
reported under paragraph (o) of this section, for the volume of 
gasoline and the sulfur value; except that
    (ii) Where a vessel transporting Certified Sulfur-FRGAS off loads 
this gasoline at more than one United States port of entry, and the 
conditions of paragraph (g)(2)(i) of this section are met at the first 
United States port of entry, the requirements of paragraph (g)(2) of 
this section do not apply at subsequent ports of entry if the United 
States importer obtains a certification from the vessel owner, that 
meets the requirements of paragraph(s) of this section, that the vessel 
has not loaded any gasoline or blendstock between the first United 
States port of entry and the subsequent port of entry.
    (2)(i) The requirements of this paragraph (g)(2) apply if:
    (A) The temperature-corrected volumes determined at the port of 
entry and at the load port differ by more than one percent; or
    (B) The sulfur value determined at the port of entry is higher than 
the sulfur value determined at the load port, and the amount of this 
difference is greater than the reproducibility amount specified for the 
port of entry test result by the American Society of Testing and 
Materials (ASTM).
    (ii) The United States importer and the foreign refiner must treat 
the gasoline as Non-Certified Sulfur-FRGAS, and the foreign refiner 
must:
    (A) Exclude the gasoline volume and properties from its gasoline 
sulfur compliance calculations under Sec. 80.205; and
    (B) Include the gasoline volume in its compliance baseline 
calculation under Sec. 80.250.
    (h) Attest requirements. The following additional procedures must 
be carried out by any foreign refiner of Sulfur-FRGAS as part of the 
attest engagement for each foreign refinery under Sec. 80.415:
    (1) The inventory reconciliation analysis under Sec. 80.128(b) and 
the tender analysis under Sec. 80.128(c) must include Non-Sulfur-FRGAS 
in addition to the gasoline types listed in Sec. 80.128(b) and (c).
    (2) Obtain separate listings of all tenders of Certified Sulfur-
FRGAS, and of Non-Certified Sulfur-FRGAS. Agree the total volume of 
tenders from the listings to the gasoline inventory reconciliation 
analysis in Sec. 80.128(b), and to the volumes determined by the third 
party under paragraph (f)(1) of this section.
    (3) For each tender under paragraph (h)(2) of this section where 
the gasoline is loaded onto a marine vessel, report as a finding the 
name and country of registration of each vessel, and the volumes of 
Sulfur-FRGAS loaded onto each vessel.
    (4) Select a sample from the list of vessels identified in 
paragraph (h)(3) of this section used to transport Certified Sulfur-
FRGAS, in accordance with the guidelines in Sec. 80.127, and for each 
vessel selected perform the following:
    (i) Obtain the report of the independent third party, under 
paragraph (f) of this section, and of the United States importer under 
paragraph (o) of this section.
    (A) Agree the information in these reports with regard to vessel 
identification, gasoline volumes and test results.
    (B) Identify, and report as a finding, each occasion the load port 
and port of entry parameter and volume results differ by more than the 
amounts allowed in paragraph (g) of this section, and determine whether 
the foreign refiner adjusted its refinery calculations as required in 
paragraph (g) of this section.
    (ii) Obtain the documents used by the independent third party to 
determine transportation and storage of the Certified Sulfur-FRGAS from 
the refinery to the load port, under paragraph (f) of this section. 
Obtain tank activity records for any storage tank where the Certified 
Sulfur-FRGAS is stored, and pipeline activity records for any pipeline 
used to transport the Certified Sulfur-FRGAS, prior to being loaded 
onto the vessel. Use these records to determine whether the Certified 
Sulfur-FRGAS was produced at the refinery that is the subject of the 
attest engagement, and whether the Certified Sulfur-FRGAS was mixed 
with any Non-Certified Sulfur-FRGAS, Non-Sulfur-FRGAS, or any Certified 
Sulfur-FRGAS produced at a different refinery.
    (5) Select a sample from the list of vessels identified in 
paragraph (h)(3) of this section used to transport certified and Non-
Certified Sulfur-FRGAS, in accordance with the guidelines in 
Sec. 80.127, and for each vessel selected perform the following:

[[Page 26123]]

    (i) Obtain a commercial document of general circulation that lists 
vessel arrivals and departures, and that includes the port and date of 
departure of the vessel, and the port of entry and date of arrival of 
the vessel.
    (ii) Agree the vessel's departure and arrival locations and dates 
from the independent third party and United States importer reports to 
the information contained in the commercial document.
    (6) Obtain separate listings of all tenders of Non-Sulfur-FRGAS, 
and perform the following:
    (i) Agree the total volume of tenders from the listings to the 
gasoline inventory reconciliation analysis in Sec. 80.128(b).
    (ii) Obtain a separate listing of the tenders under this paragraph 
(h)(6) where the gasoline is loaded onto a marine vessel. Select a 
sample from this listing in accordance with the guidelines in 
Sec. 80.127, and obtain a commercial document of general circulation 
that lists vessel arrivals and departures, and that includes the port 
and date of departure and the ports and dates where the gasoline was 
off loaded for the selected vessels. Determine and report as a finding 
the country where the gasoline was off loaded for each vessel selected.
    (7) In order to complete the requirements of this paragraph (h) an 
auditor must:
    (i) Be independent of the foreign refiner;
    (ii) Be licensed as a Certified Public Accountant in the United 
States and a citizen of the United States, or be approved in advance by 
EPA based on a demonstration of ability to perform the procedures 
required in Sec. 80.125 through 130 and this paragraph (h); and
    (iii) Sign a commitment that contains the provisions specified in 
paragraph (i) of this section with regard to activities and documents 
relevant to compliance with the requirements of Sec. 80.125 through 
80.130 and this paragraph (h).
    (i) Foreign refiner commitments. Any foreign refiner must commit to 
and comply with the provisions contained in this paragraph (i) as a 
condition to being assigned an individual refinery sulfur baseline.
    (1) Any United States Environmental Protection Agency inspector or 
auditor must be given full, complete and immediate access to conduct 
inspections and audits of the foreign refinery.
    (i) Inspections and audits may be either announced in advance by 
EPA, or unannounced.
    (ii) Access must be provided to any location where:
    (A) Gasoline is produced;
    (B) Documents related to refinery operations are kept;
    (C) Gasoline or blendstock samples are tested or stored; and
    (D) Sulfur-FRGAS is stored or transported between the foreign 
refinery and the United States, including storage tanks, vessels and 
pipelines.
    (iii) Inspections and audits may be by EPA employees or contractors 
to EPA.
    (iv) Any documents requested that are related to matters covered by 
inspections and audits must be provided to an EPA inspector or auditor 
on request.
    (v) Inspections and audits by EPA may include review and copying of 
any documents related to:
    (A) Refinery baseline establishment, including the volume and 
sulfur content, and transfers of title or custody, of any gasoline or 
blendstocks, whether Sulfur-FRGAS or Non-Sulfur-FRGAS, produced at the 
foreign refinery during the period January 1, 1997 through the date of 
the refinery baseline petition or through the date of the inspection or 
audit if a baseline petition has not been approved, and any work papers 
related to refinery baseline establishment;
    (B) The volume and sulfur content of Sulfur-FRGAS;
    (C) The proper classification of gasoline as being Sulfur-FRGAS or 
as not being Sulfur-FRGAS, or as Certified Sulfur-FRGAS or as Non-
Certified Sulfur-FRGAS;
    (D) Transfers of title or custody to Sulfur-FRGAS;
    (E) Sampling and testing of Sulfur-FRGAS;
    (F) Worked performed and reports prepared by independent third 
parties and by independent auditors under the requirements of this 
section and Sec. 80.415, including work papers; and
    (G) Reports prepared for submission to EPA, and any work papers 
related to such reports.
    (vi) Inspections and audits by EPA may include taking samples of 
gasoline or blendstock, and interviewing employees.
    (vii) Any employee of the foreign refiner must be made available 
for interview by the EPA inspector or auditor, on request, within a 
reasonable time period.
    (viii) English language translations of any documents must be 
provided to an EPA inspector or auditor, on request, within 10 working 
days.
    (ix) English language interpreters must be provided to accompany 
EPA inspectors and auditors, on request.
    (2) An agent for service of process located in the District of 
Columbia must be named, and service on this agent constitutes service 
on the foreign refiner or any employee of the foreign refiner for any 
action by EPA or otherwise by the United States related to the 
requirements of this subpart.
    (3) The forum for any civil or criminal enforcement action related 
to the provisions of this section for violations of the Clean Air Act 
or regulations promulgated thereunder are governed by the Clean Air 
Act, including the EPA administrative forum where allowed under the 
Clean Air Act.
    (4) United States substantive and procedural laws apply to any 
civil or criminal enforcement action against the foreign refiner or any 
employee of the foreign refiner related to the provisions of this 
section.
    (5) Submitting a petition for an individual refinery sulfur 
baseline, producing and exporting gasoline under an individual refinery 
sulfur baseline, and all other actions to comply with the requirements 
of this subpart relating to the establishment and use of an individual 
refinery sulfur baseline constitute actions or activities that satisfy 
the provisions of 28 U.S.C. 1605(a)(2), but solely with respect to 
actions instituted against the foreign refiner, its agents and 
employees in any court or other tribunal in the United States for 
conduct that violates the requirements applicable to the foreign 
refiner under this subpart, including conduct that violates 18 U.S.C. 
1001 and Clean Air Act section 113(c)(2).
    (6) The foreign refiner, or its agents or employees, must not 
detain or impose civil or criminal remedies against EPA inspectors or 
auditors, whether EPA employees or EPA contractors, for actions 
performed within the scope of EPA employment related to the provisions 
of this section.
    (7) The commitment required by this paragraph (i) must be signed by 
the owner or president of the foreign refiner business.
    (8) In any case where Sulfur-FRGAS produced at a foreign refinery 
is stored or transported by another company between the refinery and 
the vessel that transports the Sulfur-FRGAS to the United States, the 
foreign refiner must obtain from each such other company a commitment 
that meets the requirements specified in paragraphs (i)(1) through (7) 
of this section, and these commitments must be included in the foreign 
refiner's baseline petition.
    (j) Sovereign immunity. By submitting a petition for an individual 
foreign refinery baseline under this section, or by producing and 
exporting gasoline to the United States under an individual refinery 
sulfur baseline under this section, the foreign refiner, its agents

[[Page 26124]]

and employees, without exception, become subject to the full operation 
of the administrative and judicial enforcement powers and provisions of 
the United States without limitation based on sovereign immunity, with 
respect to actions instituted against the foreign refiner, its agents 
and employees in any court or other tribunal in the United States for 
conduct that violates the requirements applicable to the foreign 
refiner under this subpart, including conduct that violates 18 U.S.C. 
1001 and Clean Air Act section 113(c)(2).
    (k) Bond posting. Any foreign refiner must meet the requirements of 
this paragraph (k) as a condition to being assigned an individual 
refinery sulfur baseline.
    (1) The foreign refiner must post a bond of the amount calculated 
using the following equation:

Bond = G  x  $0.01

Where:

Bond = Amount of the bond in U. S. dollars.
G = The largest volume of gasoline produced at the foreign refinery and 
exported to the United States, in gallons, during a single calendar 
year among the most recent of the following calendar years, up to a 
maximum of five calendar years: the calendar year immediately preceding 
the date the baseline petition is submitted, the calendar year the 
baseline petition is submitted, and each succeeding calendar year.

    (2) Bonds must be posted by:
    (i) Paying the amount of the bond to the Treasurer of the United 
States;
    (ii) Obtaining a bond in the proper amount from a third party 
surety agent that is payable to satisfy United States administrative or 
judicial judgments against the foreign refiner, provided EPA agrees in 
advance as to the third party and the nature of the surety agreement; 
or
    (iii) An alternative commitment that results in assets of an 
appropriate liquidity and value being readily available to the United 
States, provided EPA agrees in advance as to the alternative 
commitment.
    (3) If the bond amount for a foreign refinery increases the foreign 
refiner must increase the bond to cover the shortfall within 90 days of 
the date the bond amount changes. If the bond amount decreases, the 
foreign refiner may reduce the amount of the bond beginning 90 days 
after the date the bond amount changes.
    (4) Bonds posted under this paragraph (k) must be used to satisfy 
any judicial judgment that results from an administrative or judicial 
enforcement action for conduct in violation of this subpart, including 
where such conduct violates 18 U.S.C. 1001 and Clean Air Act section 
113(c)(2).
    (5) On any occasion a foreign refiner bond is used to satisfy any 
judgment, the foreign refiner must increase the bond to cover the 
amount used within 90 days of the date the bond is used.
    (l) [Reserved]
    (m) English language reports. Any report or other document 
submitted to EPA by an foreign refiner must be in English language, or 
must include an English language translation.
    (n) Prohibitions. (1) No person may combine Certified Sulfur-FRGAS 
with any Non-Certified Sulfur-FRGAS or Non-Sulfur-FRGAS, and no person 
may combine Certified Sulfur-FRGAS with any Certified Sulfur-FRGAS 
produced at a different refinery, except as provided in paragraph (e) 
of this section.
    (2) No foreign refiner or other person may cause another person to 
commit an action prohibited in paragraph (n)(1) of this section, or 
that otherwise violates the requirements of this section.
    (o) United States importer requirements. Any United States importer 
must meet the following requirements:
    (1) Each batch of imported gasoline must be classified by the 
importer as being Sulfur-FRGAS or as Non-Sulfur-FRGAS, and each batch 
classified as Sulfur-FRGAS must be further classified as Certified 
Sulfur-FRGAS or as Non-certified Sulfur-FRGAS.
    (2) Gasoline must be classified as Certified Sulfur-FRGAS or as 
Non-Certified Sulfur-FRGAS according to the designation by the foreign 
refiner if this designation is supported by product transfer documents 
prepared by the foreign refiner as required in paragraph (d) of this 
section, unless the gasoline is classified as Non-Certified Sulfur-
FRGAS under paragraph (g) of this section.
    (3) For each gasoline batch classified as Sulfur-FRGAS, any United 
States importer must perform the following procedures:
    (i) In the case of both Certified and Non-Certified Sulfur-FRGAS, 
have an independent third party:
    (A) Determine the volume of gasoline in the vessel;
    (B) Use the foreign refiner's Sulfur-FRGAS certification to 
determine the name and EPA-assigned registration number of the foreign 
refinery that produced the Sulfur-FRGAS;
    (C) Determine the name and country of registration of the vessel 
used to transport the Sulfur-FRGAS to the United States; and
    (D) Determine the date and time the vessel arrives at the United 
States port of entry.
    (ii) In the case of Certified Sulfur-FRGAS, have an independent 
third party:
    (A) Collect a representative sample from each vessel compartment 
subsequent to the vessel's arrival at the United States port of entry 
and prior to off loading any gasoline from the vessel;
    (B) Prepare a volume-weighted vessel composite sample from the 
compartment samples; and
    (C) Determine the sulfur value using the methodologies specified in 
Sec. 80.330, by:
    (1) The third party analyzing the sample; or
    (2) The third party observing the importer analyze the sample.
    (4) Any importer must submit reports within thirty days following 
the date any vessel transporting Sulfur-FRGAS arrives at the United 
States port of entry:
    (i) To the Administrator containing the information determined 
under paragraph (o)(3) of this section; and
    (ii) To the foreign refiner containing the information determined 
under paragraph (o)(3)(ii) of this section.
    (5) Any United States importer must meet the requirements specified 
in Sec. 80.195 for any imported gasoline that is not classified as 
Certified Sulfur-FRGAS under paragraph (o)(2) of this section.
    (p) [Reserved]
    (q) Withdrawal or suspension of a foreign refinery's baseline EPA 
may withdraw or suspend a baseline that has been assigned to a foreign 
refinery where:
    (1) A foreign refiner fails to meet any requirement of this 
section;
    (2) A foreign government fails to allow EPA inspections as provided 
in paragraph (i)(1) of this section;
    (3) A foreign refiner asserts a claim of, or a right to claim, 
sovereign immunity in an action to enforce the requirements in this 
subpart; or
    (4) A foreign refiner fails to pay a civil or criminal penalty that 
is not satisfied using the foreign refiner bond specified in paragraph 
(k) of this section.
    (r) Any refiner whose Sulfur-FRGAS is transported into the United 
States by truck may petition EPA to use alternative procedures to meet 
the requirements for certification under paragraph (d)(5) of this 
section, load port and port of entry sampling and testing under 
paragraphs (f) and (g) of this section, attest under paragraph (h) of 
this section and importer testing under paragraph (o)(3) of this 
section.

[[Page 26125]]

These alternative procedures must ensure Certified Sulfur-FRGAS remains 
segregated from Non-Certified Sulfur-FRGAS and from Non-Sulfur-FRGAS 
until it is imported into the United States. The petition will be 
evaluated based on whether it adequately addresses the following:
    (1) Provisions for monitoring pipeline shipments, if applicable, 
from the refinery, that ensure segregation of Certified Sulfur-FRGAS 
from that refinery from all other gasoline.
    (2) Contracts with any terminals and/or pipelines that receive and/
or transport Certified Sulfur-FRGAS, that prohibit the commingling of 
Certified Sulfur-FRGAS with any of the following:
    (i) Other Certified Sulfur-FRGAS from other refineries.
    (ii) All Non-Certified Sulfur-FRGAS.
    (iii) All Non-Sulfur-FRGAS.
    (3) Procedures for obtaining and reviewing truck loading records 
and United States import documents for Certified Sulfur-FRGAS to ensure 
that such gasoline is only loaded into trucks making deliveries to the 
United States.
    (4) Attest procedures to be conducted annually by an independent 
third party that review loading records and import documents based on 
volume reconciliation, or other criteria, to confirm that all Certified 
Sulfur-FRGAS remains segregated throughout the distribution system and 
is only loaded into trucks for import into the United States.
    (5) The petition required by this section must be submitted to EPA 
along with the application for small refiner status and individual 
refinery sulfur baseline and standards under Sec. 80.235 and this 
section.
    (s) Additional requirements for petitions, reports and 
certificates. Any petition for a refinery baseline under paragraph (b) 
of this section, any alternative procedures under paragraph (r) of this 
section, any report or other submission required by paragraphs (c), 
(f)(2), or (i) of this section, and any certification under paragraph 
(d)(3) of this section must be:
    (1) Submitted in accordance with procedures specified by the 
Administrator, including use of any forms that may specified by the 
Administrator.
    (2) Be signed by the president or owner of the foreign refiner 
company, or by that person's immediate designee, and must contain the 
following declaration:

    I hereby certify: (1) that I have actual authority to sign on 
behalf of and to bind [insert name of foreign refiner] with regard 
to all statements contained herein; (2) that I am aware that the 
information contained herein is being certified, or submitted to the 
United States Environmental Protection Agency, under the 
requirements of 40 CFR Part 80, subpart H and that the information 
is material for determining compliance under these regulations; and 
(3) that I have read and understand the information being certified 
or submitted, and this information is true, complete and correct to 
the best of my knowledge and belief after I have taken reasonable 
and appropriate steps to verify the accuracy thereof.
    I affirm that I have read and understand the provisions of 40 
CFR Part 80, subpart H, including 40 CFR Sec. 80.410 [insert name of 
foreign refiner]. Pursuant to Clean Air Act section 113(c) and Title 
18, United States Code, section 1001, the penalty for furnishing 
false, incomplete or misleading information in this certification or 
submission is a fine of up to $10,000, and/or imprisonment for up to 
five years.

Attest Engagements


Sec. 80.415  What are the attest engagement requirements for gasoline 
sulfur compliance?

    Refiners and importers, for each annual averaging period, must 
arrange to have an attest engagement performed of the underlying 
documentation that forms the basis of any report required under this 
section. The attest engagement must comply with the procedures and 
requirements that apply to refiners and importers under Secs. 80.125 
through 80.130, and must be submitted to the Administrator of EPA by 
May 30 of each year.

PART 85--CONTROL OF AIR POLLUTION FROM MOBILE SOURCES

    5. The authority citation for part 85 continues to read as follows:

    Authority: 42 U.S.C. 7521, 7522, 7524, 7525, 7541, 7542, 
7601(a).

    6. Section 85.1515 is amended by redesignating the existing 
paragraph (c) as paragraph (c)(1) and adding new paragraphs (c)(2), 
(c)(3), (c)(4) and (c)(5) to read as follows:


Sec. 85.1515  Emission standards and test procedures applicable to 
imported nonconforming motor vehicles and motor vehicle engines.

* * * * *
    (c)(1) * * *
    (2) The provisions of paragraph (c)(1) of this section 
notwithstanding, nonconforming light duty vehicles or light light-duty 
trucks (LDV/LLDTs) modified in model years 2004, 2005 or 2006 must meet 
the interim FTP exhaust and evaporative emission standards for light 
duty vehicles and light light-duty trucks specified in 40 CFR 86.1811-
04(l) and 86.1811-04(e)(5). Nonconforming LDT3s and LDT4s (HLDTs) 
modified in model years 2004 through 2008 must meet the interim non-
Tier 2 FTP exhaust and evaporative standards for HLDTs specified in 40 
CFR 86.1811-04(l) and 86.1811-04(e)(5). Optionally, independent 
commercial importers may elect to meet the Tier 2 FTP exhaust and 
evaporative emission standards set forth in 40 CFR 86.1811-04(c) and 
(e) during those years. ICIs are exempt from the Tier 2 and the interim 
non-Tier 2 phase-in percentage requirements described in 40 CFR 
86.1811-04.
    (3) Nonconforming light duty vehicles and light light-duty trucks 
(LDV/LLDTs) modified in model years 2007 or later must meet the exhaust 
and evaporative emission requirements set forth for all 2007 and later 
model year LDV/LLDTs in 40 CFR 86.1811-04.
    (4) Nonconforming heavy light-duty trucks (HLDTs) modified in model 
years 2009 or later must meet the exhaust and evaporative emission 
requirements set forth for all 2009 and later model year HLDTs in 40 
CFR 86.1811-04.
    (5) The requirements of 40 CFR 86.1811-04 related to fleet average 
NOX standards and requirements to comply with such standards 
do not apply to vehicles modified under this subpart.
* * * * *

PART 86--CONTROL OF EMISSIONS FROM NEW AND IN-USE HIGHWAY VEHICLES 
AND ENGINES

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

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

    8. Section 86.1 is amended by revising the entry for ``California 
Regulatory Requirements Applicable to the National Low Emission Vehicle 
Program, October, 1996'', and by adding an entry in alphabetical order 
in the table in paragraph (b)(4) to read as follows:


Sec. 86.1  Reference materials.

* * * * *
    (b) * * *
    (4) * * *

[[Page 26126]]



----------------------------------------------------------------------------------------------------------------
                 Document No. and name                                   40 CFR part 86 reference
----------------------------------------------------------------------------------------------------------------
 
*                  *                  *                  *                  *                  *
                                                        *
California Regulatory Requirements Applicable to the     86.1830-01; 86.1806-01; 86.1810-01; 86.1811-04; 86.1844-
 ``LEV II'' Program, including                            01.
    1. Amendments to California Exhaust and Evaporative
     Emission Standards and Test Procedures for
     Passenger Cars, Light-duty Trucks and Medium-duty
     Vehicles and Amendments to California Motor
     Vehicle Certification, Assembly-line and In-use
     Test Requirements ``CAP 2000''.
    2. California Zero-Emission and Hybrid Electric
     Vehicle Exhaust Emission Standards and Test
     Procedures for 2003 and Subsequent Model Passenger
     Cars, Light-duty Trucks and Medium-duty Vehicles.
    3. California Exhaust Emission Standards and Test
     Procedures for 2001 and Subsequent Model Passenger
     Cars, Light-duty Trucks and Medium-duty Vehicles.
    4. California Non-Methane Organic Gas Test
     Procedures.
    5. California Evaporative Emission Standards and
     Test Procedures for 2001 and Subsequent Model
     Motor Vehicles.
    6. California Refueling Emission Standards and Test
     Procedures for 2001 and Subsequent Model Motor
     Vehicles.
California Regulatory Requirements Applicable to the     86.113-004; 86.612-97; 86.1012-97; 86.1702-99; 86.1708-
 National Low Emission Vehicle Program, October 1996.     99; 86.1709-99; 86.1717-99; 86.1735-99; 86.1771-99;
                                                          86.1775-99; 86.1776-99; 86.1777-99; Appendix XVI;
                                                          Appendix XVII.
----------------------------------------------------------------------------------------------------------------

* * * * *

Subpart B--Emission Regulations for 1997 and Later Model Year New 
Light-duty Vehicles and New Light-duty Trucks; Test Procedures

    9. Section 86.113-04 is added to read as follows:


Sec. 86.113-04  Fuel Specifications.

    This section includes text that specifies requirements that differ 
from Sec. 86.113-94. Where a paragraph in Sec. 86.113-94 is identical 
and applicable to this section, this will be indicated by specifying 
the corresponding paragraph and the statement ``[Reserved]. For 
guidance see Sec. 86.113-94.''
    (a) Gasoline fuel. (1) Gasoline having the following specifications 
will be used by the Administrator in exhaust and evaporative emission 
testing of petroleum-fueled Otto-cycle vehicles. Gasoline having the 
following specification or substantially equivalent specifications 
Approved by the Administrator, must be used by the manufacturer in 
exhaust and evaporative testing except that octane specifications do 
not apply:

----------------------------------------------------------------------------------------------------------------
                  Item                      ASTM test method No.                        Value
----------------------------------------------------------------------------------------------------------------
Octane, Research, Min...................  D2699                     93.
Sensitivity, Min........................  ........................  .7.5
Lead (organic), maximum: g/U.S. gal. (g/  D3237                     0.050 (0.013).
 liter).
Distillation Range......................  D86                       ............................................
    IBP \1\: deg. F (deg. C)............  ........................  75-95 (23.9-35).
    10 pct. point: deg.F (deg.C)........  ........................  120-135 (48.9-57.2).
    50 pct. point: deg.F. (deg.C).......  ........................  200-230 (93.3-110).
    90 pct. point: deg.F (deg.C)........  ........................  300-325 (148.9-162.8).
    EP, max: deg.F (deg.C)D86...........  ........................  415 (212.8).
Sulfur, weight pct......................  D1266                     0.003-0.008.
Phosphorous, max. g/U.S. gal (g/liter)..  D3231                     0.005 (0.0013).
RVP 2 3.................................  D3231                     8.7-9.2 (60.0-63.4).
Hydrocarbon composition.................  D1319                     ............................................
    Olefins, max. pct...................  ........................  10.
    Aromatics, max, pct.................  ........................  35.
    Saturates...........................  ........................  Remainder.
----------------------------------------------------------------------------------------------------------------
\1\ For testing at altitudes above 1,219 m (4000 feet), the specified range is 75-105 deg. F (23.9-40.6 deg. C).
 
\2\ For testing which is unrelated to evaporative emission control, the specified range is 8.0-9.2 psi (55.2-
  63.4 kPa).
\3\ For testing at altitudes above 1,219 m (4000 feet), the specified range is 7.6-8.0 psi (52-55 kPa).

    (2) For light-duty vehicles and light-duty trucks certified for 50 
state sale, ``California Phase 2'' gasoline having the specifications 
listed in the table in this section may be used in exhaust emission 
testing as an option to the specifications in paragraph (a)(1) of this 
section. If a manufacturer elects to utilize this option, exhaust 
emission testing must be conducted by the manufacturer with gasoline 
having the specifications listed in the table in this paragraph (a)(2) 
and the Administrator must also conduct exhaust emission testing with 
gasoline having the specifications listed in the table in this 
paragraph (a)(2), except that the Administrator may use or require the 
use of test fuel meeting the specifications in paragraph (a)(1) of this 
section for selective enforcement auditing and in-use testing. All fuel 
property test methods for this fuel are contained in Chapter 4 of the 
California

[[Page 26127]]

Regulatory Requirements Applicable to the National Low Emission Vehicle 
Program (October, 1996). These requirements are incorporated by 
reference (see Sec. 86.1). The table follows:

------------------------------------------------------------------------
             Fuel property                            Limit
------------------------------------------------------------------------
Octane, (R+M)/2 (min)..................  91.
Sensitivity (min)......................  7.5.
Lead, g/gal (max) (No lead added)......  0-0.01.
Distillation Range,  deg.F
10 pct. point,.........................  130-150.
50 pct. point,.........................  200-210.
90 pct. point,.........................  290-300.
EP, maximum............................  390.
Residue, vol% (max)....................  2.0.
Sulfur, ppm by wt......................  30-40.
Phosphorous, g/gal (max)...............  0.005.
RVP, psi...............................  6.7-7.0.
Olefins, vol %.........................  4.0-6.0.
Total Aromatic Hydrocarbons (vol%).....  22-25.
Benzene, vol %.........................  0.8-1.0.
Multi-Substituted Alkyl Aromatic         12-14.
 Hydrocarbons, vol%.
MTBE, vol%.............................  10.8-11.2.
Additives..............................  See Chapter 4 of the California
                                          Regulatory Requirements
                                          Applicable to the National Low
                                          Emission Vehicle Program
                                          (October, 1996). These
                                          procedures are incorporated by
                                          reference (see Sec.  86.1).
Copper Corrosion.......................  No. 1.
Gum, Washed, mg/100 ml (max)...........  3.0.
 Oxidation Stability, minutes (min)....  1000.
Specific Gravity.......................  No limit; report to purchaser
                                          required.
Heat of Combustion.....................  No limit; report to purchaser
                                          required.
Carbon, wt%............................  No limit; report to purchaser
                                          required.
Hydrogen, wt%..........................  No limit; report to purchaser
                                          required.
------------------------------------------------------------------------

    (3)(i) Unless otherwise approved by the Administrator, unleaded 
gasoline representative of commercial gasoline that will be generally 
available through retail outlets must be used in service accumulation. 
Unless otherwise approved by the Administrator, where the vehicle is to 
be used for evaporative emission durability demonstration, such fuel 
must contain ethanol as required by Sec. 86.1824-01(a)(2)(iii). Leaded 
gasoline must not be used in service accumulation.
    (ii) The octane rating of the gasoline used must be no higher than 
1.0 Research octane number above the minimum recommended by the 
manufacturer and have a minimum sensitivity of 7.5 octane numbers, 
where sensitivity is defined as the Research octane number minus the 
Motor octane number.
    (iii) The Reid Vapor Pressure of the gasoline used must be 
characteristic of the motor fuel used during the season in which the 
service accumulation takes place.
    (4) The specification range of the gasoline to be used under 
paragraph (a) of this section must be reported in accordance with 
Secs. 86.094-21(b)(3) and 86.1844-01.
    (b) through (g) ``[Reserved]. For guidance see Sec. 86.113-94.''
    6. Section 86.129-00 is amended by adding a new paragraph 
(f)(1)(ii)(C) to read as follows:


Sec. 86.129-00  Road load power, test weight, and inertia weight class 
determination.

* * * * *
    (f) * * *
    (1) * * *
    (ii) * * *
    (C) Regardless of other requirements in this section relating to 
the testing of heavy light duty trucks, for Tier 2 heavy light duty 
trucks, the test weight basis for FTP and SFTP testing (both US06 and 
SC03) is the vehicle curb weight plus 300 pounds.
* * * * *

Subpart C--Emission Regulations for 1994 and Later Model Year 
Gasoline-Fueled New Light-duty Vehicles and New Light-duty Trucks; 
Cold Temperature Test Procedures

    10. Section 86.213-04 is added to read as follows:


Sec. 86.213-04  Fuel specifications.

    Gasoline having the following specifications will be used by the 
Administrator. Gasoline having the specifications set forth in the 
table in this section may be used by the manufacturer except that the 
octane specification does not apply. In lieu of using gasoline having 
these specifications, the manufacturer may, for certification testing, 
use gasoline having the specifications specified in Sec. 86.113-04 
provided the cold CO emissions are not decreased. Documentation showing 
that cold CO emissions are not decreased must be maintained by the 
manufacturer and must be made available to the Administrator upon 
request. The table listing the cold CO fuel specifications described in 
the text in this section follows:

[[Page 26128]]



                                       Table--Cold CO Fuel Specifications
----------------------------------------------------------------------------------------------------------------
                                        Cold CO low octane value or
              Item              -------------------------------------------   Cold CO high octane \1\ value or
                                     ASTM test              Range                           range
----------------------------------------------------------------------------------------------------------------
(RON+MON)/2, min...............  D2699             87.8.3.....   92.30.5.
Sensitivity, min...............  D2699             7.5....................  7.5.
Distillation range:
    IBP, deg.F.................  D86               76-96..................  76-96.
    10% point, deg.F...........  D86               98-118.................  105-125.
    50% point, deg.F...........  D86               179-214................  195-225.
    90% point, deg.F...........  D86               316-346................  316-346.
    EP, max, deg.F.............  D86               413....................  413.
Sulfur, wt. %..................  D3120             0.003-0.008............  0.003-0.008.
Phosphorous, g/U.S gal, max....  D3231             0.005..................  0.005.
Lead, g/gal, max...............  ................  0.01...................  0.01.
RVP, psi.......................  D4953             11.5.3.....  11.5.3.
Hydrocarbon composition........  D1319
    Olefins, vol. pct..........  ................  12.55.0....  10.05.0.
    Aromatics, vol. pct........  ................  26.44.0....  32.04.0.
    Saturates..................  ................  Remainder..............  Remainder.
----------------------------------------------------------------------------------------------------------------
\1\ Gasoline having these specifications may be used for vehicles which are designed for the use of high-octane
  premium fuel.

Subpart R--General Provisions for the Voluntary National Low 
Emission Vehicle Program for Light-duty Vehicles and Light-duty 
Trucks

    11. Section 86.1701-99 is amended by adding paragraph (f) to read 
as follows:


Sec. 86.1701-99  General applicability.

* * * * *
    (f) The provisions of this subpart are not applicable to 2004 or 
later model year vehicles, except where specific references to 
provisions of this subpart are made in conjunction with provisions 
applicable to such vehicles.

Subpart S--General Compliance Provisions for Control of Air 
Pollution From New and In-use Light-duty Vehicles and Light-duty 
Trucks

    12. Section 86.1801-01 is amended by revising the first sentence of 
paragraph (a) and the first sentence of paragraph (e) and adding 
paragraphs (f) and (g) to read as follows:


Sec. 86.1801-01  Applicability.

    (a) Except as otherwise indicated, the provisions of this subpart 
apply to new 2001 and later model year Otto-cycle and diesel cycle 
light duty vehicles and light duty trucks, including alternative 
fueled, hybrid electric, and zero emission vehicles.* * *
* * * * *
    (e) National Low Emission Vehicle Program for light-duty vehicles 
and light light-duty trucks. A manufacturer may elect to certify 2001-
2003 model year light duty vehicles and light light-duty trucks (LDV/
LLDTs) to the provisions of the National Low Emission Vehicle Program 
contained in Subpart R of this part. * * *
    (f) ``Early'' Tier 2 LDV/Ts. Any LDV/LLDT which is certified to 
Tier 2 FTP exhaust standards prior to the 2004 model year, or any HLDT 
which is certified to the Tier 2 FTP exhaust standards prior to the 
2008 model year, to utilize alternate phase-in schedules and/or for 
purposes of generating and banking NOX credits, must comply 
with all the exhaust emission requirements applicable to Tier 2 LDV/Ts 
under this subpart.
    (g) Interim non-Tier 2 LDV/Ts. Model year 2004-2008 LDV/Ts, that do 
not comply with the Tier 2 FTP exhaust emission requirements (interim 
non-Tier 2 LDV/Ts) as permitted under the phase-in requirements of 
Sec. 86.1811-04(k) must comply with all interim non-Tier 2 exhaust 
emission requirements contained in this subpart, including FTP exhaust 
emission requirements for all interim non-Tier 2 LDV/Ts found at 
Sec. 86.1811-04(l). Separate emission requirements are provided for 
interim non-Tier 2 LDV/LLDTs and interim non-Tier 2 HLDTs.
    13. Section 86.1803-01 is amended by adding the following 
definitions in alphabetical order to read as follows:


Sec. 86.1803-01  Definitions.

* * * * *
    Bin or emission bin means a set of emission standards applicable to 
exhaust pollutants measured on the Federal Test Procedure (FTP). A bin 
is equivalent to a horizontal row of FTP standards in the various 
charts shown in this subpart. Manufacturers are generally free to 
choose the bin of standards that will apply to a certain test group of 
vehicles, provided that on a sales weighted average of those bins, all 
of their vehicles meet a specified fleet average standard for a 
particular pollutant.
* * * * *
    CalLEV II or California LEV II refers to California's second phase 
of its low emission vehicle (LEV) program. This program was adopted at 
the hearing of the California Air Resources Board held on November 5, 
1998.
* * * * *
    Fleet average NOX standard means, for light-duty 
vehicles and light-duty trucks, a NOX standard imposed over 
an individual manufacturer's total U.S. sales (or a fraction of total 
U.S. sales during phase-in years), as ``U.S. sales'' is defined in this 
subpart, of light duty vehicles and trucks of a given model year. 
Manufacturers determine their compliance with such a standard by 
averaging, on a sales weighted basis, the individual NOX 
standards they choose for the fleet of light duty vehicles and trucks 
they sell of that model year.
* * * * *
    Interim non-Tier 2 vehicle or interim non-Tier 2 LDV/T or interim 
vehicle means any 2004 or later model year light duty vehicle or light 
duty truck not certified to Tier 2 FTP exhaust emission standards 
during the Tier 2 phase-in period.
* * * * *
    LDV/T means light duty vehicles and light duty trucks collectively, 
without regard to category.
* * * * *
    Non-methane organic gases (NMOG) means the sum of oxygenated and 
non-oxygenated hydrocarbons contained in a gas sample as measured in 
accordance with the California Non-Methane Organic Gas Test Procedures. 
These

[[Page 26129]]

requirements are incorporated by reference (see Sec. 86.1).
* * * * *
    Periodically regenerating trap oxidizer system means a trap 
oxidizer that utilizes, during normal driving conditions, an automated 
regeneration mode for cleaning the trap, the operation of which can be 
easily detected.
* * * * *
    Point of first sale means the location where the completed light 
duty vehicle or light duty truck is first purchased. This term is 
synonymous with final product purchase location. The point of first 
sale may be a retail customer, dealer, distributor, fleet operator, 
broker, secondary manufacturer, or any other entity which purchases a 
vehicle from a manufacturer. In cases where the end user purchases the 
completed vehicle directly from the manufacturer, the end user is the 
point of first sale.
* * * * *
    Round, rounded or rounding means, unless otherwise specified, that 
numbers will be rounded according to ASTM-E29-93a, which is 
incorporated by reference in this part pursuant to Sec. 86.1.
* * * * *
    Tier 2 standards means those FTP exhaust emission standards 
applicable to new light-duty vehicles and light light duty trucks and 
that begin a phase-in in the 2004 model year, and those exhaust 
emission standards applicable to heavy light duty trucks that begin a 
phase-in in the 2008 model year. These standards are found in 
Sec. 86.1811-04.
    Tier 2 vehicle or Tier 2 LDV/T means any light duty vehicle or 
light duty truck, including HEVs and ZEVs, of the 2004 or later model 
year certified to comply with the Tier 2 FTP exhaust standards 
contained in Sec. 86.1811-04. The term Tier 2 vehicle also includes any 
light duty vehicle or truck, of any model year, which is certified to 
Tier 2 FTP exhaust standards for purposes of generating or banking 
early NOX credits for averaging under Tier 2 requirements as 
allowed in this subpart.
* * * * *
    U.S. sales means, unless otherwise specified, sales in any state of 
the United States except for California or a state that has adopted 
California motor vehicle standards for that model year pursuant to 
section 177 of the Clean Air Act. This definition applies only to those 
regulatory requirements addressing Tier 2 and interim non-Tier 2 LDV/
Ts.
* * * * *
    14. Section 86.1804-01 is amended by adding the following acronyms 
and abbreviations, in alphabetical order, to read as follows:


Sec. 86.1804-01  Acronyms and abbreviations.

* * * * *
    HCHO--Formaldehyde.
* * * * *
    HEV--Hybrid electric vehicle.
* * * * *
    HLDT--Heavy light duty truck. Includes only those trucks over 
6000 pounds GVWR (LDT3s and LDT4s).
* * * * *
    LDV/LLDT--Light duty vehicles and light light-duty trucks. 
Includes only those trucks rated at 6000 pounds GVWR or less (LDT1s 
and LDT2s).
    LDV/T--Light duty vehicles and light duty trucks. This term is 
used collectively to include, or to show that a provision applies 
to, all light duty vehicles and all categories of light duty trucks, 
i.e.
    LDT1, LDT2, LDT3 and LDT4.
    LEV--Low Emission Vehicle.
* * * * *
    NLEV--Refers to the National Low Emission Vehicle Program. 
Regulations governing this program are found at subpart R of this 
part.
* * * * *
    NMOG--Non-methane organic gases.
* * * * *
    RAF--Reactivity adjustment factor.
* * * * *
    SULEV--Super Ultra Low Emission Vehicle.
* * * * *
    TLEV--Transitional Low Emission Vehicle.
* * * * *
    ULEV--Ultra Low Emission Vehicle.
* * * * *
    ZEV--Zero Emission Vehicle.
* * * * *
    15. Section 86.1805-04 is added to read as follows:


Sec. 86.1805-04  Useful life.

    (a) Except as required under paragraph (b) of this section or 
permitted under paragraphs (d) and (e) of this section, the full useful 
life for all LDVs, LDT1s and LDT2s is a period of use of 10 years or 
120,000 miles, whichever occurs first. For all HLDTs, full useful life 
is a period of 11 years or 120,000 miles, whichever occurs first. This 
full useful life applies to exhaust, evaporative and refueling emission 
requirements except for standards which are specified to only be 
applicable at the time of certification.
    (b) Manufacturers may elect to optionally certify a test group to 
the Tier 2 exhaust emission standards for 150,000 miles to gain 
additional NOX credits, as permitted in Sec. 86.1860-04(g). 
In such cases, useful life is a period of use of 15 years or 150,000 
miles, whichever occurs first, for all exhaust, evaporative and 
refueling emission requirements except for cold CO standards and 
standards which are applicable only at the time of certification.
    (c) Where intermediate useful life exhaust emission standards are 
applicable, such standards are applicable for five years or 50,000 
miles, whichever occurs first.
    (d)(1) Manufacturers may petition the Administrator to provide 
alternative useful life periods for idle CO requirements for light duty 
trucks when they believe that the useful life period described in this 
section is significantly unrepresentative for one or more test groups 
(either too long or too short). This petition must include the full 
rationale behind the request, together with any supporting data and 
other evidence. Based on this or other information, the Administrator 
may assign an alternative useful life period. Any petition should be 
submitted in a timely manner to allow adequate time for a thorough 
evaluation.
    (2) Where cold CO standards are applicable, the useful life 
requirement for compliance with the cold CO standard only, is 5 years 
or 50,000 miles whichever occurs first.
    (e) Where LDVs, LDT1s and LDT2s of the 2003 or earlier model years 
are certified to Tier 2 exhaust emission standards for purposes of 
generating early NOX credits, manufacturers may certify 
those vehicles to full useful lives of 100,000 miles in lieu of the 
otherwise required 120,000 mile full useful lives, as provided under 
Sec. 86.1861-04(c)(4).
    16. Section 86.1806-01 is amended by adding paragraph (b)(8) to 
read as follows:


Sec. 86.1806-01  On-board diagnostics.

* * * * *
    (b)* * *
    (8) For Tier 2 and interim non-Tier 2 hybrid electric vehicles 
(HEVs) only. Unless added to HEVs in compliance with other requirements 
of this section, or unless otherwise approved by the Administrator:
    (i) The manufacturer must equip each HEV with a maintenance 
indicator consisting of a light that must activate automatically by 
illuminating the first time the minimum performance level is observed 
for each battery system component. Possible battery system components 
requiring monitoring are: battery water level, temperature control, 
pressure control, and other parameters critical for determining battery 
condition.
    (ii) The manufacturer must equip ``off-vehicle charge capable 
HEVs'' with a useful life indicator for the battery

[[Page 26130]]

system consisting of a light that must illuminate the first time the 
battery system is unable to achieve an all-electric operating range 
(starting from a full state-of-charge) which is at least 75 percent of 
the range determined for the vehicle in the Urban Driving Schedule 
portion of the All-Electric Range Test (see the California Zero-
Emission and Hybrid Electric Vehicle Exhaust Emission Standards and 
Test Procedures for 2003 and Subsequent Model Year Passenger Cars, 
Light-Duty Trucks and Medium Duty Vehicles. These requirements are 
incorporated by reference (see Sec. 86.1)
    (iii) The manufacturer must equip each HEV with a separate odometer 
or other device subject to the approval of the Administrator that can 
accurately measure the mileage accumulation on the engines used in 
these vehicles.
* * * * *
    17. Section 86.1807-01 is amended by revising paragraph (a)(3)(vi) 
to read as follows:


Sec. 86.1807-01  Vehicle labeling.

    (a) * * *
    (3) * * *
    (vi) The exhaust emission standards to which the test group is 
certified, and for test groups having different in-use standards, the 
corresponding exhaust emission standards that the test group must meet 
in use. In lieu of this requirement, manufacturers may use the 
standardized test group name designated by EPA;
* * * * *
    18. Section 86.1809-01 is amended by adding paragraph (e) to read 
as follows:


Sec. 86.1809-01  Prohibition of defeat devices.

* * * * *
    (e) For each test group of Tier 2 and interim non-Tier 2 LDV/Ts, 
the manufacturer must submit, with the Part II certification 
application, an engineering evaluation demonstrating to the 
satisfaction of the Administrator that a discontinuity in emissions of 
non-methane organic gases, carbon monoxide, oxides of nitrogen and 
formaldehyde measured on the Federal Test Procedure (subpart B of this 
part) does not occur in the temperature range of 20 to 86 degrees F. 
For diesel vehicles, the engineering evaluation must also include 
particulate emissions.
    19. Section 86.1810-01 is amended by adding two new sentences to 
the end of the introductory text; by adding a new sentence to the end 
of paragraph (i)(6); and by adding new paragraphs (i)(13), (i)(14), (o) 
and (p) to read as follows:


Sec. 86.1810-01  General standards; increase in emissions; unsafe 
conditions; waivers.

    * * * For Tier 2 and interim non-Tier 2 LDV/Ts, this section also 
applies to hybrid electric vehicles and zero emission vehicles. Unless 
otherwise specified, requirements and provisions of this subpart 
applicable to methanol fueled vehicles are also applicable to Tier 2 
and interim non-Tier 2 ethanol fueled LDV/Ts.
* * * * *
    (i) * * *
    (6) * * * For Tier 2 and interim non-Tier 2 LDV/Ts, this provision 
does not apply to enrichment that occurs upon cold start, warm-up 
conditions and rapid-throttle motion conditions (``tip-in'' or ``tip-
out'' conditions).
* * * * *
    (13) A/C-on specific calibrations. (i) For Tier 2 and interim non-
Tier 2 LDV/Ts, A/C-on specific calibrations (e.g. air to fuel ratio, 
spark timing, and exhaust gas recirculation), may be used which differ 
from A/C-off calibrations for given engine operating conditions (e.g., 
engine speed, manifold pressure, coolant temperature, air charge 
temperature, and any other parameters).
    (ii) Such calibrations must not unnecessarily reduce the 
NMHC+NOX emission control effectiveness during A/C-on 
operation when the vehicle is operated under conditions which may 
reasonably be expected to be encountered during normal operation and 
use.
    (iii) If reductions in control system NMHC+NOX 
effectiveness do occur as a result of such calibrations, the 
manufacturer must, in the Application for Certification, specify the 
circumstances under which such reductions do occur, and the reason for 
the use of such calibrations resulting in such reductions in control 
system effectiveness.
    (iv) A/C-on specific ``open-loop'' or ``commanded enrichment'' air-
fuel enrichment strategies (as defined below), which differ from A/C-
off ``open-loop'' or ``commanded enrichment'' air-fuel enrichment 
strategies, may not be used, with the following exceptions: Cold-start 
and warm-up conditions, or, subject to Administrator approval, 
conditions requiring the protection of the vehicle, occupants, engine, 
or emission control hardware. Other than these exceptions, such 
strategies which are invoked based on manifold pressure, engine speed, 
throttle position, or other engine parameters must use the same engine 
parameter criteria for the invoking of this air-fuel enrichment 
strategy and the same degree of enrichment regardless of whether the A/
C is on or off. ``Open-loop'' or ``commanded'' air-fuel enrichment 
strategy is defined as enrichment of the air to fuel ratio beyond 
stoichiometry for the purposes of increasing engine power output and 
the protection of engine or emissions control hardware. However, 
``closed-loop biasing,'' defined as small changes in the air-fuel ratio 
for the purposes of optimizing vehicle emissions or driveability, must 
not be considered an ``open-loop'' or ``commanded'' air-fuel enrichment 
strategy. In addition, ``transient'' air-fuel enrichment strategy (or 
``tip-in'' and ``tip-out'' enrichment), defined as the temporary use of 
an air-fuel ratio rich of stoichiometry at the beginning or duration of 
rapid throttle motion, must not be considered an ``open-loop'' or 
``commanded'' air-fuel enrichment strategy.
    (14) ``Lean-on-cruise'' calibration strategies. (i) For Tier 2 and 
interim non-Tier 2 LDV/Ts, the manufacturer must state in the 
Application for Certification whether any ``lean-on-cruise'' strategies 
are incorporated into the vehicle design. A ``lean-on-cruise'' air-fuel 
calibration strategy is defined as the use of an air-fuel ratio 
significantly greater than stoichiometry, during non-deceleration 
conditions at speeds above 40 mph. ``Lean-on-cruise'' air-fuel 
calibration strategies must not be employed during vehicle operation in 
normal driving conditions, including A/C usage, unless at least one of 
the following conditions is met:
    (A) Such strategies are substantially employed during the FTP or 
SFTP;
    (B) Such strategies are demonstrated not to significantly reduce 
vehicle NMHC+NOX emission control effectiveness over the 
operating conditions in which they are employed; or
    (C) Such strategies are demonstrated to be necessary to protect the 
vehicle occupants, engine, or emission control hardware.
    (ii) If the manufacturer proposes to use a ``lean-on-cruise'' 
calibration strategy, the manufacturer must specify the circumstances 
under which such a calibration would be used, and the reason or reasons 
for the proposed use of such a calibration.
* * * * *
    (o) Unless otherwise approved by the Administrator, manufacturers 
must measure NMOG emissions in accordance with the California Non-
Methane Organic Gas Test Procedures. These procedures are incorporated 
by reference (see Sec. 86.1).
    (p) For diesel vehicles, manufacturers may measure non-methane 
hydrocarbons in lieu of NMOG.

[[Page 26131]]

    20. Section 86.1811-01 is amended by adding a sentence to the end 
of the introductory text to read as follows:


Sec. 86.1811-01  Emission standards for light-duty vehicles.

     * * * This section does not apply to 2004 and later model year 
vehicles, except as specifically referenced by Sec. 86.1811-04.
* * * * *
    21. Section 86.1811-04 is added to read as follows:


Sec. 86.1811-04  Emission standards for light duty vehicles and light 
duty trucks.

    (a) Applicability. (1) This section contains regulations 
implementing emission standards for all light duty vehicles and light 
duty trucks (LDV/Ts). This section applies to 2004 and later model year 
LDV/Ts fueled by gasoline, diesel, methanol, ethanol, natural gas and 
liquefied petroleum gas fuels, except as noted. Additionally, this 
section contains provisions applicable to hybrid electric vehicles 
(HEVs) and zero emission vehicles (ZEVs). Multi-fueled vehicles must 
comply with all requirements established for each consumed fuel.
    (2)(i) This section also applies to LDV/LLDTs of model years prior 
to 2004, when manufacturers certify such vehicles to Tier 2 exhaust 
emission requirements to utilize alternate phase-in schedules, as 
allowed under paragraph (k)(6) of this section, and/or to earn 
NOX credits for use in complying with the Tier 2 fleet 
average NOX standard which takes effect in the 2004 model 
year for LDV/LLDTs.
    (ii) This section also applies to HLDTs of model years prior to 
2004, when manufacturers certify such vehicles to Tier 2 exhaust 
emission requirements to utilize alternate phase-in schedules as 
allowed under paragraph (k)(6) of this section.
    (3) Except where otherwise specified, this section applies instead 
of Secs. 86.1811-01, 86.1812-01, 86.1813-01, 86.1814-01, 86.1814-02, 
86.1815-01, and 86.1815-02.
    (4) Except where otherwise specified, the provisions of this 
section apply equally to LDVs and all categories of LDTs, as reflected 
by the use of the term LDV/T.
    (5) The exhaust emission standards and evaporative emission 
standards of this section apply equally to certification and in-use 
LDV/Ts unless otherwise specified.
    (b) Test weight. (1) Except as required in paragraph (b)(2) of this 
section, emission testing of all LDV/Ts to determine compliance with 
any exhaust or evaporative emission standard set forth in this part 
must be on a loaded vehicle weight (LVW) basis, as that term is defined 
in this subpart.
    (2) Interim non-Tier 2 HLDTs tested to Tier 1 SFTP standards, must 
be tested on an adjusted loaded vehicle weight (ALVW) basis, as that 
term is defined in this subpart, during the SC03 element of the SFTP.
    (c) Tier 2 FTP exhaust emission standards. Exhaust emissions from 
Tier 2 LDV/Ts must not exceed the standards in Table S04-1 of this 
section at full useful life when tested over the Federal Test Procedure 
(FTP) described in subpart B of this part. Exhaust emissions from Tier 
2 LDV/Ts must not exceed the standards in Table S04-2 of this section 
at intermediate useful life, if applicable, when tested over the FTP. 
Manufacturers of LDV/Ts must meet these standards according to the 
phase-in schedules shown in Tables S04-6 and S04-7 of this section.
    (1) For a given test group a manufacturer desires to certify to 
operate only on one fuel, the manufacturer must select a set of 
standards from the same bin (line or row) in Table S04-1 of this 
section for non-methane organic gases (NMOG), carbon monoxide (CO), 
oxides of nitrogen (NOX), formaldehyde (HCHO) and 
particulate matter (PM). The manufacturer must certify the test group 
to meet those standards, subject to all the applicable provisions of 
this subpart. The manufacturer must also certify the test group to meet 
the intermediate useful life standards (if any) in Table S04-2 of this 
section having the same EPA bin reference number as the chosen full 
useful life standards.
    (2) For a given test group of flexible-fueled, bi-fuel or dual fuel 
vehicles when operated on the alcohol or gaseous fuel they are designed 
to use, manufacturers must select a bin of standards from Table S04-1 
of this section and the corresponding bin in Table S04-2, if any. When 
these flexible-fueled, bi-fuel or dual fuel vehicles are certified to 
operate on gasoline or diesel fuel, the manufacturer may choose to 
comply with the next numerically higher NMOG standard above the bin 
which contains the standards selected for certification on the gaseous 
or alcohol fuel.
    (3) The bin 7 NMOG value may be used by alternative fueled vehicles 
when operated on gasoline or diesel fuel when such vehicles are 
certified to bin 6 standards on the gaseous or alcohol fuel on which 
they are designed to operate.
    (4) In addition to the bins shown in Tables S04-1 and 2 of this 
section, manufacturers may also use the applicable interim non-Tier 2 
bins for Tier 2 vehicles. These bins are shown in Tables S04-8 and 9 of 
this section for LDV/LLDTs and Tables S04-10 and 11 of this section for 
HLDTs. These bins may only be used through the last model year of the 
duration of the applicable interim program, i.e. 2006 for LDV/LLDTs and 
2008 for HLDTs. In a given model year, an individual vehicle may not be 
included in both the Tier 2 program and an interim program.
    (5) Tables S04-1 and S04-2 follow:

                Table S04-1.--Tier 2 Light Duty Full Useful Life Exhaust Mass Emission Standards
                                                [Grams per mile]
----------------------------------------------------------------------------------------------------------------
           EPA bin No.                 NMOG             CO             HCHO             NOX             PM
----------------------------------------------------------------------------------------------------------------
7...............................         a 0.156  ..............  ..............  ..............  ..............
7...............................           0.125             4.2            .018            0.20            0.02
6...............................           0.090             4.2           0.018            0.15            0.02
5...............................           0.090             4.2           0.018            0.07            0.01
4...............................           0.055             2.1           0.011            0.07            0.01
3...............................           0.070             2.1           0.011            0.04            0.01
2...............................           0.010             2.1           0.004            0.02            0.01
1...............................           0.000             0.0           0.000            0.00            0.0
----------------------------------------------------------------------------------------------------------------
a Applicable only to flexible-fueled and dual-fuel bin 7 vehicles when certifying for operation on gasoline.


[[Page 26132]]


            Table S04-2.--Tier 2 Light Duty Intermediate Useful Life Exhaust Mass Emission Standards
                                                [Grams per mile]
----------------------------------------------------------------------------------------------------------------
           EPA bin No.                 NMOG             CO             HCHO             NOX            PM b
----------------------------------------------------------------------------------------------------------------
7...............................         a 0.125  ..............  ..............  ..............  ..............
7...............................           0.100             3.4           0.015            0.14  ..............
6...............................           0.075             3.4           0.015            0.11  ..............
5...............................           0.075             3.4           0.015            0.05  ..............
4...............................           0.040             1.7           0.008            0.05  ..............
----------------------------------------------------------------------------------------------------------------
a Applicable only to flexible-fueled and dual-fuel bin 7 vehicles when certifying for operation on gasoline.
b The full useful life PM standards from Table S04-1 also apply at intermediate useful life.

    (d) Fleet average NOX Standards. (1) For a given 
individual model year's sales of Tier 2 LDV/Ts, including model years 
during the phase-in years of the Tier 2 standards, manufacturers must 
comply with a fleet average oxides of nitrogen (NOX) 
standard of 0.07 grams per mile. The manufacturer must calculate its 
fleet average NOX emission level(s) as described in 
Sec. 86.1860-04. Up through and including model year 2008, 
manufacturers must calculate separate fleet average NOX 
emission levels for LDV/LLDTs and HLDTs as described in Sec. 86.1860-
04.
    (2) For Early Tier 2 LDV/LLDTs. For model years prior to 2004, 
where the manufacturer desires to bank early Tier 2 NOX 
credits as permitted under Sec. 86.1861(c), the manufacturer must 
comply with a fleet average standard of 0.07 grams per mile for its 
Tier 2 LDV/LLDTs. Manufacturers must determine compliance with the 
NOX fleet average standard according to regulations in 
Sec. 86.1860-04.
    (3) For Early Tier 2 HLDTs. For model years prior to 2008, where 
the manufacturer desires to bank early Tier 2 NOX credits as 
permitted under Sec. 86.1861(c), the manufacturer must comply with a 
fleet average standard of 0.07 grams per mile for its Tier 2 HLDTs. 
Manufacturers must determine compliance with the NOX fleet 
average standard according to regulations in Sec. 86.1860-04.
    (e) Evaporative emission standards. Consistent with the phase-in 
requirements in paragraph (k) of this section, evaporative emissions 
from gasoline-fueled, natural gas-fueled, liquefied petroleum gas-
fueled, ethanol-fueled and methanol-fueled LDV/Ts must not exceed the 
standards in this paragraph. The standards apply equally to 
certification and in-use LDV/Ts, except that the spitback standard 
applies only to newly assembled LDV/Ts.
    (1) Diurnal-plus-hot soak evaporative hydrocarbon standards. 
Hydrocarbons for LDV/Ts must not exceed the diurnal plus hot soak 
standards shown in Table S04-3 for the full three diurnal test sequence 
and for the supplemental two diurnal test sequence. Table S04-3 
follows:

   Table S04-3.--Light-Duty Diurnal Plus Hot Soak Evaporative Emission
                                Standards
                            [Grams per test]
------------------------------------------------------------------------
                                                            Supplemental
                                                   3 day        2 day
               Vehicle category                  diurnal +    diurnal +
                                                 hot Soak     hot soak
------------------------------------------------------------------------
LDVs, LDT1s and LDT2s.........................        0.95          1.2
LDT3s and LDT4s...............................        1.2           1.5
------------------------------------------------------------------------

    (2) Running loss standard. Hydrocarbons for LDV/Ts measured on the 
running loss test must not exceed 0.05 grams per mile.
    (3) Refueling emission standards. Refueling emissions must not 
exceed the following standards:
    (i) For gasoline-fueled, diesel-fueled and methanol-fueled LDV/Ts: 
0.20 grams hydrocarbon per gallon (0.053 grams per liter) of fuel 
dispensed.
    (ii) For liquefied petroleum gas-fueled LDV/Ts: 0.15 grams 
hydrocarbon per gallon (0.04 grams per liter) of fuel dispensed.
    (iii) Refueling standards for LDT3s and LDT4s are subject to the 
phase-in requirements found in Sec. 86.1810-01(k).
    (4) Spitback standards. For gasoline and methanol fueled LDV/Ts, 
hydrocarbons measured on the fuel dispensing spitback test must not 
exceed 1.0 grams hydrocarbon (carbon if methanol-fueled) per test.
    (5) Vehicles not certified to meet the evaporative emission 
standards in this paragraph (e) as permitted under the phase-in 
schedule of paragraph (k) of this section, must meet applicable 
evaporative emission standards in Secs. 86.1811-01, 86.1812-01, 
86.1813-01, 86.1814-02 or 86.1815-02 except that all LDV/Ts must meet 
the refueling emission standards in paragraph (e)(3) of this section.
    (f) Supplemental exhaust emission standards for LDV/Ts. (1) 
Supplemental exhaust emissions from gasoline-fueled and diesel fueled 
LDV/Ts must not exceed the standards in Table S04-4 at full useful 
life. Supplemental exhaust emission standards are not applicable to 
alternative fueled LDV/Ts, or flexible fueled LDV/Ts when operated on a 
fuel other than gasoline or diesel. Table S04-4 follows:

           Table S04-4.-- Full Useful Life Supplemental Emission Standards (SFTP Standards) for LDV/Ts
                                                  [Grams/mile]
----------------------------------------------------------------------------------------------------------------
                Vehicle category                   USO6 NMHC+NOX     USO6  CO      SCO3 NMHC+NOX     SCO3  CO
----------------------------------------------------------------------------------------------------------------
LDV/LDT1........................................            0.20            11.1            0.26             4.2
LDT2............................................            0.37            14.6            0.39             5.5
LDT3............................................            0.53            16.9            0.44             6.4
LDT4............................................            0.78            19.3            0.62             7.3
----------------------------------------------------------------------------------------------------------------

    (2) Gasoline-fueled LDV/Ts, diesel-fueled LDV/Ts and flexible 
fueled LDV/Ts when operated on gasoline or diesel fuel, and subject to 
intermediate useful life FTP standards, must not exceed the 
intermediate useful life supplemental emission standards in Table S04-
5, as follows:

[[Page 26133]]



       Table S04-5.--Intermediate Useful Life Supplemental Emission Standards (SFTP Standards) for LDV/Ts
                                                  [Grams/mile]
----------------------------------------------------------------------------------------------------------------
                Vehicle category                   USO6 NMHC+NOX     USO6  CO      SCO3 NMHC+NOX     SCO3  CO
----------------------------------------------------------------------------------------------------------------
LDV/LDT1........................................            0.16             9.0            0.22             3.0
LDT2............................................            0.30            11.6            0.32             3.9
LDT3............................................            0.45            11.6            0.36             3.9
LDT4............................................            0.67            13.2            0.51             4.4
----------------------------------------------------------------------------------------------------------------

    (3) For interim non-Tier 2 gasoline, diesel and flexible-fueled 
LDT3s and LDT4s, manufacturers may, at their option, meet the gasoline 
SFTP standards found in Secs. 86.1814-02 and 86.1815-02, respectively.
    (4) Interim non-Tier 2 gasoline, diesel and flexible-fueled LDV/
LLDTs certified to bin 5 FTP exhaust emission standards from Table S04-
8 in this section may meet the gasoline Tier 1 SFTP requirements found 
at Sec. 86.1811-01(b).
    (g) Cold temperature exhaust emission standards for LDV/Ts. These 
standards are applicable only to gasoline fueled LDV/Ts. For cold 
temperature exhaust emission standards, a useful life of 50,000 miles 
applies.
    (1) For LDVs and LDT1s, the standard is 10.0 grams per mile CO.
    (2) For LDT2s, LDT3s and LDT4s, the standard is 12.5 grams per mile 
CO.
    (h) Certification short test exhaust emission standards for LDV/Ts. 
Certification short test emissions from all gasoline-fueled otto cycle 
LDV/Ts must not exceed the following standards:
    (1) Hydrocarbons: 100 ppm as hexane, for certification and SEA 
testing; 220 ppm as hexane, for in-use testing.
    (2) Carbon monoxide: 0.5% for certification and SEA testing; 1.2% 
for in-use testing.
    (i) Idle exhaust emission standards for light duty trucks. Exhaust 
emissions of carbon monoxide from gasoline, methanol, natural gas, and 
liquefied petroleum gas-fueled light duty trucks must not exceed 0.5% 
of exhaust gas flow at curb idle for the useful life of the trucks as 
defined in this part. This standard does not apply to light duty 
vehicles.
    (j) Highway NOX exhaust emission standard for LDV/Ts. 
The maximum projected NOX emissions measured on the federal 
Highway Fuel Economy Test in 40 CFR part 600, subpart B, must not be 
greater than 1.33 times the applicable FTP NOX standard to 
which the manufacturer certifies the test group. Both the projected 
emissions and the product of the NOX standard and 1.33 must 
be rounded to the nearest 0.01 g/mi before being compared.
    (k) Phase-in of the Tier 2 FTP exhaust and evaporative 
requirements; small volume manufacturer flexibilities. (1) 
Manufacturers must comply with the phase-in requirements in Tables S04-
6 and S04-7 of this section for the Tier 2 FTP exhaust emission 
requirements specified in paragraph (c) of this section. Separate 
phase-in schedules are provided for LDV/LLDTs and HLDTs. These 
requirements specify the minimum percentage of the manufacturer's LDV/
LLDT and HLDT U.S. sales, by model year, that must meet the Tier 2 
requirements for their full useful lives. Tables S04-6 and S04-7 
follow:

   Table S04-6.--Phase-In Percentages for LDV/LLDT Tier 2 Requirements
------------------------------------------------------------------------
                                                           Percentage of
                                                          LDV/LLDTs that
                       Model year                         must meet tier
                                                          2 requirements
------------------------------------------------------------------------
2004....................................................              25
2005....................................................              50
2006....................................................              75
2007 and subsequent.....................................             100
------------------------------------------------------------------------


     Table S04-7.--Phase-In Percentages for HLDT Tier 2 Requirements
------------------------------------------------------------------------
                                                             Percentage
                                                              of HLDTs
                        Model year                            that must
                                                             meet tier 2
                                                            requirements
------------------------------------------------------------------------
2008......................................................            50
2009 and subsequent.......................................           100
------------------------------------------------------------------------

    (2) Manufacturers must also comply with the phase-in requirements 
in Tables S04-6 and S04-7 of this section for the evaporative emission 
requirements contained in paragraph (e) of this section.
    (3) Manufacturers may opt to use different LDV/LLDTs and HLDTs to 
meet the phase-in requirements for evaporative emissions and FTP 
exhaust emissions, provided that the manufacturer meets the minimum 
phase-in requirements in Table S04-6 and Table S04-7 of this section 
for both FTP exhaust and evaporative emissions. A LDV or LDT counted 
toward compliance with any phase-in requirement for FTP exhaust or 
evaporative standards, must comply with all applicable Tier 2 exhaust 
requirements or all evaporative requirements, as applicable, described 
in this section.
    (4) LDVs and LDTs not certified to meet the Tier 2 FTP exhaust 
requirements during model years 2004-2008, as allowed under this 
subpart, are subject to the provisions of paragraph (l) of this 
section. LDVs and LDTs not certified to meet the evaporative 
requirements in paragraph (e) of this section during model years 2004-
2008, as allowed under this subpart, must meet all evaporative 
requirements found in Secs. 86.1811-01, 86.1812-01, 86.1813-01, 
86.1814-02 and 86.1815-02 as applicable, and the refueling requirements 
found in paragraph (e)(3) of this section.
    (5)(i) Small volume manufacturers, as defined in this part, are 
exempt from the LDV/LLDT phase-in requirements for model years 2004, 
2005 and 2006 in Table S04-6, but must comply with the 100% requirement 
for the 2007 and later model years.
    (ii) Small volume manufacturers, as defined in this part, are 
exempt from the HLDT phase-in requirement for model year 2008 in Table 
S04-7 of this section and the interim fleet average NOX 
standard and the phase-in of the HLDT interim non-Tier 2 FTP exhaust 
standards for the 2004, 2005 and 2006 model years.
    (iii) Small volume manufacturers must comply with the interim non-
Tier 2 FTP exhaust emission standards of bin 5 or lower from Tables 
S04-10 and 11 of this section for HLDTs of model years 2004, 2005 and 
2006; the interim non-Tier 2 FTP exhaust standards from Tables S04-10 
and 11 and the 0.20 g/mi fleet average NOX standard for the 
2007 and 2008 model year; and the Tier 2 FTP exhaust standards, 
evaporative standards, and the 0.07 g/mi fleet average NOX 
standard for the 2009 and later model years.

[[Page 26134]]

    (6)(i) A manufacturer may elect an alternate phase-in schedule that 
results in 100% phase-in for LDV/LLDTs by 2007 . Alternate phase-in 
schedules must produce a sum of at least 250% when the percentages of 
LDV/LLDTs certified to Tier 2 requirements for each model year from 
2001 through 2007 are summed. As an example, a 10/25/50/65/100 percent 
phase-in that began in 2003 would have a sum of 250 percent would be 
acceptable. However, a 10/25/40/70/100 percent phase-in that began the 
same year would have a sum of 245 percent and would not be acceptable.
    (ii) A manufacturer electing this option for LDV/LLDTs may 
calculate its compliance with the evaporative standards in paragraph 
(e)(1) of this section separately from its compliance with Tier 2 
exhaust standards, provided that the phase-in schedules for each 
separately produce a sum of at least 250 percent when calculated as 
described in paragraph (k)(6)(i) of this section. A vehicle counted 
towards compliance with any phase-in requirement for the Tier 2 exhaust 
standards or the evaporative standards in paragraph (e)(1) of this 
section, must comply with all applicable Tier 2 exhaust standards or 
all evaporative standards, as applicable, described in this section.
    (iii) In addition to the requirements of paragraph (k)(6)(i) and 
(ii) of this section, a manufacturer of LDV/LLDTs electing to use an 
alternate phase-in schedule for compliance with the Tier 2 exhaust 
standards or the evaporative standards in paragraph (e)(1) of this 
section must ensure that the sum of the percentages of vehicles from 
model years 2001 through 2004, meeting such exhaust or evaporative 
standards, as applicable, is at least 25%.
    (iv) A manufacturer may elect an alternate phase-in schedule that 
results in 100% phase-in for HLDTs by 2009. The requirements of 
paragraph (k)(6)(i) through (k)(6)(iii) of this section apply, except 
that for HLDTs, the calculation described in paragraph (k)(6)(i) of 
this section may cover model years 2001 through 2009 and must produce a 
sum of at least 150%.
    (7)(i) Sales percentages for the purpose of determining compliance 
with the phase-in of the Tier 2 requirements and the phase-in of the 
evaporative standards in paragraph (e)(1) of this section, must be 
based upon projected U.S. sales of LDV/LLDTs and HLDTs of the 
applicable model year by the manufacturer to the point of first sale. 
Such sales percentages must be rounded to the nearest one tenth of a 
percent, and must not include vehicles and trucks projected to be sold 
to points of first sale in California or a state that has adopted 
California requirements for that model year as permitted under section 
177 of the Act.
    (ii) Alternatively, the manufacturer may petition the Administrator 
to allow actual volume produced for U.S. sales to be used in lieu of 
projected U.S. sales for purposes of determining compliance with the 
phase-in percentage requirements under this section. The manufacturer 
must submit its petition within 30 days of the end of the model year to 
the Vehicle Programs and Compliance Division. For EPA to approve the 
use of actual volume produced for U.S. sales, the manufacturer must 
establish to the satisfaction of the Administrator, that actual 
production volume is functionally equivalent to actual sales volume of 
LDV/LLDTs and HLDTs sold in states other than California and states 
that have adopted California standards.
    (iii) Manufacturers must submit information showing compliance with 
all phase-in requirements of this section with its Part I application 
as required by Sec. 86.1844(d)(13).
    (l) FTP exhaust standards for interim non-Tier 2 LDV/LLDTs and 
HLDTs. (1) FTP exhaust emission standards for interim non-Tier 2 LDV/
LLDTs. (i) LDV/LLDTs that are not certified to meet Tier 2 FTP exhaust 
emission requirements during the Tier 2 phase-in period (model years 
2004-2006) must comply with the full useful life FTP exhaust emission 
standards listed in Table S04-8 of this section and, the corresponding 
intermediate useful life standards, if any, in Table S04-9 of this 
section. Manufacturers may choose the bin of full useful life standards 
to which they certify a test group of vehicles, subject to the 
requirements in paragraph (l)(3)(i) of this section. In addition to the 
bins shown in Tables S04-8 and S04-9 of this section, manufacturers may 
also use the Tier 2 bins shown in Tables S04-1 and S04-2 of this 
section. Manufacturers may include LDV/LLDTs in the interim program 
that are not used to meet the Tier 2 corporate average NOX 
standard or the phase-in percentage requirements in the Tier 2 program 
or to generate Tier 2 NOX credits. More simply, a 
manufacturer may use the Tier 2 bins for interim non-Tier 2 vehicles; 
but, in a given model year, an individual vehicle may not be included 
in both the Tier 2 program and an interim program. Tables S04-8 and 
S04-9 follow:

              Table S04-8.--Full Useful Life Interim Exhaust Mass Emission Standards for LDV/LLDTs
                                                [Grams per mile]
----------------------------------------------------------------------------------------------------------------
           EPA Bin No.                 NMOG             CO              NOX            HCHO             PM
----------------------------------------------------------------------------------------------------------------
5...............................           0.156             4.2            0.60           0.018            0.06
4...............................           0.090             4.2            0.30           0.018            0.06
3...............................           0.055             2.1            0.30           0.011            0.04
2...............................           0.090             4.2            0.07           0.018            0.01
1...............................           0.000             0.0            0.00           0.000            0.0
----------------------------------------------------------------------------------------------------------------


          Table S04-9.--Intermediate Useful Life Interim Exhaust Mass Emission Standards for LDV/LLDTs
                                                [Grams per mile]
----------------------------------------------------------------------------------------------------------------
           EPA Bin No.                 NMOG             CO              NOX            HCHO             PM
----------------------------------------------------------------------------------------------------------------
5...............................           0.125             3.4            0.40           0.015
4...............................           0.075             3.4            0.20           0.015
3...............................           0.040             1.7            0.20           0.008
2...............................           0.075             3.4            0.05           0.015
----------------------------------------------------------------------------------------------------------------

    (ii) Manufacturers must select a set of standards from the same bin 
in Table S04-8 of this section and the corresponding bin in Table S04-
9, if any, for a given test group of flexible-fueled, dual fuel or 
multi-fuel LDV/LLDTs, when operated

[[Page 26135]]

on the alcohol or gaseous fuel they are designed to use. When these 
flexible-fueled, dual fuel or multi fuel LDV/Ts are certified to 
operate on gasoline, the manufacturer may choose to comply with the 
next numerically higher NMOG standard (if there is one) above the bin 
which contains the standards selected for certification on the gaseous 
or alcohol fuel.
    (2) FTP exhaust emission standards for interim non-Tier 2 HLDTs. 
(i) HLDTs of model years 2004-2008 that are not certified to meet the 
Tier 2 FTP exhaust standards in paragraph (c) of this section must 
comply with the interim non-Tier 2 FTP exhaust emission standards in 
Tables S04-10 and S04-11 of this section.
    (ii) HLDTs of model years 2004-2008 that are not certified to meet 
the Tier 2 FTP exhaust standards in paragraph (c) of this section must 
also comply with the fleet average NOX standard described in 
paragraph (l)(3)(ii) of this section subject to the phase-in schedule 
in paragraph (l)(2)(iv) of this section, i.e. 25 percent of the HLDTs 
must meet the fleet average standard of 0.20 g/mi in 2004, 50 percent 
in 2005, and so on.
    (iii) Manufacturers may choose the bin of full useful life 
standards to which they certify a test group of HLDTs, subject to the 
requirements in paragraph (l)(3)(ii) of this section. In addition to 
the bins shown in Tables S04-10 and S04-11 of this section, 
manufacturers may also use the Tier 2 bins shown in Tables S04-1 and 
S04-2 of this section. Therefore, manufacturers may include HLDTs in 
the interim program that are not used to meet the Tier 2 corporate 
average NOX standard or the phase-in percentage requirements 
in the Tier 2 program or to generate Tier 2 NOX credits. 
More simply, a manufacturer may use the Tier 2 bins for interim non-
Tier 2 vehicles; but, in a given model year, an individual vehicle may 
not be included in both the Tier 2 program and an interim program. 
Tables S04-10 and S04-11 follow:

                Table S04-10.--Full Useful Life Interim Exhaust Mass Emission Standards for HLDTs
                                                  [Grams/mile]
----------------------------------------------------------------------------------------------------------------
           EPA Bin No.                 NMOG             CO              NOX            HCHO             PM
----------------------------------------------------------------------------------------------------------------
5...............................           0.230             4.2            0.60           0.018            0.06
4...............................           0.180             4.2            0.30           0.018            0.06
3...............................           0.156             4.2            0.20           0.018            0.02
2...............................           0.090             4.2            0.07           0.018            0.01
1...............................           0.000             0.0            0.00           0.000            0.0
----------------------------------------------------------------------------------------------------------------


            Table S04-11.--Intermediate Useful Life Interim Exhaust Mass Emission Standards for HLDTs
                                                [Grams per mile]
----------------------------------------------------------------------------------------------------------------
                EPA Bin No.                      NMOG             CO              NOX            HCHO        PM
----------------------------------------------------------------------------------------------------------------
5.........................................           0.160             3.4            0.40           0.015  ....
4.........................................           0.140             3.4            0.20           0.015  ....
3.........................................           0.125             3.4            0.14           0.015  ....
2.........................................           0.075             3.4            0.05           0.015  ....
----------------------------------------------------------------------------------------------------------------

    (iv) Phase-in schedule for interim non-Tier 2 HLDT standards. Table 
S04-12 of this section specifies the minimum percentage of the 
manufacturer's non-Tier 2 HLDT U.S. sales, by model year, that must 
comply with the fleet average NOX standard described in 
paragraph (l)(3(ii) of this section. Table S04-12 follows:

Table S04-12.--Phase-in Percentages for Interim Non-Tier 2 Fleet Average
                         NOX Standard for HLDTs
------------------------------------------------------------------------
                                                           Percentage of
                                                            non-tier 2
                                                            HLDTs that
                                                             must meet
                       Model year                          interim non-
                                                           tier 2 fleet
                                                            average NOX
                                                             standard
------------------------------------------------------------------------
2004....................................................              25
2005....................................................              50
2006....................................................              75
2007 and 2008...........................................             100
------------------------------------------------------------------------

    (v) A manufacturer may elect an alternate phase-in schedule, 
beginning as early as the 2001 model year, that results in 100% 
compliance by 2007 with the fleet average NOX standard for 
HLDTs described in paragraph (1)(3)(ii) of this section. The 
requirements of paragraph (k)(6)(i) of this section apply to the 
selection of an alternate phase-in schedule.
    (vi) Manufacturers must select a set of standards from the same bin 
in Table S04-10 of this section and the corresponding bin in Table S04-
11, if any (or Tables S04-1 and S04-2 of this section), for a given 
test group of flexible-fueled, dual fuel or multi-fuel HLDTs, when 
operated on the alcohol or gaseous fuel they are designed to use. When 
these flexible-fueled, dual fuel or multi fuel HLDTs are certified to 
operate on gasoline, the manufacturer may choose to comply with the 
next numerically higher NMOG standard (if there is one) above the bin 
which contains the standards selected for certification on the gaseous 
or alcohol fuel.
    (3) Fleet average NOX standards for interim non-Tier 2 
LDV/Ts. (i) Manufacturers must comply with a fleet average full useful 
life NOX standard for their interim non-Tier 2 LDV/LLDTs, on 
an annual basis, of 0.30 grams per mile.
    (ii) Manufacturers must comply with a fleet average full useful 
life NOX standard for their interim non-Tier 2 HLDTs, 
excluding those HLDTs not yet covered by the phase-in requirement 
described in paragraph (l)(2)(ii) of this section, on an annual basis, 
of 0.20 grams per mile.
    (iii) Manufacturers must determine their compliance with these 
interim fleet average NOX standards for each model year by 
separately computing the sales weighted average NOX level of 
all interim non-Tier 2 LDV/LLDTs and all interim non-Tier 2 HLDTs 
(excluding those not yet phased in as described in paragraph (l)(2)(ii) 
of this section), using the methodology in Sec. 86.1860.

[[Page 26136]]

    (iv) Manufacturers may generate, bank, average, trade and use 
interim non-Tier 2 NOX credits based on their NOX 
fleet average as determined under paragraph (l)(3)(iii) of this 
section. Unless waived or modified by the Administrator, the provisions 
of Sec. 86.1861 apply to the generation, banking, averaging, trading 
and use of credits generated by interim non-Tier 2 LDV/Ts. 
NOX credits generated by interim non-Tier 2 LDV/Ts are not 
subject to any discount.
    (m) NMOG standards for diesel, flexible fueled and dual-fueled LDV/
Ts. (1) For diesel fueled LDV/Ts, the term ``NMOG'' in both the Tier 2 
and interim non-Tier 2 standards means non-methane hydrocarbons.
    (2) Flexible-fueled and dual-fuel Tier 2 LDV/Ts and interim non-
Tier 2 
LDV/Ts must be certified to NMOG exhaust emission standards both for 
operation on gasoline and on any alternate fuel they are designed to 
use.
    (n) Hybrid electric vehicle (HEV) and Zero Emission Vehicle (ZEV) 
requirements. For FTP and SFTP exhaust emissions, and unless otherwise 
approved by the Administrator, manufacturers must measure emissions 
from all HEVs and ZEVs according to the requirements and test 
procedures found in the document entitled California Zero-Emission and 
Hybrid Electric Vehicle Exhaust Emission Standards and Test Procedures 
for 2003 and Subsequent Model Passenger Cars, Light-duty Trucks and 
Medium-duty Vehicles. This document is incorporated by reference (see 
Sec. 86.1) . Requirements and procedures in this document that are 
relevant only to complying with the California ZEV mandate, computing 
partial and full ZEV allowance credits, or generating and using ZEV 
credits, are not relevant to the federal program and may be 
disregarded. Discussion in that document relevant to fleet average NMOG 
standards and NMOG credits may also be disregarded.
    (o) NMOG measurement. (1) Manufacturers must measure NMOG emissions 
in accordance with Part G of the California Non-Methane Organic Gas 
Test Procedures. These requirements are incorporated by reference (see 
Sec. 86.1).
    (2) Manufacturers must not apply reactivity adjustment factors 
(RAFs) to NMOG measurements. See Sec. 86.1841.
    (p) In-use standards for Tier 2 LDV/Ts. (1) Table S04-13 of this 
section contains in-use emission standards applicable only to Tier 2 
LDV/Ts certified to the bins shown in the table. These standards apply 
to in-use testing performed by the manufacturer pursuant to regulations 
at Secs. 1845-01, 1845-04 and 1846-01 and to in-use testing performed 
by EPA. These standards do not apply to certification or Selective 
Enforcement Auditing.
    (2) These standards apply only to Tier 2 LDV/LLDTs produced up 
through the 2008 model year, and Tier 2 HLDTs produced up through the 
2010 model year. These standards are subject to other limitations 
described in paragraph (p)(3) of this section.
    (3) For the first model year and also for the next model year after 
that, in which a test group of Tier 2 vehicles is certified to a bin of 
standards to which it has not previously been certified, the standards 
in Table S04-13 of this section apply for purposes of in-use testing 
only. The standards apply equally to Tier 2 LDV/Ts produced before, 
during and after the applicable Tier 2 phase-in period, subject to the 
model year limitation in paragraph (p)(2) of this section. Table S04-13 
follows:

                      Table S04-13.--In-Use Compliance Standards for Tier 2 Vehicles (g/mi)
                             [Certification standards shown for reference purposes]
----------------------------------------------------------------------------------------------------------------
                                Durability                          NOX
           Bin No.            period (miles)    NOX in-use     certification    NMOG in-use   NMOG certification
----------------------------------------------------------------------------------------------------------------
5,4.........................          50,000            0.07            0.05             n/a  0.075, 0.04
5,4.........................         120,000            0.10            0.07             n/a  0.090, 0.055
3...........................         120,000            0.06            0.04             n/a  0.070
2...........................         120,000            0.03            0.02            0.02  0.010
----------------------------------------------------------------------------------------------------------------

    22. Section 86.1812-01 is amended by adding the following sentence 
to the end of the introductory text to read as follows:


Sec. 86.1812-01  Emission standards for light-duty trucks 1.

    * * * This section does not apply to 2004 and later model year 
vehicles, except as specifically referenced by Sec. 86.1811-04.
* * * * *
    23. Section 86.1813-01 is amended by adding the following sentence 
to the end of the introductory text to read as follows:


Sec. 86.1813-01  Emission standards for light-duty trucks 2.

    * * * This section does not apply to 2004 and later model year 
vehicles, except as specifically referenced by Sec. 86.1811-04.
* * * * *
    24. Section 86.1814-02 is amended by adding the following sentence 
to the end of the introductory text to read as follows:


Sec. 86.1814-02  Emission standards for light-duty trucks 3.

    * * * This section does not apply to 2004 and later model year 
vehicles, except as specifically referenced by Sec. 86.1811-04.
* * * * *


Sec. 86.1814-04  [Removed]

    25. Section 86.1814-04 is removed.
    26. Section 86.1815-02 is amended by adding the following sentence 
to the end of the introductory text to read as follows:


Sec. 86.1815-02  Emission standards for light-duty trucks 4.

    * * * This section does not apply to 2004 and later model year 
vehicles, except as specifically referenced by Sec. 86.1811-04.
* * * * *


Sec. 86.1815-04  [Removed]

    27. Section 86.1815-04 is removed.
    28. Section 86.1824-01 is amended by adding paragraphs (a)(2)(iii) 
and (a)(2)(iv) to read as follows:


Sec. 86.1824-01  Durability demonstration procedures for evaporative 
emissions.

* * * * *
    (a) * * *
    (2) * * *
    (iii) For gasoline fueled LDV/Ts certified to meet the evaporative 
emission standards set forth in Sec. 86.1811-04(e)(1), any service 
accumulation method for evaporative emissions must employ gasoline fuel 
for the entire service accumulation period which contains ethanol in, 
at least, the highest concentration permissible in gasoline under 
federal law and that is

[[Page 26137]]

commercially available in any state in the United States. Unless 
otherwise approved by the Administrator, the manufacturer must 
determine the appropriate ethanol concentration by selecting the 
highest legal concentration commercially available during the calendar 
year before the one in which the manufacturer begins its service 
accumulation. The manufacturer must also provide information acceptable 
to the Administrator to indicate that the service accumulation method 
is of sufficient design, duration and severity to stabilize the 
permeability of all non-metallic fuel and evaporative system components 
to the service accumulation fuel constituents.
    (iv) For flexible-fueled, dual-fueled, multi-fueled, ethanol-fueled 
and methanol-fueled LDV/Ts certified to meet the evaporative emission 
standards set forth in Sec. 86.1811-04(e)(1), any service accumulation 
method must employ fuel for the entire service accumulation period 
which the vehicle is designed to use and which the Administrator 
determines will have the greatest impact upon the permeability of 
evaporative and fuel system components. The manufacturer must also 
provide information acceptable to the Administrator to indicate that 
the service accumulation method is of sufficient design, duration and 
severity to stabilize the permeability of all non-metallic fuel and 
evaporative system components to service accumulation fuel 
constituents.
* * * * *
    29. Section 86.1827-01 is amended by adding paragraph (e) to read 
as follows:


Sec. 86.1827-01  Test group determination.

* * * * *
    (e) Unless otherwise approved by the Administrator, a manufacturer 
of hybrid electric vehicles must create separate test groups based on 
both the type of battery technology employed by the HEV and upon 
features most related to their exhaust emission characteristics.
    30. Section 86.1829-01 is amended by adding paragraph (d) to read 
as follows:


Sec. 86.1829-01  Durability and emission testing requirements; waivers.

* * * * *
    (d)(1) Beginning in the 2004 model year, the exhaust emissions must 
be measured from all exhaust emission data vehicles tested in 
accordance with the federal Highway Fuel Economy Test (HWFET; 40 CFR 
part 600, subpart B). The oxides of nitrogen emissions measured during 
such tests must be multiplied by the oxides of nitrogen deterioration 
factor computed in accordance with Sec. 86.1824-01 and subsequent model 
year provisions, and then rounded and compared with the applicable 
emission standard in Sec. 86.1811-04. All data obtained from the 
testing required under this paragraph (d) must be reported in 
accordance with the procedures for reporting other exhaust emission 
data required under this subpart.
    (2) In the event that one or more emission data vehicles fail the 
applicable HWFET standard in Sec. 86.1811-04, the manufacturer may 
submit to the Administrator engineering data or other evidence showing 
that the system is capable of complying with the standard. If the 
Administrator finds, on the basis of an engineering evaluation, that 
the system can comply with the HWFET standard, he or she may accept the 
information supplied by the manufacturer in lieu of the test data.
    31. Section 86.1837-01 is amended by designating the existing text 
as paragraph (a) and by adding paragraph (b) to read as follows:


Sec. 86.1837-01  Rounding of emission measurements.

* * * * *
    (b) Fleet average NOX value calculations, where 
applicable, must be rounded to one more decimal place than that of the 
applicable fleet average standard before comparing with the applicable 
fleet average NOX standard to determine credit generation or 
credit needs.
    32. Section 86.1838-01 is amended by revising paragraph (c)(2)(iii) 
to read as follows:


Sec. 86.1838-01  Small volume manufacturer certification procedures.

* * * * *
    (c) * * *
    (2) * * *
    (iii) The provisions of Sec. 86.1845-01(c)(2) and Sec. 86.1845-
04(c)(2) that require one vehicle of each test group during high 
mileage in-use verification testing to have a minimum odometer mileage 
of 75 percent of the full useful life mileage for Tier 1 and NLEV LDV/
Ts, or 90,000 (or 105,000) miles for Tier 2 and interim non-Tier 2 LDV/
Ts, do not apply.
* * * * *
    33. Section 86.1840-01 is amended by adding paragraph (c) to read 
as follows:


Sec. 86.1840-01  Special test procedures.

* * * * *
    (c) Manufacturers of LDV/Ts equipped with periodically regenerating 
trap oxidizer systems must propose a procedure for testing and 
certifying such LDV/Ts including SFTP testing for the review and 
approval of the Administrator. The manufacturer must submit its 
proposal before it begins any service accumulation or emission testing. 
The manufacturer must provide with its submittal, sufficient 
documentation and data for the Administrator to fully evaluate the 
operation of the trap oxidizer system and the proposed certification 
and testing procedure.
    34. Section 86.1841-01 is amended by revising paragraph (a)(1)(iii) 
and adding paragraph (e) to read as follows:


Sec. 86.1841-01  Compliance with emission standards for the purpose of 
certification.

    (a) * * *
    (1) * * *
    (iii) For the SFTP composite standard of NMHC+NOX, the 
measured results of NMHC and NOX must each be adjusted by 
their corresponding deterioration factors before the composite 
NMHC+NOX certification level is calculated. Where the 
applicable FTP exhaust hydrocarbon emission standard is an NMOG 
standard, the applicable NMOG deterioration factor must be used in 
place of the NMHC deterioration factor, unless otherwise approved by 
the Administrator.
* * * * *
    (e) Unless otherwise approved by the Administrator, manufacturers 
must not use Reactivity Adjustment Factors (RAFs) in their calculation 
of the certification levels of any pollutant, regardless of the fuel 
used in the test vehicle.
    35. Section 86.1844-01 is amended by adding a new paragraph 
(d)(15), a new paragraph (e)(6) and a new paragraph (i) to read as 
follows:


Sec. 86.1844-01  Information requirements: Application for 
certification and submittal of information upon request.

* * * * *
    (d) * * *
    (15) For HEVs, unless otherwise approved by the Administrator, the 
information required by the ``California Zero-Emission and Hybrid 
Electric Vehicle Standards and Test Procedures for 2003 and Subsequent 
Model Year Passenger Cars, Light-Duty Trucks and Medium-duty Vehicles'' 
must be supplied. These procedures are incorporated by reference (see 
Sec. 86.1).
    (e) * *  *
    (6) The NMOG/NMHC and formaldehyde to NMHC ratios established 
according to Sec. 86.1845-04.
* * * * *
    (i) For exhaust emission testing for Tier 2 and interim non-Tier 2 
LDV/Ts, if approved by the Administrator in advance, manufacturers may 
submit exhaust emission test data generated

[[Page 26138]]

under California test procedures to comply with any certification and 
in-use testing requirements under this subpart. The Administrator may 
require supporting information to establish that differences between 
California and Federal exhaust testing procedures and fuels will not 
produce significant differences in emission results. The Administrator 
may require that in-use testing be performed using Federal test fuels 
as specified in Sec. 86.113-04(a)(1).
    36. Section 86.1845-04 is amended by redesignating the text of 
paragraph (a) after the paragraph heading as paragraph (a)(1), adding 
paragraph (a)(2), revising paragraph (c)(2) and adding paragraph (f) to 
read as follows:


Sec. 86.1845-04  Manufacturer in-use verification testing requirements.

    (a) General requirements. (1) * * *
    (2) Unless otherwise approved by the Administrator, no emission 
measurements made under the requirements of this section may be 
adjusted by Reactivity Adjustment Factors (RAFs).
* * * * *
    (c) * * *
    (2) Vehicle mileage:
    (i) All test vehicles must have a minimum odometer mileage of 
50,000 miles. At least one vehicle of each test group must have a 
minimum odometer mileage of 75 percent of the full useful life mileage. 
See Sec. 86.1838-01(c)(2) for small volume manufacturer mileage 
requirements; or
    (ii) For engine families certified for a useful life of 150,000 
miles, at least one vehicle must have a minimum odometer mileage of 
105,000 miles. See Sec. 86.1838-01(c)(2) for small volume manufacturer 
mileage requirements.
* * * * *
    (f)(1) As an alternative to measuring the NMOG content, the 
Administrator may approve, upon submission of supporting data by a 
manufacturer, the use of NMOG to NMHC ratios. To request the use of 
NMOG to NMHC ratios, a manufacturer must establish during certification 
testing the ratio of measured NMOG exhaust emissions to measured NMHC 
exhaust emissions for each emission data vehicle for the applicable 
test group. The results must be submitted to the Administrator in the 
Part II application for certification. A manufacturer may conduct in-
use testing on the test group by measuring NMHC exhaust emissions 
rather than NMOG exhaust emissions. After approval by the 
Administrator, the measured NMHC exhaust emissions must be multiplied 
by the NMOG to NMHC ratio submitted in the application for 
certification for the test group to determine the equivalent NMOG 
exhaust emission values for the test vehicle. The equivalent NMOG 
exhaust emission value must be used in place of the measured NMOG 
exhaust emission value in determining the exhaust NMOG results. The 
equivalent NMOG exhaust emission values must be compared to the NMOG 
exhaust emission standard from the emission bin to which the test group 
was certified.
    (2) For flexible-fueled LDV/Ts certified to NMOG standards, the 
manufacturer may request from the Administrator the use of a methanol 
(M85) or ethanol (E85) NMOG exhaust emission to gasoline NMHC exhaust 
emission ratio which must be established during certification for each 
emission data vehicle for the applicable test group. The results must 
be submitted to the Administrator in the Part II application for 
certification. After approval by the Administrator, the measured 
gasoline NMHC exhaust emissions must be multiplied by the M85 or E85 
NMOG to gasoline NMHC ratio submitted in the application for 
certification for the test group to determine the equivalent NMOG 
exhaust emission values for the test vehicle. The equivalent NMOG 
exhaust emission value must be used in place of the measured NMOG 
exhaust emission value in determining the exhaust NMOG results. The 
equivalent NMOG exhaust emission values must be compared to the NMOG 
exhaust emission standard from the vehicle emission standard bin to 
which the test group was certified.
    (3) As an alternative to measuring the HCHO content, the 
Administrator may approve, upon submission of supporting data by a 
manufacturer, the use of HCHO to NMHC ratios. To request the use of 
HCHO to NMHC ratios, the manufacturer must establish during 
certification testing the ratio of measured HCHO exhaust emissions to 
measured NMHC exhaust emissions for each emission data vehicle for the 
applicable test group. The results must be submitted to the 
Administrator with the Part II application for certification. Following 
approval of the application for certification, the manufacturer may 
conduct in-use testing on the test group by measuring NMHC exhaust 
emissions rather than HCHO exhaust emissions. The measured NMHC exhaust 
emissions must be multiplied by the HCHO to NMHC ratio submitted in the 
application for certification for the test group to determine the 
equivalent HCHO exhaust emission values for the test vehicle. The 
equivalent HCHO exhaust emission values must be compared to the HCHO 
exhaust emission standard applicable to the test group.
    37. Section 86.1846-01 is amended by redesignating paragraph (a) as 
paragraph (a)(1) and adding paragraph (a)(2) to read as follows:


Sec. 86.1846-01  Manufacturer in-use confirmatory testing requirements.

    (a)(1) * * *
    (2) Except for vehicles certified under the NLEV provisions of 
subpart R of this part or unless otherwise approved by the 
Administrator, no emission measurements made under the requirements of 
this section may be adjusted by Reactivity Adjustment Factors (RAFs).
* * * * *
    38. Section 86.1848-01 is amended by adding paragraph (c)(7) to 
read as follows:


Sec. 86.1848-01  Certification.

* * * * *
    (c) * * *
    (7) For Tier 2 LDV/Ts and interim non-Tier 2 LDV/Ts, all 
certificates of conformity issued are conditional upon compliance with 
all provisions of Secs. 86.1811-04, 86.1860-04, 86.1861-04 and 86.1862-
04 both during and after model year production.
    (i) Failure to meet the fleet average NOX requirements 
of 0.07g/mi, 0.30
g/mi or 0.20 g/mi, as applicable, will be considered to be a failure to 
satisfy the terms and conditions upon which the certificate(s) was 
(were) issued and the LDV/Ts sold in violation of the fleet average 
NOX standard will not be covered by the certificate(s).
    (ii) Failure to comply fully with the prohibition against selling 
credits that it has not generated or that are not available, as 
specified in Sec. 86.1861-04, will be considered to be a failure to 
satisfy the terms and conditions upon which the certificate(s) was 
(were) issued and the LDV/Ts sold in violation of this prohibition will 
not be covered by the certificate(s).
    (iii) Failure to comply fully with the phase-in requirements of 
Sec. 86.1811-04, will be considered to be a failure to satisfy the 
terms and conditions upon which the certificate(s) was (were) issued 
and the LDV/Ts sold which do not comply with Tier 2 or interim non-Tier 
2 requirements, up to the number needed to comply, will not be covered 
by the certificate(s).
    (iv) For paragraphs (c)(7) (i) through (iii) of this section:
    (A) The manufacturer must bear the burden of establishing to the 
satisfaction of the Administrator that the terms and conditions upon 
which the certificate(s) was (were) issued were satisfied.

[[Page 26139]]

    (B) For recall and warranty purposes, LDV/Ts not covered by a 
certificate of conformity will continue to be held to the standards 
stated or referenced in the certificate that otherwise would have 
applied to the LDV/Ts
* * * * *


Secs. 86.1854 through 86.1859  [Reserved]

    39. Sections 86.1854 through 86.1859 are added and reserved.
    40. Section 86.1860-04 is added to read as follows:


Sec. 86.1860-04  How to comply with the Tier 2 and interim non-Tier 2 
fleet average NOX standards.

    (a) The fleet average standards referred to in this section are the 
corporate fleet average standards for FTP exhaust NOX 
emissions set forth in: Sec. 86.1811-04(d) for Tier 2 LDV/Ts (0.07 g/
mi); Sec. 86.1811-04(l)(3) for interim non-Tier 2 LDV/LLDTs (0.30 g/
mi); and, Sec. 86.1811-04(l)(3) for interim non-Tier 2 HLDTs (0.20 g/
mi). Unless otherwise indicated in this section, the provisions of this 
section apply to all three corporate fleet average standards, except 
that the interim non-Tier 2 fleet average NOX standards do 
not apply to a manufacturer whose U.S. LDV/T sales are 100% Tier 2 LDV/
Ts.
    (b) Each manufacturer must comply with the applicable fleet average 
NOX standard, or standards, on a sales weighted average 
basis, at the end of each model year, using the procedure described in 
this section.
    (c)(1)(i) Each manufacturer must separately compute the sales 
weighted averages of the individual NOX emission standards 
to which it certified all its Tier 2 LDV/Ts, interim non-Tier 2 LDV/
LLDTs, and interim non-Tier 2 HLDTs of a given model year as described 
in Sec. 86.1804(l)(2). The averages must be rounded to the same number 
of decimal places as those of the standard plus one additional decimal 
place.
    (ii) For model years up to and including 2008, manufacturers must 
compute separate NOX fleet averages for Tier 2 LDV/LLDTs and 
Tier 2 HLDTs.
    (2)(i) For model years up to and including 2008, if a manufacturer 
certifies its entire U.S. sales of Tier 2 or interim non-Tier 2 LDV/
LLDTs or interim non-Tier 2 HLDTs, to full useful life bins having 
NOX standards at or below the applicable fleet average 
NOX standard, that manufacturer may elect not to compute a 
fleet average NOX level for that category of vehicles. A 
manufacturer making such an election must not generate NOX 
credits for that category of vehicles for that model year.
    (ii) For model years after 2008, if a manufacturer certifies its 
entire U.S. sales of Tier 2 vehicles to full useful life bins having 
NOX standards at or below 0.07 gpm, that manufacturer may 
elect not to compute a fleet average NOX level for its Tier 
2 vehicles. A manufacturer making such an election must not generate 
NOX credits for that model year.
    (d) The sales weighted NOX fleet averages determined 
pursuant to paragraph (c) of this section must be compared with the 
applicable fleet average standard; 0.07 g/mi for NOX for 
Tier 2 LDV/Ts, 0.30 g/mi for NOX for interim non-Tier 2 LDV/
LLDTs, and 0.20 g/mi for NOX for interim non-Tier 2 HLDTs. 
Each manufacturer must comply on an annual basis with the fleet average 
standards by:
    (1) showing that its sales weighted average NOX 
emissions of its LDV/LLDTs, HLDTs or LDV/Ts, as applicable, are at or 
below the applicable fleet average standard; or
    (2) if the sales weighted average is not at or below the applicable 
fleet average standard, obtaining and applying sufficient Tier 2 
NOX credits, interim non-Tier 2 LDV/LLDT NOX 
credits or interim non-Tier 2 HLDT NOX credits as permitted 
under Sec. 86.1861-04 of this part. Manufacturers may not use NMOG 
credits generated under the NLEV program in subpart R of this part to 
meet any Tier 2 or interim non-Tier 2 NOX fleet average 
standard. Tier 2 NOX credits may not be used to meet any 
fleet average interim non-Tier 2 NOX standard. Interim non-
Tier 2 NOX credits may not be used to meet the Tier 2 
corporate average NOX standard. Interim non-Tier 2 
NOX credits from HLDTs may not be used to meet the fleet 
average NOX standard for interim non-Tier 2 LDV/LLDTs, and 
interim non-Tier 2 credits from LDV/LLDTs may not be used to meet the 
fleet average NOX standard for interim non-Tier 2 HLDTs.
    (e) Manufacturers that can not meet the requirements of paragraph 
(d) of this section, may carry forward a credit deficit for one model 
year, but may not carry a deficit forward in two consecutive model 
years, except that manufacturers may carry forward a credit deficit for 
interim non-Tier 2 LDV/LLDTs or interim non-Tier 2 HLDTs for more than 
one year but must cover the LDV/LLDT credit deficit with interim non-
Tier 2 LDV/LLDT NOX credits by the end of model year 2006, 
and any interim non-Tier 2 HLDT deficit with interim non-Tier 2 HLDT 
NOX credits by the end of model year 2008. No deficit from 
interim non-Tier 2 LDV/LLDTs of any model year may be carried forward 
into the 2007 model year. No deficit from interim non-Tier 2 HLDTs may 
be carried forward into the 2009 model year.
    (f) Computing fleet average NOX emissions. (1) 
Manufacturers must separately compute these fleet NOX 
averages using the equation contained in paragraph (f)(2) of this 
section:
    (i) Their Tier 2 LDV/LLDT and Tier 2 HLDT fleet average 
NOX emissions for each model year through 2008;
    (ii) Their Tier 2 LDV/T fleet average NOX emissions for 
each model year after 2008;
    (iii) Their interim non-Tier 2 LDV/LDT fleet average NOX 
emissions for each model year through 2006; and
    (iv) Their interim non-Tier 2 HLDT fleet average NOX 
emissions for each model year through 2008.
    (2) The equation for computing fleet average NOX 
emissions is as follows:
[GRAPHIC] [TIFF OMITTED] TP13MY99.011

Where:
N = The number of LDV/Ts sold in the applicable category that were 
certified for each corresponding NOX emission bin. N must be 
based on LDV/Ts counted to the point of first sale.
Emission standard = The individual full useful life NOX 
emission standard for each bin for which the manufacturer had sales.

    (3) The results of the calculation in paragraph (f)(2) of this 
section must be rounded to one more decimal place than the number of 
decimal places of the fleet average NOX standard.
    (4) When approved in advance by the Administrator, the numerator in 
the equation in paragraph (f)(2) of this section may be adjusted 
downward by the product of the number of HEVs from each NOX 
emission bin times a HEV NOX contribution factor determined 
through mathematical estimation of the reduction in NOX 
emissions over the

[[Page 26140]]

test procedure used to certify the HEVs. The reduction in 
NOX emissions must be determined using good engineering 
judgement and reflect the relation in actual full useful life 
NOX emissions to the full useful life NOX 
standards for the certification bin applicable to the LDV/Ts. The 
Administrator may require that calculation of the HEV NOX 
contribution factor include vehicle parameters such as vehicle weight, 
portion of time during the test procedure that the HEV operates with 
zero exhaust emissions, zero emission range, NOX emissions 
from fuel-fired heaters and NOX emissions from electricity 
production and storage.
    (g) Additional credits for LDV/Ts certified to 150,000 mile useful 
lives. A manufacturer may certify any Tier 2 test group to an optional 
useful life of 150,000 miles. For any test group certified to the 
optional 150,000 mile useful life, the manufacturer, when calculating 
its fleet average by the procedure in paragraph (f) of this section, 
may substitute an adjusted NOX standard for the applicable 
NOX standards from the full useful life certification bin. 
The adjusted standard must be equal to the applicable full useful life 
NOX standard multiplied by 0.85 and rounded to the same 
number of decimal places as the applicable full useful life 
NOX standard.
    41. Section 86.1861-04 is added to read as follows:


Sec. 86.1861-04  How do the Tier 2 and interim non-Tier 2 
NOX averaging, banking and trading programs work?

    (a) General provisions for Tier 2 credits and debits. (1) A 
manufacturer whose Tier 2 fleet average NOX emissions 
exceeds the 0.07 g/mile standard must complete the calculation at 
paragraph (b) of this section to determine the size of its 
NOX credit deficit. A manufacturer whose Tier 2 fleet 
average NOX emissions is less than or equal to the 0.07 g/
mile standard must complete the calculation in paragraph (b) of this 
section if it desires to generate NOX credits. In either 
case, the number of credits or debits determined in the calculation at 
paragraph (b) of this section must be rounded to the nearest whole 
number.
    (2) Credits generated according to the calculation in paragraph 
(b)(1) of this section may be banked for future use or traded to 
another manufacturer.
    (3) NOX credits are not subject to any discount or 
expiration date.
    (4) If a manufacturer calculates that it has negative credits 
(debits or a credit deficit) for a given model year, it must obtain 
sufficient credits from LDV/Ts produced by itself or another 
manufacturer in a model year no later than the one following the model 
year for which it calculated the credit deficit. (Example: if a 
manufacturer calculates that it has a NOX credit deficit for 
the 2008 model year, it must obtain sufficient NOX credits 
to offset that deficit from its own production or that of other 
manufacturers' 2009 or earlier model year LDV/Ts.)
    (5) A manufacturer must not have a NOX credit deficit 
for any two consecutive model years. (Example: A manufacturer that has 
a NOX credit deficit at the end of the 2008 model year from 
its 2008 production that it can not offset with NOX credits 
from 2008 or earlier model year LDV/Ts as allowed under this subpart, 
must not also have a NOX credit deficit at the end of the 
2009 model year.)
    (6) Manufacturers may not use NOX credits generated in 
the Tier 2 program to comply with the NLEV requirements of subpart R of 
this part. Manufacturers may not use NMOG credits generated by vehicles 
certified to the NLEV requirements of subpart R of this part to comply 
with any NOX requirements of this subpart. Manufacturers may 
not use NOX credits generated by interim non-Tier 2 LDV/Ts 
to comply with the corporate average NOX standard for Tier 2 
LDV/Ts. Manufacturers may not use NOX credits generated by 
Tier 2 LDV/Ts to comply with any corporate average NOX 
standard for interim non-Tier 2 LDV/Ts. Manufacturers may not use 
NOX credits generated by interim non-Tier 2 LDV/LLDTs to 
comply with the corporate average NOX standard for interim 
non-Tier 2 HLDTs. Manufacturers may not use NOX credits 
generated by interim non-Tier 2 HLDTs to comply with the corporate 
average NOX standard for interim non-Tier 2 LDV/LLDTs.
    (7) Manufacturers may bank Tier 2 NOX credits for later 
use to meet the Tier 2 corporate average NOX standard or 
trade them to another manufacturer. Credits are earned on the last day 
of the model year. Before trading or carrying over credits to the next 
model year, a manufacturer must apply available credits to offset any 
credit deficit, where the deadline to offset that credit deficit has 
not yet passed.
    (8) There are no property rights associated with NOX 
credits generated under this subpart. Credits are a limited 
authorization to emit the designated amount of emissions. Nothing in 
this part or any other provision of law should be construed to limit 
EPA's authority to terminate or limit this authorization through a 
rulemaking.
    (b) Calculating Tier 2 credits and debits. (1) Manufacturers that 
achieve fleet average NOX values from the calculation in 
Sec. 86.1860-04(f), lower than the applicable fleet average 
NOX standard, may generate credits for a given model year, 
in units of vehicle-g/mi NOX, determined in this equation:

[(Fleet Average NOX Standard)-(Manufacturer's Fleet Average 
NOX Value)]  x  (Total number of Tier 2 LDV/Ts Sold, 
Including ZEVs and HEVs)

Where: The number of Tier 2 LDV/Ts sold is based on the point of first 
sale and does not include vehicles sold in California or a state that 
adopts, and has in effect for that model year, California emission 
requirements.

    (2) Where the result of the calculation in paragraph (b)(1) of this 
section is a negative number, the manufacturer must generate negative 
NOX credits (debits).
    (c) Early banking. (1)(i) Manufacturers may certify LDV/LLDTs to 
the Tier 2 FTP exhaust standards in Sec. 86.1811-04 for model years 
2001-2003 in order to bank credits for use in the 2004 and later model 
years. Such vehicles must also meet SFTP exhaust emission standards 
specified in Sec. 86.1811-04.
    (ii) Manufacturers may certify HLDTs to the Tier 2 FTP exhaust 
standards in Sec. 86.1811-04 for model years 2004-2007 in order to bank 
credits for use in the 2008 and later model years. Such vehicles must 
also meet SFTP exhaust emission standards specified in Sec. 86.1811-04.
    (iii) This process is referred to as ``early banking'' and the 
resultant credits are referred to as ``early credits''. In order to 
bank early credits, a manufacturer must comply with all exhaust 
emission standards and requirements applicable to Tier 2 LDV/LLDTs and/
or HLDTs, as applicable, except as allowed under paragraph (c)(4) of 
this section.
    (2) To generate early credits, a manufacturer must separately 
compute the sales weighted NOX average of the LDV/LLDTs and 
HLDTs it certifies to the Tier 2 exhaust requirements and separately 
compute credits using the calculations in this section and in 
Sec. 86.1860-04.
    (3) Early HLDT credits may not be applied to LDV/LLDTs before the 
2009 model year. Early LDV/LLDT credits may not be applied to HLDTs 
before the 2009 model year.
    (4) Manufacturers may generate early Tier 2 credits from LDVs, 
LDT1s and LDT2s that are certified to a full useful life of 100,000 
miles, provided that the credits are prorated by a multiplicative 
factor of 0.833 (the quotient of 100,000/120,000). Where a manufacturer 
has

[[Page 26141]]

both 100,000 and 120,000 mile full useful life vehicles for which it 
desires to bank early credits, it must compute the credits from each 
group of vehicles separately and then add them together.
    (5) Manufacturers may bank early credits for later use to meet the 
Tier 2 corporate average NOX standard or trade them to 
another manufacturer subject to the restriction in paragraph (c)(3) of 
this section.
    (6) Early credits may not be used to comply with the corporate 
average NOX standards for interim non-Tier 2 LDV/Ts.
    (d) Reporting and recordkeeping for Tier 2 NOX credits 
including early credits. Each manufacturer must comply with the 
reporting and recordkeeping requirements of Sec. 86.1862-04.
    (e) Fleet average NOX debits. (1) Manufacturers must 
offset any debits for a given model year by the fleet average 
NOX reporting deadline for the model year following the 
model year in which the debits were generated. Manufacturers may offset 
debits by generating credits or acquiring credits generated by another 
manufacturer.
    (2)(i) Failure to meet the requirements of paragraphs (a) through 
(d) of this section within the required timeframe for offsetting debits 
will be considered to be a failure to satisfy the conditions upon which 
the certificate(s) was issued and the individual noncomplying LDV/Ts 
not covered by the certificate must be determined according to this 
section.
    (ii) If debits are not offset within the specified time period, the 
number of LDV/Ts not meeting the fleet average NOX standards 
and not covered by the certificate must be calculated by dividing the 
total amount of debits for the model year by the fleet average 
NOX standard applicable for the model year in which the 
debits were first incurred.
    (iii) EPA will determine the LDV/Ts for which the condition on the 
certificate was not satisfied by designating LDV/Ts in those engine 
families with the highest certification NOX emission values 
first and continuing until a number of LDV/Ts equal to the calculated 
number of noncomplying LDV/Ts as determined above is reached. If this 
calculation determines that only a portion of LDV/Ts in an engine 
family contribute to the debit situation, then EPA will designate 
actual LDV/Ts in that engine family as not covered by the certificate, 
starting with the last vehicle produced and counting backwards.
    (3) If a manufacturer ceases production of LDV/Ts or is purchased 
by, merges with or otherwise combines with another manufacturer, the 
manufacturer continues to be responsible for offsetting any debits 
outstanding within the required time period. Any failure to offset the 
debits will be considered to be a violation of paragraph (e)(1) of this 
section and may subject the manufacturer to an enforcement action for 
sale of LDV/Ts not covered by a certificate, pursuant to paragraph 
(e)(2) of this section.
    (4) For purposes of calculating the statute of limitations, a 
violation of the requirements of paragraph (e)(1) of this section, a 
failure to satisfy the conditions upon which a certificate(s) was 
issued and hence a sale of LDV/Ts not covered by the certificate, all 
occur upon the expiration of the deadline for offsetting debits 
specified in paragraph (e)(1) of this section.
    (f) NOX credit transfers. (1) EPA may reject 
NOX credit transfers if the involved manufacturers fail to 
submit the credit transfer notification in the annual report.
    (2) A manufacturer may not sell credits that are not available for 
sale pursuant to the provisions in paragraphs (a)(2) and (a)(7) of this 
section.
    (3) In the event of a negative credit balance resulting from a 
transaction, both the buyer and seller are liable, except in cases 
involving fraud. EPA may void ab initio the certificates of conformity 
of all engine families participating in such a trade.
    (4)(i) If a manufacturer transfers a credit that it has not 
generated pursuant to paragraph (b) of this section or acquired from 
another party, the manufacturer will be considered to have generated a 
debit in the model year that the manufacturer transferred the credit. 
The manufacturer must offset such debits by the deadline for the annual 
report for that same model year.
    (ii) Failure to offset the debits within the required time period 
will be considered a failure to satisfy the conditions upon which the 
certificate(s) was issued and will be addressed pursuant to paragraph 
(e) of this section.
    (g) Interim non-Tier 2 NOX credits and debits; Interim 
non-Tier 2 averaging, banking and trading. Interim non-Tier 2 
NOX credits must be generated, calculated, tracked, 
averaged, banked, traded, accounted for and reported upon separately 
from Tier 2 credits. The provisions of this section applicable to Tier 
2 NOX credits and debits and Tier 2 averaging banking and 
trading are applicable to interim non-Tier 2 LDV/Ts with the following 
exceptions:
    (1) Provisions for early banking under paragraph (c) of this 
section do not apply.
    (2) The fleet average NOX standard used for calculating 
credits is 0.30 grams per mile for interim non-Tier 2 LDV/LLDTs and 
0.20 g/mi for interim non-Tier 2 HLDTs. (The interim non-Tier 2 
NOX standard of 0.30 (or 0.20) 
g/mi replaces 0.07 in the text and calculation in this section.)
    (3) Interim non-Tier 2 NOX credit deficits may be 
carried forward for more than one year, except that all credit deficits 
must be reduced to zero for interim non-Tier 2 LDV/LLDTs by the end of 
the 2006 model year, and by the end of the 2008 model year for interim 
non-Tier 2 HLDTs.
    42. Section 86.1862-04 is added to read as follows:


Sec. 86.1862-04  Maintenance of records and submittal of information 
relevant to compliance with fleet average NOX standards.

    (a) Maintenance of records. (1) The manufacturer producing any 
light-duty vehicles and/or light-duty trucks subject to the provisions 
in this subpart must establish, maintain, and retain the following 
information in adequately organized and indexed records for each model 
year:
    (i) Model year;
    (ii) Applicable fleet average NOX standard: 0.07g/mi for 
Tier 2 LDV/Ts; 0.30 g/mi for interim non-Tier 2 
LDV/LLDTs; or 0.20 g/mi for interim non-Tier 2 HLDTs;
    (iii) Fleet average NOX value achieved; and
    (iv) All values used in calculating the fleet average 
NOX value achieved.
    (2) The manufacturer producing any LDV/Ts subject to the provisions 
in this subpart must establish, maintain, and retain the following 
information in adequately organized and indexed records for each LDV/T 
subject to this subpart:
    (i) Model year;
    (ii) Applicable fleet average NOX standard;
    (iii) EPA test group;
    (iv) Assembly plant;
    (v) Vehicle identification number;
    (vi) NOX standard to which the 
LDV/T is certified; and
    (vii) Information on the point of first sale, including the 
purchaser, city, and state.
    (3) The manufacturer must retain all records required to be 
maintained under this section for a period of eight years from the due 
date for the annual report. Records may be retained as hard copy or 
reduced to microfilm, ADP diskettes, and so forth, depending on the 
manufacturer's record retention procedure; provided, that in every case 
all information contained in the hard copy is retained.
    (4) Nothing in this section limits the Administrator's discretion 
to require the

[[Page 26142]]

manufacturer to retain additional records or submit information not 
specifically required by this section.
    (5) Pursuant to a request made by the Administrator, the 
manufacturer must submit to the Administrator the information that the 
manufacturer is required to retain.
    (6) EPA may void ab initio a certificate of conformity for a LDV/T 
certified to emission standards as set forth or otherwise referenced in 
this subpart for which the manufacturer fails to retain the records 
required in this section or to provide such information to the 
Administrator upon request.
    (b) Reporting. (1) Each covered manufacturer must submit an annual 
report. Except as provided in paragraph (b)(2) of this section, the 
annual report must contain, for each applicable fleet average 
NOX standard, the fleet average NOX value 
achieved, all values required to calculate the NOX value, 
the number of credits generated or debits incurred, and all the values 
required to calculate the credits or debits. The annual report must 
contain the resulting balance of credits or debits.
    (2) When a manufacturer calculates compliance with the fleet 
average NOX standard using the provisions in Sec. 86.1860-
04(c)(2), then the annual report must state that the manufacturer has 
elected to use such provision and must contain the fleet average 
NOX standard as the fleet average NOX value for 
that model year.
    (3) For each applicable fleet average NOX standard, the 
annual report must also include documentation on all credit 
transactions the manufacturer has engaged in since those included in 
the last report. Information for each transaction must include:
    (i) Name of credit provider;
    (ii) Name of credit recipient;
    (iii) Date the transfer occurred;
    (iv) Quantity of credits transferred; and
    (v) Model year in which the credits were earned.
    (4) Unless a manufacturer reports the data required by this section 
in the annual production report required under Sec. 86.1844-01(e) and 
subsequent model year provisions, a manufacturer must submit an annual 
report for each model year after production ends for all affected 
vehicles and trucks produced by the manufacturer subject to the 
provisions of this subpart and no later than May 1 of the calendar year 
following the given model year. Annual reports must be submitted to: 
Director, Vehicle Programs and Compliance Division, U.S. Environmental 
Protection Agency, 2000 Traverwood, Ann Arbor, Michigan 48105.
    (5) Failure by a manufacturer to submit the annual report in the 
specified time period for all vehicles and trucks subject to the 
provisions in this section is a violation of section 203(a)(1) of the 
Clean Air Act for each subject vehicle and truck produced by that 
manufacturer.
    (6) If EPA or the manufacturer determines that a reporting error 
occurred on an annual report previously submitted to EPA, the 
manufacturer's credit or debit calculations will be recalculated. EPA 
may void erroneous credits, unless transferred, and must adjust 
erroneous debits. In the case of transferred erroneous credits, EPA 
must adjust the manufacturer's credit or debit balance to reflect the 
sale of such credits and any resulting generation of debits.
    (c) Notice of opportunity for hearing. Any voiding of the 
certificate under paragraph (a)(6) of this section will be made only 
after EPA has offered the manufacturer concerned an opportunity for a 
hearing conducted in accordance with Sec. 86.614 for light-duty 
vehicles or Sec. 86.1014 for light-duty trucks and, if a manufacturer 
requests such a hearing, will be made only after an initial decision by 
the Presiding Officer.

[FR Doc. 99-11384 Filed 5-6-99; 11:03 am]
BILLING CODE 6560-50-P