[Federal Register Volume 64, Number 144 (Wednesday, July 28, 1999)]
[Proposed Rules]
[Pages 40940-40972]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-18477]



[[Page 40939]]

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Part II

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Environmental Protection Agency





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40 CFR Part 90



Phase 2 Emission Standards for New Nonroad Spark-Ignition Handheld 
Engines At or Below 19 Kilowatts; Proposed Rule

  Federal Register / Vol. 64, No. 144 / Wednesday, July 28, 1999 / 
Proposed Rules  

[[Page 40940]]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 90

[FRL-6374-7]
RIN 2060-AE29


Phase 2 Emission Standards for New Nonroad Spark-Ignition 
Handheld Engines At or Below 19 Kilowatts

AGENCY: Environmental Protection Agency (EPA).

ACTION: Supplemental notice of proposed rulemaking (SNPRM).

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

SUMMARY: In this action, EPA is reproposing a second phase of emission 
regulations to control emissions from new nonroad spark-ignition 
handheld engines at or below 19 kilowatts (25 horsepower). The engines 
covered by this proposal are used principally in handheld lawn and 
garden equipment applications such as trimmers, leaf blowers and 
chainsaws. EPA originally proposed standards for these engines in 
January 1998, however, recent dramatic advancements in small engine 
emission control technology have led EPA to repropose significantly 
more stringent standards for handheld engines than originally proposed. 
The newly proposed standards are expected to result in an estimated 78 
percent reduction of emissions of hydrocarbons plus oxides of nitrogen 
from those achieved under the current Phase 1 standards applicable to 
handheld engines. The proposed standards for handheld engines are 
scheduled to be phased in beginning with the 2002 model year. The 
standards would result in important reductions in emissions which 
contribute to excessively high ozone levels in many areas of the United 
States.
    Today's action also includes two provisions that would affect Phase 
2 nonhandheld engines. EPA is proposing standards for two additional 
classes of nonhandheld engines that would apply to engines below 100 
cubic centimeters displacement used in nonhandheld equipment 
applications. EPA is also proposing an option that allows manufacturers 
to certify engines greater than 19 kilowatts and less than or equal to 
one liter in displacement to the small engine Phase 2 standards. EPA 
recently adopted Phase 2 regulations for small SI engines used in 
nonhandheld equipment generally, and today's proposed standards for 
additional classes of nonhandheld engines and the option to include 
engines greater than 19 kilowatts and less than or equal to one liter 
in displacement would partially modify the scope of the recent final 
rule.

DATES: Written comments on this SNPRM must be submitted on or before 
September 17, 1999. EPA will hold a public hearing on August 17, 1999 
starting at 10:00 a.m.; requests to present oral testimony must be 
received on or before August 13, 1999.

ADDRESSES: Written comments should be submitted (in duplicate if 
possible) to: EPA Air and Radiation Docket, Attention Docket No. A-96-
55, Room M-1500 (mail code 6102), 401 M Street, SW, Washington, DC 
20460, and to the EPA contact person listed below. Materials relevant 
to this supplemental proposed rulemaking are contained in this docket 
and may be viewed from 8:00 a.m. until 5:30 p.m. weekdays. The docket 
may also be reached by telephone at (202) 260-7548. As provided in 40 
CFR part 2, a reasonable fee may be charged by EPA for photocopying. 
The public hearing will be held in Ann Arbor, MI at the National 
Vehicle and Fuel Emission Laboratory, 2000 Traverwood; call (734) 214-
4270 for further information.
    For further information on electronic availability of this 
supplemental proposed rulemaking, see SUPPLEMENTARY INFORMATION below.

FOR FURTHER INFORMATION CONTACT: Philip Carlson, U.S. EPA, Office of 
Mobile Sources, Engine Programs and Compliance Division, (734) 214-
4270; [email protected].

SUPPLEMENTARY INFORMATION:

Regulated Entities

    Entities potentially regulated by this action are those that 
manufacture or introduce into commerce new small spark-ignition 
handheld or nonhandheld nonroad engines or equipment. Regulated 
categories and entities include:

------------------------------------------------------------------------
              Category                  Examples of regulated entities
------------------------------------------------------------------------
Industry............................  Manufacturers or importers of new
                                       nonroad small (at or below 19 kW)
                                       spark-ignition handheld or
                                       nonhandheld engines and
                                       equipment.
------------------------------------------------------------------------

    This table is not intended to be exhaustive, but rather provides a 
guide for readers regarding entities likely to be regulated by this 
action. This table lists the types of entities that EPA is now aware 
could potentially be regulated by this action. Other types of entities 
not listed in the table could also be regulated. To determine whether 
your company is regulated by this action, you should carefully examine 
the applicability criteria in Sec. 90.1 of Title 40 of the Code of 
Federal Regulations. If you have questions regarding the applicability 
of this action to a particular entity, consult the person listed in the 
preceding FOR FURTHER INFORMATION CONTACT section.

Obtaining Electronic Copies of the Regulatory Documents

    The preamble, proposed regulatory language and Supplemental Draft 
Regulatory Impact Analysis are also available electronically from the 
EPA Internet Web site. This service is free of charge, except for any 
cost already incurred for Internet connectivity. The electronic version 
of this supplemental proposed rule is made available on the day of 
publication on the primary Web site listed below. The EPA Office of 
Mobile Sources also publishes Federal Register notices and related 
documents on the secondary Web site listed below.
    1. http://www.epa.gov/docs/fedrgstr/EPA-AIR/(either select desired 
date or use Search feature).
    2. http://www.epa.gov/OMSWWW/(look in What's New or under the 
specific rulemaking 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.

Table of Contents

I. Introduction
    A. Background
    B. Overview of Re-Proposed Program
II. Content of the Supplemental Proposed Rule
    A. Emission Standards and Related Provisions
    1. Class Structure
    2. Emission Standards
    3. NMHC+NOx Standard for Class I-B Natural Gas-Fueled Engines
    4. Useful Life Categories
    5. Selection of Useful Life Category
    B. Averaging, Banking, and Trading
    C. Compliance Program
    1. Certification
    2. Production Line Testing--Cumulative Summation Procedure
    3. Voluntary In-Use Testing
    4. Selective Enforcement Auditing
    D. Flexibilities
    1. Carry-Over Certification
    2. Flexibilities for Small Volume Engine Manufacturers and Small 
Volume Engine Families
    3. Small Volume Engine Manufacturer Definition
    4. Small Volume Engine Family Definition
    5. Flexibilities for Equipment Manufacturers and Small Volume 
Equipment Models
    6. Small Volume Equipment Manufacturer Definition
    7. Small Volume Equipment Model Definition

[[Page 40941]]

    E. General Provisions and Recommendations
    1. Definition of Handheld Engine
    2. Engines Used in Recreational Vehicles and Applicability of 
the Small SI Regulations to Model Airplanes
    3. Engine Labeling
    4. Emission Warranty
III. Projected Impacts
    A. Environmental Benefit Assessment
    1. Roles of HC and NOx in Ozone Formation
    2. Health and Welfare Effects of Tropospheric Ozone
    3. Estimated Emissions Impact of the Supplemental Proposed 
Regulations
    4. Health and Welfare Effects of CO Emissions
    5. Health and Welfare Effects of Hazardous Air Pollutant 
Emissions
    B. Cost and Cost-Effectiveness
    1. Class I-A and Class I-B
    2. Engine Technologies for Handheld Engines
    3. Handheld Engine Costs
    4. Handheld Equipment Costs
    5. Handheld Operating Costs
    6. Cost Per Engine and Cost-Effectiveness
IV. Public Participation
V. Administrative Requirements
    A. Administrative Designation and Regulatory Analysis
    B. Regulatory Flexibility
    C. Paperwork Reduction Act
    D. Unfunded Mandates Reform Act
    E. National Technology Transfer and Advancement Act
    F. Executive Order 13045: Protection of Children's Health
    G. Executive Order 12875: Enhancing the Intergovernmental 
Partnership
    H. Executive Order 13084: Consultation and Coordination with 
Indian Tribal Governments
VI. Statutory Authority

I. Introduction

A. Background

    On January 27, 1998, EPA issued a Notice of Proposed Rulemaking 
(NPRM) proposing a second phase of regulations to control emissions 
from new handheld and nonhandheld nonroad SI engines at or below 19 
kilowatts (25 horsepower) hereafter referred to as ``small SI engines'' 
(63 FR 3950). This action was preceded by a March 27, 1997, Advance 
Notice of Proposed Rulemaking (62 FR 14740). EPA solicited comment on 
all aspects of the January 1998 NPRM. EPA held a public hearing on 
February 6, 1998, and the public comment period for the January 1998 
NPRM closed March 13, 1998. EPA finalized Phase 2 standards and 
compliance program requirements for Class I and Class II nonhandheld 
engines on March 30, 1999 (64 FR 15208). In the final rule for 
nonhandheld engines, EPA noted that it planned to address the Phase 2 
program for handheld engines in future Federal Register documents. The 
purpose of today's supplemental proposal is to propose revised Phase 2 
standards and compliance program requirements for handheld engines. 
Today's supplemental proposal also includes proposed standards and 
compliance program requirements for two newly designated classes of 
nonhandheld engines with displacements below 100 cubic centimeters 
(cc), hereafter referred to as Class I-A and Class I-B engines.
    Today's proposed action is taken in response to section 213(a)(3) 
of the Clean Air Act which requires EPA's standards for nonroad engines 
and vehicles to achieve the greatest degree of emission reduction 
achievable through the application of technology which the 
Administrator determines will be available, giving appropriate 
consideration to cost, lead time, noise, energy and safety factors. The 
standards and other compliance program requirements being proposed 
today are intended to satisfy this Clean Air Act mandate.
    The January 1998 NPRM contained lengthy discussion of the first set 
of proposed standards, the expected costs of their implementation, the 
technologies that EPA expected manufacturers would use to meet the 
standards, and the potential costs and benefits of adopting more 
stringent standards such as those that were then under consideration by 
the California Air Resources Board (ARB). In the January 1998 NPRM, EPA 
explicitly asked for comment regarding the level of the proposed 
standards and the impacts and timing for implementing more stringent 
standards, so as to allow EPA to establish the most appropriate 
standards in the final rule. In particular, EPA requested comment on 
the impacts and timing for implementing emission standards that would 
require the same types of technology as anticipated by proposed rules 
under consideration at that time by the California ARB.
    After the close of the comment period and upon reviewing the 
information supplied during and after the comment period, EPA 
determined that it was desirable to get further details regarding the 
technological feasibility, cost and lead time implications of meeting 
standards more stringent than those contained in the January 1998 NPRM. 
EPA's January 1998 NPRM already contained estimates of the costs and 
feasibility of more stringent standards. Some commenters had charged 
that, based on these 1998 NPRM discussions, EPA's proposed standards 
would not be stringent enough to satisfy the stringency requirements of 
Clean Air Act section 213(a)(3). For the purpose of gaining additional 
information on feasibility, cost and lead time implications of more 
stringent standards, EPA had several meetings, phone conversations, and 
written correspondence with specific engine manufacturers, with 
industry associations representing engine and equipment manufacturers, 
with developers of emission control technologies and suppliers of 
emission control hardware, with representatives of state regulatory 
associations, and with members of Congress. EPA also sought information 
relating to the impact on equipment manufacturers, if any, of changes 
in technology potentially required to meet more stringent standards 
than were contained in the January 1998 NPRM. Additionally, EPA 
received numerous comments on the January 1998 NPRM requesting closer 
harmonization with the compliance program provisions that were 
ultimately adopted by the State of California. In some cases, EPA also 
discussed these harmonization issues with manufacturers and industry 
association representatives to improve the Agency's understanding of 
the needs and benefits to the industry of such harmonization.
    As stated on prior occasions, in adopting final Phase 2 
requirements for small SI engines, EPA wished to consider all relevant 
information that became available during the rule development process. 
This includes information received during the comment period on the 
January 1998 NPRM, and, to the extent possible, important information 
which became available after the formal comment period had concluded on 
the January 1998 NPRM. To the extent that post-NPRM information has 
expanded or updated the knowledge of the Agency regarding technological 
feasibility, production lead time estimates for incorporating improved 
designs, costs to manufacturers, costs to consumers and similar 
factors, it is reasonable to expect that the improved information may 
result in changing assessments of how a pending rule can best achieve 
regulatory goals compared to what had been expected at the time of the 
January 1998 NPRM. This is especially true in the case of a rulemaking 
concerning an industry, like the small SI engine industry, that is 
undergoing relatively rapid technological innovation.
    EPA published a Notice of Availability on December 1, 1998 
highlighting the additional information gathered in response to the 
January 1998 NPRM (see 63 FR 66081). After analyzing this information, 
the Agency concluded that more stringent standards for Class I 
nonhandheld engines, used in applications such as lawn mowers,

[[Page 40942]]

consistent with those adopted by California were indeed achievable on 
the national scale with existing, well-understood overhead valve 
technology. EPA had discussed issues regarding the use of this 
technology in nonhandheld equipment in the January 1998 NPRM. In 
response to the additional information and to the comments on the NPRM, 
EPA adopted a final rule for nonhandheld engines that included emission 
standards considerably more stringent than those proposed for Class I 
nonhandheld engines in the January 1998 NPRM. In the same final rule, 
EPA also adopted standards for Class II engines at the levels proposed 
in the January 1998 NPRM that were based on the use of the same 
overhead valve technology.
    However, since the publication of the January 1998 NPRM, there have 
been rapid and dramatic advances in emission reduction technologies for 
handheld engines used in applications such as trimmers, brush cutters, 
and chainsaws. EPA had not been able to fully evaluate these 
technologies or discuss their possible availability at the time of the 
January 1998 NPRM. Having reviewed the available information regarding 
these new technologies, EPA now believes this new information supports 
proposed Phase 2 standards for handheld engines that are significantly 
more stringent than those proposed in the January 1998 NPRM. In light 
of this information, and in the interest of providing an opportunity 
for public comment on the stringent levels being considered for the 
Phase 2 handheld engine emission standards and the technologies 
available for meeting these standards, EPA is reproposing the Phase 2 
regulations for handheld engines in this Supplemental Notice of 
Proposed Rulemaking (SNPRM).
    With today's SNPRM, EPA is also proposing standards for two new 
classes of small displacement nonhandheld engines. EPA requested 
comment on the need for such standards in the January 1998 preamble and 
received comments from a number of engine manufacturers supporting such 
standards. Originally, the Agency did not propose different standards 
for small displacement nonhandheld engines citing the availability of 
the averaging, banking and trading program as a reason for not 
proposing separate standards. However, because the standards EPA 
recently finalized for nonhandheld Class I engines are more stringent 
than originally proposed in the January 1998 NPRM and because it is 
technologically more difficult to meet a given level of emissions as 
the engine displacement is decreased, manufacturers who would likely 
produce such small displacement engines would not likely be able to 
meet the Phase 2 Class I standards recently finalized and would not be 
able to produce such small displacement nonhandheld engines even if 
they could take advantage of the averaging, banking and trading 
program. Therefore, EPA is proposing standards for two classes of small 
displacement nonhandheld engines. The first small displacement class 
would cover nonhandheld engines with displacements below 66 cc and 
would be referred to as Class I-A engines. The second small 
displacement class would cover nonhandheld engines at or above 66 cc 
and below 100 cc and would be referred to as Class I-B engines.
    In response to a request from small SI engine manufacturers, 
today's SNPRM is proposing to allow manufacturers the option of 
certifying engines greater than 19 kW and less than or equal to one 
liter in displacement to the small SI engine Phase 2 regulations for 
nonhandheld engines beginning with the 2001 model year. Because of 
their size, these engines would not need to be certified under the 
current Phase 1 small SI engine program. However, because there are a 
small number of these engines that are primarily derivatives of other 
certified small SI engines at or below 19 kW, EPA believes it would be 
appropriate for manufacturers to have the option to certify these 
engines to the Phase 2 requirements for small SI engines. Engines 
certified under this option would be required to certify for the 
longest useful life period of 1,000 hours. This requirements of this 
option would be consistent with a recently adopted requirement by the 
California ARB that allows engines above 19 kW and less than or equal 
to one liter in displacement to certify as small SI engines with a 
useful life of 1,000 hours.
    EPA is also proposing a number of changes to the compliance program 
for handheld engines originally proposed in the January 1998 NPRM. Most 
of these proposed changes are to make the Phase 2 handheld engine 
compliance program the same as the compliance program requirements 
recently finalized for Phase 2 nonhandheld engines. The proposed 
requirements for handheld engines are intended to establish a 
consistent approach to the compliance program for all nonroad small SI 
engines.
    The reader is referred to the March 1999 final rule for nonhandheld 
engines, the December 1998 Notice of Availability, the January 1998 
NPRM, as well as to the docket for this rulemaking, for the range of 
information upon which the Agency has relied in reproposing Phase 2 
standards and compliance program requirements for small SI handheld 
engines, and for proposing standards for Class I-A and I-B nonhandheld 
engines.

B. Overview of Re-Proposed Program

    The following provides an overview of the reproposed Phase 2 
provisions for handheld engines and the proposed provisions for Class 
I-A and Class I-B nonhandheld engines. Additional detail explaining the 
program as well as discussion of information and analyses which led to 
the selection of these proposed requirements is contained in subsequent 
sections. The reader should note there are a number of provisions 
contained in the January 1998 NPRM that EPA is not revising in this 
SNPRM. Thus, those proposed provisions remain as part of EPA's proposed 
Phase 2 program for handheld engines. Such provisions may not be 
addressed in detail in this SNPRM, but they could become part of the 
final program for Phase 2 handheld engines and will be addressed in the 
final rulemaking document that establishes the Phase 2 requirements for 
handheld engines, as appropriate.
    Consistent with Phase 1 rules, the recently finalized Phase 2 
program for nonhandheld engines and this SNPRM distinguish between 
engines used in handheld equipment and those used in nonhandheld 
equipment. In today's action, Phase 2 emission standards are proposed 
for distinct engine size categories referred to as ``engine classes'' 
within the handheld engine equipment designation. Table 1 summarizes 
the re-proposed hydrocarbon plus oxides of nitrogen (HC+NOx) emission 
standards for Class III, Class IV, and Class V handheld engines in 
grams per kilowatt-hour (g/kW-hr) and when these standards are proposed 
to take effect under this SNPRM. For comparison purposes, Table 2 
contains the Phase 2 standards for handheld engines originally proposed 
in the January 1998 NPRM. The standards originally proposed in the 
January 1998 NPRM would have required manufacturers to certify a 
specified percentage of their sales to the proposed Phase 2 standards 
during the 2002 to 2005 model years. (The proposed percentages were 20 
percent in 2002, 40 percent in 2003, 70 percent in 2004, and 100 
percent in 2005.) Table 2 also lists the effective standards factoring 
in the mix of Phase 1 and Phase 2 engines assuming the proposed phase 
in schedule contained in the January 1998 NPRM.

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                  Table 1.--Re-Proposed Phase 2 HC+NOx Emission Standards for Handheld Engines
----------------------------------------------------------------------------------------------------------------
                                             Re-Proposed HC+NOx Standards (g/kW-hr) by Model Year
                             -----------------------------------------------------------------------------------
        Engine Class                                                                                   2008 and
                                 2002        2003        2004        2005        2006        2007        later
----------------------------------------------------------------------------------------------------------------
Class III...................        226         200         150         100          50          50          50
Class IV....................        187         168         129          89          50          50          50
Class V.....................  ..........  ..........        138         129         110          91          72
----------------------------------------------------------------------------------------------------------------


    Table 2.--Originally Proposed Phase 2 HC+NOx Emission Standards for Handheld Engines and Effective Dates
----------------------------------------------------------------------------------------------------------------
                                                    Originally     Effective HC+NOx Standards (g/kW-hr) by Model
                                                 Proposed HC+NOx                       Year
                  Engine Class                   Standards (g/kW------------------------------------------------
                                                  hr) in January                                       2005 and
                                                    1998 NPRM*       2002        2003        2004        later
----------------------------------------------------------------------------------------------------------------
Class III......................................             210         282         264         237         210
Class IV.......................................             172         231         217         194         172
Class V........................................             116         156         146         131         116
----------------------------------------------------------------------------------------------------------------
*The originally proposed Phase 2 standards were to be phased in at 20% in 2002, 40% in 2003, 70% in 2004 and
  100% in 2005 and later model years.

    After complete phase-in, the re-proposed emission standards 
contained in this SNPRM for handheld engines (see Table 1) are 
considerably more stringent than the proposed standards included in the 
January 1998 NPRM (see Table 2). In addition, except for Class V, the 
reproposed standards are more stringent during all years of the phase-
in than were originally proposed in the January 1998 NPRM. For Class V, 
the reproposed standards have been delayed until 2004 to allow 
manufacturers additional time to comply with the significantly more 
stringent standards included in today's SNPRM. EPA believes that the 
limited emission reductions forfeited in the short term with the 
delayed implementation date for Class V engines would be offset in the 
long term by significantly greater emission reductions once the 
reproposed standards take effect due to the increased stringency of the 
reproposed Phase 2 standards.
    The more stringent reproposed standards reflect the Agency's 
analysis of the information received in direct response to the 
questions posed in the January 1998 NPRM concerning the desirability 
and feasibility of more stringent standards than the levels first 
proposed, as well as other information made available to the Agency 
since the January 1998 NPRM. When fully phased in, these newly proposed 
Phase 2 standards are expected to result in an estimated 78 percent 
annual reduction in combined HC+NOx emissions from small SI 
handheld engines compared to the Phase 1 emission requirements for such 
engines. The HC+NOx reductions expected from the standards 
contained in today's SNPRM represent more than a 100 percent increase 
in reductions over the standards proposed in the January 1998 NPRM once 
the Phase 2 standards are fully phased in.
    One feature of the newly proposed Phase 2 handheld standards is 
that they would decline over a number of model years, allowing 
manufacturers to transition orderly and efficiently from their existing 
Phase 1 engine designs and technologies to those necessary to meet the 
new Phase 2 requirements. In addition, as described later, EPA is 
proposing a certification averaging, banking and trading (ABT) program 
that would include handheld engines. As an example, under today's 
proposal, a manufacturer of Class III engines would be required to meet 
a gradually decreasing standard on average for this segment of its 
product line during model years 2002 through 2006. During this time 
frame, EPA anticipates that a manufacturer would begin selling engine 
designs certified to meet the California ARB's Tier 2 
HC+NOx standard of 72 g/kW-hr nationwide while continuing to 
change more and more of its Class III engine designs to designs capable 
of meeting a 50 g/kW-hr standard, averaging emission performance with 
older designs and thus meeting on average the declining standard in 
effect for that model year as noted in Table 1. Finally, EPA expects 
that the manufacturer would have had sufficient time and resources to 
change the remainder of its engine designs and production tooling to 
meet a 50 g/kW-hr standard on average for all of its Class III engines 
by 2006 or shortly thereafter. Because the reproposed standards are a 
fleet average standard, a manufacturer could continue selling Class III 
engines certified above the 50 g/kW-hr HC+NOx standard even 
after the 2006 model year provided it has sufficient ABT credits from 
engines certified below the standard in the same model year, credits 
banked from previous model years, and/or credits obtained from another 
small SI engine manufacturer.
    As noted earlier, EPA is also proposing to add two new classes of 
small SI nonhandheld engines that were not proposed in the January 1998 
NPRM. As proposed, Class I-A would cover engines with displacement less 
than 66 cc that are installed in nonhandheld equipment. Class I-B would 
cover engines equal to or greater than 66 cc but less than 100 cc that 
are installed in nonhandheld equipment. Table 3 contains the proposed 
HC+NOx standards for Class I-A and Class I-B engines. 
Without these added classes and their specific standards, all engines 
less than 225 cc would be included in Class I and would have to meet 
the recently finalized Phase 2 standard adopted for Class I engines 
(also noted in Table 3).

[[Page 40944]]



 Table 3.--Proposed Phase 2 HC+NOx Emission Standards for Class I-A and
  Class I-B Engines and the Final Phase 2 HC+NOx Emission Standard for
                             Class I Engines
------------------------------------------------------------------------
                                                      HC+NOx
                   Engine Class                    Standard g/    Time
                                                      kW-hr       frame
------------------------------------------------------------------------
Class I-A........................................      50          2000
Class I-B........................................      40          2000
Class I..........................................      I6.1        2007
------------------------------------------------------------------------

    EPA is proposing the Class I-A and Class I-B designations in 
response to comments submitted on the January 1998 NPRM indicating that 
new applications for nonhandheld equipment were being developed which 
would use engines in these displacement ranges. Because it is generally 
more technically difficult to control emissions of smaller engines, at 
this time EPA believes it is too costly to require manufacturers to 
design engines under 100 cc for use in nonhandheld equipment to achieve 
the Phase 2 Class I HC+NOx standard of 16.1 g/kW-hr and 
still have the power and performance capabilities to be useful in 
powering such equipment. Although EPA does not anticipate that 
significant numbers of equipment in this category will be produced in 
comparison to the other engine classes, EPA believes it is reasonable 
to provide the opportunity to market such equipment since, if sold, 
such equipment will have reasonably demonstrated consumer value. 
Further, at the low production volumes anticipated, the contribution to 
the emissions inventory from such small engines would be extremely 
small.
    As noted above, EPA is proposing to allow manufacturers the option 
of certifying engines greater than 19 kW and less than or equal to one 
liter in displacement to the small SI engine Phase 2 regulations 
beginning with the 2001 model year. Because of their power rating, 
these engines are currently unregulated by EPA and therefore are not 
required to meet any emission standards at the federal level. EPA 
recently issued a Notice of Proposed Finding (see 64 FR 6008) which 
announced EPA's intent to propose regulations for ``large nonroad SI 
engines.'' EPA is expecting to issue a NPRM for large nonroad SI 
engines sometime in 2000. Based on information released along with the 
Notice of Proposed Finding, EPA expects to propose that engines greater 
than 19 kW and less than one liter in displacement would be required to 
comply with the small SI nonroad engine requirements. Therefore, 
allowing manufacturers to optionally elect to certify engines above 19 
kW with displacement less than or equal to one liter is consistent with 
the program EPA expects to propose for large SI nonroad engines. If for 
some reason, EPA does not finalize such a requirement for engines above 
19 kW and less than or equal to one liter in displacement as part of 
the large SI nonroad engine program, EPA would expect to consider 
reasonable approaches to minimize disruption to the affected engine 
industry. In addition, interested parties would be able to suggest any 
approaches they believed were appropriate in comments on the large SI 
nonroad engine NPRM.
    To offer an incentive for the early introduction of clean engines 
and to provide engine manufacturers with additional flexibility in 
meeting the reproposed Phase 2 handheld standards, EPA is proposing to 
make the recently adopted ABT program for Phase 2 nonhandheld engines 
also available to handheld engines, as well as to Class I-A and Class 
I-B engines. EPA did not originally propose an ABT program for handheld 
engines in the January 1998 NPRM. However, because of the increased 
stringency of the proposed handheld engine standards contained in this 
SNPRM, and after manufacturers have indicated an interest in such a 
program, EPA believes that an ABT component can be an integral part of 
the Phase 2 standards being proposed for Classes III, IV, and V as well 
as Classes I-A and I-B.
    The standards and the compliance program elements being reproposed 
today also consider expected in-use deterioration. In contrast to the 
Phase 1 rules which only regulate the emission performance of engines 
when new, the Phase 2 standards being proposed today would require 
manufacturers to account for expected deterioration in emission 
performance as an engine is used. Manufacturers would be required to 
evaluate the emission deterioration performance of their engine designs 
and certify their designs to meet the proposed standards after 
factoring in the anticipated emission deterioration of a typical in-use 
engine over its useful life. As contained in today's SNPRM, a handheld 
engine manufacturer would select from one of three different useful 
life categories based on the type of engine and equipment in which the 
engine is installed. Under the proposed program, handheld engines would 
be certified to the emissions standards for a period of 50, 125, or 300 
hours of use based on design features and the intended use of the 
installation. (A high priced piece of industrial equipment would more 
likely be equipped with an engine with design features intended to make 
it most durable and thus certified to the emission standards assuming a 
useful life period of 300 hours, for example.) For Class I-A engines, 
EPA is proposing the handheld engine useful life periods of 50, 125, 
and 300 hours. For Class I-B engines, EPA is proposing that a 
manufacturer would choose to certify for a useful life period of 125, 
250, or 500 hours.
    The proposed certification program would require manufacturers to 
determine an appropriate methodology for accumulating hours of 
operation to ``age'' an engine in a manner which duplicates the same 
type of wear and other deterioration mechanisms expected under typical 
consumer use which could affect emission performance. EPA expects bench 
testing would be used to conduct this aging operation because this can 
save time and perhaps money, but actual in-use operation (e.g., 
trimming grass) would also be encouraged. Emission tests would be 
conducted when the engine is new and when it has finished accumulating 
the equivalent of its useful life. The engine would have to pass 
standards both when it is new and at the end of its designated useful 
life to qualify for certification. Additionally, the new engine and 
fully aged engine emission test levels would be compared to determine 
the expected deterioration in emission performance for other engines of 
this design; such engines could be tested as they come off the end of a 
production line, in which case their new engine emission levels would 
be adjusted by the deterioration factor determined from the 
certification engine to predict the emission performance or the engine 
at the end of its useful life.
    Selection of engines for testing as they come off the production 
line would be conducted according to the provisions of the proposed 
Production Line Testing (PLT) program. This program is explained in 
more detail in a following section but, briefly, its intent is to allow 
a sampling of production line engines to be tested for emission 
performance to assure that the design intent as certified prior to 
production has been successfully transferred by the manufacturer to 
mass production. The volume of PLT testing required by the manufacturer 
would depend on how close the test results from the initial engines 
tested are to the standards; if these test engines indicate the design 
is particularly low emitting, few engines would need to be tested, 
while those designs with emission levels very close to the standards 
would need additional tests to make sure the design is being

[[Page 40945]]

produced with acceptable emission performance.
    While the proposed compliance program would not require the 
manufacturer to conduct any in-use testing to verify continued 
satisfactory emission performance in the hands of typical consumers, an 
optional program for such in-use testing is being proposed. EPA 
believes it is important for manufacturers to conduct in-use testing to 
assure the success of their designs and to factor back into their 
design and/or production process any information suggesting emission 
problems in the field. While not proposing to mandate such a program, 
the proposal would encourage such testing by allowing a manufacturer to 
avoid the cost of the PLT program for a portion of its product line by 
instead supplying data from in-use engines. Under this voluntary in-use 
testing program, up to twenty percent of the engine families certified 
in a year could be designated for in-use testing by the manufacturer. 
For these families, no PLT testing would be required for two model 
years including that model year. Instead, the manufacturer would select 
a minimum of three engines off the assembly line or from another source 
of new engines and emission test them when aged to at least 75 percent 
of their useful life under typical in-use operating conditions for this 
engine. The information relating to this in-use testing program would 
be shared with EPA. If any information derived from this program 
indicates a possible substantial in-use emission performance problem, 
EPA anticipates the manufacturer would seek to determine the nature of 
the emission performance problem and what corrective actions might be 
appropriate. EPA would offer its assistance in analysis of the reasons 
for unexpectedly high in-use emission performance and what actions 
might be appropriate for reducing these high emissions.
    As proposed in the January 1998 NPRM, EPA could choose to conduct 
its own in-use compliance program whether or not a manufacturer chose 
to conduct such a voluntary in-use testing program. If EPA were to 
determine that an in-use noncompliance investigation was appropriate, 
the Agency expects it would conduct its own in-use testing program, 
separate from any voluntary manufacturer testing program, to determine 
whether a specific class or category of engines is complying with 
applicable standards in use.
    All of the general provisions of this proposed compliance program 
have been adopted as part of California's compliance program for these 
classes of small engines.\1\ Importantly, the testing and data 
requirements, engine family descriptors, compliance statements and 
similar testing and information requirements of these proposed federal 
Phase 2 handheld regulations are, to the best of EPA's knowledge, the 
same general compliance program requirements adopted by the California 
ARB. This will be advantageous to manufacturers marketing the same 
product designs in California as in the other states, as they would 
need to prepare only one set of certification application information, 
supplying one copy to the California ARB for certification in the State 
of California and one copy to EPA for federal certification. This 
similar treatment under the regulations would also extend to the 
proposed PLT program and would also likely extend to the proposed 
optional in-use testing program, such that any test data and related 
information developed for the California ARB should also satisfy the 
federal regulatory requirements being proposed today.
---------------------------------------------------------------------------

    \1\ While the voluntary in-use test program has not been 
codified in the California ARB Tier 2 rules for these engines, EPA 
has discussed the program with the California ARB. EPA expects that 
the California ARB would consider allowing manufacturers to 
participate in the voluntary in-use test program and receive the 
same decreased PLT testing as contained in this proposal.
---------------------------------------------------------------------------

    In addition to the regulatory provisions outlined above, this 
proposal includes special provisions for small volume engine 
manufacturers, small volume engine families produced by other engine 
manufacturers, small volume equipment manufacturers who rely on other 
manufacturers to supply them with these small SI handheld engines, and 
small volume equipment models. These special small volume handheld 
provisions are intended to lessen the demonstration requirements and in 
some cases delay the effective dates of the standards so as to smooth 
the transition to these Phase 2 requirements. This is especially 
important for small volume applications because the eligible 
manufacturers involved may not have the resources to ensure that 
engines complying with the proposed Phase 2 standards will be available 
within the time frames otherwise envisioned under these regulations. 
Since these proposed flexibility provisions are limited to small volume 
applications, the risk to air quality should be negligible. However, 
without these provisions, the economic impacts to small volume 
manufacturers could be increased and the possibility of reduced product 
offering would be greater, especially for those products intended to 
serve niche markets which satisfy special needs. The proposed small 
volume flexibilities are explained more fully in section II.D. of 
today's SNPRM and are detailed in the proposed regulations.

II. Content of the Supplemental Proposed Rule

    The following sections provide additional detail on the provisions 
of the supplemental proposed rule outlined above.

A. Emission Standards and Related Provisions

1. Class Structure
    This SNPRM retains the same basic class structure for small SI 
engines as implemented in the Phase 1 regulations and proposed in the 
January 1998 NPRM with the addition of the proposed designations of 
Class I-A and Class I-B engines. The Phase 1 rules established separate 
classes based on engine size in recognition of the greater difficulty 
in controlling emissions from smaller displacement engines compared to 
larger displacement engines. The Phase 1 program also separated engine 
classes into those intended for use in equipment typically carried by 
the operator during its use such as chain saws or string trimmers 
(referred to as handheld equipment) and those engines normally used in 
equipment which is not carried by the operator such as lawnmowers and 
generators (referred to as nonhandheld equipment). These usage 
distinctions seemed appropriate because the small engine industry is 
for the most part split between these two categories, with very few 
manufacturers making both handheld engines and nonhandheld engines. In 
addition, the nature of these two industry segments is quite different. 
For example, handheld engine manufacturers produce engines primarily 
for use in equipment they also manufacture. In contrast, nonhandheld 
engine manufacturers typically supply engines to separate nonhandheld 
equipment manufacturers and do not make their own equipment.
    As noted above, EPA is proposing standards for two new classes of 
nonhandheld engines in this SNPRM. Under the existing Phase 1 program, 
Class I includes all nonhandheld engines with displacements below 225 
cc. EPA received several comments on the January 1998 NPRM supporting 
the adoption of standards for additional nonhandheld categories below 
225 cc. EMA requested the creation of a new class of small displacement 
nonhandheld engines in order to fill a void in the equipment market 
left by

[[Page 40946]]

products that would no longer be able to utilize 2-stroke engines if 
the proposed Phase 2 Class I standards were adopted. They noted that 
production of some 4-stroke side valve (SV) engines under 76 cc had 
already been discontinued with the advent of Phase 1 standards due to 
practicality, and that with the more stringent standards proposed for 
Phase 2, even greater numbers of these engines would be eliminated from 
the market. EMA also noted that the California ARB had proposed an 
HC+NOX standard of 72 g/kW-hr for engines below 60 cc, 
recognizing that engines below 60 cc are designed for functionally 
different types of equipment than those above 60 cc. Honda commented 
that the Phase 1 standards and the proposed Phase 2 standards for Class 
I are not appropriate for the smallest engines in the class because of 
the increased difficulty in reducing emissions with small displacement 
engines. Honda recommended the addition of a small displacement 
nonhandheld engine class with the emission standard harmonized with the 
California ARB's standard for 0-60 cc engines. Suzuki recommended the 
addition of a small displacement nonhandheld class of 100 cc and less, 
arguing that overhead valve (OHV) engines in this size already have 
difficulty meeting the Phase 1 HC+NOX standards because of 
large combustion chamber surface-to-volume ratios. They commented that 
the addition of a new class of small displacement nonhandheld engines 
would allow the use of lightweight 4-strokes in applications that 
require mobility but do not qualify as multi-positional under the 
handheld classification. Suzuki recommended that the HC+NOX 
standard should be 40 g/kW-hr, with the same durability classes and in-
use programs as proposed for Class I engines. Tecumseh noted that they 
foresee a need for 4-stroke engines in the 50-100 cc range, which would 
not be able to meet the proposed Phase 2 Class I standard. They 
commented that an additional class below 225 cc was needed and they 
also suggested a 40 g/kW-hr HC+NOX standard for 50-100 cc 
engines.
    Based on the fact that it is more difficult for smaller 
displacement engines to meet the same emission standards as larger 
displacement engines, EPA believes that a standard which is technically 
feasible and economically viable for the larger displacement Class I 4-
stroke engines (which have displacements typically above 125 cc and are 
primarily used in lawnmowers), could be too costly for manufacturers to 
be achievable for smaller displacement engines that manufacturers would 
need to use in new equipment applications requiring the use of much 
smaller displacement nonhandheld engines. Therefore, it appears that 
the span of engine displacements within Class I is too large to allow 
for a technologically appropriate engine standard for both the larger 
and smaller engines in that class. Although this has not significantly 
affected manufacturers' ability to produce engines for applications 
under the Phase 1 rules, EPA believes this may not be the case in the 
future based on the comments noted above. If EPA were to retain the 
broader Class I category, products like those noted by manufacturers in 
their comments above would need to be dropped or could not be 
introduced. Thus, to allow for the marketing of a wide range of 
nonhandheld products, including applications that could be powered by 
the smallest displacement engines, EPA is proposing to subdivide the 
Class I engine category by adding two new nonhandheld engine classes 
and redesignating the span of displacements covered by Class I. Under 
today's proposal, Class I-A would include nonhandheld engines below 66 
cc, Class I-B would include nonhandheld engines equal to or greater 
than 66 cc but less than 100 cc, and Class I would cover engines equal 
to or greater than 100 cc but less than 225 cc. The proposed 
displacement range for Class I-A would harmonize the requirements with 
those adopted by the California ARB. Based on the comments submitted by 
manufacturers, EPA believes the proposed displacement range for Class 
I-B is appropriate and should not compromise the emissions benefits of 
the recently finalized Phase 2 program for Class I engines since more 
than 99 percent of the currently certified Class I engines (based on 
estimated production levels submitted by manufacturers to EPA) have 
displacements greater than 100 cc. EPA requests comments on EPA's 
proposal for Class I-A and I-B engines and new information regarding 
manufacturer's plans to develop and market such engines.
    If the proposed Class I-A and I-B standards are adopted, EPA would 
not expect that manufacturers would shift significant production from 
Class I to the smaller displacement engines. In addition, EPA would not 
expect that manufacturers would certify 2-stroke engines to the 
proposed Class I-A and I-B standards and use such engines in popular 
Class I equipment applications such as walk-behind mowers. If such a 
change in the market were to occur, the benefits of the recently 
finalized Phase 2 program for Class I engines which anticipates a 
turnover to clean 4-stroke OHV technology would be seriously 
compromised. EPA requests comments on the potential for 2-stroke 
engines to meet the proposed Class I-A and I-B standards and the 
potential for such engines to be used in existing nonhandheld 
applications such as mowers.
    As noted above, EPA is proposing an option that would allow 
manufacturers to certify engines above 19 kW and less than one liter in 
displacement to the small SI engine program beginning with the 2001 
model year. Such engines would need to be certified to the Phase 2 
requirements for the appropriate class of nonhandheld engines, which is 
expected to be the Class II requirements (i.e., engines above 225 cc in 
displacement), for a useful life period of 1,000 hours. EPA requests 
comment on the requirements of this proposed option.
2. Emission Standards
    As noted earlier, EPA is proposing more stringent HC+NOX 
emission standards for all three classes of handheld engines than were 
originally proposed in the January 1998 NPRM. The Clean Air Act at 
section 213(a)(3) requires the Agency to adopt standards that result in 
the greatest emission reductions achievable through the application of 
technology which the Administrator determines will be available, giving 
appropriate consideration to cost, lead time, noise, energy and safety 
factors. As a result of information now available, much of it in the 
form of comments received during and after the comment period on the 
January 1998 NPRM, and due to the rapid technological advances the 
industry is making in an effort to design engines which are more 
environmentally friendly, EPA believes that standards more stringent 
than those originally proposed are achievable during the next decade. 
Extensive discussions over several months with several manufacturers of 
handheld engines and equipment have provided EPA with information to 
decide on the standards and phase in schedules being proposed today. 
(Records of these discussions have been included in the docket for this 
rule.) Specific advances for 2-stroke engines include stratified 
scavenged engines and novel approaches to improve fuel metering, both 
of which should allow 2-stroke engines to have substantially lower 
emissions and remain viable

[[Page 40947]]

powerplants for handheld equipment. In addition, there have been recent 
technical advances for handheld engines including the feasibility of 
catalysts and the expanded application of the mini 4-stroke design.
    While not all technologies under consideration have been fully 
proven on a production engine operated under typical in-use conditions, 
EPA is confident that these and other technologies will be proven in 
the near future providing the industry with several alternatives for 
emission control. Certification or manufacturer prototype information 
as listed in Chapter 3 of the Supplemental Draft RIA, demonstrates that 
currently available technology can achieve lower emission levels than 
the standards set by the California ARB, especially if one considers 
the use of a low-efficiency catalyst. For low engine out emissions, 
prototypes of the LE Engine technology developed by John Deere and the 
stratified scavenging design developed by Komatsu Zenoah have shown the 
ability for 2-stroke engines to achieve very low emission levels in the 
range of 36 g/kW-hr to 66.8 g/kW-hr with the John Deere technology 
2 (assuming a emissions deterioration factor of 1.1 over the 
useful life of the engine) and 67 g/kW-hr with the Komatsu Zenoah 
technology (based on California ARB certification information for the 
2000 model year). A low efficiency catalyst could lower these emission 
levels by 20 g/kW-hr and result in emission levels of 16 g/kW-hr to 47 
g/kW-hr HC+NOX. In addition, mini 4-stroke engines in Class 
IV have been certified to a range of new engine values from 15.7 g/kW-
hr to 37.6 g/kW-hr. With an assumed emissions deterioration factor of 
1.5 over the useful life of the engine, the mini 4-stroke engines would 
yield emissions at a full useful life of 23.6 g/kW-hr to 56.4 g/kW-hr. 
Use of a catalyst that achieves a 20 g/kW-hr reduction on the highest 
emitting 4-stroke engine would yield an emissions level of 36.4 g/kW-hr 
HC+NOX. These stringent emission levels show that very low 
emission standards for handheld engines are feasible especially given 
the inherently low deterioration of 2-stroke emissions, and the ability 
to use a low efficiency catalyst or thermal reactor on some engine 
families.3 EPA requests comment on the ability of the John 
Deere LE technology, the Komatsu Zenoah stratified scavenging design, 
or mini 4-stroke technologies to accommodate a catalyst. Specific areas 
on which EPA is requesting comment include the ability to provide 
sufficient engine and muffler cooling with each of the technologies, 
catalyst conversion efficiencies, and engine or equipment design 
changes needed to accommodate a catalyst specifically in response to 
the U.S. Department of Agriculture (USDA) Forest Service requirements 
for equipment used on Federal land.
---------------------------------------------------------------------------

    \2\ The reader is directed to items IV-G-30, IV-G-32, and IV-B-
05 of Docket A-96-55 for further information on the John Deere 
technology.
    \3\ In addition to the technologies described in today's notice 
other potential emission control technologies have been examined by 
EPA. Two of these technologies, a spark ignition technology by 
Pyrotek and a vaporizing carburetor technology by Boswell, are 
described in further detail in Chapter 3 of the Draft Supplemental 
RIA.
---------------------------------------------------------------------------

    The emissions information cited above is from engines designed for 
use in Class III or Class IV applications. In most cases, EPA believes 
similar designs should be able to be designed for Class V applications 
as well. However, because most Class V engines are used in higher power 
commercial applications, the ability to utilize a ``low'' efficiency 
catalyst (and the related muffler skin and exhaust plane temperatures 
that result from the throughput of exhaust emissions through the 
catalyst) may be inhibited due to the USDA Forest Service requirements 
for equipment used on Federal land. In addition, the high power 
equipment in Class V requires additional cooling compared to the amount 
of cooling typically required in Class III and IV engines. Cooling may 
be achieved by directing more of the fuel/oil mixture through the 
crankcase. For the John Deere LE technology, this will result in higher 
level of emissions than for Class IV engines, since more fuel/oil will 
be scavenged. These factors may affect the ability of some designs to 
be applied to the largest of Class V applications or for such designs 
to meet a 50 g/kW-hr HC+NOX standard. EPA therefore believes 
that a HC+NOX standard of 72 g/kW-hr is most appropriate for 
Class V engines. EPA requests comment on the ability of 4-stroke 
engines, redesigned 2-stroke engines, or other technologies, such as 
electronic fuel injection or the application of catalysts, to achieve a 
50 g/kW-hr HC+NOX standard.
    Based on the information noted above, EPA is proposing emission 
standards that require handheld engines in Class III and Class IV, on 
average, to meet an HC+NOX standard of 50 g/kW-hr and 
handheld engines in Class V, on average, to meet an HC+NOX 
standard of 72 g/kW-hr by the end of the applicable phase-in period. 
For a full discussion of the technologies EPA believes could be 
employed to achieve the proposed handheld engine standards, the reader 
is directed to Chapters 3 and 4 of the Supplemental Draft RIA.
    A number of issues have been raised by various parties regarding 
the technologies noted above which could affect the potential for 
manufacturers to use these technologies to achieve the proposed 
standards. A list of the most important issues is noted below. While 
EPA believes that a number of important issues have been highlighted 
and would need to be addressed before successful introduction of these 
technologies, EPA also believes that given the amount of leadtime 
before manufacturers would be required to certify their entire product 
range to the proposed HC+NOX standards, the variety of 
technology options available, and the work manufacturers have already 
performed in anticipation of the California ARB Tier 2 regulations, 
that the reproposed set of standards are achievable, especially given 
the provisions of the proposed ABT program which allow for early 
credits generation and the exchange of credits across engine classes 
and the proposed flexibilities for small volume engine families and 
small volume engine manufacturers. Specifically, manufacturers are 
anticipated to sell in the initial years of the program engine families 
with emission levels substantially below the phase in standards. Many 
could accumulate a large number of banked credits by, for example, 
offering their designs certified to the California ARB standards for 
sale in the other 49 states. EPA requests comments on these assumptions 
and on the issues listed below, including the potential for addressing 
these concerns and any resulting impact on manufacturers' ability to 
meet the standards contained in this SNPRM which, as noted earlier, 
allow for the use of the ABT program.
    With regard to the John Deere LE technology, a number of concerns 
have been raised including the ability of the design to provide 
adequate lubrication to the crankcase, the ease of use and operation of 
the fuel system in real world conditions, the potential for increased 
PM emissions, the need for redesign of equipment to incorporate the 
technology, durability due to the potential for carbon buildup in the 
transfer ports (as described in the Supplemental RIA, Chapter 2, 
section 3.2.5), and the applicability to Class V engines, especially 
professional chainsaws, which have unique operating characteristics 
(e.g., cold weather operation) and cooling requirements. However, John 
Deere has made substantial progress toward resolving such potential 
problems as

[[Page 40948]]

adequate performance across the range of operating conditions and 
speeds. Indeed, EPA expects John Deere to market in California handheld 
equipment (Class IV trimmers and chainsaws) using this technology 
beginning with the 2000 model year. Comments are requested on the 
likelihood that cost-effective solutions can be made available over the 
next two to three years across the full range of handheld engines and 
applications.
    In addition to these technically related concerns, a number of 
engine manufacturers have raised concerns about the level of the 
licensing fees that John Deere has stated that it would charge for use 
of the patented equipment designs. The fees noted by John Deere in 
their literature to other handheld engine manufacturers noted a minimum 
licensing fee of $7.50 per engine with fees ranging as high as 5% of 
the wholesale price of the equipment for an application costing above 
$300 with a sales volume less than 50,000 units per year, which is a 
typical cost for Class V commercial applications. These manufacturers 
have suggested that the fees are higher than typically paid for 
patented technologies and noted that the fees suggested by John Deere 
may, in some cases, be as high as the profit margin on the equipment 
currently being sold. 4 EPA specifically requests comments 
on the licensing fees suggested by John Deere, the impact such fees 
would have on competition given the cost for other technology options, 
and the level of licensing fee necessary to allow this licensed 
technology to be a cost effective option for other manufacturers.
---------------------------------------------------------------------------

    \4\ ``Meetings with Husqvarna/Frigidaire Home Products on Small 
Engine Phase 2 Handheld Regulations,'' EPA memo from Phil Carlson to 
Docket A-96-55, June 29, 1999.
---------------------------------------------------------------------------

    For the stratified scavenging engine technology, a number of 
concerns have been raised about the technology. These issues include 
the ability to design engines that achieve the amount of power 
necessary for all applications, the feasibility of providing additional 
cooling which may be required by the design, as well as the ability for 
all applications to provide sufficient cooling for a low efficiency 
catalyst. In fact, Komatsu has already certified a model year 2000 
Class IV engine with both EPA and the California ARB at levels meeting 
the California ARB's Phase 2 standard. EPA expects Komatsu to market 
their stratified scavenging engine technology nationwide in certain 
handheld equipment (Class IV trimmers) using this technology beginning 
with the 2000 model year.
    With regard to the mini 4-stroke technology, a number of concerns 
have been raised primarily regarding the application to Class V 
engines. These issues primarily relate to the limited ability to apply 
such technology because of the power, weight, and acceleration 
requirements of Class V handheld equipment applications. It can be 
noted that both Ryobi and Honda have introduced 4-stroke engines for 
Class IV handheld applications weighing about seven pounds which are 
comparable to the weight of 2-stroke engines used in similar handheld 
applications. Although these 4-stroke engines were once thought to be 
limited to trimmer type applications only, EPA is aware of developments 
of the use of 4-stroke engines to higher speed applications. Therefore, 
EPA believes that 4-stroke engines could be used for the majority of 
Class IV applications. Request comments on this assumption. As noted 
later in section III.B.2 of today's document, EPA has assumed that 4-
stroke technology would likely only be applicable to the smallest of 
Class V engine designs.
    However, to the extent that 4-stroke engines might replace some 2-
stroke engines in certain applications, EPA is interested in receiving 
additional information to better compare their expected performance. 
EPA is specifically requesting information on the following areas: the 
durability of 4-stroke engines and how this might impact the certified 
useful life of such engines, the amount and cost of maintenance 
required to maintain performance, and the likelihood such maintenance 
would be performed (including a comparison to maintenance requirements 
and in-use maintenance experience for 2-stroke engines) and how the 
relative cost of the handheld piece of equipment might affect these 
considerations (e.g., is it more likely that maintenance will be 
performed on the engine of a more expensive piece of equipment than on 
the engine installed in a less expensive piece of similar equipment, 
even if the engines are certified to the same useful life?). Other 
information relevant to a comparison of 4-stroke engines versus 2-
stroke engines such as weight and performance differences is also 
requested.
    For the application of catalysts to handheld equipment, the 
concerns raised include user safety due to potential excessive heat 
generated by the catalyst, which may influence engine operation and 
durability, and the ability to provide additional cooling of the 
exhaust gas and catalyst area which may be necessary for operator 
safety or for manufacturers to meet the USDA Forestry Service 
requirements that apply to equipment used on Federal land. EPA is aware 
that manufacturers have been researching and developing catalyst 
technology for handheld engine applications and have already been 
working to address the issues noted above through innovative catalyst 
designs, use of low efficiency catalysts and more engine improvements, 
catalyst shielding, and catalyst placement. In addition, one handheld 
engine manufacturer, Husqvarna, is currently using low-efficiency 
catalysts on several of their 1999 model year Class IV engine families 
used primarily in commercial trimmer/edger applications. A second 
manufacturer, Tanaka, has publicized their PureFire technology which 
includes engine improvements and a catalyst. EPA requests comment on 
the status of catalyst technology development for handheld engine 
applications and the likelihood that catalysts will be able to be 
applied to the full range of handheld engine applications to meet the 
proposed standards and appropriate safety requirements.
    As noted earlier, the proposed standards would be phased in through 
a set of declining average in-use standards by model year. For Classes 
III and IV, the standards would be phased in between the 2002 and 2006 
model years. For Class V, the proposed Phase 2 standards would be 
phased in between the 2004 and 2008 model years. (Table 1, presented 
earlier, contains the actual emission standards by model year of the 
proposed Phase 2 standards for handheld engines.) EPA believes the 
proposed leadtime before the standards are scheduled to take effect is 
appropriate based on the fact that the proposed HC+NOX 
standards for Class III and Class IV are more stringent than the 
California ARB's HC+NOX standards for these engines (i.e., 
72 g/kW-hr for engines 0-65cc with the exception of exempted 
applications), on which industry had been focusing and developing 
technologies over the past few years, and because many of the Class V 
engine families are used in certain farm and construction equipment 
applications which are exempted from meeting the California ARB 
standards as discussed below. In addition, EPA had been discussing 
standards similar in stringency to the California ARB's standards with 
the handheld industry in the time since the January 1998 NPRM through 
December 1998. EPA believes that industry needs sufficient time in the 
near term to finish developing products for the California market that 
meet the California ARB

[[Page 40949]]

emission standards which take effect on January 1, 2000. However, not 
all engines will necessarily be redesigned to meet the California ARB 
standards due to the farm and construction equipment exemption noted 
above, and because some manufacturers have told EPA that they expect to 
provide a limited lineup of engines for the California market. 
Furthermore, EPA believes the proposed schedule of standards will allow 
manufacturers to sell their engines designed to meet the California ARB 
Tier 2 standards nationwide for a number of years, recouping the 
investments made for such designs, while redesigning their product 
offerings to meet the proposed HC+NOX standards on average.
    Although the standards contained in today's SNPRM envision that 
manufacturers will phase in engines meeting a 50 g/kW-hr 
HC+NOX level in Class III and Class IV and a 72 g/kW-hr 
HC+NOX level in Class V, manufacturers of handheld engines 
would be required to certify all of their engine families in a given 
engine class (unless they qualify for some type of small volume 
provision as described later) for a specific useful life period in the 
first year of the applicable phase-in. (As noted earlier, EPA's Phase 1 
program only requires compliance for new engines.) Manufacturers need 
enough time to perform the useful life tests on each of the engine 
families, with the exception of those already certified for California 
(since California also requires full useful life compliance) which the 
manufacturer is planning to sell outside of California, as well as to 
research, develop and adopt low emitting technology on engine families 
such that each manufacturer meets the average emission standards 
through the final year of the phase-in schedule.
    EPA is proposing a two year delay in the effective date for the 
Class V engines. This delay is based on an analysis of EPA's Phase 1 
certification database shows that a significant proportion of Class V 
engine production is likely to be exempted from California ARB 
regulation because of the type of equipment in which the engines are 
used. Manufacturers of these products, which have a long list of 
certified engine families, have not had to address these engines for 
California, and therefore will need additional time to comply with 
EPA's proposed Phase 2 standards. In addition, this delay takes into 
consideration leadtime concerns raised by the two major engine 
manufacturers in this class who manufacture professional high quality 
equipment in light of their extensive product development process. EPA 
requests comment on the appropriateness of the proposed two year delay 
for Class V engines.
    For all categories of handheld engines, the HC+NOX 
standards being proposed today represent significant increases in 
stringency and will require virtually all of the currently certified 
Phase 1 engines to be redesigned. Under the proposed HC+NOX 
standards, EPA expects emissions from handheld engines on average will 
be reduced by approximately 78 percent compared to Phase 1 engines. 
Under this proposal, the nation should continue to benefit from 
improved emission performance for handheld engines at least through 
2011 as these standards take effect and fleet turnover to cleaner 
engines occurs.
    As noted earlier, the standards being proposed today are more 
stringent than the California ARB's Phase 2 standard. (California's 
Phase 2 standard for small SI engines is 72 g/kW-hr HC+NOX, 
except for engines used in exempted farm and construction 
applications). EPA requests comments on the costs, feasibility, and 
other effects of complying nationwide with a 72 g/kW-hr 
HC+NOX standard for all three classes of handheld engines 
versus the standards being reproposed today.5 Specific areas 
on which EPA is requesting comments include the engine designs and 
technologies that would be used to comply with a 72 g/kW-hr 
HC+NOX standard, the cost of adopting such technologies 
(both relative to engines currently certified under the Phase1 program 
and as an extension of production of California compliant engines), and 
the potential for such Class III and Class IV engines to be modified to 
meet a 50 g/kW-hr HC+NOX standard. Recently, a number of 
handheld engine manufacturers indicated to EPA that they would prefer 
the following alternative set of HC+NOX standards: 72 g/kW-
hr for Classes III and IV phased in between 2002 and 2007, and 87 g/kW-
hr for Class V phased in between 2004 and 2007. These manufacturers do 
not presently employ the kinds of technology EPA expects would be used 
to meet EPA's reproposed standards, and they specifically raised 
questions regarding the applicability of light-weight 4-stroke 
technology and the developmental state of John Deere's LE technology. 
In addition to the information requested above, EPA requests comment on 
the alternative standard set nominated by this segment of the handheld 
industry. EPA is particularly interested in receiving information about 
the costs associated with this alternative set of standards. As part of 
the final rulemaking, EPA plans to consider this cost information and 
use it, as appropriate, in an analysis of the potential costs and 
emission reductions of these alternative standards for comparison with 
the additional emission reductions (and presumably higher costs) of the 
proposed standards. This information will be useful as the Agency 
determines the appropriate level of standards consistent with Clean Air 
Act section 213(a)(3).
---------------------------------------------------------------------------

    \5\ Commenters are asked to consider energy, noise, and safety 
impacts in their comments.
---------------------------------------------------------------------------

    EPA is not proposing tighter CO standards for handheld engines in 
this SNPRM. This proposal would maintain the same CO emission standards 
contained in the January 1998 NPRM. At this time, it does not appear 
that additional reductions in CO emissions from these engines will be 
needed to allow most areas of the country to attain the CO ambient air 
quality standard. Absent this air quality need, EPA does not believe 
that requiring manufacturers to achieve additional reductions in CO 
emissions by a more stringent standard is necessary. It should be noted 
that many of the emission control techniques likely to be adopted to 
meet the proposed Phase 2 HC+NOX standards on 2-stroke 
engines, including for example the use of improved fuel metering and 
combustion chamber improvements, have shown lower CO emissions than 
Phase 1 engines. Although EPA is not proposing tighter CO standards, 
EPA expects some CO emission reduction will occur as a result of the 
technologies likely to be adopted to meet the proposed Phase 2 
HC+NOX standards. EPA is not able at this time, however, to 
quantify the expected level of CO reductions to a sufficiently precise 
degree that the Agency believes it can confidently propose a more 
stringent standard than that contained in the January 1998 NPRM.
    Neither EPA's Phase 1 rule for small SI nonroad engines nor the 
recent Phase 2 rule for nonhandheld engines included particulate matter 
(PM) standards and today's proposal continues the same approach. EPA is 
not proposing PM standards for Phase 2 handheld engines. EPA believes 
that the types of technologies expected to be used to meet the proposed 
Phase 2 gaseous emission standards will result in reduced PM levels 
from handheld engines. EPA requests information on PM emissions from 
handheld engines and the need for PM standards for small SI nonroad 
engines in general. Relevant information might include PM emission 
rates from small SI engines, loading contributions to ambient PM 
concentrations from these engines, user

[[Page 40950]]

health effects from direct exposure to PM contained in engine exhaust 
from small SI engines, and contribution from small SI engine PM 
emissions to visibility impairment.
    For Class I-A engines (i.e, nonhandheld engines with displacement 
less than 66 cc), because these new nonhandheld equipment applications 
are expected to use engines with much the same displacement and design 
as their handheld Class IV counterparts, EPA is proposing to apply the 
Class IV standards of 50 g/kW-hr for HC+NOX and 610 g/kW-hr 
for CO. Although the California ARB's standards are less stringent than 
the standards contained in today's SNPRM, the addition of this class 
harmonizes the use of these engine sizes within this rulemaking between 
EPA and the California ARB. Because the Class I-A engines will be 
designs that are not currently certified as nonhandheld engines, EPA is 
proposing that the standards for Class I-A engines take effect 
immediately upon the effective date of finalization of these proposed 
standards, which EPA expects would occur during the 2000 model year. 
With regard to the test procedure manufacturers use for certification 
testing of Class I-A engines, EPA is proposing to adopt the handheld 
engine test procedure, typically referred to as cycle ``C''. EPA 
requests comment on the proposed requirements for Class I-A engines.
    For Class I-B engines (i.e., nonhandheld engines with displacement 
from 66 cc to less than 100 cc), 4-stroke engines have certain 
disadvantages which make it more difficult for them to meet the 
recently adopted Phase 2 HC+NOX standard for nonhandheld 
engines compared to their larger size counterparts (i.e., nonhandheld 
engines with displacement above 100 cc in Class I and Class II). EPA 
recognized this difference when it adopted the Phase 2 
HC+NOX emission standards for engines less than 225 cc 
(i.e., Class I where the standard is 16.1 g/kW-hr) and engines greater 
than 225 cc (i.e., Class II where the standard is 12.1 g/kW-hr). The 
current set of engines certified to EPA's Phase 1 standards includes 
three Class I engines (1 OHV engine and 2 SV engines) below 100 cc that 
are certified at new engine levels close to the Phase 1 
HC+NOX standard (i.e., 16.1 g/kW-hr) ranging from 13.3 to 
15.9 g/kW-hr. Assuming an in-use HC+NOX deterioration factor 
of 1.5, the Phase 2 emission values of the engines would be 19.9 and 
23.9 g/kW-hr, respectively, which is above the Phase 2 standard of 16.1 
g/kW-hr. In the January 1998 NPRM, EPA made the assumption that 
averaging of emission credits would allow these smaller size engines to 
utilize credits from an engine manufacturer's larger size engines. 
Comments on the NPRM suggested that this was not the case for all 
engine manufacturers. Comments from one of these manufacturers 
suggested that EPA establish a standard of 40 g/kW-hr because they 
produced a side valve engine under 100 cc which required this value to 
be able to certify. Due to the very small production estimates of 
engines in this size range (i.e., 0.1% of Class I), EPA is proposing 
standards for Class I-B engines of 40 g/kW-hr for HC+NOX and 
610 g/kW-hr for CO. As proposed for Class I-A engines, EPA is proposing 
that the standards for Class I-B engines take effect immediately upon 
the effective date of finalization of these proposed standards, which 
EPA expects will occur during the 2000 model year. For the test 
procedure manufacturers use for certification testing, EPA is proposing 
to adopt the nonhandheld engine test procedures, typically referred to 
as cycle ``A'' and cycle ``B'.
    Based on comments from manufacturers, EPA is establishing the Class 
I-B category to allow for the production of engines to meet niche 
markets. The Agency would not expect a migration into this category of 
current 4-stroke Class I engines, almost all of which are above 125 cc, 
because of the minimum size apparently necessary to meet the power 
demands of typical current applications such as walk behind lawnmowers. 
However, EPA is concerned that the relatively higher performance of 2-
stroke engines could allow 2-stroke engines in the high end of the 
Class I-B category (e.g., between 90 cc and 100 cc) to meet the 40 g/
kW-hr standard and create interest in using them in such current 
applications as small walk behind lawnmowers. EPA would not want to 
proliferate the use of such higher emitting engines in current 
applications and does not intend to allow migration of 2-stroke engines 
into nonhandheld applications. EPA requests comment on these 
assumptions and on ways to prevent this proliferation from occurring. 
EPA also requests comment on the level of the proposed Class I-B 
standards and the feasibility of achieving lower emission standards 
with OHV, SV, and 2-stroke engines.
3. NMHC+NOX Standard for Class I-B Natural Gas-Fueled 
Engines
    In the recent final rule for small SI Phase 2 nonhandheld engines, 
EPA adopted separate standards for small spark ignition engines fueled 
by natural gas which manufacturers could certify to in lieu of the 
otherwise applicable HC+NOX standards. Because EPA believes 
it is possible that there could be Class I-B applications designed to 
run on natural gas, EPA is proposing similar separate standards for 
Class I-B spark ignition engines fueled by natural gas which could be 
certified to in lieu of the HC+NOX standards. EPA believes 
this option is necessary because the methane portion for gasoline 
fueled engines is around 5 to 10 percent of total hydrocarbons, whereas 
for engines fueled with natural gas, the methane portion can be around 
70 percent. Because the methane from these engines has a very low ozone 
forming potential compared to the other hydrocarbons in the engine's 
exhaust, EPA believes it is appropriate to provide an alternative set 
of emission standards for engines fueled with natural gas. Otherwise, 
requiring such engines to meet the same HC standard as gasoline-fueled 
applications would result in a more stringent standard for natural gas-
fueled engines. The proposed NMHC+NOX standard of 37 g/kW-hr 
for Class I-B natural gas-fueled applications would provide equivalent 
stringency to the HC+NOX standards for gasoline-fueled 
engines being proposed today. EPA is proposing standards for Class I-B 
only, as EPA does not expect that natural gas-fueled handheld engines 
or Class I-A engines might be built. EPA requests comment on the need 
to establish standards for Class I-A engines operated on natural gas. 
Aside from having the option to certify to NMHC+NOX 
standards, all other aspects of this proposal would pertain equally to 
engines fueled with natural gas as with gasoline-fueled engines.
    4. Useful Life Categories
    In the January 1998 NPRM, EPA proposed two useful life categories 
of 50 and 300 hours for handheld engines. EPA received several comments 
supporting the addition of a mid-range useful life category for 
handheld engines, with one manufacturer supporting a level of 125 
hours. While EPA believes that 50 hours is appropriate for most of the 
products targeted at the home consumer, some engines targeted for home 
consumer use (including some new engines which are expected to enter 
the market in the next few years) are expected to have designs which 
tend to be more durable than the 50 hour level yet are not as durable 
as the commercial grade of 300-hour equipment. As a result, EPA is 
proposing to add a midrange to the useful life categories for handheld 
engines of 125 hours as recommended by one manufacturer. Therefore, 
under

[[Page 40951]]

today's proposal, a manufacturer would choose between three useful life 
categories for handheld engines of 50, 125, and 300 hours. A 
manufacturer would be responsible for demonstrating compliance with the 
proposed standards described above in section II.A.2. at whichever 
useful life level it designated for its engine families.
    For the newly proposed category of Class I-A engines, EPA is 
proposing the handheld engine useful life categories of 50, 125 and 300 
hours. EPA believes the engine designs in Class I-A will be similar to 
handheld engines in terms of durability of design. It should be noted 
that the proposed useful life designations for Class I-A engines are 
the same as those established by the California ARB in its Tier 2 rule 
for engines of this size range. For Class I-B engines, EPA is proposing 
the useful life categories of 125, 250 or 500 hours recently finalized 
for nonhandheld engines. EPA believes the engines designs in Class I-B 
will be similar to Class I nonhandheld engines in terms of durability 
of design. The proposed useful life designations for Class I-B engines 
are the same as those established by the California ARB in its Tier 2 
rule for engines of this size range.
5. Selection of Useful Life Category
    In the January 1998 NPRM, EPA proposed that the engine 
manufacturers would be responsible for assuring that the correct useful 
life was used for certification demonstration and labeling purposes. 
Specific criteria were proposed which the manufacturers would have had 
to evaluate and use in documenting their determinations of useful life 
category selection. Comments received suggested such a requirement was 
overly rigid and unnecessary. Given the comments received, EPA is still 
very concerned that manufacturers select the most appropriate useful 
life category for each engine to assure it is properly evaluated during 
certification. In addition, because EPA is proposing to include all 
handheld engines and Class I-A and Class I-B engines in the ABT program 
which allows the exchange of emission credits across engine families in 
different useful life categories, the proper selection of the useful 
life period is important to ensure that the credit program is fair and 
environmentally sound. However, so as not to add potentially 
unnecessary burden on the industry, today's SNPRM proposes a less rigid 
methodology for determining useful life categories that EPA recently 
finalized for Phase 2 nonhandheld engines. Rather than mandating a 
fixed set of criteria, this proposal rests the responsibility with the 
industry to make their best, most conscientious selection. For 
manufacturers of handheld engines, virtually all engines are placed in 
specific equipment also manufactured by the engine manufacturer or, in 
those cases where engines are supplied to another equipment 
manufacturer, into equipment well known by the engine manufacturer. 
Class III, IV and V engine manufacturers know the design features and 
performance characteristics of both their engines and the equipment in 
which they are installed, and understand the expected in-use operation 
of this equipment and thus the expected useful life of the engine. 
Additionally, based on design features these manufacturers build into 
their engines, they have a good idea of the expected useful life in 
such applications. Similarly, EPA expects that manufacturers of Class 
I-A and Class I-B engines will have a good idea of the types of 
equipment their engines are expected to be used in and, from their 
marketing information, a reasonably accurate projection of the relative 
volumes in such applications. Given that these engines will be used in 
new applications, manufacturers should have an even clearer 
understanding of these projections. Relying on this information, 
manufacturers should be able to make good selections of appropriate 
useful life categories for their engines. While this proposal leaves 
that responsibility to the manufacturer, EPA expects it would 
periodically review the manufacturers' decisions to ensure this 
regulation is being properly implemented and to determine whether 
modifications to the rules were appropriate. This proposed approach 
would result in the same regulatory requirement as the State of 
California, eliminating any extra burden in this regard due to federal 
rules.

B. Averaging, Banking, and Trading

    In today's SNPRM, EPA is proposing to make the comprehensive 
certification averaging, banking, and trading (ABT) program recently 
adopted for nonhandheld Phase 2 engines available for Phase 2 handheld 
engines, Class I-A, and Class I-B engines. Averaging means the exchange 
of emission credits among engine families within a given engine 
manufacturer's product line. Averaging allows a manufacturer to certify 
one or more engine families to Family Emissions Limits (FELs) above the 
applicable emission standard. However, the increased emissions would 
have to be offset by one or more engine families certified to FELs 
below the same emission standard, such that the average emissions in a 
given model year from all of the manufacturer's families (weighted by 
various parameters including engine power, useful life, and number of 
engines produced) are at or below the level of the emission standard. 
Banking means the retention of emission credits by the engine 
manufacturer generating the credits for use in future model year 
averaging or trading. Trading means the exchange of emission credits 
between engine manufacturers which then can be used for averaging 
purposes, banked for future use, or traded to another engine 
manufacturer.
    The following section describes the proposed ABT program for 
handheld engines, Class I-A engines, and Class I-B engines. The basic 
framework of the ABT program is the same as that recently finalized for 
nonhandheld engines. The proposed program would be the first ABT 
program for handheld engines, since the Phase 1 rule did not include an 
ABT program. The January 1998 NPRM included an ABT program, however, 
the proposed program was limited to nonhandheld engines only. Given the 
level of the standards contained in the January 1998 NPRM for handheld 
engines, EPA did not believe an ABT program was necessary for handheld 
engines. However, because EPA is now proposing significantly more 
stringent Phase 2 standards for handheld engines, EPA believes an ABT 
program is an important element in making the stringent Phase 2 
emissions standards proposed today achievable with regard to 
technological feasibility, lead time, and cost. The proposed ABT 
program is intended to enhance the flexibility offered to engine 
manufacturers that will be needed in transitioning their product lines 
to meet the stringent HC+NOX standards being proposed. The 
proposed ABT program would also encourage the early introduction of 
cleaner engines certified under the Phase 2 requirements, thus securing 
earlier emission benefits. EPA requests comments on the proposed ABT 
program as well as alternative programs that would provide incentives 
for manufacturers to achieve emission reductions earlier than required 
by the proposed standards.
    EPA believes that the new ABT program is consistent with the 
statutory requirements of section 213 of the Clean Air Act. Although 
the language of section 213 is silent on the issue of averaging, it 
allows EPA considerable discretion in determining what regulations are 
most appropriate for implementing section 213. The statute does not 
specify that a specific standard or technology must be implemented, and 
it requires EPA to consider costs, lead time, and other factors in 
making

[[Page 40952]]

its determination of ``the greatest degree of emissions reduction 
achievable through the application of technology which the 
Administrator determines will be available.'' Section 213(a)(3) also 
indicates that EPA's regulations may apply to nonroad engine classes in 
the aggregate, and need not apply to each nonroad engine individually.
    As noted above, the proposed ABT program would apply to all classes 
of handheld engines as well as Class I-A and Class I-B engines. The ABT 
program would be available for HC+NOX emissions but will not 
be available for CO emissions. The ABT program would also apply to 
natural gas-fueled engines. All credits for natural gas-fueled engines 
would be determined against the standards to which the engine certified 
(either the HC+NOX standard or the optional 
NMHC+NOX standards noted earlier). Under the proposal, 
manufacturers would be allowed to freely exchange NMHC+NOX 
credits with HC+NOX credits.
    The ABT program contained in the January 1998 NPRM proposed some 
restrictions on cross-class averaging for nonhandheld engines. However, 
the recent final rule eliminated most of those restrictions. Given the 
level of the standards recently finalized for nonhandheld engines and 
the level of the standards contained in today's proposal, EPA is far 
less concerned that credits from one class could result in delays in 
technology improvement for other classes, and does not believe that any 
cross-class restrictions are necessary beyond those retained in the 
final nonhandheld Phase 2 rulemaking. Therefore, today's SNPRM proposes 
no additional restrictions on credit exchanges across any of the 
classes of small SI engines. Under the proposed program, manufacturers 
would be allowed to exchange credits from handheld engines to 
nonhandheld engines. EPA specifically requests comment on the cross-
class exchange of credits between handheld and nonhandheld engines.
    Under an ABT program, a manufacturer establishes a family emission 
limit (FEL) for an engine family that takes the place of the emission 
standard for all compliance determinations. As part of the ABT program, 
EPA is proposing upper limits on the FEL values that may be declared by 
manufacturers under the Phase 2 standards. For Classes III, IV and V, 
EPA is proposing FEL upper limits based on the Phase 1 standards, 
adjusted to account for expected average deterioration over the useful 
life period of these engines. The proposed HC+NOx FEL upper 
limits are 300 g/kW-hr for Class III engines, 246 g/kW-hr for Class IV 
engines, and 166 g/kW-hr for Class V engines. For the newly proposed 
categories of Class I-A and Class I-B engines, EPA is proposing 
HC+NOx FEL upper limits of 94 g/kW-hr and 50 g/kW-hr, 
respectively. The Class I-A level is based on the maximum certification 
level of current Phase 1 engines similar in size to those expected to 
be certified as Class I-A engines (a 26 cc Class IV engine certified to 
a new engine level of 37.6 g/kW-hr HC+NOx), adjusted to 
account for an estimated maximum deterioration factor of 2.5 over the 
useful life of the engine. The Class I-B level is based on the maximum 
new engine emissions level expected from Class I-B engines (estimated 
to be 20 g/kW-hr HC+NOx) adjusted to account for an 
estimated maximum deterioration factor of 2.5 over the useful life of 
the engine.
    EPA is proposing that all credits should be calculated based on the 
difference between the manufacturer-established FEL and the Phase 2 
HC+NOx standard for the applicable model year using the 
following equation.

Credits = (Standard--FEL)  x  Production  x  Power  x  Useful life 
x  Load Factor

    At the time of certification, manufacturers would be required to 
supply information to EPA on the terms used in the above noted 
equation. ``Production'' represents the manufacturer's U.S. production 
of engines for the given engine family, excluding exported engines and 
engines that will be sold in California. ``Power'' represents the 
maximum modal power of the certification test engine over the 
certification test cycle. ``Useful Life'' is the regulatory useful life 
established by the manufacturer for the given engine family. ``Load 
Factor'' is a constant that is dependent on the test cycle over which 
the engine is certified.
    Under the proposed ABT program, credits would have an unlimited 
credit life for the duration of the Phase 2 program and would not be 
discounted in any manner.
    Under the proposed ABT program, manufacturers of handheld engines 
would be allowed to use portions of the ABT program prior to 
implementation of the Phase 2 standards to provide an incentive to 
accelerate introduction of cleaner technologies into the marketplace. 
The Agency believes that making bankable credits available prior to the 
effective date of the new standards would reward those manufacturers 
who take on the responsibility of complying with the Phase 2 
requirements sooner than required and would also result in early 
environmental benefits.
    Under the proposed early banking provisions for handheld engines, 
manufacturers would be allowed to begin using the averaging and banking 
portions of the ABT program beginning with the 2000 model year for 
engines certified to the Phase 2 requirements and produced after the 
effective date of this action. Manufacturers would be allowed to 
generate early credits from those engine families with FELs below the 
initial Phase 2 HC+NOx standards for the appropriate engine 
class (i.e., 226 g/kW-hr for Class III engines, 187 g/kW-hr for Class 
IV engines, and 131 g/kW-hr for Class V engines). This proposed 
approach for early credits from handheld engines is different than the 
approach recently finalized for nonhandheld engines. Under the recently 
finalized Phase 2 rule for nonhandheld engines, early credits are only 
available for engines with FELs below the final standards, not the 
initial phase in standards. EPA believes a different approach is 
appropriate for handheld engines because the proposed Phase 2 handheld 
engine standards represent such dramatic reductions from the Phase 1 
standards that will require the complete redesign of nearly every 
handheld engine currently produced. In contrast for nonhandheld 
engines, there are already a significant number of engines being 
produced that EPA believes would already meet the recently finalized 
Phase 2 standards. Because of the increased effort engine manufacturers 
will need to expend to meet the proposed Phase 2 handheld standards, 
EPA believes it is appropriate to allow manufacturers to generate early 
credits from engines certified with FELs below the initial Phase 2 
standards rather than the final Phase 2 standards. If the final Phase 2 
handheld engine standards were used for the determination of early 
credits, the ability of engine manufacturers to generate early credits 
would be so severely constrained as to make this option not useful; 
neither the manufacturer nor the environment would benefit from the 
such an early credit program design. Because the proposed Phase 2 
standards for Class I-A and Class I-B engines are scheduled to take 
effect with the 2000 model year, there is no need to provide 
manufacturers with the ability to earn early credits from such engines.
    All engines for which a manufacturer generates early credits would 
have to comply with all of the proposed requirements for Phase 2 
engines (e.g., the Production Line Testing program

[[Page 40953]]

requirements). Manufacturers of handheld engines would not be allowed 
to trade their early engine credits to other manufacturers until the 
first effective model year of the Phase 2 standards for the applicable 
engine class. EPA requests comments on the design of the early credits 
provisions contained in today's proposal.
    As discussed in section II.D. of today's document, EPA is proposing 
several compliance flexibility provisions for engine manufacturers and 
equipment manufacturers that allow the limited use of Phase 1 engines 
in the Phase 2 time frame. Phase 1 engines sold by engine manufacturers 
under the flexibility provisions would be excluded from the ABT 
program. In other words, engine manufacturers would not have to use 
credits to certify Phase 1 engines used for the flexibility provisions 
even though they would likely exceed the proposed Phase 2 standards.
    As noted elsewhere in today's document, EPA is proposing a number 
of provisions that address post-certification compliance aspects of the 
proposed standards. In one specific case, EPA would allow manufacturers 
to use credits from the certification ABT program to address excess 
emissions situations determined after the time of certification. As 
noted in the discussion on compliance, EPA does not believe that the 
typical type of enforcement action that could be taken when a 
substantial nonconformity is identified (i.e., an engine family recall 
order) would generally be workable for small SI engines given the 
nature of the market. Instead, for the purposes of implementing the PLT 
program, EPA is proposing provisions to allow manufacturers to use 
engine certification ABT credits to offset limited emission performance 
shortfalls for past production of engines determined through the PLT 
program as described in section II.C. of today's SNPRM. Under the 
proposed provisions, manufacturers would be allowed to use small SI 
engine certification ABT credits available to them to offset such 
emission performance shortfalls.
    Under today's proposal, EPA would not allow manufacturers to 
automatically use ABT credits to remedy a past production 
nonconformance situation in the Selective Enforcement Audit (SEA) 
program. As described in today's SNPRM, EPA expects to primarily rely 
on the PLT program to monitor the emissions performance of production 
engines. However, EPA expects that SEAs may be conducted in certain 
cases. Therefore, as discussed in section II.C., if EPA were to 
determine that an engine family is not complying with the standards as 
the result of an SEA, EPA would work with the manufacturer on a case-
by-case basis to determine an appropriate method for dealing with such 
a nonconformity. The option(s) agreed upon by EPA and the engine 
manufacturer might, or might not, include the use of ABT credits to 
make up for any ``lost'' emission benefits uncovered by the SEA.
    All of these aspects of the proposed handheld ABT program are 
consonant with the final ABT program recently adopted for nonhandheld 
Phase 2 engines.

C. Compliance Program

    The compliance program being proposed today is comprised of three 
parts: a pre-production certification program during which the 
manufacturer would evaluate the expected emission performance of the 
engine design including the durability of that emission performance; an 
assembly line test program which would sample products coming off the 
assembly line to assure the design as certified continues to have 
acceptable emission performance when put into mass production; and a 
voluntary in-use test program during which participating manufacturers 
would evaluate the in-use emission performance of their product under 
typical operating conditions. EPA would also have the option to run an 
SEA program and its own in-use testing for small SI engines.
    Under the proposed compliance programs for small handheld SI 
engines, a manufacturer would divide its product offering based upon 
specific design criteria which have a potential for significantly 
different emission performance; these subdivisions are called engine 
families. Each engine family would be required to meet the standard 
applicable for the class in which that engine resides unless the 
manufacturer chooses to participate in the ABT program also being 
proposed today. (See section II.B. of today's SNPRM for discussion of 
the proposed ABT program.) The other provisions of the compliance 
program are explained in more detail below. In all cases, to the best 
of EPA's knowledge, the requirements of this proposed federal 
compliance program would be sufficiently similar to the requirements of 
the California ARB program for these engines such that for engine 
families sold in both the State of California and federally, the 
engines selected for testing, the test procedures under which they are 
tested and the data and other information required to be supplied by 
regulations can be the same under both programs. Thus, EPA expects that 
a manufacturer would be able to compile one application for 
certification satisfying the information needs of both programs, saving 
the manufacturer time and expense. Similarly, EPA and the California 
ARB expect to share information from their compliance programs such 
that any production line testing or in-use testing conducted for one 
agency would satisfy the similar needs of the other agency, again 
minimizing the burden on the manufacturers.
1. Certification
    This section addresses the proposed certification program for 
engine manufacturers covered by today's proposal. The certification 
process as required in the Act is an annual process and requires that 
manufacturers demonstrate that regulated engines will meet appropriate 
standards throughout their useful lives. The Act prohibits the sale, 
importation or introduction into commerce of regulated engines when not 
covered by a certificate.
    Under the January 1998 proposal, manufacturers of handheld engines 
would have been required to establish deterioration factors for each 
engine family based on an analysis of technically appropriate data. 
This data could have included results from the proposed field/bench 
adjustment program, the proposed handheld engine in-use testing 
program, as well as other appropriate testing data. The proposed 
certification requirements for handheld engines were different than 
those proposed for nonhandheld engines.
    Based on comments received on the January 1998 NPRM and EPA's 
further evaluation of the originally proposed certification program, 
EPA is revising the proposed certification program for Phase 2 handheld 
engines significantly. EPA received a significant number of comments 
regarding the complexity of the proposed certification program, the 
prohibitive expense of field aging engines, and the advantages of 
harmonizing EPA's final certification program with that of the 
California ARB. EPA now believes the complexity of the originally 
proposed program would make it difficult to manage and organize the 
certification program for both industry and EPA. EPA also believes that 
harmonizing its programs with the California ARB would allow the 
industry to more efficiently comply with the reproposed emission 
standards and requirements. Additionally, EPA is concerned the field/
bench adjustment program may not be statistically reliable enough to 
establish appropriate

[[Page 40954]]

deterioration factors. (In an effort to control the cost of this 
program, only a minimum amount of data was proposed to be required; 
this small amount of data would hurt the statistical reliability of any 
resulting decision.)
    In light of these comments and concerns, EPA is reproposing a 
significantly less complex certification program that would harmonize 
the handheld Phase 2 program with the requirements of the California 
ARB's Regulations for 1995 and Later Small Off-Road Engines, amended 
January 29, 1999. In the reproposed program, the requirements for 
manufacturers of handheld engines would be the same as those recently 
finalized for nonhandheld engines. Under today's proposal, 
manufacturers of handheld engines would be required to demonstrate that 
their regulated engines comply with appropriate emission standards 
throughout the engines' useful lives. To account for emission 
deterioration over time, manufacturers would need to establish 
deterioration factors for each regulated pollutant for each engine 
family. This proposal allows manufacturers to establish deterioration 
factors by using bench aging procedures which appropriately predict the 
in-use emission deterioration expected over the useful life of an 
engine or an in-use evaluation which directly accounts for this 
deterioration. As is the case with many EPA mobile source regulations, 
the multiplicative deterioration factors could not be less than one. 
Additionally, where appropriate and with suitable justification, 
deterioration factors could be carried over from one model year to 
another and from one engine family to another.
    Today's proposal also provides flexibility for small volume engine 
manufacturers and small volume engine families. Under the proposed 
provisions, handheld engine manufacturers would be allowed the option 
of using assigned deterioration factors established by the Agency. The 
deterioration factors, either assigned or generated, would be used to 
determine whether an engine family complies with the applicable 
emission standards in the certification program, the production line 
testing program, and the Selective Enforcement Auditing program.
    As in Phase 1, manufacturers would be allowed to submit 
certification applications to the Agency electronically, either on a 
computer disk or through electronic mail, making the certification 
application process efficient for both manufacturers and the Agency. 
Also, EPA and the California ARB expect to have a common application 
format allowing manufacturers to more easily apply for certification.
    In today's SNPRM, EPA is also proposing a method by which 
manufacturers can separately certify configurations for use at high 
altitude. Manufacturers are currently required by the Phase 1 rule to 
certify engines for use at any altitude, but the rule does not 
specifically address separate high altitude and low altitude 
configuration testing. The existence of, and the need for the high 
altitude modifications has been a topic of recent discussions between 
EPA and manufacturers. To allow an engine to perform properly and meet 
emission standards while being operated at high altitudes, many 
manufacturers have developed special high altitude carburetor jets or 
high altitude kits. However, if an engine with such a kit installed is 
removed from high altitude, the kit would have to be removed and the 
engine returned to its original configuration for the engine to 
continue to perform properly and meet emission standards.
    Today's proposal would allow manufacturers of both handheld and 
nonhandheld engines to certify an engine for separate standard and high 
altitude configurations. All engines would be required to meet, under 
all altitude conditions, the emission standards proposed today. The 
proposed method would be available for both Phase 1 and Phase 2 
handheld and nonhandheld engines. Without such a certification option, 
installation of an altitude kit and other associated modifications 
might be considered tampering by EPA. No test data on engines with high 
altitude modifications performed would be required as a condition of 
certification, as this would add significantly to the manufacturer's 
certification compliance testing cost. Furthermore, no testing seems 
necessary since the altitude kits and associated modifications are 
intended to compensate for the change in air density when moving to 
high altitude by returning the engine to approximately the same 
operating point as evaluated during required certification testing. 
Similarly, no special labeling would be required for engines which have 
such altitude kits certified or for those in-use engines which have had 
altitude modifications performed. Consumers have a natural incentive to 
have the high altitude kit installed and adjustments performed when 
using an engine at altitude as this greatly improves performance; for 
the same reason EPA expects the modifications to be removed when 
returning the engine to low altitude. However, EPA believes some 
additional assurance is needed that the high altitude modifications are 
designed to provide good emission control and that the instructions for 
making these modifications are clear and readily available and thus 
likely to be performed correctly.
    To provide this assurance, this proposal would require a 
manufacturer to list these altitude kits with their appropriate part 
numbers along with all the other certified parts in the certification 
application. In the application, the manufacturer would have to declare 
the altitude ranges at which the appropriate kits would be installed on 
or removed from an engine for proper emission and engine performance. 
The manufacturer would also be required to include a statement in the 
owner's manual for the engine or engine/equipment combination (and 
other maintenance-related literature intended for the consumer) that 
also declared the altitude ranges at which the appropriate kits must be 
installed or removed. Finally, the manufacturer, using appropriate 
engineering judgement which, at the manufacturer's option, could also 
include test data, would be required to determine that an engine with 
the altitude kit installed would meet each emission standard throughout 
its useful life. The rationale for this assessment would need to be 
documented and provided to the Agency as part of the certification 
application.
2. Production Line Testing--Cumulative Summation Procedure
    This section addresses the proposed production line testing (PLT) 
program for engines covered by today's SNPRM. The proposed PLT program 
contained is the same as that adopted recently for nonhandheld engines 
and would require manufacturers to conduct manufacturer-run testing 
programs using the Cumulative Summation Procedure (CumSum).\6\ The 
CumSum program, as proposed today, would require manufacturers to 
conduct testing on each of their engine families (unless they were 
relieved of this requirement under provisions granting flexibility). 
The maximum sample size that would be required for each engine family 
is 30 engines or 1 percent of a family's projected production, 
whichever is smaller. However, the actual number of

[[Page 40955]]

tests ultimately required would be determined by the results of the 
testing. With the proposed program, the EPA PLT program and the 
corresponding California ARB program would be harmonized, requiring 
manufacturers to use the same CumSum procedure for testing production 
engines for both agencies. Manufacturers would be able to submit PLT 
reports to EPA electronically, either on a computer disk or through 
electronic mail, which should save both the industry and EPA time and 
money.
---------------------------------------------------------------------------

    \6\ The CumSum procedure has been promulgated for marine engines 
in EPA's spark-ignition marine rule at 40 CFR part 91 (61 FR 52088, 
October 4, 1996). In this section, ``PLT'' refers to the 
manufacturer-run CumSum procedure. ``PLT'' does not include 
Selective Enforcement Auditing (SEA), which is addressed separately 
in section II.C.4. of this preamble.
---------------------------------------------------------------------------

    As mentioned in the discussion of the proposed ABT program, above, 
manufacturers could, for a limited amount of production, use ABT 
credits to offset the estimated excess emissions of previously produced 
noncomplying engine designs as determined in the PLT program. (The 
amount of excess emissions would be determined based on the difference 
between the new FEL established by the manufacturer as a result of the 
PLT program and the original FEL established prior to the PLT program.) 
Under today's proposal, a manufacturer could raise the FEL for one 
engine family per model year. If a PLT program failure required a 
manufacturer to raise the FEL for more than one engine family per model 
year, the manufacturer could do so only if the applicable engine family 
represented no more than ten percent of the manufacturer's production 
for that model year. For any additional engine families that were found 
to be in noncompliance as a result of the PLT program, the engine 
manufacturer would need to conduct projects approved by EPA that were 
designed to offset the excess emissions from those engines.
    With regard to future production of engines identified to be in 
noncompliance as a result of PLT testing, the manufacturer would be 
expected to correct the noncompliance problem causing the emission 
noncompliance either by changing the production process, changing the 
design (which would require recertification) or raising the FEL to 
compensate for the higher emissions (also requiring recertification). 
In the event a manufacturer raised an FEL as a result of a PLT failure, 
it could do so for future production as well as past production as 
described above which would require a calculation of credits the 
manufacturer would need to obtain for the past production engines. EPA 
expects few instances in which the manufacturer would need to correct a 
PLT failure through raising the FEL since that would imply the 
manufacturer incorrectly set the initial FEL for that family. Frequent 
use of this remedy would suggest the manufacturer was incapable of 
correctly setting the FELs for its product, in which case EPA would 
have to reconsider allowing a manufacturer to participate in the ABT 
program at its option. It should also be noted that compliance with the 
applicable standard (or the applicable FEL) will be required of every 
covered engine. Thus, every engine that failed a PLT test would be 
considered in noncompliance with the standards and must be brought into 
compliance. EPA's rules allowing the use of the average of tests to 
determine compliance with the PLT program is intended only as a tool to 
decide when it is appropriate to suspend or revoke the certificate of 
conformity for that engine family, and is not meant to imply that not 
all engines have to comply with the standards or applicable FEL.
    As discussed in the flexibilities section, EPA is proposing that 
small volume manufacturers and small volume engine families need not be 
included in the PLT program at the manufacturer's option.
3. Voluntary In-Use Testing
    This section addresses the proposed voluntary in-use testing 
program. The January 1998 proposal would have required manufacturers of 
handheld engines to conduct in-use testing on a maximum of 25 percent 
of their engine families each model year. The proposal would also have 
allowed these handheld engine manufacturers to fulfill the in-use 
testing requirements by testing bench-aged engines, provided the 
manufacturer has successfully completed the field/bench adjustment 
program. Finally, under the January 1998 proposal, handheld engine 
manufacturers would have been allowed to participate in an in-use 
averaging, banking, and trading program.
    The foundation of the in-use compliance program for manufacturers 
of handheld engines in the January 1998 proposal was the Field/Bench 
Adjustment Program. Based on a thorough evaluation of the proposed 
program, EPA does not believe the Field/Bench Adjustment Program would 
be statistically reliable enough on which to build an in-use testing 
compliance program due to the relatively small amount of data which 
would have been required. Additionally, in developing this SNPRM, EPA 
has attempted to harmonize this proposal as closely as possible with 
the California ARB's Regulations for 1995 and Later Small Off-Road 
Engines, amended January 29, 1999, allowing the industry to more 
efficiently comply with the standards and requirements. Based on these 
factors, as well as industry comments regarding the prohibitive expense 
of conducting field aged in-use tests, EPA is not including the in-use 
program contained in the January 1998 NPRM as part of today's 
reproposal.
    However, EPA still desires meaningful in-use data so that it can 
more appropriately assess the actual emissions inventory of this 
industry. Therefore, EPA is proposing a voluntary in-use testing 
program. The proposed voluntary in-use testing program for engines 
covered by today's SNPRM is the same as the voluntary in-use testing 
program recently finalized by the Agency for nonhandheld engines. The 
proposed voluntary in-use testing program would give engine 
manufacturers the option of using a portion of their PLT resources to 
generate field aged emissions data. At the start of each model year, 
manufacturers could elect to place up to 20 percent of their engine 
families in this voluntary program. For those families in this program, 
manufacturers would not be required to conduct PLT for two model years, 
the current year and the subsequent year. (The California ARB has 
indicated that they would also exempt families in such an in-use 
testing program from their PLT requirements.) Instead, manufacturers 
would place a minimum of three randomly selected production engines in 
existing consumer-owned, independently-owned, or manufacturer-owned 
fleets. Manufacturers would install the engines in equipment that 
represents at least 50 percent of the production for an engine family 
and age the engine/equipment combination in actual field conditions to 
at least 75 percent of each engine's useful life. Once an engine in 
this program had been sufficiently field aged, the manufacturer would 
conduct an emissions test on that engine. Manufacturers would have 
three calendar years from the date they notified the Agency of their 
intent to include a family in the program to complete testing.
    While the compliance program proposed today would not require a 
manufacturer to conduct any in-use testing to verify continued 
satisfactory emission performance in the hands of typical consumers, 
EPA believes it is worthwhile to have an optional program for such in-
use testing. EPA believes it is important for manufacturers to conduct 
in-use testing to assure the success of their designs and to factor 
back into their design and/or production process any information 
suggesting emission problems in the field. If any

[[Page 40956]]

information derived from this program indicates a substantial in-use 
emission performance problem, EPA anticipates the manufacturer would 
seek to determine the nature of the emission performance problem and 
what corrective actions might be appropriate. EPA would offer its 
assistance in analysis of the reasons for unexpectedly high in-use 
emission performance and what actions might be appropriate for reducing 
such high emissions. Whether or not a manufacturer chose to conduct a 
voluntary in-use testing program, EPA could always choose to conduct 
its own in-use compliance program. If EPA were to determine that an in-
use noncompliance investigation was appropriate, the Agency expects it 
would conduct its own in-use testing program, separate from this 
voluntary manufacturer testing program, to determine whether a specific 
class or category of engines is complying with applicable in-use 
standards.
4. Selective Enforcement Auditing
    As noted in the January 1998 proposal, the SEA program is not the 
Agency's preferred production line testing program for small engines. 
The CumSum procedures, described above, are being proposed as the 
production line program that manufacturers would conduct. The SEA 
program is included in today's SNPRM as a ``backstop'' to the CumSum 
program and would be used in cases where EPA believes there is evidence 
of improper testing or of a nonconformity that is not being addressed 
by the CumSum program. The SEA program, as proposed, would also apply 
to engine families optionally certified to the small volume 
manufacturer provisions and the small volume engine family provisions, 
in cases where manufacturers elect not to conduct PLT testing for such 
families. However, as for other families, EPA does not expect families 
certified under the small volume provisions would be routinely tested 
through an SEA program.
    Under today's SNPRM and in contrast to the PLT program, 
manufacturers who fail an SEA would not have the automatic option of 
using ABT credits to remedy noncomplying engines already introduced 
into commerce. The proposed PLT program is designed to allow a 
manufacturer to continually evaluate its entire production and quickly 
respond to the results throughout the model year. EPA believes that 
allowing a manufacturer to use credits, for a limited amount of 
engines, to remedy past production emission failures is consistent with 
the continual evaluation provided by the PLT program. The SEA program, 
in contrast, is designed to be a one time, unannounced inspection of a 
manufacturer's production line with definitive passing or failing 
results. EPA believes that in this type of a compliance program, where 
at most only a few engine families might be tested each year, 
manufacturers must place more emphasis on the transition from 
certification to the production line and must set initial FELs 
accurately. To encourage accurate FEL settings at the time of 
certification, the proposed SEA program would not allow manufacturers 
to automatically remedy SEA failures by retroactively adjusting FELs. 
EPA is proposing that remedies for an SEA failure would be best 
determined on a case-by-case basis which might or might not include the 
use of ABT credits depending upon EPA's assessment of the specific 
case.

D. Flexibilities

    In the January 1998 NPRM, EPA proposed a number of flexibilities to 
ease the transition from the Phase 1 to the Phase 2 program, to ensure 
that the Phase 2 standards are cost-effective and achievable, and to 
reduce the compliance burden while maintaining the environmental 
benefits of the rule. Several comments were received on the 
flexibilities proposed, some supporting the proposals and others 
offering recommended changes. In addition, the need for modifications 
to the proposed set of flexibilities evolved out of the investigations 
which led to other changes to the proposal including the more stringent 
handheld engine standards, the addition of Class I-A and Class I-B 
engine classes, and the expanded ABT program provisions being proposed. 
The following section summarizes the revised flexibilities proposed 
with today's SNPRM. EPA requests comments on the proposed 
flexibilities.
1. Carry-Over Certification
    Consistent with other mobile source emission certification 
programs, EPA is proposing to allow a manufacturer to use test data and 
other relevant information from a previous model year to satisfy the 
same requirements for the existing model year certification program as 
long as the data and other information are still valid. Such ``carry-
over'' of data and information is common in mobile source programs 
where the engine family being certified in the current model year is 
identical to the engine family previously certified.
2. Flexibilities for Small Volume Engine Manufacturers and Small Volume 
Engine Families
    EPA proposed a number of compliance flexibilities for small volume 
engine manufacturers and small volume engine families in the January 
1998 NPRM. With today's SNPRM, EPA is proposing a slightly revised set 
of flexibilities for handheld engines that would be available to both 
small volume engine families and small volume engine manufacturers. The 
three proposed flexibilities that would be available to manufacturers 
of small volume engine families and small volume engine manufacturers 
are as follows: (1) The eligible family or manufacturer could certify 
to Phase 1 standards and regulations until the third year after the end 
of the proposed Phase 2 schedule (i.e., the 2009 model year for Classes 
III and IV and the 2011 model year for Class V engines); such engines 
would be excluded from the ABT program until they are certified to the 
Phase 2 standard, (2) the eligible family or manufacturer could certify 
using assigned deterioration factors, and (3) the eligible family or 
manufacturer could elect to not participate in the PLT program, 
however, the SEA program would still be applicable.
    With regard to Class I-A and Class I-B, EPA is proposing only one 
of the flexibilities for small volume engine families and small volume 
engine manufacturers noted above. EPA is proposing to allow eligible 
Class I-A and Class I-B small volume engine families or manufacturers 
to elect to not participate in the PLT program, however, the SEA 
program would still be applicable. As noted earlier, the proposed Class 
I-A and Class I-B designations are new, and therefore there are no 
engine families currently certified as Class I-A or Class I-B engines. 
Because the engines that will be designated as Class I-A or Class I-B 
engines will be new designs or existing designs that are expected to be 
able to meet the proposed standards, EPA does not believe there is a 
need to offer delayed implementation of the proposed standards or allow 
manufacturers to use assigned deterioration factors. Therefore, EPA is 
not proposing either the delayed implementation flexibility or use of 
assigned deterioration factors flexibility for Class I-A or Class I-B.
    EPA originally proposed allowing small volume engine manufacturers 
to continue producing Phase 1 engines until the last year of the phase 
in of the Phase 2 standard applicable to the engine's class. (For 
handheld engines,

[[Page 40957]]

the final year of the phase in would have been 2005 under the January 
1998 NPRM.) However, since the proposed standards contained in today's 
SNPRM are significantly more stringent than the standards upon which 
the original proposed flexibility was based, the number of engine 
families expected to be modified and, especially, the degree of 
modification necessary has increased. This is expected to add 
significantly to the technical and resource burden on the engine 
manufacturers. As anticipated in the January 1998 proposal, EPA still 
expects the major engine manufacturers would choose to modify their 
small volume engine families last as these represent niche markets. 
Additionally, these niche applications may represent some of the more 
difficult engine applications due to their unique requirements. The 
experience gained in designing, producing and getting in-use feedback 
on their larger engine family designs should be helpful in minimizing 
the cost and assuring the performance of the small volume engines. 
Similarly, the design challenges for the small volume engine 
manufacturer because of the more stringent proposed Phase 2 standards 
are expected to increase, suggesting more time to accomplish the 
transition to Phase 2 standards would be warranted. EPA expects 
manufacturers would take advantage of the extra time being proposed 
today to smooth the transition to Phase 2 standards by bringing the 
small volume engines into compliance throughout this time period. Due 
to the fact that circumstances vary greatly from one manufacturer to 
another, EPA believes it would be inappropriate to mandate a percent 
phase-in schedule or some other mandatory rate of phase-in for these 
small volume engine families and small volume engine manufacturers. 
Therefore, EPA is proposing only a final compliance requirement that is 
effective three years after the end of the proposed Phase 2 phase-in 
schedule. EPA believes that a three year delay is appropriate based on 
discussions with manufacturers and given the number of engine families 
expected to be eligible for the proposed flexibilities. EPA has also 
considered the air quality impact of this proposed flexibility and 
believes that, under the reproposed provisions, less than two percent 
of the total small engine production would likely take advantage of 
this option to delay compliance with the Phase 2 standards with only a 
negligible impact on the emission benefits expected from the program.
3. Small Volume Engine Manufacturer Definition
    As described earlier, EPA proposed a number of flexibilities for 
engine manufacturers defined as small volume engine manufacturers in 
the January 1998 NPRM (see section II.D.2.). EPA continues to believe 
flexibilities aimed at the small volume handheld engine manufacturer 
are appropriate and is retaining the proposed definition of small 
volume handheld engine manufacturers in this SNPRM. To qualify as a 
small volume engine manufacturer, a handheld engine manufacturer would 
need to produce no more than 25,000 handheld engines annually. In 
addition, for manufacturers of Class I-A and Class I-B nonhandheld 
engine families, where EPA is also proposing limited small volume 
engine manufacturer flexibility, a manufacturer of such engines would 
need to produce no more than 10,000 nonhandheld engines annually.
4. Small Volume Engine Family Definition
    In the January 1998 NPRM, EPA proposed that manufacturers of small 
volume engine families also be provided the same flexibilities as small 
volume engine manufacturers (see section II.D.2.). To qualify as a 
small volume engine family, EPA proposed that a handheld engine family 
would need to have an annual production level of no more than 2,500 
engines. Without such flexibilities, EPA believes the cost and other 
difficulties of modifying these small volume engine families to comply 
with the Phase 2 standards may be difficult enough that the 
manufacturer might either be unable to complete the modification of the 
engine design in time or may choose for economic reasons to discontinue 
production of the small volume engine family. The impact of such a 
scenario would of course fall on the engine manufacturer through 
reduced engine sales, but would also fall perhaps even more 
significantly on small volume equipment applications, the most typical 
use for these small volume engine families. Due to the unique character 
of these small volume equipment applications, it is quite possible that 
some equipment manufacturers might not be able to find a suitable 
replacement engine. In such a case, that equipment manufacturer would 
also be significantly impacted through lost sales, and consumers would 
be harmed through the loss in availability of the equipment.
    In response to the January 1998 NPRM, the Portable Power Equipment 
Manufacturers Association (PPEMA) requested a ``slight upward 
adjustment'' of the proposed 2,500 unit cap for handheld engines. Based 
on PPEMA's comments, EPA has re-examined the production limits for 
small volume engine families and believes that the interests of 
preserving the availability of small volume engine families would be 
better served by revising the annual production cap to 5,000 units for 
handheld engine families. (The recent final rule for nonhandheld 
engines also adopted a production cap of 5,000 units for nonhandheld 
engines.) EPA believes this proposed change to the definition would 
allow a larger number of niche equipment applications to be served and 
the risk of loss in engine availability should be reduced. At the same 
time, EPA believes the potential for adverse emission impacts remains 
very small. Based on the higher cutoffs, EPA estimates that 98 percent 
of handheld engines would still be covered by the full compliance 
program and subject to the earliest practical implementation of the 
proposed rule.
    Class I-A and Class I-B engine families would also be subject to a 
cap of 5,000 engines (the same level recently adopted for nonhandheld 
engines) in order to qualify as a small engine family and be eligible 
for the proposed small volume engine family flexibility described 
earlier.
5. Flexibilities for Equipment Manufacturers and Small Volume Equipment 
Models
    In the January 1998 NPRM, EPA proposed three flexibilities aimed at 
assuring the continued supply under the Phase 2 regulations of engines 
for unique, typically small volume equipment applications. First, EPA 
proposed that small volume equipment manufacturers could continue using 
Phase 1 compliant engines through the third year after the last 
applicable phase-in date of the final Phase 2 standards for that engine 
class if the equipment manufacturer was unable to find a suitable Phase 
2 engine before then. Second, EPA proposed to allow individual small 
volume equipment models to continue using Phase 1 compliant engines 
throughout the time period the Phase 2 regulation is in effect if no 
suitable Phase 2 engine was available and the equipment was in 
production at the time these Phase 2 rules were adopted. If the 
equipment is ``significantly modified'' then this exemption would end, 
since design accommodations could be made during such a modification to 
accept an engine meeting Phase 2 standards. Third, EPA proposed a 
hardship provision that would allow any equipment

[[Page 40958]]

manufacturer, regardless of size, for any of its applications, 
regardless of size, to continue using a Phase 1 engine for up to one 
more year beyond the last phase-in of the final standard for that 
engine class if the requirement to otherwise use a Phase 2 compliant 
engine would cause substantial financial hardship. For today's SNPRM, 
EPA is retaining the proposed flexibilities, except that the criteria 
for determining whether someone is a small volume equipment 
manufacturer is being revised (see section II.D.6. below).
    Because the applications expected to use Class I-A or Class I-B 
engines will be new engines and equipment designs or designs that use 
engines that already exist under the Phase 1 program (and are expected 
to meet the proposed Phase 2 standards), EPA does not believe there is 
a need to provide flexibilities for small volume equipment 
manufacturers and small volume equipment models in the newly proposed 
engine classes which would allow delayed introduction of engines 
certified to the proposed Phase 2 standards. Therefore, no such 
flexibilities are being proposed for Class I-A or Class I-B.
6. Small Volume Equipment Manufacturer Definition
    As part of the January 1998 NPRM, EPA proposed that small volume 
equipment manufacturers would be defined as those whose annual 
production for sale in the U.S. across all models was 5,000 or fewer 
pieces of equipment utilizing handheld engines.
    EPA has reexamined the production cutoff level for handheld 
equipment manufacturers. EPA believes there would be advantages to 
increasing the production cutoff included in the definition for small 
volume handheld equipment manufacturers. (EPA's recently finalized rule 
for nonhandheld engines expanded the cutoff level for the definition of 
small volume nonhandheld equipment manufacturer to 5,000 units.) Such a 
change would expand the flexibilities to slightly larger manufacturers 
who are still, compared to the rest of the industry, among the 
smallest. Therefore, EPA is proposing a revised definition for small 
volume handheld equipment manufacturer that is based on an annual 
production cutoff of 25,000 or fewer units. EPA estimates that this 
limit would cover approximately two percent of the annual sales in the 
handheld category. Providing the proposed flexibilities described in 
the previous section should allow significant relief to these smallest 
equipment manufacturers while at the same time assuring the vast 
majority of equipment uses the lowest emitting engines available.
7. Small Volume Equipment Model Definition
    EPA is retaining the small volume equipment model definition 
proposed in the January 1998 NPRM for today's SNPRM. As proposed, the 
small volume equipment model definition would cover handheld models of 
2,500 or less annual production. Providing the proposed flexibilities 
described in the section on flexibilities for small volume equipment 
models should allow significant relief to equipment manufacturers while 
at the same time assuring the vast majority of equipment uses the 
lowest emitting engines available.

E. General Provisions and Recommendations

    In the January 1998 NPRM, EPA discussed a number of general 
provisions that would impact Phase 2 engines. EPA received comments on 
several of these issues, as well as recommendations on other general 
issues. A number of these issues, including the handheld engine 
definition, use of engines in recreational equipment, engine labeling, 
and emissions warranty affect some or all of the engines covered by 
today's SNPRM. These general provisions and other recommendations are 
discussed in this section of the preamble.
1. Definition of Handheld Engine
    With today's SNPRM, EPA is retaining the same definition for 
handheld engine as was in effect for Phase 1 and is not proposing a new 
definition for handheld engine, except as discussed below. It should be 
noted that in response to comments from Honda and others, EPA recently 
proposed modifications to criteria for determining whether an engine 
could be classified as handheld that, if finalized, would be applicable 
for the remainder of Phase 1 and also apply for the Phase 2 program (64 
FR 5251, February 3, 1999). Under the proposed modification, a 
manufacturer would be permitted to exceed the weight limits (14 kg for 
generators or pumps, or 20 kg for one-person augers) in cases where the 
manufacturer could demonstrate that the extra weight was the result of 
using a 4-stroke engine or other technology cleaner than the otherwise 
allowed two stroke engine. Today's reproposed program would incorporate 
the Agency's decision reached in the rulemaking addressing the proposed 
modifications to the handheld definition.
2. Engines Used in Recreational Vehicles and Applicability of the Small 
SI Regulations to Model Airplanes
    Today's SNPRM does not propose any revisions to the provisions 
relating to engines used in recreational vehicles established in the 
Phase 1 program, except as discussed below. It should be noted that EPA 
recently issued a proposal that addresses the applicability of the 
small SI regulations to engines used in model airplane applications (64 
FR 5251). Under this recent proposal, EPA has proposed to consider 
engines that serve ``only to propel a flying vehicle * * * through 
air'' to be recreational engines provided they also meet the other 
existing criteria that apply to that term. As ``recreational'' engines 
they would be effectively excluded from the small SI program. Today's 
reproposed program would incorporate the Agency's decision reached in 
the rulemaking addressing the proposed modifications to the 
recreational vehicle definition.
3. Engine Labeling
    Under the January 1998 NPRM, EPA proposed that manufacturers would 
be required to state the useful life hours on the engine label. For 
nonhandheld engines only, EPA proposed an alternative to this engine 
labeling requirement. Under the alternative proposal, nonhandheld 
engine manufacturers could use a designator of useful life hours (e.g., 
A, B, or C) and then include words on the label which would direct the 
consumer to the owner's manual for an explanation of the meaning of the 
useful life designator.
    As indicated in the January 1998 NPRM, EPA believes that requiring 
manufacturers to include on the engine label the number of hours of 
emission compliance for which the engine is properly certified would 
provide an important tool to consumers in making their purchase 
decisions between competing engines. In addition, EPA anticipates 
manufacturers will use the useful life hours of the engine as a 
marketing tool. EPA originally included the alternative option noted 
above based on the concern expressed by nonhandheld engine 
manufacturers that consumers could be confused by the meaning of the 
useful life period if the specific number of hours was included on the 
label. However, as indicated in the preamble to the January 1998 NPRM, 
EPA was concerned that an alternative designation, such as ``A, B, or 
C'' may not provide the same useful information to the consumer as 
including the useful life hours directly

[[Page 40959]]

on the label. EPA is also aware of labeling options being considered by 
California that would allow removing the actual hours of operation from 
the engine label and including additional information on the product, 
perhaps not permanently affixed to the engine, which would satisfy the 
need to properly inform consumers. Allowing such labeling would also 
serve the goal of harmonization which was supported by PPEMA in their 
comments on the January 1998 NPRM.
    With today's SNPRM, EPA is proposing to extend the alternative 
labeling option contained in the January 1998 NPRM, as noted above, to 
handheld engines. The Agency sees no reason why consumers would react 
differently to labeling information whether it is affixed to a handheld 
engine or a nonhandheld engine. Additionally, this SNPRM proposes to 
allow other labeling options provided the Administrator determines that 
such options satisfy the information intent of the label. This proposed 
option is intended to allow for the nationwide use of the California 
labeling system. In evaluating the adequacy of an alternative label, 
EPA would consider the extent to which the manufacturer's alternative 
engine label combined with other readily accessible consumer 
information adequately informs the consumer of the emission performance 
of the engine. The reproposed labeling requirements would be the same 
as those recently adopted in the final Phase 2 nonhandheld rulemaking.
    It should be noted that EPA expects to work in partnership with the 
industry in developing consumer outreach material to better inform 
consumers of the emission improvements available through purchase of 
equipment using Phase 2 engines. EPA expects such outreach material 
will better serve the informational needs of consumers than just 
relying on any of the proposed labeling options.
4. Emission Warranty
    Under the current regulations, the base emission performance 
warranty extends for a period of two years of engine use from the date 
of sale. However, since the January 1998 NPRM was issued, manufacturers 
of handheld engines have indicated to EPA that there are applications, 
particularly for commercial equipment, in which the useful life hours 
of the entire piece of equipment can be surpassed in one year of 
typical in-use operation. Therefore, EPA is proposing an option whereby 
manufacturers of handheld engines could request approval from EPA to 
adopt an emission warranty period of one year if they can demonstrate 
such a shorter warranty period would be appropriate for that engine/
equipment combination. In addition, EPA is dropping the proposed 
warranty provisions from the January 1998 NPRM which would have 
required a different Phase 2 warranty statement compared to the Phase 1 
warranty statement. Therefore, the Phase 2 provisions specifying what 
manufacturers must warrant, would remain unchanged from the existing 
Phase 1 program, and would match those contained in the recently 
adopted final Phase 2 nonhandheld rulemaking.

III. Projected Impacts

A. Environmental Benefit Assessment

    National Ambient Air Quality Standards (NAAQS) have been set for a 
number of criteria pollutants, including ozone (O3), which 
adversely affect human health, vegetation, materials and visibility. 
Concentrations of ozone are impacted by HC and NOX 
emissions. EPA believes that the standards proposed in this rule would 
reduce emissions of HC and NOX and help most areas of the 
nation in their progress towards attainment and maintenance of the 
NAAQS for ozone. The following section provides a summary of the roles 
of HC and NOX in ozone formation. The following section also 
addresses the estimated emissions impact of this rule, and the health 
and welfare effects of ozone, CO, and hazardous air pollutants.
1. Roles of HC and NOX in Ozone Formation
    Both HC and NOX contribute to the formation of 
tropospheric ozone through a complex series of reactions. EPA's primary 
reason for controlling emissions from small SI handheld engines is the 
role of their HC emissions in forming ozone. Of the major air 
pollutants for which NAAQS have been designated under the CAA, the most 
widespread problem continues to be ozone, which is the most prevalent 
photochemical oxidant and an important component of smog. Ozone is a 
product of the atmospheric chemical reactions involving oxides of 
nitrogen and volatile organic compounds. These reactions occur as 
atmospheric oxygen and sunlight interact with hydrocarbons and oxides 
of nitrogen from both mobile and stationary sources.
    A critical part of this problem is the formation of ozone both in 
and downwind of large urban areas. Under certain weather conditions, 
the combination of NOX and HC has resulted in urban and 
rural areas exceeding the national ambient ozone standard by as much as 
a factor of three. Thus it is important to control HC over wider 
regional areas if these areas are to come into and maintain compliance 
with the ozone NAAQS.
2. Health and Welfare Effects of Tropospheric Ozone
    Ozone is a powerful oxidant causing lung damage and reduced 
respiratory function after relatively short periods of exposure 
(approximately one hour). The oxidizing effect of ozone can irritate 
the nose, mouth, and throat causing coughing, choking, and eye 
irritation. In addition, ozone can also impair lung function and 
subsequently reduce the respiratory system's resistance to disease, 
including bronchial infections such as pneumonia.
    Elevated ozone levels can also cause aggravation of pre-existing 
respiratory conditions such as asthma. 7 Ozone can cause a 
reduction in performance during exercise even in healthy persons. In 
addition, ozone can also cause alterations in pulmonary and extra 
pulmonary (nervous system, blood, liver, endocrine) function. Elevated 
ozone levels have also been shown to affect vegetation, including 
reduced agricultural and commercial forest yields, reduced growth and 
decreased survivability of tree seedlings, increased tree and plant 
susceptibility to disease, pests, and other environmental stresses, and 
potential long-term effects on forests and ecosystems.
---------------------------------------------------------------------------

    \7\ United States Environmental Protection Agency, Review of the 
National Ambient Air Quality Standards for Ozone--Assessment of 
Scientific and Technical Information: OAQPS Staff Paper, EPA-450/2-
92-001, June 1989, pp. VI-11 to 13.
---------------------------------------------------------------------------

    High levels of ozone have been recorded even in relatively remote 
areas, since ozone and its precursors can travel hundreds of miles and 
persist for several days in the lower atmosphere. Ozone damage to 
plants, including both natural forest ecosystems and crops, occurs at 
ozone levels between 0.06 and 0.12 ppm. 8 Repeated exposure 
to ozone levels above 0.04 ppm can cause reductions in the yields of 
some crops above ten percent. 9 The value of crops lost to 
ozone damage, while difficult to estimate precisely, has been estimated 
to be on the order of $2 billion per year in the United States. 
10 The effect of ozone on complex ecosystems such as forests 
is even more difficult to quantify. However, there is evidence that 
some forest types are negatively affected by

[[Page 40960]]

ambient levels of ozone. 11 Specifically, in the San 
Bernardino Mountains of southern California, ozone is believed to be 
the agent responsible for the slow decline and death of ponderosa pine 
trees in these forests since 1962. 12
---------------------------------------------------------------------------

    \8\ U.S. EPA, Review of NAAQS for Ozone, p. X-10.
    \9\ U.S. EPA, Review of NAAQS for Ozone, p. X-10.
    \10\ U.S. EPA, Review of NAAQS for Ozone, p. X-22.
    \11\ U.S. EPA, Review of NAAQS for Ozone, p. X-27.
    \12\ U.S. EPA, Review of NAAQS for Ozone, p. X-29.
---------------------------------------------------------------------------

    Finally, by trapping energy radiated from the earth, tropospheric 
ozone may contribute to heating of the earth's surface via the 
``greenhouse effect,'' thereby contributing to global warming, 
13 although tropospheric ozone is also known to reduce 
levels of UVB radiation reaching the earth's surface, the increase of 
which is expected to result from depletion of stratospheric ozone. 
14
---------------------------------------------------------------------------

    \13\ NRC, Rethinking the Ozone Problem, p. 22.
    \14\ The New York Times, September 15, 1992, p. C4.
---------------------------------------------------------------------------

3. Estimated Emissions Impact of the Supplemental Proposed Regulations
    The emission standards contained in today's proposal are expected 
to reduce average in-use exhaust HC+NOX emissions from small 
SI handheld engines by approximately 78 percent beyond Phase 1 
standards for handheld engines by the year 2027, by which time a 
complete fleet turnover is expected. This translates into an annual 
nationwide reduction of roughly 264,000 tons of exhaust 
HC+NOX in the year 2027 over that expected from Phase 1. 
Reductions in CO levels beyond Phase 1 levels, due to improved 
technology, are also to be expected but have not been estimated because 
EPA does not believe it can accurately quantify the expected benefit.
    Along with the control of all hydrocarbons, the proposed standards 
should be effective in reducing emissions of hydrocarbons considered to 
be hazardous air pollutants (HAPs), including benzene and 1,3-
butadiene. However, the magnitude of reduction would depend on whether 
the control technology reduces the individual HAPs in the same 
proportion as total hydrocarbons.
    These emission reduction estimates are based on in-use population 
projections using growth estimates, engine attrition (scrappage), 
activity indicators and new and in-use engine emission factors. Data on 
activity indicators were based on the Phase 1 nonroad small SI 
regulation. Estimates of engine populations were based on population 
data available from the PSR databases 15, data provided by 
small SI engine and equipment manufacturers to EPA, and on a study done 
for the California Air Resources Board by Booz Allen & Hamilton. 
Population projections into the future are based on a linear growth 
assumption. Attrition rates (based on the probability that an engine 
remains in service into a specific calendar year) for all engines 
included in this analysis are developed on the assumption that the 
equipment attrition function may be represented by a cumulative Normal 
distribution function. The in-use emission factors are based on a 
multiplicative deterioration factor which is a function of the 
cumulative hours of equipment usage.
---------------------------------------------------------------------------

    \15\ Power Systems Research, Engine Data and Parts Link data 
bases, St. Paul, Minnesota, 1992.
---------------------------------------------------------------------------

    Table 4 presents the emission inventories for the handheld engines 
covered by this proposed rule which were developed using EPA's NONROAD 
Model. The total annual nationwide HC and NOX emissions from 
small SI handheld engines included in this proposal were estimated for 
both the baseline scenario (i.e., with Phase 1 controls applied) and 
the controlled scenario (i.e., the proposed Phase 2 controls). Because 
there are so few engines expected to be certified under the proposed 
Class I-A and Class I-B standards, EPA has not included any emissions 
from such engines in the inventory or benefit projections. The reader 
is directed to Chapter 6 of the Supplemental Draft RIA for a complete 
description of the inventory modeling analysis.

             Table 4.--Projected Annual Exhaust HC+NOX Emissions from Handheld Equipment (Tons/Year)
----------------------------------------------------------------------------------------------------------------
                                                                                      Tons Reduced
                                                          With Phase 1    With the     due to the    Percentage
                          Year                              Controls      Proposed      Proposed      Reduction
                                                              only         Phase 2       Phase 2      (percent)
                                                                           Program       Program
----------------------------------------------------------------------------------------------------------------
2000....................................................      207,257       207,257   ............  ............
2005....................................................      227,039       126,602       100,437          44.2
2010....................................................      250,390        60,992       189,398          75.6
2015....................................................      274,072        61,583       212,489          77.5
2020....................................................      297,967        66,276       231,691          77.8
2025....................................................      321,400        71,436       249,964          77.8
----------------------------------------------------------------------------------------------------------------

4. Health and Welfare Effects of CO Emissions
    CO is a colorless, odorless gas which can be emitted or otherwise 
enters into ambient air as a result of both natural processes and human 
activity. Although CO exists as a trace element in the troposphere, 
much of human exposure resulting in elevated levels of 
carboxyhemoglobin (COHb) in the blood is due to incomplete fossil fuel 
combustion, as occurs in small SI engines.
    The concentration and direct health effect of CO exposure are 
especially important for small SI handheld engines because the operator 
of a handheld application is close to the equipment as it functions. In 
some applications, the operator must be adjacent to the exhaust outlet 
and is in the direct path of the exhaust as it leaves the engine.
    The toxicity of CO effects on blood and tissues, and how these 
effects manifest themselves as organ function changes, have also been 
topics of substantial research efforts. Such studies provided 
information for establishing the National Ambient Air Quality Standard 
for CO. The current primary and secondary NAAQS for CO are 9 parts per 
million for the one-hour average and 35 parts per million for the 
eight-hour average.
5. Health and Welfare Effects of Hazardous Air Pollutant Emissions
    The focus of today's proposal is reduction of HC emissions as part 
of the solution to the ozone nonattainment problem. However, direct 
health effects

[[Page 40961]]

are also a reason for concern due to direct human exposure to emissions 
from small SI handheld engines during the operation of handheld 
equipment. Of specific concern is the emission of hazardous air 
pollutants (HAPs). In some applications, the operator must be adjacent 
to the exhaust outlet and is in the direct path of the exhaust as it 
leaves the engine. Today's regulatory proposal should be effective in 
reducing HAPs such as benzene and 1,3-butadiene, in so far as these are 
components of the HC emissions being reduced by the Phase 2 standards.
    Benzene is a clear, colorless, aromatic hydrocarbon which is both 
volatile and flammable. Benzene is present in both exhaust and 
evaporative emissions. Health effects caused by benzene emissions 
differ based on concentration and duration of exposure. The 
International Agency for Research on Cancer (IARC), classified benzene 
as a Group I carcinogen, namely an agent carcinogenic to humans. 
Occupational studies continue to provide the bulk of evidence of 
benzene's carcinogenicity. Workers are exposed at much higher levels 
than is the general public. Human epidemiologic studies of workers in 
highly exposed occupations have demonstrated that exposure to benzene 
can cause acute nonlymphocytic leukemia and other blood disorders, that 
is, preleukemia and aplastic anemia. Additionally, changes in blood and 
bone marrow consistent with hematotoxicity are recognized in humans and 
experimental animals. Benzene has also been linked with genetic changes 
in humans and animals.
    1,3-butadiene is a colorless, flammable gas at room temperature. 
This suspected human carcinogen is insoluble in water and its two 
conjugated double bonds make it highly reactive. 1,3-butadiene is 
formed in internal combustion engine exhaust by the incomplete 
combustion of the fuel and is assumed not present in evaporative and 
refueling emissions. The Health Risk Assessment of 1,3-Butadiene (EPA/
600/P-98/001A, February 1998), concludes that 1,3-butadiene is a known 
human carcinogen, based on three types of evidence: (1) Excess leukemia 
in workers occupationally exposed to 1,3-butadiene (by inhalation), (2) 
occurrence of a variety of tumors in mice and rats by inhalation, and 
(3) evidence in animals and humans that 1,3-butadiene is metabolized 
into genotoxic metabolites. Other health effects due to very high 
levels of exposure include heart, blood and lung diseases.
    Because air toxic levels generally decrease in proportion to 
overall emissions once emission control technology is applied, the 
amount of benzene and 1,3-butadiene produced by new small SI engines 
should diminish once the proposed program becomes effective. 
Consequently, exposure to HAPs from new handheld engines would be 
reduced, as would associated health and environmental effects. Although 
there is little data on direct health effects of small SI engines, one 
Swedish study concluded that benzene emissions from chainsaw engines 
were rather high.16
---------------------------------------------------------------------------

    \16\ ``Occupational Exposure to Chain Saw Exhausts in Logging 
Operations,'' American Industrial Hygiene Association, J48, 1987.
---------------------------------------------------------------------------

B. Cost and Cost-Effectiveness

    EPA has calculated the cost-effectiveness of this proposed rule by 
estimating costs and emission benefits for these engines. EPA made best 
estimates of the combination of technologies that an engine 
manufacturer might use to meet the proposed standards, best estimates 
of resultant changes to equipment design, engine manufacturer 
compliance program costs, and engine fuel savings in order to assess 
the expected economic impact of the proposed Phase 2 emission standards 
for handheld engines. Emission benefits are taken from the results of 
the environmental benefit assessment (see section III.A. above). The 
resulting cost-effectiveness result of the proposed Phase 2 standards 
is approximately $2,146 per ton of HC+NOX if fuel savings 
are not taken into account. If fuel savings are considered as a credit 
against cost, the cost-effectiveness calculation results in 
approximately $1,911 per ton of HC+NOX. This section 
describes the background and analysis behind these results.
    The analysis for this proposal is based on data from engine 
families certified to EPA's Phase 1 standards, and information on the 
latest technology development and related emission levels that the 
Agency obtained prior to and since the publication of the January 1998 
NPRM. The analysis does not include any production volumes that are 
covered by the California ARB's standards. The California ARB will 
implement emission standards for many of these engines prior to the 
proposed federal Phase 2 regulations. Therefore, this analysis only 
accounts for costs for each engine sold outside California and those 
engines sold in California that are not covered by the California ARB 
rules, such as those that California determined are used in farm and 
construction equipment. EPA assumed that any Phase 1 engine design that 
would need to be modified to meet Phase 2 standards was assumed to 
incur the full cost of that modification, including design cost. 
Similarly, the cost to equipment manufacturers was assumed to be fully 
attributed to this federal rule even if an equipment manufacturer would 
have to make the same modifications in response to the California ARB 
regulations. The details of EPA's cost and cost-effectiveness analyses 
can be found in Chapters 4 and 7 of the Supplemental Draft RIA for this 
rule. EPA requests comment on its cost effectiveness analysis and 
requests any relevant information that would assist the Agency in 
revising the analysis as appropriate.
1. Class I-A and Class I-B
    No costs for Class I-A are included in this Phase 2 regulation. 
This is due to several factors. First, costs for research and 
development for engines in
Class I-A are included in the research and development of handheld 
engine families (Classes III-V) since they are the same engine 
families, but would just be allowed to be used in nonhandheld 
applications. Second, certification and PLT testing for these engine 
families for use to handheld applications (Classes III-V) will likely 
be used toward certification for this class. In regards to benefits, no 
benefits for Class I-A engine families were estimated due to the 
anticipated limited use (i.e., small niche markets) of these engines in 
nonhandheld applications. Because no Class I engine families currently 
exist in this displacement range, EPA would not expect a loss in the 
Phase 2 Class I emission benefits from the adoption of the proposed 
Class I-A standards.
    The costs for Class I-B include only certification to the Phase 2 
regulation. The EPA Phase 1 certification database (as of September 
1998) indicates there are only three engine families (two of these meet 
the proposed small volume engine family cutoff) that would be certified 
to this class, two are SV engines and one is an OHV engine, all with 
similar emission results for HC+NOX. The engine families can 
currently meet the proposed emission standards for this class and 
therefore no additional variable costs or fixed costs were included for 
research and development or production. In addition, the Phase 2 
program allows small volume engine families and manufacturers an option 
to perform PLT. No benefits are included for it is not known if all of 
the engine families in this newly proposed displacement

[[Page 40962]]

category will utilize the new class due to the fact that these engines 
must be certified to the California ARB standards (16.1 g/kW-hr 
HC+NOX for engines between 60 cc and 225 cc) if they are to 
be sold in California. Also, the low production estimates for engine 
families in this class are a very small fraction of the overall engine 
sales in this category which make up the benefits for the Phase 2 
nonhandheld engine rulemaking and therefore should have no appreciable 
impact on the emission benefits of the Phase 2 rule for nonhandheld 
engines.
2. Handheld Engine Technologies
    Table 5 lists the technologies that have been considered in the 
cost estimation for Class III-V engines in this proposed rulemaking. 
Additional detail regarding the impact of these modifications can be 
found in Chapter 3 of the Supplemental Draft RIA.

 Table 5.--Potential Technology Improvements Per Class and Engine Design
------------------------------------------------------------------------
                                                                 Engine
                    Technologies                        Class    design
------------------------------------------------------------------------
Compression Wave Technology with Catalyst...........      III   2-stroke
Compression Wave Technology with Catalyst Stratified       IV   2-stroke
 scavenging with catalyst 4-stroke engine...........
None................................................       IV   4-stroke
Compression Wave Technology Stratified scavenging...        V   2-stroke
Likely only applicable to the smallest Class V              V   4-stroke
 engines............................................
------------------------------------------------------------------------

3. Handheld Engine Costs
    The engine cost increase is based on incremental purchase prices 
for new engines and is comprised of variable costs (for hardware, 
assembly time and compliance programs), and fixed costs (for R&D and 
retooling). Variable costs were applied on a per engine basis and fixed 
costs were amortized at seven percent over five years. Engine 
technology cost estimates were based on a study performed by ICF and 
EF&EE in October 1996 entitled ``Cost Study for Phase Two Small Engine 
Emission Regulations'' and cost estimates provided by industry in 
confidence. Details of the assumed costs and analysis can be found in 
Chapters 3 and 4 of the Supplemental Draft RIA.
    Analysis of the EPA Phase 1 certification database, as of September 
1998, was conducted to determine a potential impact of the proposed 
Phase 2 standards on each manufacturer assuming the proposed ABT 
program would be available to engine manufacturers. While the proposed 
ABT program would allow credit exchanges across classes, this analysis 
considered only ABT within each class since some manufacturers produce 
substantially in only one handheld class. The choice of technologies 
for emission improvement of these engine families was based on the 
engine family that would be most influential in reducing a 
manufacturer's overall average emission level within that class. The 
cost analysis was updated with consideration of cost information 
submitted in confidence by several engine manufacturers in order to 
most accurately reflect expected costs.
    For Class III, review of EPA's Phase 1 database showed that 78 
percent of the engine families would need to incorporate at least some 
of the technologies listed in Table 5. For Class IV, review of EPA's 
Phase 1 certification database shows that 84 percent of the engine 
families would need to incorporate emission improvements from amongst 
those listed in Table 5. For Class V, review of EPA's Phase 1 database 
showed that 65 percent of the engine families would need to incorporate 
at least some of the technologies listed in Table 5. (It should be 
noted that a small number of the engine families in Class V are 
lawnmowers or snowblowers which either have their own schedule for 
meeting emission standards from Phase 1 (existing handheld equipment 
with 2-stroke engines, such as some lawnmowers) or do not have to meet 
the HC+NOX standards due to sole wintertime use (such as 
snowblowers)). The incorporation of such technologies would require 
both variable and fixed expenditures.
    The proposed Phase 2 emission standards for this diverse industry 
would impact companies differently depending on a company's current 
product offering and related deteriorated emission characteristics used 
in establishing FELs for use in averaging emissions across engine 
families. Some companies may improve the emission characteristics of 
their large volume engine families to provide credits for their smaller 
volume families. The real world impact on engine manufacturers would 
also be influenced by a manufacturer's ability to reduce the emissions 
from its major impact engine family in light of competition with others 
in the marketplace.
4. Handheld Equipment Costs
    In most cases, the companies that manufacture engines for use in 
handheld equipment also manufacture the equipment. There are a small 
number of independent equipment manufacturers which do not make their 
own engines (ref: 1996 PSR EOLINK). Due to the overwhelming number of 
equipment models manufactured by engine/equipment manufacturers 
compared to the small number of independent equipment manufacturers, 
information for the analysis was taken from the known data in EPA's 
Phase 1 certification database which contains information from the 
engine/equipment manufacturers. Additional information was added from 
the auger equipment manufacturers who have been in touch with EPA 
throughout the Phase 2 process. Due to the degree of estimation used in 
the analysis, it is assumed that any equipment manufacturers not 
included in the analysis would not have a significant impact on the 
analysis. The costs for equipment conversion for handheld equipment was 
derived from the ICF/EF&EE cost study 17 which contained 
estimates based on the engine technology being utilized. Full details 
of EPA's cost analysis can be found in Chapter 4 of the Supplemental 
Draft RIA. EPA has assumed that capital costs would be amortized at 
seven percent over ten years.
---------------------------------------------------------------------------

    \17\ ICF and Engine, Fuel and Emissions Engineering, 
Incorporated; ``Cost Study for Phase Two Small Engine Emission 
Regulations'', Draft Final Report, October 25, 1996, in EPA Air 
Docket A-93-29, Item #II-A-04.
---------------------------------------------------------------------------

    This rulemaking assumes that the majority of Class III through V 
engines would be converted to using some form of compression wave 
technology with catalyst, mini 4-stroke or stratified scavenging with 
catalyst. The split in equipment impact was dependent on the split in 
technologies assumed amongst engines in each engine class. This was due 
to the vertical integration of this industry. The engine design impacts 
with the compression wave technologies with catalyst are assumed to be 
one injection mold design change for the engine shroud to accommodate 
cooling patterns for the engine and the muffler/exhaust gas 
temperatures. For stratified scavenging with a catalyst, the equipment 
must assure that it can house the new engine which may be slightly 
larger than its predecessor due to power loss. In addition, as with the 
compression wave technology, the equipment must allow for adequate 
cooling and protection of the user from the hot muffler. Several engine 
shroud changes are necessary along with added

[[Page 40963]]

heat shields and air flow path modifications due to the use of the 
catalyst. Mini 4-strokes require a total redesign of the engine shroud, 
tank placements, etc. due to the new design of the engine. For this 
rulemaking, the analysis assumes that most Class III engines will 
utilize compression wave technology with a catalyst and some engines 
using stratified scavenging with a catalyst. The majority of Class IV 
engines are assumed to use compression wave technology with a catalyst 
and a small number of engines are assumed to use stratified scavenging 
with a catalyst or mini 4-stroke technologies. The majority of Class V 
engines are assumed to utilize compression wave technology and a small 
number are assumed to use stratified charge.
5. Handheld Operating Costs
    The total life-cycle operating costs for this proposal include any 
expected decreases in fuel consumption. Life cycle fuel cost savings 
have been calculated per class using the NONROAD emission model. The 
model calculates fuel savings from the years of implementation to 2027 
and takes into account factors including equipment scrappage, projected 
yearly sales increase per equipment type, and engine power. Details on 
the assumptions and calculations on fuel savings are included in 
Chapters 4 and 7 of the Supplemental Draft RIA.
    Based on information described in Chapter 3 of the Draft 
Supplemental RIA (see section 3.2), a fuel consumption savings of 30 
percent has been assumed from the two stroke engines as they are 
converted to compression wave, mini 4-stroke, or stratified scavenging 
design. The designs are expected to result in improved fuel economy 
since the engine designs may run on a leaner air/fuel mixture with or 
without improved combustion efficiency and reduce or altogether 
eliminate scavenging with fuel/oil mixture.
6. Cost Per Engine and Cost-Effectiveness
a. Cost Per Engine
    Total costs for this proposal would vary per year as engine 
families are phased-in to compliance with the proposed Phase 2 
standards over several years, as capital costs are recovered, and as 
compliance programs are conducted. The term ``uniform annualized cost'' 
is used to express the cost of this proposal over the years of this 
analysis.
    The methodology used for estimating the uniform annualized cost per 
unit is as follows. Cost estimates from 1996 and 1997 model years, for 
technology and compliance programs respectively, were estimated and 
increased to 1998 dollars using the GDP Implicit Price deflator (1.9% 
in 1996, 1.9% in 1997 and 1.0% in 1998).18 While a number of 
technologies are potentially possible for these engines, only the costs 
for one technology were chosen in order to simplify the estimates of 
the technologies manufacturers will choose to implement in the future 
years. Engine technology costs for all engine designs in Classes III 
and IV were based on compression wave (John Deere LE) with catalyst 
(cost information from MECA and ICF). The most detailed cost 
information was available from these sources and it is believed that 
the technology will prove to be most applicable to the broad range of 
engines. Engine technology costs for engine designs in Class V were 
also based on the John Deere LE technology, however no catalyst cost 
was applied for it is assumed that the standard does not require 
catalysts. While the technology is not yet proven in Class V engines, 
it is believed that it may likely be applicable. The cost estimates, 
including licensing fee, are assumed to allow room for expected costs 
from other technologies. EPA's Phase 1 database was then analyzed to 
determine the number of engine families per class that would likely 
incorporate the emission reduction technologies taking into 
consideration the availability of the proposed ABT program. The 
estimated costs per year were then calculated by multiplying the number 
of engine families and corresponding production volume by the fixed and 
variable costs per technology grouping, respectively. Since the 
majority of equipment manufacturers are also engine manufacturers in 
this market, retail markups used are 16 percent by the engine/equipment 
manufacturer and 5 percent by the mass merchandiser. All markups are 
based on industry-specific information from the Phase 1 program. For 
compliance program costs, the costs for certification bench aging were 
estimated based on the number of engine families in EPA's Phase 1 
database and the expected certification date under the phase in of the 
proposed Phase 2 standards. To complete the calculation of the uniform 
annualized cost per unit, all of these costs are summed per year and 
then discounted seven percent to the first year of Phase 2 regulation. 
The yearly costs are summed and a uniform annualized cost is 
calculated. The uniform annualized cost is then divided by production 
at two points in time, the first full year of implementation of the 
proposed Phase 2 standards (2006 for Classes III and IV and 2008 for 
Class V), and the last year of this analysis (2027), to obtain two 
separate uniform annualized costs per unit. The average of these two 
values is then presented as the uniform annualized cost per unit in 
Table 6.
---------------------------------------------------------------------------

    \18\ Information obtained from the Bureau of Economic Analysis' 
website (www.bea.doc.gov/bea/dn/niptbl-d.htm#).
---------------------------------------------------------------------------

    The yearly fuel savings (tons/yr) per class were calculated from 
the NONROAD model. The yearly fuel savings (tons/yr) were converted to 
savings (1998$) through conversion to gallons per year multiplied by 
$0.765 (a 1995 average refinery price of gasoline to end user, without 
taxes) increased to 1998 using the GDP deflator for 1996, 1997 and 
1998. The yearly fuel savings were then discounted by 7 percent to the 
first year of Phase 2 regulation, for each engine class. The yearly 
results were totaled and then divided by an annualized factor to yield 
the uniform annualized fuel savings. The fuel savings for each class 
was calculated for the production years of 2006, 2008 and 2027. The 
average of these two values was utilized as the average fuel savings 
per unit per class per year as shown in Table 6.
    The average resultant cost per unit class is calculated by 
subtracting the average fuel savings from the average cost, see Table 
6. The reader is directed to Chapter 7 of the Supplemental Draft RIA 
for more details of this analysis.

 Table 6.--Engine Yearly Fuel Savings and Resultant Cost Per Unit Costs
                Based on Uniform Annualized Costs (1998$)
------------------------------------------------------------------------
                                                               Resultant
                  Class                    Cost Per   Savings   Cost Per
                                             Unit    Per Unit     Unit
------------------------------------------------------------------------
III......................................   $17.35     $0.50     $16.85
IV.......................................    22.84      1.02      21.82
V........................................    53.42      3.04      50.38
------------------------------------------------------------------------

    Note: Nearly all of the handheld industry is vertically 
integrated and therefore it is most appropriate to acknowledge cost/
unit rather than cost/engine for the engine and equipment 
manufacturers are the same in nearly all cases.
b. Cost-Effectiveness
    EPA has estimated the cost-effectiveness (i.e., the cost per ton of 
emission reduction) of the proposed HC+NOx standards over the typical 
lifetime of the handheld, Class I-A and Class I-B equipment that would 
be covered by today's proposal. EPA has examined the cost-effectiveness 
by

[[Page 40964]]

performing a nationwide cost-effectiveness analysis in which the net 
present value of the cost of compliance per year is divided by net 
present value of the HC+NOx benefits. The resultant discounted cost-
effectiveness is $2,146 cost/ton HC+NOx without fuel savings factored 
in, and $1,911 with fuel savings taken into consideration. Chapter 7 of 
the Supplemental Draft RIA contains a more detailed discussion of the 
cost-effectiveness analysis. The overall cost-effectiveness of this 
proposed rule on HC+NOx emission reductions, with fuel savings, is 
shown in Table 7 compared to the cost effectiveness of other nonroad 
rulemakings, which also reflect fuel savings.

  Table 7.--Cost-Effectiveness of the Proposed Phase 2 Handheld, Class I-A and Class I-B Engine Standards (With
                                fuel savings) Compared to Other Nonroad Programs
----------------------------------------------------------------------------------------------------------------
           Nonroad Program                        Cost-effectiveness                        Pollutants
----------------------------------------------------------------------------------------------------------------
Proposed Phase 2 Small SI Handheld    $1,911/ton...............................  HC+NOx.
 Engines.
Phase 2 Small SI Nonhandheld Engines  $507/ton.................................  HC+NOx.
Phase 1 Small SI Engines............  $217/ton.................................  HC+NOx.
Recreational Marine SI Engines......  $1,000/ton...............................  HC.
Tier 2/3 Standards for Nonroad CI     $410-$650/ton............................  HC+NOx.
 Engines.
----------------------------------------------------------------------------------------------------------------

IV. Public Participation

    The process for developing this supplemental proposed rule provided 
several opportunities for formal public comment. EPA published an 
Advance Notice of Proposed Rulemaking (ANPRM) on March 27, 1997 (62 FR 
14740) which announced the signing of two Statements of Principles 
(SOPs) with the small engine industry and several other interested 
parties. The ANPRM and included SOPs outlined possible programs which 
would increase the stringency of the small engine regulations compared 
to Phase 1 rules. Comments were received in response to this ANPRM 
which, in combination with the programs outlined in the ANPRM, formed 
the basis of the Notice of Proposed Rulemaking (NPRM) for Phase 2 
standards which was published on January 27, 1998 (63 FR 3950). A 
public hearing was held on February 11, 1998 during which oral 
testimony was received on the proposal. Written comments were received 
during the formal comment period for the proposal and some additional 
written comments were received after the formal comment period closed. 
To expand upon comments received during the comment period and to 
address specific questions EPA had of the industry regarding technical 
feasibility and cost of some options for Phase 2 standards, EPA 
received additional information after the close of the formal comment 
period and participated in a number of phone conversations and meetings 
with industry representatives for this purpose. All of this information 
that is germane to Phase 2 handheld small SI standards, including 
documentation of phone calls and meetings, has been included in the 
docket for this supplemental proposed rule. Since considerable 
information was received after the formal comment period closed, a 
Notice of Availability highlighting the supplemental information was 
also published on December 1, 1998 (63 FR 66081) alerting interested 
parties to the availability of this supplemental information. Much of 
this information was relied upon in support of the recently finalized 
Phase 2 nonhandheld small SI program. All relevant information 
received, regardless of the date of receipt, was, to the maximum extent 
possible, considered in the development of this supplemental proposed 
rule for the Phase 2 handheld small SI program.

V. Administrative Requirements

A. Administrative Designation and Regulatory Analysis

    Under Executive Order 12866, the Agency must assess whether this 
regulatory action is ``significant'' and therefore subject to Office of 
Management and Budget (OMB) review and the requirements of the 
Executive Order (58 FR 51735, Oct. 4, 1993). The order defines 
``significant regulatory action'' as any regulatory action that is 
likely to result in a rule that may:

    (1) Have an annual effect on the economy of $100 million or more 
or adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities;
    (2) Create a serious inconsistency or otherwise interfere with 
an action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, 
grants, user fees, or loan programs or the rights and obligations of 
recipients thereof; or,
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.

    Pursuant to the terms of Executive Order 12866, EPA has determined 
that this rulemaking is a ``significant regulatory action'' because the 
proposed standards and other regulatory provisions, are expected to 
have an annual effect on the economy in excess of $100 million. A 
Supplemental Draft RIA has been prepared and is available in the docket 
associated with this rulemaking. This proposal was submitted to OMB for 
review as required by Executive Order 12866. Any written comments from 
OMB are in the public docket for this rulemaking.

B. Regulatory Flexibility

    The Regulatory Flexibility Act (RFA) generally requires an agency 
to conduct a regulatory flexibility analysis of any rule subject to 
notice and comment rulemaking requirements unless the agency certifies 
that the rule will not have a significant economic impact on a 
substantial number of small entities. Small entities include small 
businesses, small not-for-profit enterprises, and small governmental 
jurisdictions. For the reasons set out below, this proposed rule would 
not have a significant economic impact on a substantial number of 
entities.
    EPA has identified industries that would be subject to this rule 
and has contacted small entities and small entity representatives to 
gain a better understanding of the potential impacts of the proposed 
Phase 2 handheld engine program on their businesses. This information 
was useful in estimating potential impacts of this proposal on affected 
small entities, the details of which are more fully discussed in 
Chapter 8 of the Supplemental Draft RIA. Small not-for-profit 
organizations and small governmental jurisdictions are not expected to 
be impacted by this proposal. Thus EPA's impact analysis focuses on 
small businesses. For purposes of the impact analysis, ``small 
business'' is defined by number of employees, according to published 
Small Business Administration (SBA) definitions. Since handheld 
equipment

[[Page 40965]]

manufacturers also tend to be the engine manufacturers, which also tend 
to be larger businesses, there are few small business entities involved 
in the analysis.
    However, the Agency desires to minimize, to the extent appropriate, 
impacts on those companies which may be adversely affected, and to 
ensure that the emissions standards are achievable. Thus, flexibility 
provisions for the rule (discussed earlier in section II.D.) were 
developed based on analysis of information gained through discussions 
with potentially affected small entities as well as analysis of other 
sources of information, as detailed in Chapters 8 and 9 of the 
Supplemental Draft RIA. Many of the flexibilities in today's proposal 
should benefit the engine and equipment manufacturers that do qualify 
as small business entities.
    The economic impact of the proposed rule on small entity engine and 
equipment manufacturers was evaluated using a ``sales test'' approach 
which calculates annualized compliance costs as a percent of sales 
revenue. The ratio is an indication of the severity of the potential 
impacts. EPA expects that, at worst, 3 small entity engine 
manufacturers and 6 small entity equipment manufacturers would be 
impacted by more than one percent of their sales revenue. Also, no more 
than 4 entities would be impacted by more than three percent of their 
annual sales revenue, as indicated by the analysis. This base case 
analysis assumes that manufacturers do not take advantage of the 
flexibilities being offered, but that they would be able to pass 
through most necessary price increases to the ultimate consumer. EPA 
would thus expect today's proposed rule to have a minimal impact on 
small business entities.
    However, EPA is proposing a number of flexibilities to further 
reduce the burden of compliance on any small-volume engine 
manufacturers, small volume equipment manufacturers and manufacturers 
of small-volume engine families and small-volume equipment models. The 
Agency received a number of comments from engine and equipment 
manufacturers, which were generally supportive of the flexibilities 
initially proposed, but which suggested changes in production caps and 
other provisions. EPA has incorporated many of these suggested changes 
to the extent possible in this proposal, keeping in mind equity and air 
quality considerations. Given these flexibilities being afforded to the 
engine and equipment manufacturers, the results of the analysis suggest 
that of those small entities analyzed, only one small business engine 
manufacturer and none of the small business equipment manufacturers 
would likely experience an impact of greater than one percent of their 
sales revenue. Other outreach activities have also indicated that the 
impact of today's proposed rule could be minimized given sufficient 
lead time to incorporate the new technology with normal model changes. 
Again, the Agency has not attempted to quantify the beneficial impact 
on small volume manufacturers of the lead time provided (which can 
include delaying the impact of these rules up until the 2009 model year 
for Classes III and IV and up until the 2011 model year for Class V).
    Although EPA believes that the above-mentioned flexibility 
provisions will minimize any adverse impact on small entities (see 
Chapter 8 of the Supplemental Draft RIA), the Agency has already 
adopted a hardship relief provision for nonhandheld engines that would 
also apply to handheld engines. This was developed to further ensure 
that standards can be achieved without undue hardship on the business 
entities involved. While it is difficult to project utilization of such 
a provision, EPA expects that it could further reduce any possible 
adverse economic impact of the proposed rule.
    The results of the impact analysis show minimal impacts on small 
businesses. EPA expects that such impacts will be negligible if small 
companies take advantage of the above-mentioned flexibilities. Most of 
the small companies contacted considered it likely that they would be 
able to pass most of their cost increases through to their customers. 
Many of these entities are also involved in filling niche markets, and 
are thus in a particularly good position to pass these costs along to 
the ultimate consumers. Finally, the ample lead time contained by 
today's proposed rule should also allow for an orderly transition to 
the more advanced technology. Therefore, I certify that this action 
will not have a significant economic impact on a substantial number of 
small entities and therefore a regulatory flexibility analysis for this 
proposal has not been prepared. 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. In spite of the expected minimal impacts on 
small entities, EPA will continue its efforts to notify small business 
engine and equipment manufacturers of this proposed rule and to inform 
them of their opportunities for providing feedback to the Agency.

C. Paperwork Reduction Act

    The information collection requirements in this supplemental 
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. An Information Collection Request (ICR) document 
has been prepared by EPA and a copy may be obtained from Sandy Farmer 
by mail at OP Regulatory Information Division, U.S. Environmental 
Protection Agency (2137), 401 M St., SW, Washington, DC 20460, by email 
at [email protected], or by calling (202) 260-2740. A copy may also 
be downloaded off the Internet at http://www.epa.gov/icr.
    The information planned to be collected via this supplemental 
proposed rule is necessary to assure that the engine manufacturers 
required to seek certification of their engines have fulfilled all the 
essential requirements of these proposed regulations. In particular, 
this information will document the design of the engine for which 
certification is sought, the type(s) of equipment in which it is 
intended to be used and the emission performance of these engines based 
upon testing performed by or on behalf of the engine manufacturer. 
Additional, essential information is necessary to document the results 
of testing performed by the manufacturer under a proposed production 
line testing program to determine that the engines, as manufactured 
continue to have acceptable emission performance. Finally, if the 
manufacturer elects to conduct testing of in-use engines under a 
voluntary in-use testing program contained in the proposed regulations, 
information is necessary to document the results of that in-use testing 
program.
    Table 8 provides a listing of the information collection 
requirements associated with the proposed Phase 2 program for nonroad 
SI handheld engines at or below 19 kW along with the appropriate OMB 
control numbers. The cost of this burden has been incorporated into the 
cost estimate for this rule. The Agency has estimated that the public 
reporting burden for the collection of information required under this 
supplemental proposed rule would average approximately 87,120 hours 
annually for the industry at an estimated annual cost of $5,360,000. 
The hours spent by an individual manufacturer on information collection 
activities in any given year would be highly dependent upon 
manufacturer specific variables, such as the number of

[[Page 40966]]

engine families, production changes, emission defects etc.

                    Table 8.--Public Reporting Burden
------------------------------------------------------------------------
                                                                  OMB
                     Type of Information                        Control
                                                                  No.
------------------------------------------------------------------------
Certification...............................................   2060-0338
Averaging, banking and trading..............................   2060-0338
Production line testing.....................................         N/A
Pre-certification and testing exemption.....................   2060-0007
Engine exclusion determination..............................   2060-0124
Emission defect information.................................   2060-0048
Importation of nonconforming engines........................   2060-0294
------------------------------------------------------------------------

    Burden means the total time, effort, or financial resources 
expended by persons to generate, maintain, retain, or disclose or 
provide information to or for a Federal agency. This includes the time 
needed to review instructions; develop, acquire, install, and utilize 
technology and systems for the purposes of collecting, validating, and 
verifying information, processing and maintaining information, and 
disclosing and providing information; adjust the existing ways to 
comply with any previously applicable instructions and requirements; 
train personnel to be able to respond to a collection of information; 
search data sources; complete and review the collection of information; 
and transmit or otherwise disclose the information.
    An Agency may not conduct or sponsor, and a person is not required 
to respond to a collection of information unless it 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.
    Comments are requested on the Agency's need for this information, 
the accuracy of the provided burden estimates, and any suggested 
methods for minimizing respondent burden, including through the use of 
automated collection techniques. Send comments on the ICR to Director, 
OP Regulatory Information Division, U.S. Environmental Protection 
Agency (2137), 401 M Street, SW, Washington, DC 20460; and to the 
Office of Information and Regulatory Affairs, Office of Management and 
Budget, 725 17th Street, NW, Washington, DC 20503, marked ``Attention: 
Desk Office for EPA.'' Include the ICR number in any correspondence. 
Since OMB is required to make a decision concerning the ICR between 30 
and 60 days after July 28, 1999, a comment to OMB is best assured of 
having its full effect if OMB receives it by August 27, 1999. The final 
rule will respond to any OMB or public comments on the information 
collection requirements contained in this supplemental proposal.

D. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (``Unfunded 
Mandates Act'') requires that the Agency prepare a budgetary impact 
statement before promulgating a rule that includes a Federal mandate 
that may result in expenditure by State, local, and tribal governments, 
in aggregate, or by the private sector, of $100 million or more in any 
one year. Section 203 requires the Agency to establish a plan for 
obtaining input from and informing, educating, and advising any small 
governments that may be significantly or uniquely affected by the rule.
    Under section 205 of the Unfunded Mandates Act, the Agency must 
identify and consider a reasonable number of regulatory alternatives 
before promulgating a rule for which a budgetary impact statement must 
be prepared. The Agency must select from those alternatives the least 
costly, most cost-effective, or least burdensome alternative that 
achieves the objectives of the rule, unless the Agency explains why 
this alternative is not selected or the selection of this alternative 
is inconsistent with law.
    Because this proposed rule is estimated to result in the 
expenditure by State, local and tribal governments or the private 
sector of greater than $100 million in any one year, the Agency has 
prepared a budgetary impact statement and has addressed the selection 
of the least costly, most cost-effective or least burdensome 
alternative. While this proposed rule does not impose enforceable 
obligations on State, local, and tribal governments, because they do 
not produce small SI handheld engines or equipment, EPA has estimated 
the proposed rule to cost the private sector an annualized cost of $359 
million per year (over the 20 year period from 2002 to 2021). However, 
the Agency has appropriately considered cost issues in developing this 
proposed rule as required by section 213(a)(3) of the Clean Air Act, 
and has designed the proposed rule such that it will in EPA's view be a 
cost-effective program. Because small governments would not be 
significantly or uniquely affected by this proposed rule, the Agency is 
not required to develop a plan with regard to small governments.
    The impact statement under section 202 of the Unfunded Mandates Act 
must include: (1) A citation of the statutory authority under which the 
rule is adopted; (2) an assessment of the costs and benefits of the 
rule including the effect of the mandate on health, safety and the 
environment; (3) where feasible, estimates of future compliance costs 
and disproportionate impacts upon particular geographic or social 
segments of the nation or industry; (4) where relevant, an estimate of 
the effect on the national economy; and (5) a description of the EPA's 
consultation with State, local, and tribal officials. Because this 
proposed rule is estimated to impose costs to the private sector in 
excess of $100 million per year, it is considered a significant 
regulatory action. Therefore, EPA has prepared the following statement 
with respect to sections 202 through 205 of the Unfunded Mandates Act.
1. Statutory Authority
    This rule proposes standards for emissions of HC+NOX and 
CO from small nonroad SI handheld engines pursuant to section 213 of 
the Clean Air Act. Section 216 defines the terms ``nonroad engine'' and 
``nonroad vehicle.'' Section 213(a)(3) requires these standards to 
achieve the greatest degree of emission reduction achievable through 
the application of technology which the Administrator determines will 
be available for the engines or vehicles to which such standards apply, 
giving appropriate consideration to the cost of applying such 
technology within the period of time available to manufacturers and to 
noise, energy, and safety factors associated with the application of 
such technology. Section 213(b) requires the standards to take effect 
at the earliest possible date considering the lead time necessary to 
permit the development and application of the requisite technology, 
giving appropriate consideration to the cost of compliance within such 
period and energy and safety. Section 213(d) provides that the 
standards shall be subject to sections 206, 207, 208 and 209 of the 
CAA, with such modifications of the applicable regulations implementing 
such sections as the Administrator deems appropriate, and shall be 
enforced in the same manner as standards prescribed under section 202. 
Therefore, the statutory authority for this rule is as follows: 
sections 202, 203, 204, 205, 206, 207, 208, 209, 213, 215, 216, and 
301(a) of the Clean Air Act, as amended. Moreover, this proposed rule 
is being issued pursuant to a court order entered in Sierra Club v. 
Browner, No. 93-0124 and consolidated cases (D.D.C.).

[[Page 40967]]

2. Social Costs and Benefits
    The social costs and benefits of this proposed rule are discussed 
in sections III.A. and III.B. of this notice, and in Chapters 6 through 
7 of the Supplemental Draft RIA. Those discussions are incorporated 
into this statement by reference.
3. Effects on the National Economy
    As stated in the Unfunded Mandates Act, macroeconomic effects tend 
to be measurable, in nationwide economic models, only if the economic 
effect of the regulation reaches 0.25 to 0.5 percent of gross domestic 
product (in the range of $15 billion to $30 billion). A regulation with 
a smaller aggregate effect is highly unlikely to have any measurable 
impact in macroeconomic terms unless it is highly focused on a 
particular geographic region or economic sector. Because the economic 
impact of the proposed Phase 2 rule for small SI handheld engines is 
expected to be far less than these thresholds, no estimate of this 
proposed rule's effect on the national economy has been conducted.
4. Consultation With Government Officials
    Today's proposed rule would not create a mandate on State, local or 
tribal governments, since it would not impose any enforceable duties on 
these entities who do not produce small SI handheld engines or 
equipment. Thus, EPA did not consult with State, local or tribal 
governments in the context of discussing mandated costs that would 
apply to such governments. However, EPA did consult with state 
governmental representatives, and with representatives of associations 
representing state air regulatory agencies, in the contexts of 
developing the most stringent achievable regulations and of addressing 
state ozone attainment needs. The consulted entities include the 
California ARB and the Northeast States for Coordinated Air Use 
Management (NESCAUM). These consultations are documented in the record 
for this rule, and are reflected and discussed in the SOPs, the March 
1997 ANPRM, the January 1998 NPRM, the December 1998 Notice of 
Availability, the recently finalized Phase 2 rule for nonhandheld small 
SI engines and equipment, and today's SNPRM.
5. Regulatory Alternatives Considered
    To ensure the cost-effectiveness of this proposed rule and still 
fulfill the intent of the Clean Air Act, EPA has proposed numerous 
flexibility provisions that EPA expects would reduce the burden of the 
Phase 2 program for small volume manufacturers and manufacturers of 
small volume models and families. The flexibility provisions are 
discussed in section II.D. of today's document. Moreover, the 
technological options considered for the proposed rule's standards and 
related provisions are discussed in section II.A. of the document. EPA 
specifically requests comment on the standards contained in today's 
reproposal and the alternative set of standards (described in section 
II.A.) supported by a number of handheld engine manufacturers. Section 
II.B. discusses the proposed ABT program, and section II.C. discusses 
the proposed compliance program for Phase 2 handheld engines.

E. National Technology Transfer and Advancement Act

    Section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (``NTTAA''), Public Law 104-113, section 12(d) (15 U.S.C. 
272 note), directs EPA to use voluntary consensus standards in its 
regulatory activities unless doing so 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) that are 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 involves technical standards. While commenters 
suggested the use of ISO 8178 test procedures for measuring emissions, 
the Agency has decided not to propose the ISO procedures in this SNPRM. 
The Agency believes that these procedures would be impractical because 
they rely too heavily on reference testing conditions. Since the test 
procedures in these proposed regulations would need to be used not only 
for certification, but also for production line testing, selective 
enforcement audits, and voluntary in-use testing, EPA believes they 
must be broadly based. In-use testing is best done outside tightly 
controlled laboratory conditions so as to be representative of in-use 
conditions. EPA believes that the ISO procedures are not sufficiently 
broadly usable in their current form for this proposed program, and 
therefore should not be adopted by reference. EPA has instead proposed 
to continue relying on the procedures outlined in 40 CFR Part 90. EPA 
is hopeful that future ISO test procedures will be developed that are 
usable for the broad range of testing needed, and that such procedures 
could be adopted by reference at that point.

F. Executive Order 13045: Protection of Children's Health

    Executive Order 13045, entitled ``Protection of Children from 
Environmental Health Risks and Safety Risks'' (62 FR 19885, April 23, 
1997), applies to any rule that: (1) Was initiated after April 21, 1997 
or for which a Notice of Proposed Rulemaking was published after April 
21, 1998; (2) is determined to be ``economically significant'' as 
defined under Executive Order 12866; and (3) 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 all 
three criteria, the Agency must 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 not subject to Executive Order 13045, because 
substantive actions were initiated before April 21, 1997 and EPA 
published a Notice of Proposed Rulemaking before April 21, 1998. The 
EPA interprets Executive Order 13045 as applying only to those 
regulatory actions that are based on health or safety risks, such that 
the analysis required under Section 5-501 of the Order has the 
potential to influence the regulation. This supplemental proposed 
rulemaking is based on technology performance and not health or safety 
risks. Therefore, EPA does not have reason to believe this proposed 
action involves environmental health and safety risks that present a 
disproportionate risk to children.

G. Executive Order 12875: Enhancing the Intergovernmental 
Partnership

    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,

[[Page 40968]]

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, because they do not produce small SI handheld 
engines or equipment. Accordingly, the requirements of section 1(a) of 
Executive Order 12875 do not apply to this proposed rule.

H. 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 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 a 
description of the extent of EPA's prior consultation with 
representatives of affected tribal governments 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 proposed rule would not significantly or uniquely affect 
the communities of Indian tribal governments because it would not 
impose any enforceable obligations on them. Accordingly, the 
requirements of section 3(b) of Executive Order 13084 do not apply to 
this proposed rule.

VI. Statutory Authority

    Authority for the actions set forth in this proposed rule is 
granted to EPA by Sections 202, 203, 204, 205, 206, 207, 208, 209, 213, 
215, 216, and 301(a) of the Clean Air Act as amended (42 U.S.C. 7521, 
7522, 7523, 7524, 7525, 7541, 7542, 7543, 7547, 7549, 7550, and 
7601(a)).

List of Subjects in 40 CFR Part 90

    Environmental protection, Administrative practice and procedure, 
Air pollution control, Confidential business information, Imports, 
Labeling, Nonroad source pollution, Reporting and recordkeeping 
requirements, Research, Warranties.

    Dated: June 30, 1999.
Carol M. Browner,
Administrator.
    For the reasons set out in the preamble, title 40, chapter I of the 
Code of Federal Regulations is proposed to be amended as follows:

PART 90--CONTROL OF EMISSIONS FROM NONROAD SPARK-IGNITION ENGINES

    1. The authority citation for part 90 is revised to read as 
follows:

    Authority: 42 U.S.C. 7521, 7522, 7523, 7524, 7525, 7541, 7542, 
7543, 7547, 7549, 7550, and 7601(a).

Subpart A--General

    1a. Section 90.1 is proposed to be amended by adding a sentence to 
the end of paragraph (a) to read as follows:


Sec. 90.1  Applicability.

    (a) * * * To the extent permitted by other parts of this chapter, 
this Part may, at the engine manufacturer's option, apply to engines 
with gross power output greater than 19 kW that have an engine 
displacement of less than or equal to one liter.
* * * * *
    2. Section 90.3 is proposed to be amended by adding the words 
``handheld and'' immediately preceding the word ``nonhandheld'' in the 
definition of ``Phase 2 engine,'' by adding the words ``any handheld 
engine family or'' immediately preceding the words ``any nonhandheld 
engine family'' in the definition of ``Small volume engine family,'' 
and by adding a sentence to the end of the definitions of ``Small 
volume engine manufacturer,'' ``Small volume equipment manufacturer,'' 
and ``Small volume equipment model'' to read as follows:


Sec. 90.3  Definitions.

* * * * *
    Small volume engine manufacturer * * *. For handheld engines, the 
term small volume engine manufacturer means any engine manufacturer 
whose total eligible production of handheld engines are projected at 
the time of certification of a given model year to be no more than 
25,000 handheld engines.
    Small volume equipment manufacturer * * *. For handheld equipment, 
the term small volume equipment manufacturer has the same meaning 
except that it is limited to 25,000 pieces of handheld equipment rather 
than 5,000 pieces of nonhandheld equipment.
    Small volume equipment model * * *. For handheld equipment, the 
term small volume equipment model has the same meaning except that it 
is limited to 2,500 pieces of handheld equipment, rather than 500 
pieces of nonhandheld equipment.
* * * * *

Subpart B--Emission Standards and Certification Provisions

    3. Section 90.103 is proposed to be amended in paragraph (a) 
introductory text, by revising the heading for Table 2, adding two new 
entries to the beginning of Table 2, and adding Table 4, to read as 
follows:


Sec. 90.103  Exhaust emission standards.

    (a) * * *

              Table 2.--Phase 2 Class I-A, Class I-B, and Class I Engine Exhaust Emission Standards
                                            [Grams per kilowatt-hour]
----------------------------------------------------------------------------------------------------------------
          Engine class               HC+NOX       NMHC+NOX         CO                  Effective date
----------------------------------------------------------------------------------------------------------------
I-A.............................           50   ............          610   2000 Model Year.
I-B.............................           40            37           610   2000 Model Year.
                          *         *         *         *         *         *         *
----------------------------------------------------------------------------------------------------------------

* * * * *

[[Page 40969]]



                       Table 4.--Phase 2 Handheld Exhaust Emission Standards by Model Year
                                            [Grams per kilowatt-hour]
----------------------------------------------------------------------------------------------------------------
                                                                      Model year
     Engine class and emission      ----------------------------------------------------------------------------
            requirement                                                                                 2008 and
                                        2002       2003       2004       2005       2006       2007      later
----------------------------------------------------------------------------------------------------------------
Class III:
    HC+NOx.........................     226        200        150        100         50         50         50
    CO.............................     805        805        805        805        805        805        805
Class IV:
    HC+NOx.........................     187        168        129         89         50         50         50
    CO.............................     805        805        805        805        805        805        805
Class V:
    HC+NOx.........................  .........  .........     138        129        110         91         72
    CO.............................  .........  .........     603        603        603        603        603
----------------------------------------------------------------------------------------------------------------

* * * * *
    4. Section 90.103 is proposed to be amended by revising the first 
and last sentences of paragraph (a)(6) and the first and last sentences 
of paragraph (a)(7) to read as follows:
* * * * *
    (a) * * *
    (6) In lieu of certifying to the applicable Phase 2 standards, 
small volume engine manufacturers as defined in this part may, at their 
option, certify their engine families as Phase 1 engines until the 2010 
model year for nonhandheld engine families excluding Class I-A and 
Class I-B engine families, until the 2009 model year for Class III and 
Class IV engine families, and until the 2011 model year for Class V 
engine families. * * * Beginning with the 2010 model year for 
nonhandheld engine families, the 2009 model year for Class III and 
Class IV engine families, and the 2011 model year for Class V engine 
families, these engines must meet the applicable Phase 2 standards.
    (7) In lieu of certifying to the applicable Phase 2 standards, 
manufacturers of small volume engine families, as defined in this part 
may, at their option, certify their small volume engine families as 
Phase 1 engines until the 2010 model year for nonhandheld engine 
families excluding Class I-A and Class I-B engine families, until the 
2009 model year for Class III and Class IV engine families, and until 
the 2011 model year for Class V engine families. * * * Beginning with 
the 2010 model year for nonhandheld engine families, the 2009 model 
year for Class III and Class IV engine families, and the 2011 model 
year for Class V engine families, these engines must meet the 
applicable Phase 2 standards.
* * * * *
    5. Section 90.104 is proposed to be amended by adding a sentence to 
the end of paragraph (g)(1), by redesignating paragraph (g)(3) as 
paragraph (g)(4), by adding new paragraph (g)(3), and by revising the 
introductory text of paragraph (h)(2) to read as follows:


Sec. 90.104  Compliance with emission standards.

* * * * *
    (g)(1) * * * The provisions of this paragraph do not apply to Class 
I-A and Class I-B engines.
* * * * *
    (3) Table 2 follows:

 Table 2.--Handheld Engine HC+NOx and CO Assigned Deterioration Factors for Small Volume Manufacturers and Small
                                             Volume Engine Families
----------------------------------------------------------------------------------------------------------------
                                          Two-stroke engines      Four-stroke engines
             Engine class              ------------------------------------------------       Engines with
                                          HC+NOx        CO        HC+NOx        CO           aftertreatment
----------------------------------------------------------------------------------------------------------------
    Class III.........................        1.1         1.1         1.5         1.1   Dfa must be calculated
                                                                                         using the formula in
                                                                                         Sec.  90.104(g)(4)
    Class IV..........................        1.1         1.1         1.5         1.1   ........................
                                                                                        Do.
    Class V...........................        1.1         1.1         1.5         1.1   ........................
                                                                                        Do.
----------------------------------------------------------------------------------------------------------------

* * * * *
    (h) * * *
    (2) For engines not using assigned dfs from Table 1 or Table 2 of 
paragraph (g) of this section, dfs shall be determined as follows:
* * * * *
    6. Section 90.105 is proposed to be amended by adding a sentence to 
the end of paragraph (a)(1), by adding two entries to the beginning of 
Table 1 of paragraph (a)(2), and adding new paragraphs (a)(3) and 
(a)(4) to read as follows:


Sec. 90.105  Useful life periods for Phase 2 engines.

    (a) * * *
    (1) * * * Engines with gross power output greater than 19 kW that 
have an engine displacement less than or equal to one liter that 
optionally certify under this part as allowed in Sec. 90.1(a), must 
certify to a useful life period of 1,000 hours.
    (2) Table 1 follows:

    Table 1.--Useful Life Categories for Nonhandheld Engines (Hours)
Class I-A....................................      50      125      300
Class I-B....................................     125      250      500
                      *        *        *        *
                      *        *        *        *
------------------------------------------------------------------------

    (3) For handheld engines: Manufacturers shall select a useful life 
category from Table 2 of this paragraph (a) at the time of 
certification.
    (4) Table 2 follows:

[[Page 40970]]



      Table 2.--Useful Life Categories for Handheld Engines (Hours)
Class III....................................      50      125      300
Class IV.....................................      50      125      300
Class V......................................      50      125      300
------------------------------------------------------------------------

* * * * *
    7. Section 90.107 is proposed to be amended by removing the word 
``and'' at the end of paragraph (d)(6)(iv), adding the word ``and'' at 
the end of paragraph (d)(6)(v), and adding a new paragraph (d)(6)(vi) 
to read as follows:


Sec. 90.107  Application for certification.

* * * * *
    (d) * * *
    (6) * * *
    (vi) Information relating to altitude kits to be certified, 
including: a description of the altitude kit; appropriate part numbers; 
the altitude ranges at which the kits must be installed on or removed 
from the engine for proper emissions and engine performance; statements 
to be included in the owner's manual for the engine/equipment 
combination (and other maintenance related literature) that declare the 
altitude ranges at which the kit must be installed or removed and that 
state that the operation of the engine/equipment at an altitude 
different from what it was certified at, for extended periods of time, 
and may increase emissions; and a statement that an engine with the 
altitude kit installed will meet each emission standard throughout its 
useful life (the rationale for this assessment must be documented and 
retained by the manufacturer, and provided to the Administrator upon 
request);
* * * * *
    8. Section 90.114 is proposed to be amended by revising paragraph 
(f)(1), by adding a new paragraph (f)(2), and by revising paragraph 
(f)(3) to read as follows:


Sec. 90.114  Requirement of certification--engine information label.

* * * * *
    (f) * * *
    (1) For nonhandheld engines: The Emissions Compliance Period 
referred to on the Emissions Compliance label indicates the number of 
operating hours for which the engine has been shown to meet Federal 
emission requirements. For engines less than 66 cc, Category C = 50 
hours, B = 125 hours, and A = 300 hours. For engines equal to or 
greater than 66 cc but less than 225 cc displacement, Category C = 125 
hours, B = 250 hours, and A = 500 hours. For engines of 225 cc or more, 
Category C = 250 hours, B = 500 hours, and A = 1000 hours.
    (2) For handheld engines: The Emissions Compliance Period referred 
to on the Emissions Compliance label indicates the number of operating 
hours for which the engine has been shown to meet Federal emission 
requirements. Category C = 50 hours, B = 125 hours, and A = 300 hours.
    (3) The manufacturer must provide, in the same document as the 
statement in paragraph (f)(1) or (f)(2) of this section, a statement of 
the engine's displacement or an explanation of how to readily determine 
the engine's displacement. The Administrator may approve alternate 
language to the statement in paragraph (f)(1) or (f)(2) of this 
section, provided that the alternate language provides the ultimate 
purchaser with a clear description of the number of hours represented 
by each of the three letter categories for the subject engine's 
displacement.
    9. Section 90.116 is proposed to be amended by redesignating 
paragraphs (b)(1) through (b)(5) as paragraphs (b)(3) through (b)(7), 
respectively, and by adding new paragraphs (b)(1) and (b)(2), and 
revising newly designated paragraph (b)(3) to read as follows:


Sec. 90.116  Certification procedure--determining engine displacement, 
engine class, and engine families.

* * * * *
    (b)  *  *  *
    (1) Class I-A--engines less than 66 cc in displacement,
    (2) Class I-B--engines greater than or equal to 66 cc but less than 
100 cc in displacement,
    (3) Class I--engines greater than or equal to 100 cc but less than 
225 cc in displacement,
* * * * *
    10. Section 90.119 is proposed to be amended by revising paragraphs 
(a)(1)(i) and (a)(1)(ii) to read as follows:


Sec. 90.119  Certification procedure--testing.

    (a) * * *
    (1) * * *
    (i) Class I, I-B, and II engines must use Test Cycle A described in 
Subpart E of this part, except that Class I, I-B, and II engine 
families in which 100 percent of the engines sold operate only at rated 
speed may use Test Cycle B described in Subpart E of this part.
    (ii) Class I-A, III, IV, and V engines must use Test Cycle C 
described in Subpart E of this part.
* * * * *

Subpart C--Certification Averaging, Banking, and Trading Provisions

    11. Section 90.203 is proposed to be amended by revising paragraph 
(f) to read as follows:


Sec. 90.203  General provisions.

* * * * *
    (f) No Phase 2 engine family may have a HC + NOx FEL 
that is greater than 32.2 g/kW-hr for Class I engines, 94 g/kW-hr for 
Class I-A engines, 50 g/kW-hr for Class I-B engines, 26.8 g/kW-hr for 
Class II engines, 300 g/kW-hr for Class III engines, 246 g/kW-hr for 
Class IV engines, or 166 g/kW-hr for Class V engines.
* * * * *


Sec. 90.204  [Amended]

    12. Section 90.204 is proposed to be amended by removing the word 
``nonhandheld'' in paragraph (b).
    13. Section 90.205 is proposed to be amended by adding new 
paragraphs (a)(2), (a)(4), (a)(5) and (b)(3), (b)(4), and (b)(5) to 
read as follows:


Sec. 90.205  Banking.

    (a) * * *
    (2) Beginning with the 2000 model year, a manufacturer of a Class 
I-A or Class I-B engine family with an FEL below the applicable 
emission standard for a given model year may bank credits in that model 
year for use in averaging and trading.
* * * * *
    (4) Beginning with the 2002 model year, a manufacturer of a Class 
III or Class IV engine family with an FEL below the applicable emission 
standard for a given model year may bank credits in that model year for 
use in averaging and trading.
    (5) Beginning with the 2004 model year, a manufacturer of a Class V 
engine family with an FEL below the applicable emission standard for a 
given model year may bank credits in that model year for use in 
averaging and trading.
* * * * *
    (b) * * *
    (3) Beginning with the 2000 model year and prior to the applicable 
date listed in paragraph (a) of this section for Class III engines, a 
manufacturer may bank early credits for all Class III engines with 
HC+NOx FELs below 226 g/kW-hr. All early credits for Class III engines 
shall be calculated against a HC+NOx level of 226 g/kW-hr.
    (4) Beginning with the 2000 model year and prior to the applicable 
date listed in paragraph (a) of this section for Class IV engines, a 
manufacturer may bank early credits for all Class IV engines with 
HC+NOX FELs below 187 g/kW-hr. All early credits for Class 
IV engines shall be calculated against a HC+NOX level of 187 
g/kW-hr.
    (5) Beginning with the 2000 model year and prior to the applicable 
date listed in paragraph (a) of this section for

[[Page 40971]]

Class V engines, a manufacturer may bank early credits for all Class V 
engines with HC+NOX FELs below 131 g/kW-hr. All early 
credits for Class V engines shall be calculated against a 
HC+NOX level of 131 g/kW-hr.
* * * * *
    14. Section 90.207 is proposed to be amended in paragraph (a) by 
revising the first sentence in the definition of ``load factor'' 
following the equation to read as follows:


Sec. 90.207  Credit calculation and manufacturer compliance with 
emission standards.

    (a) * * *

Load Factor = 47 percent (i.e., 0.47) for Test Cycle A and Test 
Cycle B, and 85 percent (i.e., 0.85) for Test Cycle C. * * *
* * * * *

Subpart D--Emission Test Equipment Provisions

    15. Section 90.301 is proposed to be amended by revising the first 
and second sentences of paragraph (d) to read as follows:


Sec. 90.301  Applicability.

* * * * *
    (d) For Phase 2 Class I, Phase 2 Class I-B, and Phase 2 Class II 
natural gas fueled engines, the following sections from 40 CFR part 86 
are applicable to this subpart. The requirements of the following 
sections from 40 CFR part 86 which pertain specifically to the 
measurement and calculation of non-methane hydrocarbon (NMHC) exhaust 
emissions from otto cycle heavy-duty engines must be followed when 
determining the NMHC exhaust emissions from Phase 2 Class I, Phase 2 
Class I-B, and Phase 2 Class II natural gas fueled engines. * * *

Subpart E--Gaseous Exhaust Test Procedures

    16. Section 90.401 is proposed to be amended by revising the first 
and second sentences of paragraph (d) to read as follows:


Sec. 90.401  Applicability.

* * * * *
    (d) For Phase 2 Class I, Phase 2 Class I-B, and Phase 2 Class II 
natural gas fueled engines, the following sections from 40 CFR part 86 
are applicable to this subpart. The requirements of the following 
sections from 40 CFR part 86 which pertain specifically to the 
measurement and calculation of non-methane hydrocarbon (NMHC) exhaust 
emissions from otto cycle heavy-duty engines must be followed when 
determining the NMHC exhaust emissions from Phase 2 Class I, Phase 2 
Class I-B, and Phase 2 Class II natural gas fueled engines. * * *
    17. Section 90.404 is proposed to be amended by revising paragraph 
(b) to read as follows:


Sec. 90.404  Test procedure overview.

* * * * *
    (b) The test is designed to determine the brake-specific emissions 
of hydrocarbons, carbon monoxide, carbon dioxide, and oxides of 
nitrogen and fuel consumption. For Phase 2 Class I-B, Class I, and 
Class II natural gas fueled engines the test is also designed to 
determine the brake-specific emissions of non-methane hydrocarbons. The 
test consists of three different test cycles which are application 
specific for engines which span the typical operating range of nonroad 
spark-ignition engines. Two cycles exist for Class I-B, I and II 
engines and one is for Class I-A, III, IV, and V engines (see 
Sec. 90.103(a) and Sec. 90.116(b) for the definitions of Class I-A, I-
B, and I-V engines). The test cycles for Class I-B, I, and II engines 
consist of one idle mode and five power modes at one speed (rated or 
intermediate). The test cycle for Class I-A, III, IV, and V engines 
consists of one idle mode at idle speed and one power mode at rated 
speed. These procedures require the determination of the concentration 
of each pollutant, fuel flow, and the power output during each mode. 
The measured values are weighted and used to calculate the grams of 
each pollutant emitted per brake kilowatt hour (g/kW-hr).
* * * * *
    18. Section 90.408 is proposed to be amended by revising the table 
in paragraph (b)(2) to read as follows:


Sec. 90.408  Pre-test procedures.

* * * * *
    (b) * * *
    (2) * * *

------------------------------------------------------------------------
                                                               Operating
                  Engine class                    Test cycle     mode
------------------------------------------------------------------------
I, I-B, II......................................          A           6
I, I-B, II......................................          B           1
I-A, III, IV, V.................................           C          1
------------------------------------------------------------------------

* * * * *
    19. Section 90.409 is proposed to be amended by revising the last 
sentence of paragraph (a)(3) and by revising paragraph (b)(6) to read 
as follows:


Sec. 90.409  Engine dynamometer test run.

    (a) * * *
    (3) * * * For Phase 2 Class I, Phase 2 Class I-B, and Phase 2 Class 
II engines equipped with an engine speed governor, the governor must be 
used to control engine speed during all test cycle modes except for 
Mode 1 or Mode 6, and no external throttle control may be used that 
interferes with the function of the engine's governor; a controller may 
be used to adjust the governor setting for the desired engine speed in 
Modes 2-5 or Modes 7-10; and during Mode 1 or Mode 6 fixed throttle 
operation may be used to determine the 100 percent torque value.
    (b) * * *
    (6) For Class I, I-B, and II engines, during the maximum torque 
mode calculate the torque corresponding to 75, 50, 25, and 10 percent 
of the maximum observed torque (see Table 2 in Appendix A to this 
subpart).
* * * * *
    20. Section 90.410 is proposed to be amended by revising paragraph 
(a), the first and third sentences of paragraph (b), and the first 
sentence of paragraph (c) to read as follows:


Sec. 90.410  Engine test cycle.

    (a) Follow the appropriate 6-mode test cycle for Class I, I-B and 
II engines and 2-mode test cycle for Class I-A, III, IV, and V engines 
when testing spark-ignition engines (see Table 2 in Appendix A of this 
subpart).
    (b) For Phase 1 engines and Phase 2 Class I-A, III, IV, and V, and 
Phase 2 Class I and II engines not equipped with an engine speed 
governor, during each non-idle mode, hold both the specified speed and 
load within  five percent of point. * * * For Phase 2 Class 
I, I-B, and II engines equipped with an engine speed governor, during 
Mode 1 or Mode 6 hold both the specified speed and load within 
 five percent of point, during Modes 2-3, or Modes 7-8 hold 
the specified load with  five percent of point, during 
Modes 4-5 or Modes 9-10, hold the specified load within the larger 
range provided by +/-0.27 Nm (+/-0.2 lb-ft), or +/-ten (10) percent of 
point, and during the idle mode hold the specified speed within 
 ten percent of the manufacturer's specified idle engine 
speed (see Table 1 in Appendix A to this Subpart for a description of 
test Modes). * * *
    (c) If the operating conditions specified in paragraph (b) of this 
section for Class I, I-B, and II engines using Mode Points 2, 3, 4, and 
5 cannot be maintained, the Administrator may authorize deviations from 
the specified load conditions. * * *
* * * * *
    21. Appendix A to Subpart E of Part 90 is proposed to be amended in 
Table 2 by revising the table heading and by removing the last entry 
and adding two

[[Page 40972]]

new entries in its place to read as follows:

Appendix A to Subpart E of Part 90--Tables

* * * * *

                                             Table 2.--Test Cycles for Class I-A, I-B, and Class I-V Engines
                         Mode                               1        2        3        4        5        6        7        8        9       10       11
--------------------------------------------------------------------------------------------------------------------------------------------------------
                        Speed                                          Rated Speed
                                                                    Intermediate Speed                Idle
--------------------------------------------------------------------------------------------------------------------------------------------------------
          *                  *                  *                  *                  *                  *                  *
Weighting for Phase 1 Engines........................     90%   .......  .......  .......  .......  .......  .......  .......  .......  .......     10%
Weighting for Phase 2 Engines........................     85%   .......  .......  .......  .......  .......  .......  .......  .......  .......     15%
--------------------------------------------------------------------------------------------------------------------------------------------------------

Subpart H--Manufacturer Production Line Testing Program


Sec. 90.701  [Amended]

    22. Section 90.701 is proposed to be amended by adding the words 
``handheld and'' immediately preceding the word ``nonhandheld'' in 
paragraph (a).

Subpart K--Prohibited Acts and General Enforcement Provisions

    23. Section 90.1003 is proposed to be amended by revising the first 
sentence of paragraph (b)(6)(i) and adding a new sentence to the end of 
paragraph (b)(6)(i), by revising the first two sentences of paragraph 
(b)(6)(ii) and adding a new sentence to the end of paragraph 
(b)(6)(ii), by revising paragraph (b)(6)(iii) introductory text, and by 
adding a new paragraph (b)(7) to read as follows:


Sec. 90.1003  Prohibited acts.

* * * * *
    (b) * * *
    (6)(i) Regulations elsewhere in this part notwithstanding, for 
three model years after the phase-in of each set of Class I through 
Class V Phase 2 standards; i.e. through August 1, 2010 for Class I 
engines, through model year 2008 for Class II engines, through model 
year 2009 for Class III and Class IV engines, and through model year 
2011 for Class V engines, small volume equipment manufacturers as 
defined in this part, may continue to use, and engine manufacturers may 
continue to supply, engines certified to Phase 1 standards (or 
identified and labeled by their manufacturer to be identical to engines 
previously certified under Phase 1 standards), provided the equipment 
manufacturer has demonstrated to the satisfaction of the Administrator 
that no certified Phase 2 engine is available with suitable physical or 
performance characteristics to power a piece of equipment in production 
prior to the initial effective date of Phase 2 standards, as indicated 
in Sec. 90.103(a). * * * These provisions do not apply to Class I-A and 
Class I-B engines.
    (ii) Regulations elsewhere in this part notwithstanding, for the 
duration of the Phase 2 rule in this part, equipment manufacturers that 
produce small volume equipment models, as defined in this part, for a 
Class I model in production prior to August 1, 2007, or a Class II 
model in production prior to the 2001 model year, or a Class III or 
Class IV model in production prior to the 2002 model year, or a Class V 
model in production prior to the 2004 model year, may continue to use 
in that small volume equipment model, and engine manufacturers may 
continue to supply, engines certified to Phase 1 requirements (or 
identified and labeled by their manufacturer to be identical to engines 
previously certified under Phase 1 standards). To be eligible for this 
provision, the equipment manufacturer must have demonstrated to the 
satisfaction of the Administrator that no certified Phase 2 engine is 
available with suitable physical or performance characteristics to 
power the small volume equipment model. *  *  * These provisions do not 
apply to Class I-A and Class I-B engines.
    (iii) An equipment manufacturer which is unable to obtain suitable 
Phase 2 engines and which can not obtain relief under any other 
provision of this part, may, prior to the date on which the 
manufacturer would become in noncompliance with the requirement to use 
Phase 2 engines, apply to the Administrator to be allowed to continue 
using Phase 1 engines, through August 1, 2008 for Class I engines, 
through the 2006 model year for Class II engines, through the 2007 
model year for Class III and Class IV engines, and through the 2009 
model year for Class V engines, subject to the following criteria 
(These provisions do not apply to Class I-A and Class I-B engines.):
* * * * *
    (7) Actions for the purpose of installing or removing altitude kits 
and performing other changes to compensate for altitude change as 
described in the application for certification pursuant to 
Sec. 90.107(d) and approved at the time of certification pursuant to 
Sec. 90.108(a) are not considered prohibited acts under paragraph (a) 
of this section.

Subpart L-- Emission Warranty and Maintenance Instructions

    24. Section 90.1103 is proposed to be amended by adding two 
sentences to the end of paragraph (a) to read as follows:


Sec. 90.1103  Emission warranty, warranty period.

    (a) * * * Manufacturers of handheld engines subject to Phase 2 
standards may apply to the Administrator for approval for a one year 
warranty period for handheld engines that are subject to severe service 
in seasonal equipment and are likely to run their full useful life 
hours in one year. Such an application must be made prior to 
certification.
* * * * *

Subpart M--Voluntary In-Use Testing


Sec. 90.1201  [Amended]

    25. Section 90.1201 is proposed to be amended by adding the words 
``handheld and'' immediately preceding the word ``nonhandheld''.

[FR Doc. 99-18477 Filed 7-27-99; 8:45 am]
BILLING CODE 6560-50-P